SREI EQUIPMENT FINANCE LTD.,KOLKATA vs. ITO, (INTERNATIONAL TAXATION), KOLKATA, KOLKATA

The only issue is to be decided as to whether the CIT-A justified in confirming the order of issuance of intimation for short deduction of TDS ignoring the overriding effect of provisions of DTAA on the provisions of the Income-tax Act including section 206AA of the Act in the facts and circumstances of the case.

The ld.AR submits that the issue in hand in respect of short deduction of payments of TDS/late payment interest in respect of non-resident payees relating to quarter(Q)-1, quarter(Q)-2 and quarter(Q)-3 for the F.Y 2011-12 i.e relating to A.Y under consideration of Rs.36,26,907/- for non furnishing of PAN of the deductees and therefore, by invoking the provisions of 260AA of the Act charged higher rate of tax @ 20%. This action of the AO was confirmed by the CIT-A.

He further submits that the issue in hand is squarely covered by the decision/order dt. 13-02-2017 of the Hon’ble Special Bench (ITAT, Hyderabad) in the case of Nagarjuna Fertilizers & Chemicals Ltd and argued that the provision of treaty to the extent that they are beneficial to the assessee overrides the provisions of section 206AA by virtue of provisions of section 19(2) of the Act and placed on record the same. Ld. AR further submits that this Tribunal set aside the intimation issued U/Sec. 200A of the Act in batch of appeals in assessee’s own case for A.Ys 11-12 and 12-13 by placing reliance on the decision of the Hon’ble Special Bench in the case of Nagarjuna Fertilizers & Chemicals Ltd. He submits that the facts and circumstances in said appeals are similar to the facts of the present appeal. In view of the same, the intimation dt. 19-11-2012 issued by the AO (ITO, Intl Taxn Ward 2(1) may be set aside and prayed to allow the grounds of appeal.

On the other hand, the ld.DR relied on the orders of the authorities below in holding the same.

Heard rival submissions and perused the material available on record. We find that the issue in hand is covered in favour of assessee by the said order dt. 13-09-2017 of the Co-ordinate Bench, ITAT, Kolkata in assessee’s own case. Relevant portion of finding dt. 13-09-2017 in assessee’s case is reproduced herein below for better understanding:- 12. Heard rival submissions and perused the material on record. We find as referred by the ld.AR regarding the decision of the Hon’ble Special Bench at Hyderabad decided the similar issue arising out of conflicting decisions of Bangalore Bench in the case of Bosch Ltd and Pune Bench in the case of Serum Institute of India Limited supra. The Special Bench formulated the question as under:- “Whether in the facts and circumstances of the case the provisions of section 206AA of the Act have an override effect for all other provisions of the Act and the assessee is required to deduct tax therein in the case of person(s) having taxable income in India, including non-resident, who does not furnish their PAN ? 13. The Special Bench observed that section 206AA falls in Chapter XVII-B of the Act dealing with tax deduction at source, it follows that the treaty provisions which override even the charging provision by virtue of section 90(2) of the Act would also override the provisions of section 206AA irrespective of non-obstante clause contained therein and the same is required to be restricted to that extent and read down to give

The ratio of the two decisions of the Hon’ble Supreme Court in the case of Hi Lilly And Co. (India) P. Limited (supra) and G.E. Technology Centre (P) Limited (supra) as discussed above clearly shows that the charging provisions control and override the machinery provisions dealing with tax deduction at source. Similarly, the provisions of DTAAs by virtue of section 90(2) to the extent more beneficial to the assessee override the provisions of Domestic Law as held inter alia, by the Hon'ble Supreme Court in the case of Azadi Bachao Andolan & Another (.supra) and P.V.A.L., Kulandagan Chettiar (supra). Since section 206AA falls in Chapter XVII-B dealing with tax deduction at source, it follows that the" treaty provisions which override even the charging provision of the Domestic Law by virtue of section 90(2) would also override the machinery provisions of section 206AA irrespective of non-obstante clause contained therein and the same is required to be restricted to that extent and read down to give effect to the relevant provisions of DTAs, which are overriding being beneficial to the assessee.

There is one more basis to support the above conclusion. As rightly pointed out on behalf of the assessee, Chapter-XA containing the provision relating to General Anti- Avoidance Rule (GAAR) has been inserted in the Statute by the Finance Act, 2013 with effect from 1st April, 2016 and although the provisions contained in the said Chapter are given overriding effect by virtue of non-obstante clause contained in section 95, a separate provision has been inserted simultaneously in the form of sub-section (2A) in section 90 providing specifically that notwithstanding anything contained in sub-section (2), the provisions of Chapter XA of the Act shall apply to the assessee even if such provisions are not beneficial to him. As rightly pointed out on behalf of the assessee, no such provision, however, is made separately and specifically in section 90 to give overriding effect to section 2-06AA over-section 90(2), which clearly shows that the intention of the legislature is not to give overriding effect to section 206AA over the provisions of the relevant DTAA which are beneficial to the assessee. In the case of Sanofi Pasteur Holding SA v. Department of Revenue & Others (supra), the contention raised on behalf of the Revenue was that the relevant retrospective amendments made in the Income Tax Act, 1961 override the tax treaties and the same was rejected by the Hon’ble Andhra Pradesh High Court on the ground that the relevant amendments were not fortified by a non-obstante clause expressed to override Tax Treaties as was made in case of the GAAR provisions specifically by inserting sub section (2A) in section 90 to enable application of Chapter X-A even if the same be not beneficial to the assessee thereby enacting an override effect over the provisions of section 90(2). In the case of Bharat Hari Singhania (supra), it was held by the Hon'ble Supreme Court that the scope and purport of the non-obstante clause has to be ascertained by reading it in the context of the relevant provisions and consistent with the scheme of the enactment. As explained by CBDT while inserting the provision of section 206AA vide Circular No. 5 of 2010, the intention of the said provision is mainly to strengthen PAN mechanism and keeping in view this limited function and purpose, we are of the view that non-obstante clause contained in the machinery provision of section 206AA is required to be assigned a restrictive meaning and the same cannot be read so as to override even the relevant beneficial provisions of the Treaties, which override even the charging provisions of the Income Tax Act by virtue of section 90(2). In our opinion, it, therefore, cannot be said that the provisions of section 206AA, despite the non-obstante clause contained therein, would override the provisions of DTAA to the extent they are more beneficial to the assessee and it is the beneficial provision of treaty that will override the machinery provisions of section 206AA.

In the case of Bosch Limited (supra) relied upon by the Id. CIT(D.R.) in support of the revenue's case, the issue relating to the applicability of section 206AA had come up for consideration before the Bangalore Bench of this Tribunal in two contexts. First, it was considered in the context of grossing up and while deciding the same, it was held by the Tribunal that the very nature of relevant income being business income not chargeable to tax in the hands of the non-resident recipients having no permanent establishment in India, the payments did not require withholding of tax at source under section 195 of the Act and the assessee was not under an obligation to withhold tax even as per the provisions of section 206AA at higher rate of 20%. In other context the amount paid to the non-resident was found by the Tribunal to be in the nature of fees for technical services chargeable to tax in the hands of the non-resident in India and since there was a failure on the part of the concerned non-resident to furnish PAN to the assessee, the assessee was held to be liable to withhold tax at higher of rates prescribed in section 206AA by the Tribunal. It, however, appears that all the relevant aspects as discussed above, such as overriding effect of the Treaty provisions as per section 90(2), the limited effect of non-obstante clause contained in the machinery provision of section

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.”

In the present case, we find that the assessee initially deducted tax at Rs.1,70,910/- i.e @ 10% of total payment of Rs.17,09,099/- made to Mr. Daniel Yul Sinn Yeung under the head ’consultancy fees’ in pursuance to article 12(4) of Indo-Singapore DTAA. The ITO raised a dispute of short deduction of tax and raised a demand by applying higher rates of tax at 20% as contemplated U/Sec. 206AA of the Act, which was challenged before the CIT-A contending that the services offered by the non-resident does not fall under the head “ fees for technical services” and by mistake the assessee deducted the TDS @ 10% and claimed DTAA provision shall have overriding effect on the provisions of section 206AA of the Act. We find that the facts in the present case are similar to the facts of the case before Special Bench supra and the principle laid down therein is applicable to the present facts and circumstances of the case. Therefore, the Intimation dt. 19-11-2012 issued u/s. 200A of the by the AO and confirmed the CIT-A is set aside.

Coming to other appeals i.e ITA Nos. 385, 386, 387, 388 & 389/Kol/2016, we find that the issues raised therein are similar to the issues raised in ITA No. 384/Kol/2016 except in variance of short deduction of amounts and relevant financial quarters. In view of our view in the aforementioned appeal, we adopt the same view in the rest of the appeals of the assessee. Therefore, the grounds raised by the assessee in all the appeals for the A.Ys under consideration therein are allowed.

In view of above, the intimation dt. 19-11-2012 issued u/s. 200A of the Act by the AO and confirmed by the CIT-A is set aside. Therefore, the grounds raised by the assessee on this issue are allowed.

In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 20-12-2017

Appellant/Assessee: M/s. Srei Equipment Finance Ltd, 86C Vishwakarma, Topsia Road, South, Topsia, Kolkata-46. 2 Respondent/Revenue: Income Tax Officer (International Taxation), Ward, Room No. 215, 2nd Floor, Aaykar Bhavan Poorva, 110 Shantipally, Kolkata-107. 3. The CIT(A), Kolkata 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata