ITO(IT)1(1)(2), MUMBAI vs. ATOS WORLDWIDE INDIA PVT. LTD., MUMBAI

आयकर अपीऱीय अधिकरण “C” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER आयकर अपीऱ सं./I.T.A. No. 6424/Mum/2016 (नििाारण वर्ा / Assessment Year: 2015-16) बिाम/ ITO(IT)1(1)(2) Atos Worldwide India Pvt. R.no. 113, First Floor, Ltd. Scindia House, N.M. Road, 701, Interface-11, v. Ballard Estate, New Link Road, Mumbai- 400038 Malad(W), Mumbai-400064 स्थायी ऱेखा सं./ PAN : AAACE2403J (अपीऱाथी /Appellant) (प्रत्यथी / Respondent) ..

Assessee by: None Revenue by : Shri. Rajat Mittal सुनवाई की तारीख /Date of Hearing : 20.12.2017 घोषणा की तारीख /Date of Pronouncement : 29.01.2018 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member This appeal, filed by Revenue, being ITA No. 6424/Mum/2016 for assessment year 2015-16 is directed against the appellate order dated 04.07.2016 passed by learned Commissioner of Income-tax (Appeals)-55, Mumbai (hereinafter called “the CIT(A)”) for assessment year 2015-16, appellate proceedings had arisen before learned CIT(A) from the order dated 23.03.2015 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 201(1)and 201(1A) of the Income-tax Act, 1961 (hereinafter called “the Act”). 2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:- “1. Whether in facts and circumstances of the case and in law the Ld. CIT (A) erred in not adjudicating on the applicability of section 115A

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of the Act on the payments made by the assessee to non-resident payees who did not have PAN? 2. Without prejudice to ground no.1, whether in facts and circumstances of the case and in law the Ld. CIT (A) erred in rejecting the rate of TDS (25%) applied by the AO as per section 115A of the Act, being the "rate specified in the relevant provision of the Act" within the meaning of clause (i) of the section 206AA of the Act, for payment made to entities located in DTAA countries while upholding the rate of 25% for payments made to entities located in non-DTAA countries? 3. Whether in facts and circumstances of the case and in law the Ld. CIT (A) erred in relying upon the decision of the Hon'ble ITAT, Pune in the case of DDIT vs. Serum Institute of India Pvt. Ltd. (2015) 56 Taxman.com 1] while ignoring the decision of the Hon'ble Banglore ITAT in the case of Bosch Ltd vs. ITO (2012) ITA No. 552 to 558 (Bang.) of 2011] in holding that assessee was entitled to a benefit under section 90(2) of the Act when the assessee itself had applied the provisions of section 206AA of the Act on the payments made to the non-residents? 4. The Appellant prays that the order of the CIT(A) be set Aside on the above grounds and that of the Assessing Officer be restored. 5. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”

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and not @ 20% as specified u/s 206AA , which led to the framing of the order dated 23.03.2015 passed by the AO u/s. 201(1) and 201(1A) wherein demand of Rs.47,85,201/- was raised by the AO u/s. 201(1) on account of differential of the tax rate between the rate at which tax was required to be deducted by the assessee being 25.75% and the rate at which it was deducted by the assessee @22.66% , and further demand of Rs. 4,20,177/- was raised by the AO toward interest u/s. 201(1A) against the assessee, which was a consolidated demand for assessment year 2014-15 and 2015- 16 vide common order dated 23-03-2015 passed by the AO u/s 201(1) and 201(1A) of the 1961 Act. We are concerned in this appeal with only assessment year 2015-16. 4. Aggrieved by the order dated 23-03-2015 passed by the AO u/s 201(1) and 201(1A) of the 1961 Act , the assessee filed an appeal before the learned CIT-A . The Ld. CIT-A after appreciating the contentions of the assessee passed the following order wherein directions were issued by learned CIT(A) to the AO to verify whether the assessee is entitled to the benefits under the respective DTAA’s and whether the payees are tax residents of the respective countries , by holding as under vide appellate order dated 04-07-2016 passed by learned CIT(A) which is again a consolidated order for assessment year 2014-15 and 2015-16: “ 5. I have considered the facts of the case and submissions of the assessee. Crux of the submissions is that assessee was bound to deduct tax at source at the rate of 20% which was the highest rate of tax applicable to non residents in view of the provisions of section 115A and 195 read with 206AA of I.T. Act, 1961 and Finance Act 2013/2014 since the double tax avoidance tax treaty was applicable to all the non- residents entities located in different countries like United Kingdom, Singapore, Hongkong and France. Prima facie it is assessee's contention that the rate of 25%, as per the I.T.Act, 1961 amended with effect from 1/4/2014, that is, A.Y.2014-15 onwards by Finance Act 2013/2014 and provided in section 115A/195 of I.T Act, 1961 read with relevant provisions of Finance Act, 2013/14 was superceded by provisions of DTAA treaties as per provisions of section 90 of I.T Act, 1961 with these countries and hence maximum rate of taxation as provided in section 206AA read with section 115A and 195 of the I.T. Act, 1961 will work out to 20% and not 25% as follows: "Hence, if the provisions of Section 206AA are applied, the result will be as follows: (i) at the rate specified in the relevant provision of this Act - As per Section195 of the Act, the TDS is to be deducted at rates in force which

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is lower of Finance Act rate (ie 25%) and Treaty Rate (10% to 15%) -10% to 15% (ii) at the rate or rates in force lower of Finance Act rate (ie 25%) and Treaty Rate {10% to 15%) -10% to 15% [iii] at the rate of twenty per cent - 20%." Assessee has cited following two judgements 'of ITAT Bangalore and Pune also in its support: 1-DCIT V/S. Infosys BPO Ltd.-2015/60/Taxmann.COM 465 - Bangalore, 2-DDIT V /S. Serum Institute of India Ltd. -2015/56/Taxmann.COM 1- Pune 6. In this connection it is observed from the records that provisions of section 90 of I.T. Act, 1961 were also amended with effect from 1/4/2013 and provisions of sub section 90(4) and (5) were introduced which read as follows: Sub-Section 90(4) - An assessee, not being a resident, to whom an agreement referred to in sub-section (1) applies, shall not be entitled to claim any relief under such agreement unless .[a certificate of his being a resident] in any country outside India or specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified territory.) Sub-Section 90(5)- The assessee referred to in sub-section (4) shall also provide such other documents and information, as may be prescribed.] This means that assessee was required to file tax residency certificates and details of the residential status of these non- resident entities along with form number 10FA and 10FB as mandated under rule 21AB of I.T. Rules, 1962 prescribed under section 90(4) and 90(5) of I.T. Act, 1961 while filing the forms 15CA and 15CB to substantiate its case, however this was not done by the assessee even during the assessment proceedings. Assessee has filed ten tax residency certificates of some of the assessees for F.Y.2013 and F.Y.2014 issued by the respective government authorities during the appellate proceedings and which indicate that some of the entities were residents of that state and this aspect needs review and revision since these certificates were not made available to the AO. Moreover, whether these entities were entitled to the benefits under the respective DTAAs or not also needs verification. 7. Prima facie it appears that assessee's contention for application of maximum rate of 20%, that is 22.66% under section 206AA read with section 115A and 195 of I.T. Act, 1961 and Finance Act,2013/2014 is correct subject to verification of records and tax residency certificates in respect of some of the entities as against the rate of 25%, that is, 25.75% invoked by the assessee which also appears to be erroneous since rate of ultimate tax after including surcharge will be 27.75%, that is 25.00% plus surcharges of 2.5% at the rate of 10% of tax deducted at source. Therefore it is held that the AO will verify the tax residency certificates issued by the respective government authorities in respect of 4

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the respective non-resident entities to whom payments were made and tax was deducted at the rate of 22.66% and if it is found that the payee non-resident entities were resident of the respective countries and also there is a clause in the respective DTAA between India and the respective country, the benefit of deduction of tax at the maximum tax rate of 20% plus applicable surcharge as mandated in provisions of section 206AA read with section 90, 115A, 195 of I.T. Act, 1961 and Finance Act, 2013/2014 will be allowed and if not then the benefit of the rate of 20% will be denied in respect of the balance entities will be disallowed and the tax will be calculated at the maximum rate of 25% plus surcharge prescribed in section 115A read with section 195 of I.T.Act,1961 and Finance Act, 2013/2014 shall be applied in respect of the balance non-residents and tax payable plus interest under section 201(IA) of LT.Act,1961 shall be worked out accordingly”. 5. Aggrieved by the appellate order dated 4-07-2016 passed by learned CIT(A) , the Revenue has come in an appeal before the tribunal and contentions were raised by Ld. DR by placing reliance on the order of the AO. Our attention was also drawn to page no. 10 of the learned CIT-A appellate order at para 5 which is the decision of the Ld. CIT-A reproduced here above. None appeared on behalf of the assessee when the appeal was called for hearing.

Amount paid TDS Name of Country Nature of Date services (Rs.) deducted at payee 22.66%(Rs.) Atos France Corporate 2,45,38,428 55,60,410 30/06/2014 Worldwide Fees SAS Atos France Corporate 3,53,33,319 80,10,064 30/06/2014 Worldwide Fees SAS Atos France Corporate 1,86,02,722 42,17,237 30/06/2014 Worldwide Fees SA

Atos France Corporate 53,92,163 12,22,409 31/08/2014 Worldwide Fees SA Atos France Corporate 2,06,92,539 46,90,998 31/08/2014 Worldwide Fees SAS Atos France Corporate 18,49,688 4,19,324 30/09/2014

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Worldwide Fees SAN.V Atos France Corporate 2,55,908 58,014 30/09/2014 Worldwide Fees SA N.V Atos France Corporate 2,48,561 56,349 30/09/2014 Worldwide Fees SA N.V --- - Atos France Corporate 7,32,506 1,66,059 30/09/2014 Worldwide Fees SA N.V Atos France Corporate 2,87,848 65,255 30/09/2014 Worldwide Fees SA N.V Atos France Corporate 2,68,016 60,760 30/09/2014 Worldwide Fees SA N.V Atos France Certification 40,79,599 10,38,666 31/10/2014 Worldwide fees SAS Atos France Corporate 53,24,063 13,55,548 31/10/2014 World line fees SA Atos France Corporate 1,97,50,768 44,77,499 30/11/2014 Worldwide fees SAS

The assessee had deducted income-tax at source @ 22.66% on the above foreign remittances to non-residents who are not holding PAN allotted by Department. It is the contention of the Revenue that as per provisions of Section 206AA , the income-tax is to be deducted at source @ 25.75% as stipulated u/s. 115A of the 1961 Act and not at the rate of 20% as the payees have not furnished their income-tax PAN. India has entered into DTAA with France wherein foreign remittances were sent during the relevant previous year which provided for following rate of taxes w.r.t. payment which are in the nature of fee for technical services , as under:-

Country Tax Rate France 10%

Thus, as could be seen that the rates provided under DTAA is lower than the rates of tax as provided u/s. 115AA on payments made towards fee for technical services to non-residents. The Ld. CIT-A in his appellate order has directed AO to verify whether the payees are entitled for benefits under DTAA

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as well whether the payees hold tax residences certificate of the respective country i.e. France as is mandated by the 1961 Act . The assessee has deducted income-tax at source at the rate of 22.66% ( 20% + surcharge and education cess) on the payments made toward fee for technical services to these non resident payees located in France as they have not furnished their income-tax Permanent account number (PAN). We have observed that the tribunal has taken a consistent view in these cases that income-tax is to be deducted at source at a lower rate as provided under DTAA and not as provided u/s. 115A. The issue is no more res-integra and Special Bench of the ITAT-Hyderabad in the case of Nagarjuna Fertilizers and Chemicals Ltd. v. ACIT (2017) 78 Taxmann.com 264(Hyderabad-Trib)(SB) has taken a view that provision of section 206AA will not have an overriding effect over the provisions of the 1961 Act and if the provision of DTAA are beneficial to the assessee they will override provisions of Section 206AA by virtue of provisions of Section 90(2) , by holding as under vide orders dated 13-02- 2017:- “33. In view of the above discussion, we are of the view that the provision of section 206AA of the Act will not have a overriding effect for all other provisions of the Act and the provisions of the Treaty to the extent they are beneficial to the assessee will override section 206AA by virtue of section 90(2). In our opinion, the assessee therefore cannot be held liable to deduct tax at higher of the rates prescribed in section 206AA in case of payments made to non-resident persons having taxable income in India in spite of their failure to furnish the Permanent Account Numbers. We, accordingly, answer the questions referred to this Special Bench in the negative and in favour of the assessee and allow both the appeals of the assessee for A.Ys. 2011-12 and 2012- 13.” The tribunal in following cases have also taken similar view:- 1. Uniphos Environtronic P. Ltd. v. DCIT (2017) 79 Taxmann.com 75 (Ahmadabad-Trib) 2. DCIT v. Calderys France (2017) 84 Taxamann.com 301(Pune-Trib)

Thus, keeping in view the decision of the Special Bench of the tribunal in the case of Nagarjuna Fertilizers and Chemicals Limited(supra) which is binding on us , we do not find any infirmity in the order of learned CIT(A) in directing AO to verify whether the payees are entitled for benefits of DTAA and also whether they hold the tax-residency certificate as is required by the

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provisions of the 1961 Act , which directions of learned CIT(A) we affirm/sustain . It is also on record that the assessee has in-fact deducted income-tax @22.66% on all these foreign remittances while rate prescribed under the provisions of DTAA with France is lower @10% than the rate prescribed under provisions of Section 115A for making payments in the nature of technical fee. We affirm the order/directions of the learned CIT(A) vide appellate order dated 04-07-2016 so is relevant for the previous year relevant to the impugned assessment year under consideration before us and hold that under the facts and circumstances of the case the assessee cannot be held to be an assessee in default within meaning of Section 201(1) and 201(1A) of the 1961 Act. We order accordingly. 7. In the result appeal of the Revenue is dismissed. Order pronounced in the open court on 29 .01.2018 आदेश की घोषणा खुऱे न्यायाऱय में ददनांकः 29.01.2018 को की गई । Sd/- Sd/- (JOGINDER SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, dated: 29.01.2018

Nishant Verma Sr. Private Secretary

copy to… 1. The appellant 2. The Respondent 3. The CIT(A) – Concerned, Mumbai 4. The CIT- Concerned, Mumbai 5. The DR Bench, E 6. Master File // Tue copy// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI