9911796707
TMI Blog2017 (1) TMI 635X X X X Extracts X X X X X X X X Extracts X X X X ..... ource at the rates provided u/s 115A of the Act or as per the rates provided u/s 90(2) r.w.s. Double Taxation Avoidance Agreement (DTAA) with respective countries of the non-residents. That in all these appeals, payments have been made to non-residents persons having no permanent establishment in India and no PAN. Quarterly TDS returns were duly submitted without quoting PAN. Due to the non-availability of PAN demand was created by ITO (International Taxation) u/s 200A of the Act which was imposed by applying the provisions of section 206AA of the Act wherein if a deductor does not furnish PAN of the deductee then tax at source is to be deducted at higher of the three rates namely -(i) rate specified in the relevant provisions of the Act, (ii) the rates or rates in force & (iii) @ 20%. As TDS on the payments made to non-residents in all the cases of seven appeals were either 10% as per DTAA or 10.55% u/s 115A of the Act. Demand was created for the differential amount of income tax less deducted along with levy of interest u/s 201(1A) of the Act. 3. Aggrieved, assessee went in appeal before ld. CIT(A). Here it is pertinent to mention that in the case of Alembic Ltd. (ITA No.1202 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eads as under: "(b) [o non-resident (not being a company) or a foreign company, includes any income by way of royalty or fees for technical services other than income referred to in sub-section (1) of section 44DA] received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after the 31st day of March, 1976, and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy, then, subject to the provisions of sub-sections (1A) and (2), the income-tax payable shall be the aggregate of....." It is submitted that after the enactment of the Foreign Exchange Management Act, 1999 the Government has liberalized the exchange control regulations and currently every payment to a non-resident on current account is allowed unless specific approval is required either by the Central Government or by the Reserve Bank of India. The Reserve Bank of India has also in certain cases, granted 'automatic approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restricts the charge of tax to a certain percentage for payment made to non residents and withholding ot tax cannot exceed such prescribed percenrages.lt is for the same reason that where ever a special rate has been prescribed under the Act, the Finance Act in Schedule II limits the withholding rates to the same rate, 10. Further any provision requiring deduction of taxes at a higher rate than what is charged as taxes under the Act would be in violation of Article 265 and hence bad in law. It is the constitutional mandate under Article 265 that "No tax shall be levied or collected except by authority of law." The constitutional authority applies to both levy and collection of tax. S. 4(2) authorizes the Central Government to collect tax at source only in respect of the income chargeable u/s.4(l). S. 4(1) provides as under : "(1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income oj the previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ource under the provisions of Chapter XVII-B has been deducted from such income." 15. The said sub-section is attracted only if two conditions are fulfilled, namely- (i) the assesses covered by the respective Sections do not have any income which is subject to tax at the normal rates, and (ii) tax has been deducted at source as per Chapter XVIIB. 16. Further at the time these provisions were inserted S. 206AA was not present and the Parliament was aware that rates of withholding were the same as the special rates at which income covered by these provisions were to be charged. 17. These sub-sections being beneficial in nature will have to be interpreted in favour of the assessee. Therefore, even after the insertion of S. 206AA, the words 'tax deductible at source under the provisions of Chapter XVII-B' have to be interpreted as referring only to rates mentioned in schedule II of the Finance Acts. 18. Also in some cases, non-resident Assessees covered by Chapter XII are exempt from filing of returns u/s. 139 [Refer sections 115A (5), 11 SAC (4), 115BBA (2)]. If S. 206AA(1) were to be applied to such cases, then since tax would be deducted at rates higher than the charge o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival contentions and perused the record placed before us. From going through the grounds and brief facts as stated above, we observe that the common issue emanates from the fact that assessee made payments towards technical services & royalty to various non-resident deductees having no permanent establishment in India and holding no PAN. There is no dispute to the fact that assessee has deducted tax at source against all these payments. The only difference of opinion between the assessee and the Revenue lies within a narrow campus wherein assessee contended that tax has been rightly deducted at source at the rates provided u/s 115A of the Act or as per the rates with reference to DTAA r.w.s. 90C(2) of the Act, whereas Revenue created demand against the assessee by observing that as the deductees do not hold PAN provisions of section 206AA of the Act comes into effect as per which tax was required to be deducted @ 20%. 27. We consider that in order to adjudicate the issue following provisions of the Act would be relevant to go through, as they are being discussed regularly in these appeals:- Section: 115A 115A. [(1) Where the total income of- (a) ........ (b) [a non-reside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (1) or sub-section (1A) or sub-section (1C) of section 197A shall be valid unless the person furnishes his Permanent Account Number in such declaration. (3) In case any declaration becomes invalid under sub-section (2), the deductor shall deduct the tax at source in accordance with the provisions of sub-section (1). (4) No certificate under section 197 shall be granted unless the application made under that section contains the Permanent Account Number of the applicant. (5) The deductee shall furnish his Permanent Account Number to the deductor and both shall indicate the same in all the correspondence, bills, vouchers and other documents which are sent to each other. (6) Where the Permanent Account Number provided to the deductor is invalid or does not belong to the deductee, it shall be deemed that the deductee has not furnished his Permanent Account Number to the deductor and the provisions of subsection (1) shall apply accordingly.". Sec.90 (2) Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee for want of verification of agreement or verification of DTAA rates ? 32. Taking up the first issue of applicability of section 206AA of the Act on the persons covered u/s 115A(1)(b) of the Act or covered under DTAA, we observe that the issue is squarely covered by the decisions of Co-ordinate Bench, Pune and Ahmedabad wherein the matter has been discussed elaborately and has been decided in favour of assessee. In the case of DCIT vs. Serum Institute of India Ltd. (supra), Co-ordinate Bench Pune has observed 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 lax 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 deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Andoian 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 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 centre of controversy before us is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Uniphos Envirotronic Private Ltd. vs. DCIT also confirmed the view taken by Pune Bench of the Tribunal as per their decision in ITA No.1974/Ahd/2015 for Asst. Year 2014-15 which reads as under - [3] We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. [4] It is only elementary that, under the scheme of the Income Tax Act 1961- as set out under section 90(2) of the Act, the provisions of the applicable tax treaties override the provisions of the Income Tax Act 1961- except when the provisions of the Act are more beneficial to the assessee. The. .provisions of the applicable tax treaty, in the present case, prescribe the tax rate @ 10%. This rate of 10% is applicable on the related income whether or not the assessee has obtained the permanent account number. In effect, therefore, even when a foreign entity does not obtain PAN in India, the applicable tax rate is 10% in this case. Section 206AA, which provides a higher tax burden- i.e. taxability @ 20% in the event of foreign entity not obtaining the permanent account number in India, therefore, cannot be pressed into se ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
