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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA&
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT) BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER& Ms. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. No.666/Ahd/2018 (Assessment Year: 2014-15)
Jyoti Limited Vs. DCIT Nanubhai Amin Mard (International Taxation) Industrial Area, Baroda Vadodara-390007
PAN No.AAACJ4909N (Appellant) (Respondent) ..
Appellant by : ShriManish Shah, AR Respondentby: ShriR. K. Makwana, SR. DR
Date of Hearing 22.12.2020 Date of Pronouncement 22.03.2021
O R D E R PER Ms. MADHUMITA ROY - JM:
The instant appeal filed by the assessee is directed against the order dated10.01.2018 passed by the Commissioner of Income Tax (Appeals) –13, Ahmedabadarising out of the order dated 16.11.2016 passed by the DCIT, International Taxation, Barodaunder Section 201 & 201Aof the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) for Assessment Year 2014-15.
During the course of assessment proceeding it was found that the appellant has deducted tax at source on foreign remittance @ 10% to one CKD Blansko Engineering, a non-resident company resident of Czech
ITA No.666/Ahd/2018 Jyoti Limited vs. DCIT Asst.Year –2014-15 - 2 - Republic who has not furnished the Permanent Account Number to the assessee. The appellant is a public limited listed company engaged in the business of manufacture and sale of Pumps, Rotating Electric machines, Hydro Generating Sets, Switch Board Penal, HT Circuit Breakers, Relays and host and others Electrical and Engineering items particularly connected with hydraulic, irrigation, power and heavy engineering industries. The company has a big name in the power sector and irrigation department. The company has been in existence for the past more than 70 years and the Company enjoys sound reputation in the engineering field in the country and abroad.
During the assessment proceeding while replying to the show- cause issued to the appellant as to why TDS @20% had not been deducted from the said party, the assessee submitted inter alia that the TDS deducted @ 10%, in terms of the rate prescribed for the services as per Double Taxation Avoidance Agreement (DTAA) entered into by the Government of India with that particular country. However, such plea of the assessee was not found acceptable and ultimately a total addition of Rs. 1,29,61,300/- was made upon making the assessee liable to pay TDS @ 20% on the respective payments made to the said party by the Ld. DCIT (IT), Vadodara which, in turn, was affirmed by the Ld. CIT(A). Hence, the instant appeal before us.
At the time of hearing of the instant appeal the Ld. Counsel appearing for the assessee submitted before us that deduction of tax @10% was done in terms of the Double Taxation Avoidance Agreement
ITA No.666/Ahd/2018 Jyoti Limited vs. DCIT Asst.Year –2014-15 - 3 - (DTAA) entered into by and between the Government of India and Czech Republic. Article 12 of the said DTAA prescribes such rate of tax to be deducted and in that view of the matter there is no short deduction of tax at source. He further relied upon the Circular No. 333 dated 02.04.1982 issued by the Central Board of Direct Taxes (CBDT). He further contended that the remittances effected after withholding tax @ 10% is in compliance with the requirements of law. On this issue he relied upon the judgment passed by the Hon’ble Apex Court in the matter of Union of India & Anr. vs. Azadi Bachao Andolan & Anr. reported in 263ITR 706(SC). He further controverted the case made out by the Revenue to the effect that Section 206AA overrides Circular No. 333, which is beneficial to the assessee.In the present facts and circumstances of the case, the rate has been adopted on the basis of agreement entered into by and between the two Sovereign states which will have precedence over all other local laws as was the reply of the Ld. AR.
The Ld. Counsel appearing for the assessee further relied upon the specific recommendation made by the Justice Easwar’s Committee in this regard. He further relied upon the judgment passed in the matter of Uniphos Envirotronic Pvt. Ltd. vs. DCIT in ITA No. 1974/Ahd/2015 for A.Y. 2014-15 passed by the Co-ordinate Bench.
The case of the Revenue is this that the tax deduction at source was required to be made @ 20% in the absence of furnishing of Permanent Account Number (PAN) by the recipient non-residents, having regard to the Section 206AA of the Act.
ITA No.666/Ahd/2018 Jyoti Limited vs. DCIT Asst.Year –2014-15 - 4 - The Ld. DR ultimately relied upon the order passed by the authorities below.
We have heard the respective parties and perused the relevant materials available on record.
The case of the applicant is this that TDS has been deducted @ 10% in terms of the Double Taxation Avoidance Agreement (DTAA) entered into by and between the Government of India with Czech Republic. Though the Income Tax Act specifies to deduct TDS @ 20%, DTAA would override the provision of this particular domestic Act since the provision of DTAA are more beneficial to the assessee.In this regard we have considered the Article 12 of DTAA which prescribes such rate of tax to be deducted @ 10%.
We have considered the Section 206AA of the Income Tax Act which reads as follows:- “(1) Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:- (i) at the rate specified in the relevant provision of this Act; or (ii) at the rate or rates in force; or (iii) at the rate of twenty per cent. (2) No declaration under sub-section (1) or sub-section (1A) or sub-section (1C) of section 197A shall be valid unless the person furnishes his Permanent Account Number in such declaration. (3) In case any declaration becomes invalid under sub-section (2), the deductor shall deduct the tax at source in accordance with the provisions of sub-section (1).
ITA No.666/Ahd/2018 Jyoti Limited vs. DCIT Asst.Year –2014-15 - 5 -
(4) No certificate under section 197 shall be granted unless the application made under that section contains the Permanent Account Number of the applicant. (5) The deductee shall furnish his Permanent Account Number to the deductor and both shall indicate the same in all the correspondence, bills, vouchers and other documents which are sent to each other. (6) Where the Permanent Account Number provided to the deductor is invalid or does not belong to the deductee, it shall be deemed that the deductee has not furnished his Permanent Account Number to the deductor and the provisions of sub- section (1) shall apply accordingly.]”
However, in this respect we have further considered the Circular No. 333 dated 02.04.1982 issued by the Central Board of Direct Taxes (CBDT) which speaks that the “specific provisions made in Double Taxation Avoidance Agreements would prevail over general provisions contained in the Income Tax Act.” This is a cardinal principle of law that when there is an agreement entered into between two Sovereign states then the provision which have more beneficial to the assessee as per the said sovereign agreements become applicable and the provisions of Income Tax are to the extent to be given a go by.
Furthermore, the specific recommendation made by the Justice Easwar’s Committee in this regard is as follows:- “Under the current provisions of section 206AA, tax is required to be deducted by the deductor at a higher rate as prescribed under the said section, where the deductee does not furnish his Permanent Account Number (PAN). This section was introduced with the objective that the furnishing of PAN was important with a view to trail the taxability of the payments in the hands of a non-resident. As regards non- residents, the Committee noted that in view of the specific provisions of section 115A and the provisions under the respective Double Taxation Avoidance Agreements (DTAAs) prescribing specific rates for tax deduction at source under section 195, there was no justification for providing deduction of tax at a higher rate than as prescribed under section 115A or under the respective DTAA. In fact, this provision has proved to be an impediment in terms of ease of business, as many non-residents prefer not to do business with Indian residents, if obtaining of PAN is insisted from
ITA No.666/Ahd/2018 Jyoti Limited vs. DCIT Asst.Year –2014-15 - 6 - them. The Committee was of the view that it should suffice if the concerned non- resident furnished to the deductor, in liew of such Permanent Account Number, his tax identification number in the country or the specified territory of residence and in case there is no such number, then, a unique number on the basis of which the person is identified by the Government of the country or the specified territory of which such person claims to be a resident.”
However, practically, the provision of Section 90(2) has come to the rescue of the assessee. It provides that the provision of the DTAAs would override the provisions of the domestic Act in case where the provisions of DTAAs are more beneficial to the assessee. Needless to mention that, the issue that in case of non-residents, tax liability in India is liable to be determined in accordance with the provisions of the Act or the DTAA between India and Czech Republic,having regard to the provision of Section 90(2) of the Act to be settle at the beneficial rate of taxation @ 10% in terms of Article 12 of the Agreement for Avoidance of Double Taxation and provision of fiscal evasion with Czech Republic in the present facts and circumstances of the case.
In this respect further carefully considered the judgment passed by the Hon’ble Apex Court in the matter of Union of India & Anr. vs. Azadi Bachao Andolan & Anr. reported in 263 ITR 706 (SC) which has upheld the proposition that the provision of the DTAA would prevail over the general provision contend in the Act to the extent they are beneficial to the assessee. In this context, it would be worthwhile to observe that the DTAAs entered into between India and the other relevant countries in the present context provide for scope of taxation and/or a rate of taxation which was different from the scope/rate prescribed under the Act. For the said reason, the assessee deducted the tax at source having regard to
ITA No.666/Ahd/2018 Jyoti Limited vs. DCIT Asst.Year –2014-15 - 7 - the provisions of the respective DTAAs which provides for a beneficial rate of taxation. It would also be relevant to observe that even the charging Section 4 as well as Section 5 of the Act which deals with the principle of ascertainment of total income under the Act are also subordinate to the principle enshrined in section 90(2) as held by the Hon’ble Supreme Court in the case of Azadi Bachao Andolan (supra). Thus, in so far as the applicability of the scope/rate of taxation with respect to the impugned payments made to the non-residents is concerned, no fault can be found with the rate of taxation invoked by the assessee based on the DTAAs, which prescribed for a beneficial rate of taxation.
We have further considered the judgment passed by the Co- ordinate Bench in ITA No. 1974/Ahd/2015 for A.Y. 2014-15 the relevant portion is as follows:- “[2] To adjudicate on this appeal, only a few material facts need to be taken note of. The assessee has made a remittance to a German tax resident, and, in accordance with the provisions of the Indo German Double Taxation Avoidance Agreement, the payment so made by the assessee is taxable @10% on gross basis in the hands of the German entity. There is no dispute on these aspects. Accordingly, the assessee deducted tax at source @ 10% under section 195 and made remittance of the net amount accordingly. However, when the related TDS return was processed under section 200A, a short deduction demand was raised on the ground that the tax withholding rate was to apply @ 20%, in terms of the provisions of Section 206AA, as the German entity had not obtained the permanent account number (PAN) from the Indian tax authorities. The assessee objected to this treatment and filed a rectification petition. Not successful, the assessee carried the matter in appeal before the CIT(A) but without any success. Learned CIT(A), relying upon the press release dated 20th January 2010 issued by the Central Board of Direct Taxes, held that, in terms of the provisions of Section 206AA, in a case in which the recipient foreign entity has not obtained PAN from the Indian tax authorities, the tax will be deducted at a higher rate of 20%. The assessee is not satisfied and is in further appeal before us.
ITA No.666/Ahd/2018 Jyoti Limited vs. DCIT Asst.Year –2014-15 - 8 - [3] We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. [4] It is only elementary that, under the scheme of the Income Tax Act 1961- as set out under section 90(2) of the Act, the provisions of the applicable tax treaties override the provisions of the Income Tax Act 1961- except when the provisions of the Act are more beneficial to the assessee. The provisions of the applicable tax treaty, in the present case, prescribe the tax rate @ 10%. This rate of 10% is applicable on the related income whether or not the assessee has obtained the permanent account number. In effect, therefore, even when a foreign entity does not obtain PAN in India, the applicable tax rate is 10% in this case. Section 206AA, which provides a higher tax burden- i.e. taxability @ 20% in the event of foreign entity not obtaining the permanent account number in India, therefore, cannot be pressed into service, as has been done in the course of processing of return under section 200A. To that extent, short deduction of tax at source demand, raised in the course of processing of TDS return under section 200A, is unsustainable in law. We quash this short deduction of tax at source demand. The grievance of the assessee is indeed justified, merits acceptance and is hereby upheld. [5] In the result, the appeal is allowed.”
The ratio laid down by the Hon’ble Apex Court in the matter of Azadi Bachao Andolan (supra) has been followed in its entirety as we find from this judgment passed by the Co-ordinate Bench as mentioned above.
Taking into consideration of the entire aspect of the matter the provisions of Art 12 of DTAA entered into by and between two Sovereign States – India and Czech Republic, the Circular No. 333 dated 02.04.1982 issued by CBDT, the specific recommendation made by the Justice Easwar’s Committee, the ratio laid down by the Hon’ble Apex Court in the judgment of Azadi Bachao Andolan (supra), in our considered opinion the provision of Section 206AA of the Act cannot be invoked by the Revenue to insist the tax deduction @ 20% having regard to the overriding nature of the provision of Section 92 of the Act in the
ITA No.666/Ahd/2018 Jyoti Limited vs. DCIT Asst.Year –2014-15 - 9 -
present facts and circumstances of the case. In fact, Section 206AA of the Act does not override the provision of Section 92 of the Act and in that view of the matter in the case in hand the TDS has been deducted to the non-resident rightly applying the tax rate prescribed under the DTAAs and not as per Section 206AA of the Act, having regard to the more beneficial provision in the rate of tax made in the DTAA.
Hence, we find no justification in making the assessee liable to pay TDS @ 20% on the foreign remittance as held by the Revenue by the order impugned. Such decision, in our considered opinion, is of no merit and thus, rejected. The appeal preferred by the assessee is, therefore, allowed.
In the result, the appeal filed by the assessee is allowed. This Order pronounced in Open Court on 22/03/2021
Sd/- Sd/- (PRADIP KUMAR KEDIA) (Ms. MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 22/03/2021 TRUE COPY TANMAY, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad