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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA Nos.735 to 737/Bang/2020 Assessment Years : 2011-12 to 2013-14 M/s. CGI Information Systems and Deputy Commissioner of Income Tax Management Consultants Private Ltd., (International Taxation), No.95/1 and 95/2, E-City Tower-2, Vs. Circle-1(2), Electronic City Phase-1, West, Bengaluru. Bengaluru-560100. PAN : AAACI 1994 C APPELLANT RESPONDENT Assessee by : Shri. Chavali Narayan, CA Revenue by : Shri. Ramesh Kumar, Addl. CIT(DR)(ITAT), Bengaluru Date of hearing : 01.04.2021 Date of Pronouncement : 05.04.2021
O R D E R Per Shri. Chandra Poojari, AM: These appeals are directed against the orders of CIT(A)-12 for Assessment Years 2011-12 to 2013-14, wherein the CIT(A) confirmed the order passed by AO under section 154 of the Income Tax Act, 1961 (hereinafter called ‘the Act’) with regard to holding the assessee as assessee in default under section 201(1) r.w.s. 195 of the Act and levying of interest under section 201(1A) of the Act.
The facts of the case are that assessee is a company incorporated under the Companies Act, 1956. The assessee is a captive service provider and supports CGI Group entities in delivering IT services, including business
ITA Nos.735 to 737/Bang/2020 Page 2 of 11 consulting, systems integration, infrastructure services, application management, business process services and IT outsourcing services. The assessee entered into a cost sharing agreement with CGI Group, Inc., (here- in-after referred to as CGI Canada), with effect from 1 June 2005. Pursuant to the aforesaid agreement, the assessee had been making payments to CGI Canada towards CGI Net Charges. Proceedings under section 201 of the Income-tax Act, 1961 were initiated by the Deputy Commissioner of Income- tax (International taxation) Circle 1(2) ("the learned Assessing Officer") against the Company. wherein it was held that the payments made to CGI Canada were taxable as fees for technical services. Consequently, tax at the rate of 10.5575% amounting to Rs 95,96,594 (along with interest of Rs 74,14.636 under section 201(1A) of the Act) was levied. The demand was paid by the assessee in instalments as follows:
Date Amount Challan serial number 3 May 2017 25,51,000 10549 19 August 2017 8,50,562 10007 27 February 2018 1,36,09,668 10014 Total 1,70,11,230
Subsequent to the above order, the learned Assessing Officer issued a notice under section 154 of Act, wherein it was proposed to invoke the provisions of section 206AA of the Act and levy tax at the rate of 20% as against 10.5575%, since CGI Canada had not obtained a PAN. However, as per the noting of the Assessing Officer, CGI Canada had obtained the PAN on 25 May 2013. In response to the notice, the Company argued that the provisions of section 206AA of the Act was not applicable to the present case. Further, when a question can be debatable the same would not be considered as a 'mistake apparent from the record' and provisions of section 154 of the
ITA Nos.735 to 737/Bang/2020 Page 3 of 11 Act cannot be evoked to rectify an earlier order. The learned Assessing Officer rejected the submission filed by the Applicant by relying on the Bangalore Tribunal's decision in the case of Bosch Limited (ITA No 552 to 558(B)/ 2011) wherein the ruling held that failure to furnish PAN w in assessee being liable to withhold tax at 20 percent. Further, the learned Assessing Officer also acknowledged the favorable jurisdictional Tribunal ruling in the case of Infosys BPO Limited [TS-408-ITAT-2015(Bang)], where it was held that section 206AA cannot override the provisions of section 90 of the Act. However, the learned Assessing Officer stated that the facts of the case are distinguishable without providing a clear reasoning for such distinction. Pursuant to the above, the learned Assessing Officer passed an order under section 154 read with section 201 of the Act and proceeded to levy tax at the rate of 20%, resulting in tax and interest of Rs 1,81,80,532 and Rs 1,40.46,627 respectively and an additional demand of Rs 1,52,15,929.
In computing the interest liability under section 201(1A) of the Act, the learned Assessing officer had not considered the payment of demand amounting to Rs 1,70,11,230 by the Appellant and proceeded to levy interest on the total tax amount from the assessment year till the date of order under section 154 of the Act.
Further, the AO has taken support from the judgment of Bengaluru Bench rendered in the case of Bosch Ltd., Vs. ITO Intl. Taxation) in ITA No.552 to 558/Bang/2011 dated 10.11.2012 wherein it was held that Now, having held that the services rendered by the non-residents are technical services, we will have to examine the applicability of sec. 206AA of the Income- tax Act. The assessee's contention has been that the assessee being a non resident is not required to apply for and obtain PAN No. by virtue of Rule 114(C)(b) of Income-tax Rules read with sec. 139A(8)(d) of the Income-tax Act. We cannot agree with this contention
ITA Nos.735 to 737/Bang/2020 Page 4 of 11 of the assessee. The provisions of sec. 206AA clearly overrides the other provisions of the Act. Therefore, a non resident whose income is chargeable to tax in India has to obtain PAN No. and provide the same to the assessee deductor. The only exemption given is that non- resident whose income is not chargeable to tax in India are not required to apply and obtain PAN No. However, where the income is chargeable to tax irrespective of the residential status of the receipeints, every assessee is required to obtain the PAN No. and this provision is brought in to ensure that there is no evasion of tax by the foreign entities. The assessee's reliance upon the decision of the Hon'ble Karnataka High Court in the case of Kowsalyabai (cited Supra), in our opinion, is misplaced and distinguishable on facts from the facts of the case before us. In the case of Kowsalyabai and others, the recipients of the interest were residents of India and their total income was less than the taxable limit prescribed by the relevant Finance Act. It was in these facats and circumstances that the Hon'ble High Court has held that where the recipients of the 'interest income' were not having income exceeding taxable limits, it was not required to obtain the PAN No. But in the case before us, the assessee's are non-residents and admittedly the income exceeds the taxable limit prescribed by the relevant Finance Act. In the circumstances, the recipients are bound and are under an obligation to obtain the PAN No. and furnish the same to the assessee. For failure to do so, the assessee is liable to withhold tax at the higher of rates prescribed u/s 206AA of the Income-tax Act i.e 20% and the CIT(A) has rightly held that the provision of sec. 206AA are applicable to the assessee.”
Against this, the assessee went in appeal before CIT(A) in all these Assessment Years. The CIT(A) observed as under: “6. The appellant’s objections have been considered. The above arguments of the appellant regarding the applicability of section 206AA is not acceptable for the following reasons: 7. The applicability of section 206AA is strengthened by considering Memorandum to the Finance Act 2009 to understand the ratios behind introduction of Section 206A.A in the Act. Rationalisation of provisions relating to tax deduction at source (TDS) (a) (b) (c)
ITA Nos.735 to 737/Bang/2020 Page 5 of 11 (d) Improving compliance with provisions of quoting PAN through the TDS regime - Statutory provisions mandating quoting of Permanent Account Number (PAN) of deduclees in Tax Deduction at Source (TDS) statements exist since 2001 duly backed by penal provisions. The' process of allotment of PAN has been streamlined so that over 75 lakit PANs are being allotted every year. Publicity campaigns for quoting of PAN are being run since the last three years. The average time of allotment of PAN has come down to 10 calendar days. Therefore, non-availability of PAN has ceased to be an impediment. In a number of cases, the non-quoting of PANs by deductees is creating problems in the processing of returns of income and in granting credit for tax at deducted at source, leading to delays in issue of refunds. In order to strengthen the PAN mechanism, it is proposed to make amendments in the Income tax to provide that any person whose receipts are subject to deduction of source Le., the deductee, shall mandatorily furnish his PAN to the deductor failing which the deductor shall deduct tax at source at higher of the following rates (i) the rate prescribed in the Act; (ii) at the rate in force i.e., the rate mentioned in the Finance Act; or (iii) at the rate of 20 per cent. TDS would be deductible at the above-mentioned rates will also apply in cases where the taxpayer files a declaration in Form 150 or 1511 (under section 197A) but does not provide his PAN. Further, no certificate under section 197 will be granted by the Assessing Officer unless the application contains the PAN of the applicant. These provisions will also apply to non-residents where TDS is deductible on payments or credits made to them. To ensure that the deductor knows about the correct PAN of the deductee it is also proposed to provide for mandatory quoting of PAN of the deductee by both Ow deductor and the deductee in all co-respondence, bills and vouchers exchanged between them. This amendment will take effect from 1st April, 2010. Therefore the claim made by assessee is without basis. 8. Bare reading of Section 206AA shows that it is practically
ITA Nos.735 to 737/Bang/2020 Page 6 of 11 applicable to all persons and non-residents have not been excluded. As per provisions of Section 90(2) of the Act, a taxpayer 9. has the option to choose between the provisions of the Act or the tax treaty whichever is more beneficial. However, Section 206AA starts with a non obstante clause "notwithstanding anything contained in oily other prom'- ions of to Act". Further, as per the provisions of Section 206AA, if there is default on the part of a deductee to provide its PAN, tax is to be withheld at the higher of the following rates rates specified in relevant provisions of the Act, or rate or rates in force, or rate of 20 percent. 10. Hon'ble SUPREME COURT OF INDIA in the case of Vishin N. Khanchandani v. Vidya Lachmandas Khanchandani [2002] 123 Taxman 227 (SC)/[2000] 246 ITR 306 (SC) [2002] has held as under" "Section 6, read with sections 7 and 8, of the Government Savings Certificate Act, 1959 - Savings Certificates - Nomination by holders - Whether though nominee specified in national savings certificates, on death of their holder, becomes entitled to receive sum due under certificates, he retains said amount for benefit of persons who are entitled to it under law of succession as applicable - Held, yes" 11. Hon'ble ITAT Bengaluru Bench in the case of Bosch Ltd. v ITO (2013) 141 ITD 38/155 TTJ 354 (Bang.)(Trib.) has held as under: "S.206AA: Requirement to furnish Permanent Account Number-Non-residents-Higher rate of tax- Grossing up. [S.1954 Where income is chargeable to tax in India irrespective of residential status of recipient, it has to obtain PAN and provide same to assessee-deductor. In case of failure of recipient to do so assessee is liable to withhold tax at higher rates as prescribed under section 206AA.Grossing up of the amount is to be done at the rates in force for the financial year in which such income is payable and not at 20 percent as specified under section 206AA. (A. Y.2011-12)"
ITA Nos.735 to 737/Bang/2020 Page 7 of 11 12. Assessee has appealed that "The learned Assessing Officer has erred in law and on facts by holding that the debatable issue of applicability of section 206AA of the Act is a mistake apparent from the record rectifiable under section 154 of the Act. Thus the order under section 154 should be annulled as the same has been passed ignoring the provisions of law that debatable issues cannot be rectified u/s 154" the assesse claim is not acceptable as there is clear breach of Section '206AA by the appellant and there is no debatable issue in the present case. "The expression used in section 154 of the IT Act regarding the mistake apparent from the record will have to be construed to be a mistake which is very clear, distinct and apparent. The said mistake should be manifest and could be identified by a mere look and which does not need a long drawn out process of reasoning. It is no doubt true that a mere mistake by itself cannot be a ground to invoice section 154 of the IT Act, 1961. It is also true that an issue which is debatable also cannot be decided under section 154. However, when the mistake is glaring and in a case where facts are not in dispute then the said mistake being one apparent on the face of the record will have to be rectified under section 154.7 HIGH COURT OF MADRAS Nagaraj and Co. (P.) Ltd. v.Assistant Commissioner of Income-tax, Circle- M(4), Chennai) 13. Accordingly a higher rate of tax at _10% as per section 206AA is applicable for AYs 201 1-12, 20 12-13 and 2013- 14.”
Against this, the assessee is in appeal before us by way of raising following common grounds:
1.1 The order of the learned Commissioner of Income tax (Appeals) — 12 ["CIT(A)"] dated 12 October 2020, upholding the order of the learned Assessing Officer ("AO") dated 8 May 2018, is based on incorrect interpretation of law and facts and therefore, is bad in law. 1.2 The order passed by the learned CIT(A) is erroneous and bad in law to the extent it upholds the validity of the rectification
ITA Nos.735 to 737/Bang/2020 Page 8 of 11 proceedings initiated by the learned AO and incorrectly states that the issue at hand does not involve a debatable issue and the Appellant has clearly breached the provisions of section 206AA of the Income tax Act, 1961 ("the Act"). 1.3 The impugned order passed by the learned CIT(A) is bad in law since the learned CIT(A) has merely upheld the order passed by the learned AO and has not considered the submissions filed as well as the judicial precedents relied upon by the Appellant. 1.4 The learned CIT(A)/ learned AO have erred in law in not considering the various judicial precedents relied on by the Appellant without making any effort to distinguish the said judicial precedents. Ground 2: Rectification proceedings initiated by the learned AO are invalid 2.1 The learned CIT(A) has erred in upholding the impugned order passed by the learned AO under section 154 of the Act wherein the learned AO has levied taxes as per the provisions of section 206AA of the Act even though there is no mistake apparent on record. 2.2 The learned CIT(A)/ learned AO have erred in law and on facts by holding that the debatable issue of applicability of section 206AA of the Act is a mistake apparent from the record rectifiable under section 154 of the Act. 2.3 The learned CIT(A)/ learned AO have disregarded the various judicial precedents relied on by the Appellant which have held that if the point involved is debatable and different views have been taken by different High Courts, it is not amenable to rectification jurisdiction. Ground 3: Inapplicability of provisions of section 206AA of the Act 3.1 The learned CIT(A)/ learned AO have erred in law and on facts in levying tax at the rate of 20% as per the provisions of section 206AA of the Act.
ITA Nos.735 to 737/Bang/2020 Page 9 of 11 3.2 The learned CIT(A)/ learned AO have failed to appreciate that, for the year under consideration, CGI Group Inc did not carry on any business or profession in India and accordingly, was not required to obtain PAN as per the provisions of section 139A of the Act. 3.3 The learned CIT(A)/ learned AO have erred in law and on facts in holding that the provisions of section 206AA of the Act overrides the beneficial provisions of section 90 of the Act. 3.4 The learned CIT(A)/ learned AO have erred in law by not following the decision of the jurisdictional Hon'ble Tribunal ruling in the case of Infosys BPO Limited [TS-408-ITAT- 2015(Bang) which has held that section 206AA cannot override the provisions of section 90 of the Act. 3.5 The learned CIT(A)/ learned AO have erred in law in not applying the principle that where there are conflicting jurisdictional rulings, the ruling that is favourable to the assessee should be applied. 3.6 Without prejudice to the above, the learned CIT(A) has failed to adjudicate on the interest calculated by the learned AO from the beginning of the AY till the date of passing the rectified order under section 154 of the Act. Any interest under section 201(1A) of the Act should be computed from the date of the original order i.e., 22 March 2017 till the date of order under section 154 of the Act.
We have heard both the parties and perused the material on record. After hearing both the parties, we are of the opinion that similar case came for consideration before this Tribunal in the case of DCIT Vs. Bharath Fritz Werner Ltd., in IT(IT)A No.1360/Bang/2019 wherein it was held as follows:
“5. We have heard the rival submissions. At the time of hearing it was not disputed that the issue raised by the revenue in its appeals are already decided by a Special Bench of ITAT, Hyderabad. The issue regarding the applicability of provisions of section 206AA of the Act, in cases of tax to be deducted at source, when the income is exigible to tax under DTAA and the payees are unable to provide valid Permanent
ITA Nos.735 to 737/Bang/2020 Page 10 of 11 Account Numbers, came up for consideration before the Special Bench, ITAT Hyderabad in the case of Nagarjuna Fertilizers & Chemicals Ltd. Vs. AC IT (2017) 78 taxmann.com 264 (Hyderabad-Tribunal) (SB). The question before the special bench was whether the provisions of section 206AA had overriding effect for all other provisions of the Act, whether the assessee has to deduct tax at source at the rates prescribed in section 206AA in case the payees are unable to furnish their PANs, even in cases where tax liability arises out of the treaty. The DTAA provides for a rate of 10% whereas as per the provisions of Sec.206AA of the Act, the rate of tax deduction at source is 20%. 6. The plea of the revenue was that section 206AA starts with a non- obstante clause and therefore it overrides all other provisions of the Act including 90(2), 115A and 139A. The plea of the Assessee was that DTAA was supreme and in this regard reliance was placed on the Hon'ble Supreme Court decision in the case of Azadi Bachao Andolan (2003) 263 ITR 706 (SC), whereby it was held that DTAA, even if inconsistent, will prevail over the Act. Reliance was also placed on the decisions of the Hon'ble Andhra Pradesh High Court in the case of Sanofi Pasteur (2013) 354 ITR 316 (AP) wherein it was observed that DTAA being a sovereign matter, the machinery provisions cannot override or control that. Reliance was also placed on the decision of the Hon'ble Karnataka High Court in the case of Kaushallaya Bai and others (2012) 346 ITR 156 (Kar) wherein it has held that the provisions of section 206AA are to be read down. 7. The Special Bench held that DTAA overrides the Act, even if it is inconsistent with the Act. DTAAs are entered into between two nations in good faith and are supposed to be interpreted in good faith. Otherwise it would amount to the breach of Article 253 of the constitution. 8. The Hon'ble Delhi High Court in the case of Danisco India Private Limited Vs. Union Of India & Ors. (Delhi High Court) in W.P.(C) 5908/2015 Judgement/Order dated 05/02/2018 held that where reciprocating states mutually agree upon acceptable principles for tax treatment, the provision in Section 206AA (as it existed) has to be read down to mean that where the deductee i.e., the overseas resident business concern conducts its operation from a territory, whose Government has entered into a Double Taxation Avoidance Agreement with India, the rate of taxation would be as dictated by the provisions of the treaty.
ITA Nos.735 to 737/Bang/2020 Page 11 of 11
In view of the aforesaid decisions on the issue, we are of the view that there is no merit in the appeals of the Revenue.”
In view of the above order of the Co-ordinate Bench of this Tribunal, we are inclined to hold that the DTA override section 206AA of the Act even if it is inconsistent with the Act. Being so, we allow the grounds taken by the assessee in these appeals.
In the result, all the appeals of the assessee are allowed.
Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- (BEENA PILLAI) (CHANDRA POOJARI) Judicial Member Accountant Member Bangalore, Dated: 05.04.2021. /NS/* Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file
By order
Assistant Registrar, ITAT, Bangalore.