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2015 (9) TMI 792 - ITAT BANGALORE

2015 (9) TMI 792 - ITAT BANGALORE - TMI - Higher rate of TDS @20% for non-furnishing of PAN - whether cannot be at a rate prescribed u/s 206AA which is higher than the rate at which the relevant income is chargeable to tax under Act or DTAA - CIT(A) held that the section 206AA(1) does not apply to those cases whose alight tax liability u/s 115AA and under DTAA - Held that:- In the case in hand, the assessee made payment to the non-resident on account of royalty in some cases and on account of fe .....

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the intimation u/s 200A has computed the tax 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.

Following the decisions of M/s Bharti Airtel Ltd [2014 (12) TMI 642 - KARNATAKA HIGH COURT] we do not find any error or illegality in the order of the CIT(A) that there is no scope for deduction of tax at the rate .....

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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. - Decided in favour of the assessee - IT(IT)A No.1143(B)/2013, IT(IT)A Nos.8 & 9(B)/2014, CO Nos.83 & 84(B)/2014 - Dated:- 29-6-2015 - SHRI VIJAY PAL RAO AND SH .....

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he two separate appeals in IT(IT)A Nos.8 & 9(B)/2014 respectively. Thus, the appeal of the revenue in IT(IT)A No.1143(B)/2013, becomes non-nest, in view of the subsequent appeals filed by the revenue. Accordingly, the said appeal in ITA No.1143(B)/2013is dismissed. 2. In IT(IT)A No.8(B)/2013 the revenue has raised the following grounds; 1. Whether ld.CIT(A) was right in holding that the section 206AA(1) does not apply to those cases whose alight tax liability u/s 115AA and under DTAA while i .....

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he learned DR as well as learned AR and considered the relevant material on record. At the outset our attention was brought to the order of the Hon ble jurisdictional High Court dated 11-08-2014 in the Writ Petition Nos.377311/2013 & 38706-38708/2013 filed by the assessee against adjustment made by the AO u/s 200A(1) of the IT Act, 1961 and intimation issued for raising the demand. The Hon ble jurisdictional High Court while considering with the issue of applicability of amended provisions o .....

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appeals were maintainable. It is stated that the appeals in question were filed on 11-04-2012. If the petitioner had filed these appeals after 01-07-2012, the appeals could not have been dismissed on the ground of maintainability. The only additional thing the petitioner should have done was to apply for condonation of the delay in filing the appeals. Hence, in my opinion, on the facts of this case and in the interest of justice, the Appellate Authority ought to have examined the appeals on mer .....

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appeal filed by the revenue for the assessment years 2011-12 becomes infructuous, in view of the order of Hon ble jurisdictional High Court dated 21-08-2014. Hence, the appeal of the revenue in ITA No.8(B)/2014 for the assessment year 2011-12 is dismissed as not maintainable and consequently, cross objection of the assessee No.83(B)/2014 is also dismissed. 4. For the assessment year 2012-13, the revenue in IT(IT)A No.9(B)/2014 has raised the following grounds; 1. Whether ld.CIT(A) was right in h .....

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d.CIT(A) was right in deleting the interest under section 200A(1)(b) levied on short deduction of tax . 5. The assessee is engaged in the business of business process outsourcing (BPO). The assessee filed statements of deduction of tax at source in the form-2Q for various quarters of the financial year 2010-11 and 2012-13 relevant to assessment year under consideration in respect of payments made to non-resident during the period. The AO after processing issued intimation u/s 200A of the IT Act, .....

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tion of the AO before the CIT(A) including the objections raised against the jurisdiction of the AO u/s 200A for making such adjustment and raising the consequential demand. The CIT(A) has rejected the objections of the assessee regarding the scope of Sec.200A for making such adjustment and consequential demand. However, the CIT(A) has decided the matter in favour of the assessee by holding that the non-resident recipient of the payment is eligible for the benefit of DTAA and therefore, the tax .....

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tatement. Thus, in the proceedings u/s 200A of the IT Act, the AO has rightly took the rate of tax as 20%, when the assessee failed to furnish the PAN of the deductee/recipient in terms of provisions r.w.s.206AA of the Act. On the other hand, learned AR of the assessee submitted that there is no dispute that the benefit of DTAA is available to the non-resident in question and therefore, the rate of TDS cannot be more than the tax liability of the recipient under the provisions of the Act or DTAA .....

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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 t .....

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idered 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 .....

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unt 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 .....

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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 .....

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ould 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 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 .....

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al 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 sour .....

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hat 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 .....

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e 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 ac .....

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ement, 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 .....

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reting 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 .....

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ry 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 liab .....

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e 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. 2. The ld.CIT(A)-IV, Bangalore has erred in upholding the validity of intimation passed by the learned Income tax Officer, International Taxation, Ward-2(1), Ba .....

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n 200A and consequently, the said intimation passed in invalid, bad in law and liable to be quashed without prejudice. 4. The ld.CIT(A)-IV, Bangalore has erred in concluding that section 206AA will be applicable whether or not the nonresident deductees are required to obtain PAN under section 139A. On the facts and circumstances of the case and law applicable and considering the fact that there was no requirement under law for the non-resident deductees to obtain PAN, the higher rate of TDS unde .....

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inapplicable in view of the fact that non-resident deductees were not required under law to obtain PAN . 11. We have heard the learned AR as well as learned DR and considered the relevant material available on record. As we have discussed the facts while deciding the issue involved in the revenue s appeal that the AO has made the adjustment while issuing the intimation u/s 200A of the IT Act, by applying the rate of tax at 20%. The assessee has challenged jurisdiction of the AO u/s 200A of the .....

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ed that the assessee had made an incorrect claim in the statement, because the assessee has deducted tax at the rate of 10% whereas as per the provisions of Section 206AA of the Act, the rate of tax applicable in the case of the assessee is 20%. Therefore, the AO was well within his powers to make the adjustment in respect of the TDS statement furnished by the assessee u/s 200A of the II Act, 1961. 13. Having considered the rival submission as well as the relevant material available on record, w .....

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is a debatable issue and does not fall in the category of any arithmetical error or incorrect claim apparent from any information in the statement, 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 dedu .....

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or 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 .....

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