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Dy. Director of Income Tax (IT-II) , Pune. Versus Serum Institute of India Limited

2015 (6) TMI 26 - ITAT PUNE

Applicability of sec 206AA - Requirement to furnish Permanent Account Number - TDS @20% - whether not applicable in case of non-residents as the DTAA overrides the Act as per section 90(2)as per CIT(A)? - Held that:- 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 2 .....

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0(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 - Decided against revenue. - I .....

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x Act, 1961 (in short the Act ) for Quarter 1 to Quarter 4 of assessment year 2011-12. Initially, Revenue had filed a single appeal vide ITA No.792/PN/2013 assailing the combined order of the CIT(A) passed in relation to four orders passed by the Assessing Officer u/s 200A of the Act. Subsequently, Revenue has rectified and filed four separate appeals in ITA Nos.1601 to 1604/PN/2014 and accordingly the initial appeal vide ITA No.792/PN/2013 is rendered infructuous. 2. In all the appeals i.e. ITA .....

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02/92/2006-MC (04 of 2010) dated 20.01.2010 which reiterates that sec. 206AA will also apply to all nonresidents in respect of payments/remittances liable to TDS. 3) The CIT(A) is erred in ignoring the decision of the ITAT Bangalore in the case of Bosch Ltd. vs ITO, ITA No.552 to 558 (Bang.) of 2011 dated 11.10.2012, in which it was held that if the recipient has not furnished the PAN to the deductor, the deductor is liable to withhold tax at the higher rates prescribed u/s. 206AA. 3. Briefly pu .....

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oresaid payments were subject to withholding tax u/s 195 of the Act. The respondentassessee deducted tax at source on such payment in accordance with the tax rates provided in the Double Taxation Avoidance Agreements (DTAAs) with the respective countries. The tax rate so provided in the DTAAs was lower than the rate prescribed under the Act and therefore in terms of the provisions of section 90(2) of the Act, the tax was deducted at source by applying the beneficial rate prescribed under the rel .....

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ource, the tax shall be deductible at the rate specified in the relevant provisions of the Act or at the rates in force or at the rate of 20%. On the strength of section 206AA of the Act, Revenue treated payments to those non-residents who did not furnish the PAN as cases of short deduction being difference between 20% and the actual tax rate on which tax was deducted in terms of the relevant DTAAs. As a consequence, demands were raised on the assessee for the short deduction of tax and also for .....

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. According to the assessee, section 206AA of the Act prescribed that the recipient shall furnish the PAN and such furnishing would be possible only where the recipient is required to obtain PAN under the relevant provisions. Thus, where the non-residents are not obliged to obtain a PAN, the requirement of furnishing the same in terms of section 206AA of the Act does not arise. Secondly, assessee also pointed out that the tax rate applicable in terms of section 206AA of the Act cannot prevail ov .....

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id not agree with the assessee on the point that the nonresidents recipient are not required to obtain PAN. So however, with respect to the second plea of the assessee, CIT(A) concurred with the assessee and held that section 206AA of the Act would override other provisions of the Act but not the provisions of section 90(2) of the Act. Therefore, according to the CIT(A), where the DTAAs provide for a tax rate lower than that prescribed in 206AA of the Act, the provisions of the DTAAs shall preva .....

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cases which are governed by the DTAAs. According to him, section 206AA of the Act would override section 90(2) of the Act and therefore the tax deduction was liable to be made @ 20% in absence of furnishing of PANs by the recipient non-residents. According to the Ld. Departmental Representative, the CIT(A) had himself concluded that section 206AA of the Act required even the non-resident recipients of income to obtain and furnish PAN to the dedutors of the tax at source, being the assessee in t .....

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N 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 prescri .....

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uct 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 o .....

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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 s .....

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i 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 .....

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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 .....

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