TMI Blog2017 (1) TMI 635X X X X Extracts X X X X X X X X Extracts X X X X ..... Portions of demand sustained for want of verification of agreement relating to industrial policy as well as in case of some payment for verifying the treaty rates - Held that:- We observe that during the course of hearing ld. AR has affirmed that such type of payments by assessee are being regularly made to the deductees which have been dealt by ld. CIT(A) in appeal before the Tribunal. Ld. AR has also submitted that all the payments have been made through banking channels and automatic route of RBI with due certification of the nature of payment, details of payees, rates of taxes deducted at source. We are, therefore, of the view that as assessee is making such payments consistently to the payees for various types of services relating to produce registration, marketing and professional royalty and other technical services, and looking to the fact that there is no dispute to the residential status of payees, assessees have rightly deducted TDS as per rates provided in section 115A(1)(b) of the Act as well as per rates provided in DTAA with respect to countries to which the payees belong to. - ITA No. 1202/Ahd/ 2014, 1203/Ahd/ 2014, 2145/Ahd/ 2014, 2146/Ahd/ 2014, 2147/Ahd/ 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Assessing Officer by applying 20% rate of TDS in case of PPS International (wherein payment was made towards marketing, professional service) and Al Rahma Trading Co. (to whom product restriction services was paid) for non-furnishing of evidence showing that there existed an agreement pertaining to industrial policy as referred in section 115A(1)(b) of the Act. Further ld. CIT(A), Baroda restricted the action of Assessing Officer to check the T.P. rates in the case of payments to British Library and Global Pharmaceuticals Consulting LLC. 4. Whereas in the remaining five appeals, ld. CIT(A) Baroda has passed a common order and demand raised was sustained by observing that provisions of DTAA cannot over-ride provisions of section 206AA of the Act and also observed that assssees have not brought any evidence to prove that any provisions of DTAA which bears application of the provisions of sec.206AA in the case of persons covered under DTAA. 5. Aggrieved, assessees are now in appeal before the Tribunal against the orders of ld. CIT(A), Gandhinagar, Ahmedabad and ld. CIT(A), Baroda 6. Ld. AR submitted that with reference to the applicability to S.115A rates, the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of 20% cannot he applied to payments chargeable to tax as per the special rates of S. 115A: S. 115A restricts the charge of tax to a certain percentage for payment made to non residents and withholding of tax cannot exceed such prescribed percentages. If S. 206AA(1) is applied even to non residents covered by S. 115A, it would mean the deduction of taxes at a higher rate than what is chargeable under the Act. This would be in violation of Article 265 of the Constitution. Where charge of tax is restricted under the substantive provisions of the Act to a particular amount, the machinery provisions cannot collect tax in excess of such an amount. In some cases, non-resident Assessees covered by Chapter XII are exempt from filing of returns u/s. 139 [ Refer sections 115A(5), 115AC(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 of tax, returns would be required to be tiled. This interpretation would render these three subsections otiose. Benefits granted by one provision cannot be lightly presumed to be taken away by another provision of the Act. If higher rate of 20% is deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he charge of income-tax cannot be beyond such rates and consequently taxes cannot be collected beyond the rates charged. Where charge of tax is restricted under the substantive provisions of the Act to a particular amount, the machinery provision cannot collect tax in excess of such an amount. 12. Further the Department also does not consider amount deducted at source in excess of the income that accrues in the hands of the non-resident as tax. Amounts deducted at source in excess of tax liability would not be 'tax deducted at source' as per chapter XVIIB, but 'amounts deducted at source'. According to the CBDT Circular No. 7, dated 23-10-2007: Refund to the person making payment u/s.195 is being allowed as income does not accrue to the non-resident or if the income is accruing no tax is due or tax is due at a lesser rate. The amount paid into the Government account in such cases to that extent, is no longer 'fax'. In view of this, no interest u/s S.244A is admissible on refunds to be granted in accordance with this Circular or on the refunds already granted in accordance with Circular No. 769 or Circular No. 790. 13. Chapter XVIIB permits only ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken away by another provision of the Act. Hence S. 206AA will not apply to cases whether a fixed rate of tax lower than 20% is chargeable under Chapter XII of the Act. 19. If higher rate of 20% is deducted as tax by applying S. 206AA(1), then assessees would have to face hardship in the form of tiling of returns and wait for refunds. In case the assessees are nonresidents they would have to be in communication with income-tax authorities in India till refund is granted, and may have to open and operate bank accounts solely for the said purpose. Further they would not be entitled to any interest on refund by virtue ot Circular No. 7 of 2007. In light of the absurdity and hardship associated with this interpretation, such interpretation should be avoided. 20. The object of S. 206AA (1) is to ensure compliance of PAN mechanism and to streamline the process of processing returns and granting credit. The object is not to increase the burden on the Tax Department by requiring it to process more returns and grant more refunds. Therefore the interpretation which requires assesses to claim refund towards excess tax deducted at source would not serve the purpose of introducing S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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,- [(A) the amount of income-tax calculated on the income by way of royalty, if any, included in the total income, at the rate of ten per cent; (B) the amount of income-tax calculated on the income by way of fees for technical services, if any, included in the total income, at the rate of ten per cent; and] (C) the amount of income-tax with which it would have been chargeable had its total income been reduced by the amount of income by way of royalty and fees for technical services. Explanation.-For the purposes of this section,- (a) fees for technical services shall have the same meaning as in Explanation 2 to clause ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e more beneficial to that assessee. (2A) [***] 28. From going through above 3 provisions we observe that section 206AA of the Act refers to rate of TDS where deductee does not possesses PAN, section 115A(b) refers to tax applicable to payments made to non-resident by way of royalty and technical services in pursuance to agreement approved by Central Government or it relates to a matter included in industrial policy. Section 90(2) of the Act refers to DTAA entered into by Central Government with the Government of any other country for granting of relief. 29. Further from going through the decisions of ld. CIT(A) Gandhinagar, Ahmedabad and ld. CIT(A) Baroda we observe that both of them have taken different views in deciding the issue. Ld. CIT(A) Gandhinagar in his appellate order dated 15.1.2014 has not objected to the fact that separate rates u/s 115A of the Act/DTAA agreement are provided for the deductees but has not allowed the assessees claim either due to absence of material evidence on the part of the assessee in order to prove that there existed an agreement pertaining to industrial policy or in the alternative has directed the Assessing Officer to check the treaty r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 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 of the non-residents; and, such rate of tax being lower than the rate o! 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich 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 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 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 overrides the charging sections 4 and 5 of the Act which, in turn, override the DTAAs provisions especially section 206AA of the Act which is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of processing of TDS return under section 200A, is unsustainable in law. We quash this short deduction of tax at source demand. The grievance of the assessee is indeed justified, merits acceptance and is hereby upheld. 34. Respectfully following the above decisions of Co-ordinate Benches, following the judicial consistency and observing that the facts of the cases are squarely covered by these decisions, we are of the view that in case where payments have been made to the deductees on the strength of the beneficial provisions of section 115A(1)(b) of the Act or as per DTAA rates r.w.s. 90(2) of the Act, then provisions of section 206AA cannot be invoked by the Assessing Officer insisting to deduct tax @ 20% for non-availability of PAN. 35. Now taking up the second question wherein ld. CIT(A) Gandhinagar sustained some portions of demand for want of verification of agreement relating to industrial policy as well as in case of some payment for verifying the treaty rates, we observe that during the course of hearing ld. AR has affirmed that such type of payments by assessee are being regularly made to the deductees which have been dealt by ld. CIT(A) in appeal before the Tribu ..... 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