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2016 (2) TMI 896 - ITAT BANGALORE

2016 (2) TMI 896 - ITAT BANGALORE - [2016] 47 ITR (Trib) 404 - Short deduction of tax at source - payment to non-residents - eligibility for the benefit of DTAA - Computing the rate of 20% under section 206AA - Held that:- The provisions of TDS has to be read along with DTAA for computing the tax liability on the sum in question and therefore when the recipient is eligible for the benefit of DTAA then there is no scope for deduction of tax at source @ 20% as provided under the provisions of sect .....

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:- 12-2-2016 - SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER AND SHRI VIJAYPAL RAO, JUDICIAL MEMBER Appellant By : Shri B.K. Manjunatha, C.A. Respondent By : Shri Rajashekar, Addl. CIT (D.R) ORDER Per Bench : These four appeals by the assessee are directed against the order dt.19.9.2013 of Commissioner of Income Tax (Appeals) arising from the orders passed under Section 200A of the Income Tax Act, 1961 (in short 'the Act') for the Assessment Year 2011-12. 2. The assessee has filed its quarter .....

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essee, the Assessing Officer raised the demand under Section 200A including interest. The assessee further contended before the CIT (Appeals) that the computation has been done without giving effect to the provisions of section 90A(2) r.w. relevant provisions of DTAA is entered into with respective countries which provides that one will be governed by the DTAA or the provisions of I.T. Act which is more beneficial to the assessee. Thus the assessee contended before the CIT (Appeals) that the ass .....

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Tax Act, 1961 (in short 'the Act') issued by the learned CIT (Appeals) - IV, Bangalore is without jurisdiction and contrary to law, facts and circumstances. 2. The learned CIT (Appeals) erred in not annulling the intimation under Section 200A issued by learned A.O. since the same was issued without jurisdiction and without meeting the requirements specified in the section. 3. The learned CIT (Appeals) erred in concluding that section 206AA overrides even section 90(2) and 90A(2). In any .....

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udgment of the Hon'ble Karnataka High Court in CIT Vs. R.M. Muthaiah (1993) 202 ITR 508. 5. The learned CIT (Appeals) erred in not holding that the furnishing of PAN under section 206AA would arise only to a deductee being a person required to apply for PAN under Section 139A, which is not applicable in the appellant s case since the deductees are non-residents, who were not required to apply for PAN during the relevant period. 6. All the grounds are without prejudice to each other. 7. For t .....

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n 206AA of the Act, the TDS should have been deducted @ 20%. The learned Authorised Representative has submitted that the tax liability of the non-resident recipients cannot be more than as provided under DTAA and therefore payment to nonresidents is eligible for the benefit of DTAA and consequently the tax deduction cannot be more than the tax liability provided under DTAA. The learned Authorised Representative has further contended that issuing intimation under Section 200A and raising a deman .....

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ot sustainable. In support of his contention, he has relied upon the decision of the co-ordinate bench of this Tribunal Dt.29.6.2015 in the case of DCIT Vs. Infosys BPO Ltd. in ITA No.1143 and 8 & 9/bang/2014 as well as cross objection Nos.83 & 84/Bang/2014. 5. On the other hand, the learned Departmental Representative has relied upon the orders of authorities below. 6. We have heard the rival submissions as well as considered the relevant material on record. At the outset we note that i .....

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ded by the co-ordinate bench of this Tribunal in case of Infosys BPO Ltd. (supra) in paras 7 to 14 as under :- 7. We have considered the rival submissions as well as the relevant material on record. In the case in hand, the assessee made payment to the 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 .....

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case, the scope of deduction of tax at source cannot be more than the tax liability under DTAA. In the latest decision of the Pune Bench of the Tribunal in the case of Dy.DIT Vs M/s Serum Institute of India Ltd. (Supra) an identical issue has been considered 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 .....

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of the following rates, namely, at the rate prescribed in the relevant provisions of this Act; or at the rate/rates in force; or at the rate of 20%. In the present case, assessee was responsible for deducting tax on payments made to non-residents on account 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 furnish .....

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isions of the DTAAs would override the provisions of the domestic Act in cases where the provisions of DTAAs are more beneficial to the assessee. There cannot be any doubt to the proposition that in case of non-residents, tax liability in India is liable 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 .....

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r a rate of taxation which was different from the scope/rate prescribed under the Act. For the said reason, assessee deducted the tax at source having regard to the provisions of the respective DTAAs which provided for a beneficial rate of taxation. It would 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 he .....

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hing of PAN by the recipient non-residents, having regard to section 206AA of the Act. In our considered opinion, it would be quite incorrect to say that though the charging section 4 of the Act and section 5 of the Act dealing with ascertainment of total 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 .....

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provisions of tax withholding i.e. section 195 of the Act would apply only to sums which are otherwise chargeable to tax under the Act. The Hon ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd. vs. CIT, (2010) 327 ITR 456 (SC) held that 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 th .....

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beneficial provisions of section DTAAs, the provisions of section 206AA of the Act cannot be invoked by the Assessing Officer to insist on the tax deduction @ 20%, having regard to the overriding nature of the provisions of section 90(2) of the Act. The 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 presc .....

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ra-22 & 23 as under; 22. As regards the grossing up u/s 195A of the Income tax Act is concerned, we find that the provision reads as under; In a case other than that referred to in subsection (1A) of sec.192, where under an agreement or other arrangement, 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 incre .....

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c. implies that the tax is to be withheld by the assessee. The Hon ble Apex Court in the case of GE India Technology Center (P) Ltd (cited Supra) has held that the meaning and effect has to be given to the expression used in the section and while interpreting 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 .....

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Code. Therefore, the provisions relating to TDS apply only to those sums which are Chargeable to tax under the Income-tax Act. While interpreting the provisions of the Income-tax Act one cannot read the charging sections of that Act de hors the machinery 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 presupp .....

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CIT(A) that there is no scope for deduction of tax at the rate of 20% as provided under the provisions of Section 206AA of the IT Act when the benefit of DTAA is available. 10. In the cross objection the assessee has raised the following grounds; 1. The 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 .....

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rithmetical error in the statement or an incorrect claim, apparent from any information in the statement, the intimation passed by the learned Income tax Officer, International Taxation, Ward-2(1), Bangalore does not satisfy the requirements of section 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 non-resident deduc .....

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ashed or in the alternative i) Appeal filed with CIT(A) against intimation passed under section 200A be held as mainatainable ii) Intimation passed under section 200A be held as without jurisdiction invalid and bad in law. iii) Section 206AA be held as 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 fact .....

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R contended that the exercise undertaken by the AO to adopt the rate of tax at 20% and consequently making the adjustment and demand of tax is beyond the jurisdiction of the AO u/s 200A of the IT Act, 1961. 12. On the other hand, learned DR has submitted 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%. Th .....

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ent assessee. The payment in question was made to the non-resident and the provisions of DTAA are applicable, as the same has not been disputed by the AO before us. Thus, the issue of applying the rate of tax at 20% and ignoring the provisions of DTAA 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 pro .....

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or (ii) an incorrect claim, apparent from any information in the statement; (b) the interest, if any, shall be computed on the basis of the sums deductible as computed in the statement; (c) the sum payable by, or the amount of refund due to, the deductor 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 sen .....

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any information in the statement shall mean a claim, on the basis of an entry, in the statement- (i) of an item, which is inconsistent with another entry of the same or some other item in such statement; (ii) in respect of rate of deduction of tax at source, where such rate is not in accordance with the provisions of this Act. (2) For the purposes of processing of statements under sub-section (1), the Board may make a scheme for centralised processing of statements of tax deducted at source to .....

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rate only as per the provisions of Act, when the benefit of DTAA is available to the recipient of the amount in question. Therefore, the question of applying the rate of 20% as provided u/s 206AA of the IT Act is a issue which requires a long drawn reasoning and finding. Hence, we are of 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, .....

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