M/S WIPRO LTD. vs. ITO,

Per Bench : These four appeals by the assessee are directed against the order dt.19.9.2013

of Commissioner of Income Tax (Appeals) arising from the orders passed under

2 ITA No.1544 to 1547/Bang/2013 & S.P. Nos.175 to 178/Bang/2014 Section 200A of the Income Tax Act, 1961 (in short 'the Act') for the Assessment

Year 2011-12.

of the payment to non-residents. The Assessing Officer issued an intimation

giving the summary of short deduction and interest payable for delayed deposit

of tax. The Assessing Officer along with an intimation under Section 200A has

also issued a Demand Notice under Section 156 of the Act. Therefore, the

assessee challenged the action of the Assessing Officer before the CIT (Appeals)

on the ground that without giving an opportunity of hearing to the assessee, the

Assessing Officer raised the demand under Section 200A including interest. The

assessee further contended before the CIT (Appeals) that the computation has

been done without giving effect to the provisions of section 90A(2) r.w. relevant

provisions of DTAA is entered into with respective countries which provides that

one will be governed by the DTAA or the provisions of I.T. Act which is more

beneficial to the assessee. Thus the assessee contended before the CIT (Appeals)

that the assessee has deducted the tax in accordance with the provisions of the

respective DTAA and therefore there was no shortfall in the deduction of tax at

source in respect of the payments made to non-residents. The CIT (Appeals) did

3 ITA No.1544 to 1547/Bang/2013 & S.P. Nos.175 to 178/Bang/2014 not accept the contention of the assessee and confirmed the action of the

Assessing Officer.

and raised the following grounds :

“1. That the order under Section 200A read with 250 of the Income Tax Act, 1961 (in short 'the Act') issued by the learned CIT (Appeals) – IV, Bangalore is without jurisdiction and contrary to law, facts and circumstances. 2. The learned CIT (Appeals) erred in not annulling the intimation under Section 200A issued by learned A.O. since the same was issued without jurisdiction and without meeting the requirements specified in the section. 3. The learned CIT (Appeals) erred in concluding that section 206AA overrides even section 90(2) and 90A(2). In any case, the learned CIT (Appeals) ought to have held that the restraint imposed by section 206AA from applying the provisions under the Act which are more beneficial to the assessee did not prevent the appellant from applying the provisions of the relevant Double Taxation Avoidance Agreements for the purpose of deducting tax at source from non- resident deductees. 4. The CIT (Appeals) has erred in not following the clarification of the Board issued vide Circular No.333 dt.2.4.2982 and the binding judgment of the Hon'ble Karnataka High Court in CIT Vs. R.M. Muthaiah (1993) 202 ITR 508. 5. The learned CIT (Appeals) erred in not holding that the furnishing of PAN under section 206AA would arise only to a deductee being a person required to apply for PAN under Section 139A, which is not applicable in the appellant’s case since the deductees are non-residents, who were not required to apply for PAN during the relevant period. 6. All the grounds are without prejudice to each other. 7. For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the appellant requests that the appeal be allowed as prayed and justice be rendered.”

4 ITA No.1544 to 1547/Bang/2013 & S.P. Nos.175 to 178/Bang/2014 4. Before us, the learned Authorised Representative of the assessee submitted

that the demand of tax has been raised by the Assessing Officer vide intimation

under Section 200A on the ground that the assessee has not furnished PAN of

non-residents / recipients and accordingly as per the provisions of section 206AA

of the Act, the TDS should have been deducted @ 20%. The learned Authorised

Representative has submitted that the tax liability of the non-resident recipients

cannot be more than as provided under DTAA and therefore payment to non-

residents is eligible for the benefit of DTAA and consequently the tax deduction

cannot be more than the tax liability provided under DTAA. The learned

Authorised Representative has further contended that issuing intimation under

Section 200A and raising a demand without considering the provisions of DTAA as

well as without giving an opportunity of hearing to the assessee is also beyond

the scope of the Assessing Officer. The Assessing Officer is not permitted to

make the adjustment while issuing the intimation under Section 200A when the

issue involves is a highly debatable issue and require a well drawn reasoning and

finding. Thus the learned Authorised Representative of the assessee has

submitted that the impugned order of the Assessing Officer is not sustainable. In

support of his contention, he has relied upon the decision of the co-ordinate

5 ITA No.1544 to 1547/Bang/2013 & S.P. Nos.175 to 178/Bang/2014 bench of this Tribunal Dt.29.6.2015 in the case of DCIT Vs. Infosys BPO Ltd. in ITA

No.1143 and 8 & 9/bang/2014 as well as cross objection Nos.83 & 84/Bang/2014.

upon the orders of authorities below.

material on record. At the outset we note that in the case of the assessee the

Assessing Officer has made adjustment u/s. 200A on account of short deduction

of tax at source by the assessee in respect of payment to non-residents on the

ground that the assessee has not furnished PAN of the non-resident recipients/

deductees and therefore in the opinion of the Assessing Officer, the assessee was

required to deduct the tax @ 20% in view of the provisions of section 206AA. At

the outset we note that an identical issue has been considered and decided by

the co-ordinate bench of this Tribunal in case of Infosys BPO Ltd. (supra) in paras

7 to 14 as under :-

“ 7. We have considered the rival submissions as well as the relevant material on record. In the case in hand, the assessee made payment to the non-resident on account of royalty in some cases and on account of fee for technical services in some other cases. The assesee deducted TDS at the rate of 10% in some cases and at the rate of 10.56% in some other cases as per the provisions of Sec.115A(1)(b) of the IT Act. There is no dispute that the benefit of DTAA is available to the recipients of the payments in question. Therefore, the tax liability of the recipients could not be more than the rate prescribed under the DTAA or the income tax Act, whichever is lower. In the case in hand, the AO while issuing the intimation u/s 200A has computed the tax

6 ITA No.1544 to 1547/Bang/2013 & S.P. Nos.175 to 178/Bang/2014 liability at the rate of 20%, as provided/s 206AA of the Act. Since the benefit of DTAA is available to recipient. Therefore, in any case, the scope of deduction of tax at source cannot be more than the tax liability under DTAA. In the latest decision of the Pune Bench of the Tribunal in the case of Dy.DIT Vs M/s Serum Institute of India Ltd. (Supra) an identical issue has been considered by the Tribunal in para-7 as under; “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

7 ITA No.1544 to 1547/Bang/2013 & S.P. Nos.175 to 178/Bang/2014 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. 8. A similar view has been taken by the Co-ordinate Bench of this Tribunal in case of Bosch Vs ITO Supra, in para-22 & 23 as under;

8 ITA No.1544 to 1547/Bang/2013 & S.P. Nos.175 to 178/Bang/2014 “22. As regards the grossing up u/s 195A of the Income tax Act is concerned, we find that the provision reads as under; “In a case other than that referred to in subsection (1A) of sec.192, where under an agreement or other arrangement, the tax chargeable on any income referred to in the foregoing provisions of this Chapter is to be borne by the person by whom the income is payable, then for the purposes of deduction of tax under those provisions such income shall be increased to such amount as would, after deduction of tax thereon at the rates in force for the financial year in which such income is payable, be equal to the net amount payables under such agreement or arrangement”. 23. Thus, it can be seen that the income shall be increased to such amount as would after deduction of tax thereto at the rate in force for the financial year in which such income is payable, be equal to the net amount payable under such agreement or arrangement. A literal reading of sec. implies that the tax is to be withheld by the assessee. The Hon’ble Apex Court in the case of GE India Technology Center (P) Ltd (cited Supra) has held that the meaning and effect has to be given to the expression used in the section and while interpreting a section, one has to give weightage to every word used in that section. In view of the same, we are of the opinion that the grossing up of the amount is to be done at the rats in force for the financial year in which such income is payable and not at 20% as specified u/s 206AA of the Act”. 9. It is pertinent to note the obligation of deducting tax at source arises only when there is a sum chargeable under the Act. The Hon’ble jurisdictional High Court in the case of M/s Bharti Airtel Ltd Vs DCIT Supra, has observed in para-39 as under; “39. The provisions for deduction of TAS(tax at source) which are in Chapter XVII dealing with collection of taxes and the charging provisions of the Income-tax from one single integral, inseparable Code. Therefore, the provisions relating to TDS apply only to those sums which are “Chargeable to tax” under the Income-tax Act. While interpreting the provisions of the Income-tax Act one cannot read the charging sections of that Act de hors the machinery sections. The Act is to be read as an integral Code. In order to deduct tax at source the amount being paid out must necessarily be ascertainable as income chargeable to tax in the hands of the payee. TDS is a vicarious liability and it presupposes existence of primary liability. Therefore, the TDS provisions have to be read in conformity with the charging provisions i.e section 4.5 and 9”. Thus, the provisions of TDS has to be read alongwith the machinery provisions of computing the tax liability on the sum in question. Following the decisions of Co- ordinate Benches Supra, as well as the judgment of Hon’ble jurisdictional High Court in the case of M/s Bharti Airtel Ltd Supra, we do not find any error or illegality in the

9 ITA No.1544 to 1547/Bang/2013 & S.P. Nos.175 to 178/Bang/2014 order of the CIT(A) that there is no scope for deduction of tax at the rate of 20% as provided under the provisions of Section 206AA of the IT Act when the benefit of DTAA is available. 10. In the cross objection the assessee has raised the following grounds;

“1. The ld.CIT(A)-IV< Bangalore has erred in dismissing the appeal filed against intimation passed under section 200A as not maintainable. On facts and in the circumstances of the case and the law applicable, the appeal filed against intimation passed under section 200A is maintainable under section 246A before the CIT(A) without prejudice.

10 ITA No.1544 to 1547/Bang/2013 & S.P. Nos.175 to 178/Bang/2014 5. In view of the above other grounds to be adduced at the time of hearing, the respondent (cross objector) prays that the order passed by the learned CIT(A) to the extent it is prejudicial to the respondent be quashed or in the alternative

i) Appeal filed with CIT(A) against intimation passed under section 200A be held as mainatainable

ii) Intimation passed under section 200A be held as without jurisdiction invalid and bad in law.

iii) Section 206AA be held as inapplicable in view of the fact that non-resident deductees were not required under law to obtain PAN”.

11 ITA No.1544 to 1547/Bang/2013 & S.P. Nos.175 to 178/Bang/2014 as per the provisions of section 200A (1) of the IT Act, 1961. For ready reference, we quote the provisions of section 200A of the IT Act, 1961 as under; “ 200A. Processing of statements of tax deducted at source.- (1) Where a statement of tax deduction at source has been made by a person deducting any sum (hereafter referred to in this section as deductor) under section 200, such statement shall be processed in the following manner, namely:—

(a) the sums deductible under this Chapter shall be computed after making the following adjustments, namely:—

(i) any arithmetical error in the statement; or

(ii) an incorrect claim, apparent from any information in the statement;

(b) the interest, if any, shall be computed on the basis of the sums deductible as computed in the statement;

(c) the sum payable by, or the amount of refund due to, the deductor shall be determined after adjustment of amount computed under clause (b) against any amount paid under section 200 and section 201, and any amount paid otherwise by way of tax or interest;

(d) an intimation shall be prepared or generated and sent to the deductor specifying the sum determined to be payable by, or the amount of refund due to, him under clause (c); and

(e) the amount of refund due to the deductor in pursuance of the determination under clause (c) shall be granted to the deductor :

Provided that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the statement is filed.

Explanation.—For the purposes of this sub-section, “an incorrect claim apparent from any information in the statement” shall mean a claim, on the basis of an entry, in the statement—

(i) of an item, which is inconsistent with another entry of the same or some other item in such statement;

(ii) in respect of rate of deduction of tax at source, where such rate is not in accordance with the provisions of this Act.

(2) For the purposes of processing of statements under sub-section (1), the Board may make a scheme for centralised processing of statements of tax deducted at source to expeditiously determine the tax payable by, or the refund due to, the deductor as required under the said sub-section.”

12 ITA No.1544 to 1547/Bang/2013 & S.P. Nos.175 to 178/Bang/2014 14. As it is clear the explanation below sub-section-1 of Section 200A of the IT Act, which clarifies that in respect of deduction of tax at source where such rate is not in accordance with provisions of this Act can be considered as an incorrect claim apparent from the statement. However, in the case in hand, it is not a simple case of deduction of tax at source by applying the rate only as per the provisions of Act, when the benefit of DTAA is available to the recipient of the amount in question. Therefore, the question of applying the rate of 20% as provided u/s 206AA of the IT Act is a issue which requires a long drawn reasoning and finding. Hence, we are of the considered opinion, that applying the rate of 20% without considering the provisions of DTAA and consequent adjustment while framing the intimation u/s 200A is beyond the scope of the said provision. Thus, the AO has travelled beyond the jurisdiction of making the adjustment as per the provisions of Section 200A of the IT Act, 1961. In view of the above discussion, as well as the facts and circumstances of the case, we decide this issue in favour of the assessee and consequently the cross objection of the assessee is allowed.”

No contrary view or decision has been brought to our notice by the learned

Departmental Representative and therefore in view of the decision of the co-

ordinate bench as well as the other decisions as followed by the co-ordinate

bench, we decide this issue in favour of the assessee on both grounds that the

provisions of TDS has to be read along with DTAA for computing the tax liability

on the sum in question and therefore when the recipient is eligible for the benefit

of DTAA then there is no scope for deduction of tax at source @ 20% as provided

under the provisions of section 206AA. Similarly, on the issue of jurisdiction, the

question of computing the rate of 20% under section 206AA of the Act is a

debatable issue when the recipient is eligible for the benefit of provisions of DTAA

and therefore the Assessing Officer cannot proceed to make the adjustment while

13 ITA No.1544 to 1547/Bang/2013 & S.P. Nos.175 to 178/Bang/2014 issuing the intimation under Section 200A. This is beyond the scope of the said

provisions.

assessee become infructuous and accordingly dismissed.

dismissed.

Order pronounced in the open court on 12th day of Feb., 2016.

Sd/- Sd/- (ABRAHAM P GEORGE) (VIJAYPAL RAO) Accountant Member Judicial Member

*Reddy gp

Copy to : 1. Appellant 2. Respondent 3. C.I.T. 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard File.

(True copy) By Order

Asst. Registrar, ITAT, Bangalore