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Income Tax Appellate Tribunal, ‘’ D ’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-8, Ahmedabad, dated 06/09/2017 ( in short “Ld.CIT(A)”) arising in the matter of assessment order passed under s. 200A/206CB of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dt.27/05/2016 relevant to the Assessment Year 2016-2017.
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The Revenue has raised the following grounds of appeal:
Whether the Ld.ClT(A) is correct in law and on facts in holding that the recipients are entitled to the benefit of treaty without deciding first whether the recipients satisfied conditions of the treaty and can be treated as resident of respective countries as per the DTAA. 2. Without prejudice to the above,
(i) whether the Ld.CIT(A) was right in law and on facts in coming to the conclusion that Section 206AA of the Act, does not override the provision of section of Section 90(2) of the Act, despite the fact that Sec.206AA starts with a non- obstante clause. (ii) whether the Ld.ClT(A) has erred in law and on facts of the case in ignoring the memorandum explaining the provision of the Finance (No.2) Bill, 2009 which clearly states that the Sec.206M of Income Tax Act applies to Non-Residents and also ignoring the Press Release of CBDT No.402/92/2006-MC (04 of 2010) dated 20/1/2010 which reiterates that Sec.206AA of Income Tax Act will also apply to all Non-Residents in respect of payments/remittance liable to TDS where PAN is not provide to the deductor? (iii) whether the Ld.ClT(A) has erred in law and on facts of the case in relying upon the decision which were rendered before the introduction of Sec.206AA of the IT. Act?
Any other grounds that may be urged at the time of hearing.
The issue raised by the Revenue in the ground no. 1 & 2 is that the Ld.CIT (A) erred in deleting the demand raised by the AO on account of short deduction of TDS by holding that the section 206AA of the Act, cannot override to the provision of section 90(2) of the Act.
Briefly stated facts of the case are that the assessee in the year under consideration had made payment to various non-residents after deducting TDS @ 10%. However, the AO (TDS), CPC, Ghaziabad while processing the TDS return noticed that those non-residents did not furnish their PAN.
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Accordingly, the AO was of the view that the assessee is liable to deduct the TDS @ 20% in the absence of the PAN of the deductee as per the provisions of section 206AA of the Act. Thus the AO raised a demand along with interest for short deduction of TDS amounting to Rs. 37,44,800/- only.
The aggrieved assessee preferred an appeal to the Ld. CIT (A) who deleted the demand issued by the AO after relying on the order of his predecessor wherein it was held that where the recipient is eligible for the benefit of the DTAA, then DTAA will prevail over the provisions of TDS. Thus the TDS shall be deducted as per the rate mentioned in the DTAA. As such, there is no scope of deduction of TDS @ 20% as provided under the section 206AA of the Act. In view of the above the Ld. CIT (A) directed to AO to delete the demand raised by him.
Being aggrieved by the order of the ld. CIT (A) the Revenue is in appeal before us
Both the Ld. DR and the AR before us relied on the order of authorities below as favorable to them.
We have heard the rival contentions of both the parties and perused the materials available on record. In the instant case, the demand, along with interest, was raised by the AO on account of short deduction of TDS under section 206AA of the Act. However, Ld. CIT (A) deleted the demand raised by the AO by observing that the impugned payment was covered under the provisions of DTAA and the assessee has deducted the TDS according to the rate as specified under the DTAA.
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5.1 It is settled law that the provisions specified under the provisions of DTAA will prevail over the provisions specified under the Act. Regarding this, we find support and guidance from the order of Hon’ble ITAT Ahmedabad bearing ITA no 210 & 211/Ahd/2017 in case of DCIT Vs. Sichuan Fortune projects wherein it was held as under:
“We have gone through the relevant record and impugned order. Co-ordinate bench in ITA Nos.2244, 2245 & 2246/Ahd/2016, in which, similar circumstances dismissed the appeal of the department. 16. In our considered view, when the tax has been deducted on the strength of the beneficial provision of DTAA. The provision of Section 206AA of the Act cannot be invoked by the assessing officer to insist on tax deduction at the rate of 20%, having regard to overriding nature of the provision of Section 90(2) of the Act. Come to the rescue of the respondent. Section 90(2) provided that provision of ITA Nos. 210 & 211/Ahd/2017 DCIT vs. Sichuan Fortune Projects Management Ltd.. Asst.Year - 2014-15 DTAA would override the provision of domestic Act in cases where the provision of DTAA is more beneficial to the respondent. 17. In our considered opinion, ld. CIT(A) has passed detailed and reasoned order quoting judicial precedent in this regard. Therefore, we decline to interfere in the order passed by the Ld. CIT(A). 18. In the result, both the appeals by the department are dismissed.”
5.2 We also place our reliance on the Judgment of Hon’ble ITAT Pune in case of DCIT vs. serum Institute of India ltd. reported in 56 taxmann.com 1 wherein it was held as under:
“Section 90(2) provides that the provisions of the DTAAs would override the provisions of the domestic Act in cases where the provisions of DTAAs are more beneficial to the assessee. There cannot be any doubt to the proposition 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 the relevant country, whichever is more beneficial to the assessee, having regard to the provisions of section 90(2). 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, assessee deducted the tax Page 4 of 6
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at source having regard to the provisions of the respective DTAAs which provided for a beneficial rate of taxation. It would also be relevant to observe that even the charging section 4 as well as section 5 which deals with the principle of ascertainment of total income under the Act are also subordinate to the principle enshrined in section 90(2). Thus, insofar 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. However, the case of the revenue is that the tax deduction at source was required to be made at the rate of 20 per cent in the absence of furnishing of PAN by the recipient non- residents, having regard to section 206AA. It would be quite incorrect to say that though the charging section 4 and section 5 dealing with ascertainment of total income are subordinate to the principle enshrined in section 90(2) but the provisions of Chapter XVII-B governing tax deduction at source are not subordinate to section 90(2). Notably, section 206AA is not a charging section but is a part of a procedural provisions dealing with collection and deduction of tax at source. The provisions of section 195 which casts a duty on the assessee to deduct tax at source on payments to a non-resident cannot be looked upon as a charging provision. Therefore, in view of the aforesaid schematic interpretation of the Act, section 206AA cannot be understood to override the charging sections 4 and 5. Thus, section 90(2) provides that DTAAs override domestic law in cases where the provisions of DTAAs are more beneficial to the assessee and the same also overrides the charging sections 4 and 5 which, in turn, override the DTAAs provisions especially section 206AA. Therefore, where the tax has been deducted on the strength of the beneficial provisions of DTAAs, the provisions of section 206AA cannot be invoked by the Assessing Officer to insist on the tax deduction at the rate of 20 per cent, having regard to the overriding nature of the provisions of section 90(2). The Commissioner (Appeals) had correctly inferred that section 206AA does not override the provisions of section 90(2) and that in the impugned cases of payments made to non-residents, assessee correctly applied the rate of tax prescribed under the DTAAs and not as per section 206AA because the provisions of the DTAAs are more beneficial. Thus, the ultimate conclusion of the Commissioner (Appeals) in deleting the tax demand relatable to difference between 20 per cent and the actual tax rate on which tax was deducted by the assessee in terms of the relevant DTAAs was affirmed”
6.3 At the time of hearing, the Ld. DR has not brought anything on record suggesting that the impugned payment made by the assessee is not covered under the provisions of DTAA. Therefore respectfully following the aforesaid
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orders, we do not find any infirmity in the order of the Ld. CIT (A). Hence the ground of appeal of the Revenue is dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Court on 29/05/2019 at Ahmedabad.
-Sd- -Sd- (Ms MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 29/05/2019 Manish
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