ITAT deletes Education Cess as Tax levied should not exceed 10% of Royalty/FTS as per Indo-France DTAA [Read Order]

Educational Cess - Education Cess Tax - Taxscan

The Income Tax Appellate Tribunal (ITAT) directed the Assessing Officer (AO) to delete education cess as per India France Double Taxation Avoidance Agreement (DTAA) for the reason that the tax imposed shall exceed 10 percent of the royalty or Fee for Technical Services.

The assessee, M/s. JCDecaux S.A. is a company incorporated under the laws of France, engaged in the field of ‘outdoor advertising’. The assessee is the owner of all intellectual property rights including copyrights in ‘drawings and models’, ‘trademarks’, ‘patents’, ‘domain names’ and ‘know-how’ developed and used by the JCDecaux group across the globe.

The assessee entered into an agreement with the ‘JCD India’, for providing various functions and management support. The management fee has been received by the assessee during the assessment year 2011-12 and 2012-13. The assessee has relied upon the restricted scope of Article 13 of India-UK, DTAA, where the scope of ‘Fee for Technical Services’ is more restricted.

The assessee filed return of income for assessment year 2011-12 showing income, which was taxed at the rate of 10% on a gross basis. The returns filed for both the years were selected for scrutiny assessment.

The assessee raised the issue that the AO erred in levying Surcharge and Education Cess on receipts in the nature of Royalties and reimbursements of other expenses, which was offered to tax by the Appellant on gross basis under the India – France DTAA.

The bench consists of a Judicial Member, Amit Shukla and a Technical Member O.P. Kant relying on the case of BOC group Ltd. “directed the Assessing Officer to delete the education cess and secondary and higher education cess levied on the Income-tax on the gross basis under the India-France DTAA.”

The tribunal affirmed that in India France DTAA the Income-tax include any surcharge thereon and tax rates have been prescribed on the FTS which states, “However, such royalties, fees, and payments may also be taxed in the Contracting State, in which they arise and accordingly to the laws of that contracting state, but if the recipient is the beneficial owner of these categories of income, the tax so charged shall not exceed 10% of the gross amount of such royalties, fees, and payments.”

“In view of the provisions of the India France treaty on the issue being similarly worded with the provisions of the India UK DTAA, following the finding of the Tribunal in the case of BOC group Ltd.(supra), we direct the Assessing Officer to delete the education cess and secondary and higher education cess levied on the Income-tax on the gross basis under the India France DTAA,” the Tribunal said.

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