RATHI SUPER STEEL LTD.,DELHI vs. ITO (TDS), NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘G’ NEW DELHI

BEFORE SHRI H. S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER

I.T.A. No. 2490/Del/2015 Assessment Year: 2012-13 M/s Rathi Super Steel Limited, Vs. ITO(TDS), Flat No. 207, Vardhman Mayur Ward 2(1), (Intl. Taxation) Market at Csc, Aayakar Bhawan, Laxmi Mayur Vihar, Phase-III, Nagar, Delhi – 110 092 Kondli Gharoli, Delhi – 110 096 (PAN: AAACR0182M) (APPELLANT) (RESPONDENT)

Assessee by: Mr. Ved Jain, CA Revenue by: Smt. Anima Barnwal, Sr. DR

Date of Hearing : 11-07-2016 Date of Order : 08-08-2016

ORDER PER H.S. SIDHU : JM Assessee has filed this Appeal against the impugned Order

dated 31.3.2015 passed by the Ld. CIT(A)-43, New Delhi relevant to

assessment year 2012-13 on the following grounds:-

ITA NO.2490/Del/2015

Technical services on account of non-applying of PAN in India.

ITA NO.2490/Del/2015

the treaty, the demand raised against the appellant is against the provision of the Act.

ITA NO.2490/Del/2015

Quarter of the assessment year 2012-13. The ITO(TDS) (Int.

Taxation), Ward 2(1), New Delhi after examining the Form 27Q

issued intimation u/s. 200A of the Income Tax Act, 1961

(hereinafter referred as the Act) wherein, it was pointed out that

there was a short deduction of tax at source and accordingly

demand of Rs. 5,12,510/- was raised with interest chargeable on

such short deduction.

Ld. CIT(A)-43, New Delhi, who vide his impugned order dated

31.3.2015 has dismissed the appeal of the assessee

appeal before the Tribunal.

issue in dispute has already been adjudicated and decided in favour

of the assessee by the various decisions rendered by the ITAT

Benches which includes the order of the ITAT, Pune Bench ‘B’

reported (2015) 54 taxman.com1 (Pune-Trib) in the case of

DDIT(IT-II) Pune vs. Serum Institute of India Ltd. and ITAT, ‘D’

Bench Chennai in the case of DCIT vs. M/s Pricol Ltd. in ITA Nos.

ITA NO.2490/Del/2015

880 & 1141/Mds./2014 (AYrs 2011-12 & 2011-12) and CO Nos. 56

& 57/Mds./2014 (in ITA Nos. 880 & 1141/Mds./2014). He also filed

the copy of the CBDT’s Notification No. SO 2196(E) [F.No.

370142/16/2016-TPL)] dated 24.6.2016 and stated that these

instructions are also applicable in the case of the assessee.

the Ld. CIT(A).

available with us, especially the orders passed by the revenue

authorities and the orders of the ITAT, Pune Bench ‘B’ reported

(2015) 54 taxman.com1 (Pune-Trib) in the case of DDIT(IT-II) Pune

vs. Serum Institute of India Ltd. and ITAT, ‘D’ Bench Chennai in the

case of DCIT vs. M/s Pricol Ltd. in ITA Nos. 880 & 1141/Mds./2014

(AYrs 2011-12 & 2011-12) and CO Nos. 56 & 57/Mds./2014 (in ITA

Nos. 880 & 1141/Mds./2014) and the CBDT’s Notification No. SO

2196(E) [F.No. 370142/16/2016-TPL)] dated 24.6.2016. For the

sake of convenience, we are reproducing the relevant paras of the

ITAT Pune Bench and ITAT, Chennai Bench and the CBDT

Notification dated 24.6.2016 hereunder:-

PARA NO. 7 OF THE ITAT, PUNE BENCH

ITA NO.2490/Del/2015

“7. We have carefully considered the rival submissions.

Section 206AA of the Act has been included in Part B of

Chapter XVII dealing with Collection and Recovery of Tax

– Deduction at source. Section 206AA of the Act deals

with requirements of furnishing PAN by any person,

entitled to receive any sum or income on which tax is

deductible under Chapter XVII-B, to the person

responsible for deducting such tax. Shorn of other

details, in so far as the present controversy is concerned,

it would suffice to note that section 206AA

of the Act prescribes that where PAN is not furnished to

the person responsible for deducting tax at source then

the tax deductor would be required to deduct tax at the

higher of the following rates, namely, at the rate

prescribed in the relevant provisions of this Act; or at the

rate/rates in force; or at the rate of 20%. In the present

case, assessee was responsible for deducting tax on

payments made to non-residents on account of royalty

and/or fee for technical services. The dispute before us

relates to the payments made by the assessee to such

non-residents who had not furnished their PANs to the

assessee. The case of the Revenue is that in the absence

ITA NO.2490/Del/2015

of furnishing of PAN, assessee was under an obligation to

deduct tax @ 20% following the provisions of section

206AA of the Act. However, assessee had deducted the

tax at source at the rates prescribed in the respective

DTAAs between India and the relevant country of the

non-residents; and, such rate of tax being lower than the

rate of 20% mandated by section 206AA of the Act. The

CIT(A) has found that the provisions of section 90(2)

come to the rescue of the assessee. Section 90(2)

provides that the provisions of the DTAAs would override

the provisions of the domestic Act in cases where the

provisions of DTAAs are more beneficial to the assessee.

There cannot be any doubt to the proposition that in case

of non-residents, tax liability in India is liable to be

determined in accordance with the provisions of the Act

or the DTAA between India and the relevant country,

whichever is more beneficial to the assessee, having

regard to the provisions of section 90(2) of the Act. In

this context, the CIT(A) has correctly observed that the

Hon’ble Supreme Court in the case of Azadi Bachao

Andolan and Others vs. UOI, (2003) 263 ITR 706 (SC)

has upheld the proposition that the provisions made in

ITA NO.2490/Del/2015

the DTAAs will prevail over the general provisions

contained in the Act to the extent they are beneficial to

the assessee. In this context, it would be worthwhile to

observe that the DTAAs entered into between India and

the other relevant countries in the present context

provide for scope of taxation and/or a rate of taxation

which was different from the scope/rate prescribed under

the Act. For the said reason, assessee deducted the tax

at source having regard to the provisions of the

respective DTAAs which provided for a beneficial rate of

taxation. It would also be relevant to observe that even

the charging section 4 as well as section 5 of the Act

which deals with the principle of ascertainment of total

income under the Act are also subordinate to the

principle enshrined in section 90(2) as held by the

Hon’ble Supreme Court in the case of Azadi Bachao

Andolan and Others (supra). Thus, in so far as the

applicability of the scope/rate of taxation with respect to

the impugned payments make to the non-residents is

concerned, no fault can be found with the rate of taxation

invoked by the assessee based on the DTAAs, which

prescribed for a beneficial rate of taxation. However, the

ITA NO.2490/Del/2015

case of the Revenue is that the tax deduction at source

was required to be made at 20% in the absence of

furnishing of PAN by the recipient non-residents, having

regard to section 206AA of the Act. In our considered

opinion, it would be quite incorrect to say that though the

charging section 4 of the Act and section 5 of the Act

dealing with ascertainment of total income are

subordinate to the principle enshrined in section 90(2) of

the Act but the provisions of Chapter XVII-B governing

tax deduction at source are not subordinate to section

90(2) of the Act. Notably, section 206AA of the Act which

is the centre of controversy before us is not a charging

section but is a part of a procedural provisions dealing

with collection and deduction of tax at source. The

provisions of section 195 of the Act which casts a duty on

the assessee to deduct tax at source on payments to a

non-resident cannot be looked upon as a charging

provision. In-fact, in the context of section 195 of the Act

also, the Hon’ble Supreme Court in the case of CIT vs. Eli

Lily & Co., (2009) 312 ITR 225 (SC) observed that the

provisions of tax withholding i.e. section 195 of the Act

would apply only to sums which are otherwise chargeable

ITA NO.2490/Del/2015

to tax under the Act. The Hon’ble Supreme Court in the

case of GE India Technology Centre Pvt. Ltd. vs. CIT,

(2010) 327 ITR 456 (SC) held that the provisions of

DTAAs along with the sections 4, 5, 9, 90 & 91 of the Act

are relevant while applying the provisions of tax

deduction at source. Therefore, in view of the aforesaid

schematic interpretation of the Act, section 206AA of the

Act cannot be understood to override the charging

sections 4 and 5 of the Act. Thus, where section 90(2) of

the Act provides that DTAAs override domestic law in

cases where the provisions of DTAAs are more beneficial

to the assessee and the same also overrides the charging

sections 4 and 5 of the Act which, in turn, override the

DTAAs provisions especially section 206AA of the Act

which is the controversy before us. Therefore, in our

view, where the tax has been deducted on the strength

of the beneficial provisions of section DTAAs, the

provisions of section 206AA of the Act cannot be invoked

by the Assessing Officer to insist on the tax deduction @

20%, having regard to the overriding nature of the

provisions of section 90(2) of the Act. The CIT(A), in our

view, correctly inferred that section 206AA of the Act

ITA NO.2490/Del/2015

does not override the provisions of section 90(2) of the

Act and that in the impugned cases of payments made to

non-residents, assessee correctly applied the rate of tax

prescribed under the DTAAs and not as per section

206AA of the Act because the provisions of the DTAAs

was more beneficial. Thus, we hereby affirm the ultimate

conclusion of the CIT(A) in deleting the tax demand

relatable to difference between 20% and the actual tax

rate on which tax was deducted by the assessee in terms

of the relevant DTAAs. As a consequence, Revenue fails

in its appeals”.

PARA NO. 5 OF THE ITAT, CHENNAI BENCH

perused the materials available on record. As pointed out

by the Ld. AR the Pune Bench of the Tribunal in the case

cited supra (DCIT vs. Serium Institute of India Ltd.), it

has been categorically held that Section 206AA of the Act

does not override the provisions of Section 90(2) of the

Act and accordingly the rate of tax deducted at source

prescribed in the DTA agreement shall prevail. The

ITA NO.2490/Del/2015

relevant para of the order is reproduced hereinabelow for

reference:-

“7. We have carefully considered the

rival submissions. Section 206AA of the

Act has been included in Part B of

Chapter XVII dealing with Collection and

Recovery of Tax – Deduction at source.

Section 206AA of the Act deals with

requirements of furnishing PAN by any

person, entitled to receive any sum or

income on which tax is deductible under

Chapter XVII-B, to the person

responsible for deducting such tax.

Shorn of other details, in so far as the

present controversy is concerned, it

would suffice to note that section 206AA

of the Act prescribes that where PAN is

not furnished to the person responsible

for deducting tax at source then the tax

deductor would be required to deduct

tax at the higher of the following rates,

ITA NO.2490/Del/2015

namely, at the rate prescribed in the

relevant provisions of this Act; or at the

rate/rates in force; or at the rate of

20%. In the present case, assessee was

responsible for deducting tax on

payments made to non-residents on

account of royalty and/or fee for

technical services. The dispute before us

relates to the payments made by the

assessee to such non-residents who had

not furnished their PANs to the assessee.

The case of the Revenue is that in the

absence of furnishing of PAN, assessee

was under an obligation to deduct tax @

20% following the provisions of section

206AA of the Act. However, assessee

had deducted the tax at source at the

rates prescribed in the respective DTAAs

between India and the relevant country

of the non-residents; and, such rate of

tax being lower than the rate of 20%

mandated by section 206AA of the Act.

ITA NO.2490/Del/2015

The CIT(A) has found that the provisions

of section 90(2) come to the rescue of

the assessee. Section 90(2) provides

that the provisions of the DTAAs would

override the provisions of the domestic

Act in cases where the provisions of

DTAAs are more beneficial to the

assessee. There cannot be any doubt to

the proposition that in case of non-

residents, tax liability in India is liable to

be determined in accordance with the

provisions of the Act or the DTAA

between India and the relevant country,

whichever is more beneficial to the

assessee, having regard to the

provisions of section 90(2) of the Act. In

this context, the CIT(A) has correctly

observed that the Hon’ble Supreme

Court in the case of Azadi Bachao

Andolan and Others vs. UOI, (2003) 263

ITR 706 (SC) has upheld the proposition

that the provisions made in the DTAAs

ITA NO.2490/Del/2015

will prevail over the general provisions

contained in the Act to the extent they

are beneficial to the assessee. In this

context, it would be worthwhile to

observe that the DTAAs entered into

between India and the other relevant

countries in the present context provide

for scope of taxation and/or a rate of

taxation which was different from the

scope/rate prescribed under the Act. For

the said reason, assessee deducted the

tax at source having regard to the

provisions of the respective DTAAs which

provided for a beneficial rate of taxation.

It would also be relevant to observe that

even the charging section 4 as well as

section 5 of the Act which deals with the

principle of ascertainment of total

income under the Act are also

subordinate to the principle enshrined in

section 90(2) as held by the Hon’ble

Supreme Court in the case of Azadi

ITA NO.2490/Del/2015

Bachao Andolan and Others (supra).

Thus, in so far as the applicability of the

scope/rate of taxation with respect to

the impugned payments make to the

non-residents is concerned, no fault can

be found with the rate of taxation

invoked by the assessee based on the

DTAAs, which prescribed for a beneficial

rate of taxation. However, the case of

the Revenue is that the tax deduction at

source was required to be made at 20%

in the absence of furnishing of PAN by

the recipient non-residents, having

regard to section 206AA of the Act. In

our considered opinion, it would be quite

incorrect to say that though the charging

section 4 of the Act and section 5 of the

Act dealing with ascertainment of total

income are subordinate to the principle

enshrined in section 90(2) of the Act but

the provisions of Chapter XVII-B

governing tax deduction at source are

ITA NO.2490/Del/2015

not subordinate to section 90(2) of the

Act. Notably, section 206AA of the Act

which is the centre of controversy before

us is not a charging section but is a part

of a procedural provisions dealing with

collection and deduction of tax at source.

The provisions of section 195 of the Act

which casts a duty on the assessee to

deduct tax at source on payments to a

non-resident cannot be looked upon as a

charging provision. In-fact, in the

context of section 195 of the Act also,

the Hon’ble Supreme Court in the case of

CIT vs. Eli Lily & Co., (2009) 312 ITR

225 (SC) observed that the provisions of

tax withholding i.e. section 195 of the

Act would apply only to sums which are

otherwise chargeable to tax under the

Act. The Hon’ble Supreme Court in the

case of GE India Technology Centre Pvt.

Ltd. vs. CIT, (2010) 327 ITR 456 (SC)

held that the provisions of DTAAs along

ITA NO.2490/Del/2015

with the sections 4, 5, 9, 90 & 91 of the

Act are relevant while applying the

provisions of tax deduction at source.

Therefore, in view of the aforesaid

schematic interpretation of the Act,

section 206AA of the Act cannot be

understood to override the charging

sections 4 and 5 of the Act. Thus, where

section 90(2) of the Act provides that

DTAAs override domestic law in cases

where the provisions of DTAAs are more

beneficial to the assessee and the same

also overrides the charging sections 4

and 5 of the Act which, in turn, override

the DTAAs provisions especially section

206AA of the Act which is the

controversy before us. Therefore, in our

view, where the tax has been deducted

on the strength of the beneficial

provisions of section DTAAs, the

provisions of section 206AA of the Act

cannot be invoked by the Assessing

ITA NO.2490/Del/2015

Officer to insist on the tax deduction @

20%, having regard to the overriding

nature of the provisions of section 90(2)

of the Act. The CIT(A), in our view,

correctly inferred that section 206AA of

the Act does not override the provisions

of section 90(2) of the Act and that in

the impugned cases of payments made

to non-residents, assessee correctly

applied the rate of tax prescribed under

the DTAAs and not as per section 206AA

of the Act because the provisions of the

DTAAs was more beneficial. Thus, we

hereby affirm the ultimate conclusion of

the CIT(A) in deleting the tax demand

relatable to difference between 20% and

the actual tax rate on which tax was

deducted by the assessee in terms of the

relevant DTAAs. As a consequence,

Revenue fails in its appeals.”

Following the above decision, we have no hesitation

to uphold the order of the Ld. CIT(A), who has only

ITA NO.2490/Del/2015

directed the ACIT(TDS) to compute tax @10% as

prescribed by the DTAA, hence invoking Section

200A of the Act is not warranted in the case of the

assessee.

CBDT NOTIFICATION NO. SO 2196(E) DATED

24.6.2016

S.O. 2196 (E).— In exercise of the powers

conferred by clause (ii) of sub-section (7)of section

206AA, read with section 295 of the Income-tax

Act, 1961 (43 of 1961), the Central Board of Direct

Taxes hereby makes the following rules further to

amend the Income-tax Rules, 1962, namely:-

Amendment) Rules, 2016.

(2) They shall come into force on the date of their

publication in the Official Gazette.

as the said rules), after rule 37BB, the following rule shall

be inserted, namely :-

ITA NO.2490/Del/2015

“37BC. Relaxation from deduction of tax at higher rate

under section 206AA.- (1) In the case of a non-resident,

not being a company, or a foreign company ( hereafter

referred to as ‘the deductee’) and not having permanent

account number the provisions of section 206AA shall not

apply in respect of payments in the nature of interest,

royalty, fees for technical services and payments on

transfer of any capital asset, if the deductee furnishes

the details and the documents specified in sub-rule (2) to

the deductor.

(2) The deductee referred to in sub-rule (1), shall in

respect of payments specified therein, furnish the

following details and documents to the deductor, namely

:-

(i) name, e-mail id, contact number;

(ii) address in the country or specified territory outside

India of which the deductee is a resident;

(iii) a certificate of his being resident in any country or

specified territory outside India from the Government of

that country or specified territory if the law of that

ITA NO.2490/Del/2015

country or specified territory provides for issuance of

such certificate;

(iv) Tax Identification Number of the deductee in the

country or specified territory of his residence and in case

no such number is available, then a unique number on

the basis of which the deductee is identified by the

Government of that country or the specified territory of

which he claims to be a resident.

(a) in the second line, after the figures and letters

“194LB”, the figures and letters “194LBA, 194LBB,194

LBC” shall be inserted;

(b) in the Annexure,-

(I) in the Table,-

(i) in the column 717, in the column heading, after the

letters and words “PAN of the deductee”, the brackets,

words and figure “[ see Note 5]” shall be inserted;

(ii) after column 734, the following shall be inserted,

namely :—

“Email ID of Contract Address of Tax 22

ITA NO.2490/Del/2015

deductee number of deductee in Identification deductee country of Number / residence Unique Identification Number of deductee 735 736 737 738”

(II) in the Notes below the Table,-

(A)in point 4, in the Table, after entry 194LB, the

following shall be inserted, namely:—

“194LBA Certain income from units of a business trust

LBA

194LBB Income in respect of units of investment fund

LBB

194LBC Income in respect of investment in securitization

trust LBC”;

(B) after point 4 and below the Table, the following point

shall be inserted namely:—

‘5. In case of deductees covered under rule 37BC, “PAN

NOT AVAILABLE” should be mentioned.’.”

Chennai Bench (supra) and the CBDT’s Notification dated

ITA NO.2490/Del/2015

24.6.2016, as aforesaid, we are of the considered view that the

issue involved in the present appeal is squarely covered by the

aforesaid orders of the Coordinate Benches of the Tribunal and the

instructions contained in the aforesaid CBDT’s Notification is clearly

applicable in the present case. Therefore, respectfully, following the

Coordinate Benches decisions, as aforesaid, we delete the addition

in dispute and decide the Appeal in favour of the assessee and

accordingly, cancel the impugned order passed by the Ld. CIT(A).

Order pronounced in the Open Court on 05/08/2016.

Sd/- SD/-

[O.P. KANT] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER

Date 08/8/2016

“SRBHATNAGAR” Copy forwarded to: - 1. Appellant - 2. Respondent - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY By Order,

Assistant Registrar, ITAT, Delhi Benches