Loading judgment…
No AI summary yet for this case.
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, DELHI BENCH: ‘G’ NEW DELHI
Before: SHRI H. S. SIDHU & SHRI O.P. KANT
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:-
1. That the learned Assessing Officer (Int. Tax) erred in law in determining short deduction of TDS of Rs.5,12,5101- (inclusive of interest) in respect of a non- resident M/s Sidiforni S.R.L. Italy on remittance of fee for Technical services on account of non-applying of PAN in India.
2. That the aforesaid non-resident having no permanent establishment in India, the said non-resident is under no obligation to obtain PAN in India in view of specific provision of section 139A(8)(d) read with rule 114C(1)(b) of the Income Tax Rules as notified by C.B.D.T.
3. That the aforesaid provision of section 139A(8)( d) read with Rule 114C(1)(b) of the Income Tax Rules having been specifically notified by C.B.D.T., exempting the non-resident from the requirement of PAN in India, the demand raised by the learned Assessing Officer against the appellant is wholly arbitrary, unjustified and uncalled for.
That the aforesaid special provision of section 139(A)(8)(d) read with rule 114C(1)(b) of the Income Tax Rules override the general provision of section 206AA of the Act with regard to obtaining PAN in India by the non-resident, the demand raised by the learned Assessing Officer against the appellant is totally in negation of the provision of the Income Tax Act as such demand deserve to be cancelled.
5. That in view of Double Tax Avoidance Treaty having been entered into by the Govt. of India with the Govt. of Italy, the non-resident having no permanent establishment in India, is under no obligation to apply PAN in India unless the said DTA treaty is amended to include the requirement of section 206AA of the Act in 2 the treaty, the demand raised against the appellant is against the provision of the Act.
Whether on facts and circumstances of the case and on true interpretation of law, can bilateral Double Tax Avoidance Treaty entered into with the other nation be overridden so as to include non-residents having no permanent establishment in India to comply with the provision of Indian Income Tax Act viz., section 206M of the Act.
7. That on facts and circumstances of the case and in law, whether the provision of section 206M of the Income Tax Act is applicable to a non-resident on income chargeable to tax in pursuance to provision of section 115A(b)(BB) (Chapter XII) of the Act as the said provision 206M is applicable on tax deductable under chapter XVII B of the Act.
That even otherwise, in view of clear conflict and ambiguity in interpretation of the provision of section 206M and section 139A(8)(d) read with rule 114C(1)(b) of the Income Tax rules, the benefit of doubt as to the interpretation of law be resolved in favour of the appellant as held by the Hon'ble Supreme Court and as such demand raised by the Assessing Officer be deleted.
9. That the appellant crave leave to add, amend or vary any ground of appeal before or at the time of hearing, if so required.
The brief facts of the case are that assessee is a company, filed statement of deduction of tax at source in Form 27Q for 4th 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.
3. Against the order of the Ld. AO, assessee appealed before the Ld. CIT(A)-43, New Delhi, who vide his impugned order dated 31.3.2015 has dismissed the appeal of the assessee
4. Aggrieved with the order of the Ld. CIT(A), Assessee is in appeal before the Tribunal.
5. At the time of hearing, Ld. Counsel of the assessee stated that 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.
880 & 1141/Mds./2014 (AYrs 2011-12 & 2011-12) and CO Nos. 56 & 57/Mds./2014 (in & 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.
6. On the contrary, Ld. DR relied upon the impugned order of the Ld. CIT(A).
We have heard both the parties and perused the records 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 & 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 “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 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 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 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 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 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
We have heard both the parties and carefully 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 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, 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.
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 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 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 to tax under the Act. The Hon’ble Supreme Court in the 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 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 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:-
(1) These rules may be called the Income-tax (17th Amendment) Rules, 2016.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. In the Income-tax Rules, 1962 (hereafter referred to as the said rules), after rule 37BB, the following rule shall be inserted, namely :-
“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 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.
In the said rules, in Appendix II, in Form No. 27Q,- (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 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.’.”
8. After going through the orders of the ITAT, Pune Bench and Chennai Bench (supra) and the CBDT’s Notification dated 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).
In the result, the Appeal filed by the Assessee stands allowed.
Order pronounced in the Open Court on 05/08/2016.