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2019 (11) TMI 1341 - AT - Income TaxTax rate for grossing up u/s.195A - applicability of provisions of section 206AA - Determining the tax liability u/s.201(1) - TDS U/S 195 - payments to its Associated Enterprises (AE) who were non-residents as Onsite Service Charges and Selling and marketing charges - CIT(A) accepted the plea of the Assessee that the DTAA will override the provisions of the Act including Sec.206AA of the Act and that the rate of tax to be applied for grossing up should be as per the DTAA - HELD THAT:- Referring to Circular No. 17/2014 dated 10.12.2004 in the context of compulsory requirement to furnish PAN of employees u/s 206AA, it becomes crystal clear that the CBDT has provided that: 'Education cess @ 2% and secondary and higher education cess @1% is not to be deducted in case the tax is deducted at 20% u/s 206AA of the Act.' Albeit, this part of the Circular is not relevant for the purposes of deduction of tax at source in terms of section 195, yet it throws some guidance on the non-levy of education cess and surcharge etc. in case tax is deducted in terms of section 206AA on the payments made to non residents. No contrary provision mandating the levy of surcharge and education cess on the rate of 20% u/s 206AA(1)(iii) has been brought to our notice by the DR. CIT(A) was not justified in upholding the action of the AO in levying the surcharge and education cess on the amount of tax deducted at source u/s 206AA(1)(iii) of the Act. The same is, therefore, directed to be deleted AY 2012-13 - The Hon’ble Delhi High Court in the case of Danisco India Private Limited Vs. Union Of India & Ors. [2018 (2) TMI 1289 - DELHI HIGH COURT] held that where reciprocating states mutually agree upon acceptable principles for tax treatment, the provision in Section 206AA (as it existed) has to be read down to mean that where the deductee i.e the overseas resident business concern conducts its operation from a territory, whose Government has entered into a Double Taxation Avoidance Agreement with India, the rate of taxation would be as dictated by the provisions of the treaty. There is no merit in the appeals of the Revenue. The grounds raised in the Cross-objections of the Assessee do not require any consideration in view of the decision in the revenue’s appeals and those issues are left open without any adjudication.
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