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2020 (6) TMI 669 - ITAT BANGALOREApplicability of section 206AA - payments made to non-resident entities - there is no scope for deduction of tax at the rate of 30%, as provided under the provisions of Section 206AA when the benefit of DTAA - HELD THAT:- Applicability of provisions of section 206AA of the Act, in cases of tax to be deducted at source, when the income is exigible to tax under DTAA and the payees are unable to provide valid Permanent Account Numbers, came up for consideration before the Special Bench, ITAT Hyderabad in the case of Nagarjuna Fertilizers & Chemicals Ltd. Vs. AC IT [2017 (3) TMI 81 - ITAT HYDERABAD]. The question before the special bench was whether the provisions of section 206AA had overriding effect for all other provisions of the Act, whether the assessee has to deduct tax at source at the rates prescribed in section 206AA in case the payees are unable to furnish their PANs, even in cases where tax liability arises out of the treaty. DTAA provides for a rate of 10% whereas as per the provisions of Sec.206AA of the Act, the rate of tax deduction at source is 20%. Whether section 206AA starts with a non-obstante clause and therefore it overrides all other provisions of the Act including 90(2), 115A and 139A? - Special Bench held that DTAA overrides the Act, even if it is inconsistent with the Act. DTAAs are entered into between two nations in good faith and are supposed to be interpreted in good faith. Otherwise it would amount to the breach of Article 253 of the constitution. 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. - Decided against revenue.
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