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Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE
Before: SHRI N.V. VASUDEVANAND SHRI B.R. BASKARAN, ACCOUTANT MEMBER
All the four appeals filed by the revenue are directed against the order passed by Ld. CIT(A)-12, Bengaluru and they relate to the assessment years 20111-12 to 2014-15. The common issue urged in this appeal is about the applicability of provisions of section 206AA of the Income-tax Act,1961 ['the Act' for short] to the payments made to non-resident entities.
We heard the parties and perused the record. The provisions of section 206AA of the Act was introduced from financial year 2010-11 and it requires every tax payer who receives taxable income to furnish his PAN number to the payer of income. If the recipient of income does not furnish PAN number, then payment so received shall suffer TDS at higher rate as specified in section 206AA of the Act. In all these cases, the A.O. had also invoked section 206AA of the Act while initiating proceedings u/s 201(1) and 201(1A) of the Act. The Ld. CIT(A) held that section 206AA of the Act is not applicable to non-resident entities to whom provisions of DTAA is applicable. Aggrieved, the revenue has filed these appeals before us.
At the time of hearing, both the parties agreed that the above said issue has been decided in favour of the assessee by the Bangalore bench of ITAT in the case of M/s. Bharath Fritz Werner Ltd in IT(IT)A No.1360/Bang/2019 dated 26.6.2020. The Ld. A.R. also pointed out that the tax effect involved in the appeals of the revenue in assessment year 2011-12 to 2013-14 are less than the monetary limits prescribed by the CBDT. Since identical issue is IT(IT)A Nos.562 to 564 & IT(IT)A No.1418 of 2018 M/s. Honeywell Technology Solutions Pvt. Ltd., Bangalore
Page 3 of 6 being urged in all these appeals, we prefer to dispose of the appeals on merits.
We have noticed that the issue of applicability of provisions of sec.206AA to a recipient of income to whom the provisions of DTAA are also applicable was decided by the Bangalore bench of ITAT in the case of M/s. Bharath Fritz Werner Ltd (supra). For the sake of convenience, we extract below the decision rendered by the coordinate bench in the above said case:
“3. The assessee is a company engaged in the business of manufacturing metal cutting grinding machines, spares, accessories and related services. The DCIT, Intl. Taxation, Circle 1(1), Bangalore [DCIT] received information from the ACIT, TDS Circle 1(1), Bangalore that as per the Tax Audit Report in Form 3CD, it has been mentioned that the assessee had not deducted tax at source on a payment of Rs.2,63,08,939 towards design charges and Rs.29,11,816 on payment of exhibition fees, both payments had been made to the non-residents (Tax residents of Germany) and therefore the DCIT passed an order u/s. 201(1) & 201(1A) of the Income-tax Act, 1961 [the Act] dated 31.03.2018 holding the assessee to be an assessee in default for non- deduction of tax at source. The rate of tax was also applied by the DCIT @ 21.115% in terms of section 206AA of the Act at a higher rate because of the provisions of Sec.206AA of the Act. Section 206AA was introduced from FY 2010-11. Section 206AA requires every taxpayer who receives taxable income to furnish their PAN to the payer of such income. This applies to both the resident as well as non-resident recipients. The payments in case of residents would include salary, rent, professional receipts, contractual receipts and so on. In the case of non-resident, these would include all receipts that are taxable in India. A recipient of taxable income should furnish PAN to comply with the provisions of TDS under the Income Tax Act. Upon furnishing of the PAN, payments made to the recipient would be taxed at the rate of TDS specified under the various TDS provisions of the Act. A recipient who does not furnish PAN would suffer TDS at the higher rates specified in Section 206AA. The recipient is also required to furnish his PAN to the payer and both of them are required to indicate the same in all correspondence, bills, vouchers and other documents which are sent to each other. A recipient who fails to furnish PAN to the person making a payment would suffer TDS at the higher of the rates mentioned below:
IT(IT)A Nos.562 to 564 & IT(IT)A No.1418 of 2018 M/s. Honeywell Technology Solutions Pvt. Ltd., Bangalore Page 4 of 6 • At the rate specified in the relevant provision of the Act; • At the rate or rates in force, i.e., the rate prescribed in the Finance Act.; • At the rate of 20% 4. In an appeal against the aforesaid order, the assessee contended before the CIT(Appeals) that the rate of tax at which TDS should be made by the assessee is 10% in accordance with the Treaty for Avoidance of Double Taxation between India and Germany (DTAA) and not at the higher rate of tax @ 20% by invoking the provisions of section 206AA of the Act. This submission was accepted by the CIT(A) and on the basis of the decision of the Pune Bench of the ITAT in the case of Serum Institute of India Ltd. in ITA No.792/PN2013. Aggrieved by the aforesaid part of the order of the CIT(Appeals) allowing relief to the assessee, the revenue has preferred the present appeal before the Tribunal.
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 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 AndoIan (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.
The Special Bench held that DTAA overrides the Act, even if it is inconsistent with the Act. DTAAs are entered into between two
IT(IT)A Nos.562 to 564 & IT(IT)A No.1418 of 2018 M/s. Honeywell Technology Solutions Pvt. Ltd., Bangalore Page 5 of 6 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.
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.
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 the result, the appeal by the revenue is dismissed.”
5. It can be noticed that the coordinate bench has followed the decision rendered by special bench of Hyderabad ITAT in the case of Nagarjuna Fertilisers & Chemicals Ltd. (supra) and also the decision rendered by Hon’ble Delhi High Court in the case of Danisco India Private Ltd. (supra) in holding that the provisions of sec.206AA of the Act would not apply to a recipient of income, who is by the DTAA entered by India and his country. We notice that the Ld CIT(A) has decided this issue on identical lines. Accordingly, we uphold the view taken by Ld. CIT(A) on this issue.
In the result, all the appeals of the revenue are dismissed.
Order pronounced in the open court on 05.08.2020.