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Income Tax Appellate Tribunal, “B” BENCH : CHENNAI
Before: Hon’ble Shri NRS Ganesan, JM & Hon’ble Shri M.Balaganesh, AM ]
ORDER Per M.Balaganesh, AM
These appeals by the Revenue arise out of the separate orders of the Learned Commissioner of Income Tax(Appeals)-2, Coimbatore [in short the ld CIT(A)] dated 23.03.2017 and 28.02.2017 against the separate orders passed by the DCIT,CPC, TDS, [in short the ld AO] under section 200A of the Income Tax Act, 1961 (in short “the Act”) dated 13.05.2015 and 28.01.2016 respectively for the Assessment Years 2015-16 and 2016-17 respectively. As identical issues are involved in this appeals, they are taken up together and disposed off by this common order for the sake of convenience. The facts of Asst Year 2015- 16 are taken up for adjudication and the decision rendered herein would apply with equal force for Asst Year 2016-17 also except with variance in figures.
2 M/s Habasit Lakoka Pvt. Ltd. A.Yrs. 2015-16&2016-17 2. The only issue to be decided in these appeals is as to whether the ld CITA was justified in deleting the addition of Rs 22,91,678/- made by the ld AO towards short deduction of tax at source on payments made to non-residents.
The brief facts of this issue is that the assessee filed the statement of TDS in Form No. 27Q for 4th quarter together with the challans evidencing the TDS remittances . The assessee made payments to Habasit AG of Switzerland and Habasit Far East Pte Ltd of Singapore and made tax deduction at 10% towards fee for technical services / fee for included services. It was mentioned in the said Form No. 27Q that the payees were non-residents. In the intimation u/s 200A of the Act, the assessee was fastened with a liability towards short deduction of TDS on the ground that the assessee ought to have deducted 20% TDS as provided in section 206AA of the Act in the absence of PAN of payees. The assessee stated that the non-residents are exempted from obtaining PAN as per section 139A(8) of the Act read with Rule 114C(1) of the Rules. It was stated that provisions of section 206AA of the Act are machinery provisions for collection and deduction of tax at source and they cannot be thrusted on the assessee to follow the same. It was pleaded that as per section 90(2) of the Act, in relation to non-resident assessee to whom any DTAA entered into by Indian Government with its residence country applies, the tax rates as per DTAA or provisions of the Act whichever are beneficial to the assessee shall apply. The assessee also placed reliance on the decision of the Hon’ble Supreme Court in the case of Union of India vs Azadi Bachao Andolan reported in (2003) 263 ITR 706 (SC) , wherein it was held that in case of conflict between the Income Tax Act and provisions of DTAA, the provisions of DTAA would prevail over income tax act. Accordingly it was argued that one has to look at the provisions of DTAA as well as domestic law and decide the tax rates on income chargeable to tax in the hands of non-residents. It was argued that non-resident payee belongs to the countries with which DTAAs were signed by the Indian Government and that the assessee had duly deducted the tax rates as per the respective DTAAs and accordingly there was no short deduction as stated in the intimation u/s 200A of the Act by thrusting the provisions of 2
3 M/s Habasit Lakoka Pvt. Ltd. A.Yrs. 2015-16&2016-17 section 206AA of the Act on the assessee. But these arguments were not appreciated and ultimately the assessee was fastened with a liability of Rs 22,91,678/- towards short deduction of TDS liability.
The ld CITA deleted the addition by observing as under:-
“4.1 In the appellant’s countries with which DTAAs were signed. Without considering the provisions of these OTAAs, demanding higher tax based on machinery provision Sec.206AA through TDS from the appellant's side is not in accordance with law. This view has been upheld by Pune ITAT in the case of Serum Institute of India Ltd (Supra) after a detailed discussion of the provisions of Sections.206AA, 195 and charging sections 4, 5, 9, 90 & 91 of the Act. By referring to the Hon'ble Supreme Court's decision in the case of GE India Technology Centre Pvt. Ltd that provisions of OTAAs along with sections 4, 5, 9, 90 & 91 of the Act are relevant while applying the provisions of TOS, the Tribunal in the above case held that Sec.206AA cannot be understood to override the charging sections 4 & 5 and that DTAA provisions further override charging sections 4 & 5 in view of provisions of Sec.90(2). Based on this view, the ITAT held that where tax has been deducted on the strength of the provisions of DTAAs, provisions of Sec.206AA cannot be invoked to insist on tax deduction at 20%. The Bangalore Bench ITAT, in the case of Infosys BPO Ltd.,(supra), held an identical view after placing reliance on the above decision of Pune ITAT and other decisions viz. Bosch Ltd v. ITO 2013 141 ITO 38 Bang-Trib) and Karnataka High Court's decision in the case of Bharti Airtel Ltd v Deputy CIT (2015) 372 ITR 33. In this decision, the ITAT also held that adjustment made in intimation u/s.200A by applying a higher tax rate is not an adjustment which is permissible as per provisions of Sec.200A as it is a debatable issue. 4.2 In the light of the above discussion, I hold that the adjustment made in intimation u/s.200A by applying 20% rate for determining TOS liability and thereby demanding tax on account of short deduction is not in accordance with law. Accordingly, the demand determined u/s.200A to the extent of Rs.22,91,678/- is deleted. The appellant claimed that the tax rate as per DTAA provisions is 10% on Fees for technical services paid to the above companies of Switzerland and If Singapore, The tax payable by the Non-Resident as per provisions of the Act i.e., u/s.115(1)(b) on Fees for technical services is 25% w.e.f. 01.04.2014 whereas as per DTAA with Switzerland, different tax rates including 10% have been prescribed under Article 12(2)(a) & (b). Similarly, such rates were prescribed in Article 12 of DTAA of Singapore. The AO is at liberty to separately verify whether rate of 10% adopted by the appellant is in accordance with the provisions of DTAA r.w.s. 90(2) and take necessary action if there is any variation. The grounds are allowed.”
Aggrieved, the revenue is in appeal before us on the following grounds:- 3
1.The order of the learned Commissioner of Income Tax (Appeals) is contrary to the law and facts of the case.
The Ld. CIT(A) erred in deleting the addition of Rs. 22,91,678/- made by the Assessing Officer for short deduction of TDS on payments made to Non-Residents.
3. The Ld. CIT(A) erred in allowing the assessee’s plea that the assessee being a non- resident is not required to apply for an obtain PAN No. by virtue of Rule 114(c) of Income Tax Rules, r.w.s 139A(8)(b) of Income Tax Act, 1961, as provisions of sec. 206AA clearly override the other provisions of the Act.
4. The Ld. CIT(A) ought to have appreciated the fact that Sec. 206AA is non-obstante provision whereas sec. 90(2) is a normal provision and that provision containing non- obstante clause in the Act will have an overriding effect over the other provisions mentioned therein.
5. The Ld. CIT(A) ought to have appreciated the fact that non-resident whose income is chargeable to tax in India has to obtain PAN No. and provide the same to the deductor and 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. as has been held by Hon’ble ITAT, Bangalore Bench in the case of M/s Bosch Limited vs. ITO (I.T.A. No. 1260/Bang./2011 & 712 and 713/Bang./2012).
6. For these and other grounds that may be adduced at the time of hearing, it is prayed that the Order of the Learned CIT(A) may be set aside and that of the Assessing Officer be restored.
We have heard the rival submissions. The ld AR stated that the very same issue came up for consideration before the Special Bench of Hyderabad Tribunal in the case of Nagarjuna Fertilizers & Chemicals Ltd vs ACIT reported in (2017) 78 taxmann.com 264 (Hyderabad- Trib.)(SB) dated 13.2.2017, wherein it was held that if the rate of tax applicable under DTAA is lower than the 20% tax rate prescribed u/s 206AA, tax would have to be deducted at such lower rate even if the non-resident deductee fails to furnish his PAN. It is not in dispute that the payments made by the assessee were towards fee for technical / included services wherein the tax rates as per DTAAs entered into with respective countries was 10%. The tax rate provided u/s 206AA of the Act is 20% in the absence of PAN. The short dispute arises here 4
5 M/s Habasit Lakoka Pvt. Ltd. A.Yrs. 2015-16&2016-17 for our adjudication is whether the tax rates prescribed u/s 206AA of the Act would be applicable over the tax rates prescribed under DTAA. As rightly pointed out by the ld AR that this very same issue came up for consideration of the Special Bench of Hyderabad Tribunal in the case referred to supra wherein it was held that :- 33. In view of the above discussion, we are of the view that the provisions 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 question 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.
Respectfully following the aforesaid judgment of the special bench, we find no justifiable reason to interfere with the order of the ld CITA in this regard. Hence we hold that the ld CITA had rightly deleted the demand raised towards short deduction of TDS liability. Accordingly, the grounds raised by the revenue for both the assessment years under appeal are dismissed.
In the result, the appeals of the revenue are dismissed.
Order pronounced in the Court on 08.02.2018