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2017 (4) TMI 242 - AT - Income TaxWithholding Tax - TDS u/s 195 - Assessee in default - Held that:- When the royalty so credited by the assessee is not taxable at the time of credit of such amount to the account of payee, in the light of law laid down by Hon’ble Supreme Court in the case of GE Information Technology (2010 (9) TMI 7 - SUPREME COURT OF INDIA ), it does not give rise to any tax withholding obligations under section 195 (1) either. As regards the point of time when the payment is actually made, i.e. the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, the taxability in the hands of the recipient arises by @ 20% in terms of the provisions of article 13(2) above. However, even though the assessee is covered by the Indo Italian DTAA, the provisions of the Income Tax Act continue to apply to the extent such domestic law provisions are more beneficial to the assessee, as, even in the cases covered by the DTAAs and in terms of the provisions of Section 90(2), “the provisions of this (Income Tax) Act shall apply to the extent they are more beneficial to that assessee”. However, the provisions of Section 115A prescribed taxability of royalty in the hands of the non-resident @ 10%, and, therefore, adopting the more beneficial rate of 10%, the payer was required to deduct tax at source from the royalty payment so made by the assessee. That is precisely what the assessee has done. The payment was made by the assessee on 12.5.2011 and the tax so deducted was payable within 7 days from the end of May 2011, i.e. by 7th June 2011. The assessee has, however, deposited the said tax deducted at source on 20th June 2011. The delay in depositing the tax deducted at source was thus only for 12 days. To this limited extent, the Assessing Officer could have levied interest under section 201(1A) of the Act. However, the authorities below have upheld the tax liability under section 20(1A) by computing the period of delay with reference to the date on which the amount was credited to payee’s account. That is where the authorities below were in error and we vacate the action of the authorities below to that extent. It is only at the point of time when payment takes place, that the income embedded in payment becomes taxable under the DTAA as also under the domestic law, but then rate of tax prescribed in domestic law being lower, vis-à-vis the rate prescribed in the domestic law, the assessee has the option of adopting the lower rate under the domestic law. The adoption of lower rate under the domestic law, in our humble understanding, does not imply that nonresident recipient could have been saddled with tax liability at the point of accrual when, under the DTAAA provisions, the non-resident could not have been taxed, in respect of accrual of the said income, in India. In view of these discussions, as also for the detailed reasons set out above, and to the extent indicated above, we uphold the grievance of the assessee and direct the Assessing Officer to grant resultant relief.
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