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2017 (1) TMI 669 - ITAT AHMEDABAD

2017 (1) TMI 669 - ITAT AHMEDABAD - TMI - Deduction of withholding tax u/s 195 - non-resident not having PAN - lower rate on payment made to non-resident for quarter 1st of Asst. Year 2001-12 - CIT(A) confirming the action of AO for applying TDS deduction @ 20% as per provisions of section 206A as against TDS deducted by assessee @ 11.33% covered u/s 115A(10(b) - Held that:- Respectfully following the decision of Co-ordinate Bench in the case of Alembic Ltd. vs. ITO (2017 (1) TMI 635 - ITAT AHME .....

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efore, set aside the order of ld. CIT(A), delete the claim towards short deduction and allow ground no.1 of assessee. - Levying of interest u/s 201(1A) of the Act is consequential in nature. - ITA No. 1204/Ahd/2014 - Dated:- 4-1-2017 - Shri R.P. Tolani, JM And Shri Manish Borad, AM Appellant by Smt. Urvashi Shodhan, AR Respondent by Shri Rakesh Jha, Jr. DR ORDER Per Manish Borad, Accountant Member This appeal of the assessee is directed against the order of ld. CIT(A), Gandhinagar, Ahmedabad .....

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es of the case and in law, the learned Commissioner of Income Tax (Appeals) [hereinafter referred to as 'the learned CIT (A)] erred in upholding the action of the Assessing officer applying the rate of 20 per cent without appreciating that the agreement with Honeywell falls under the industrial policy and hence the rates of S.115A(l)(b) should be applicable. 2. Re: Levy of Interest u/s 201(1A) 2.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in levyi .....

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rvices as per provisions of section 115A of the Act. However, ld. Assessing Officer alleged that tax was required to be deducted @ 20% in view of the provisions of section 206AA of the Act as the assessee was not having PAN and accordingly raised demand of ₹ 30,250/- towards short deduction and ₹ 5750/- towards interest on short deduction. 3. Aggrieved, assessee went in appeal before ld. CIT(A) giving detailed submissions in order to convince ld. CIT(A) that the payment made towards .....

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to Honeywell, a company incorporated in USA for the rendering of the technical services in the nature of maintenance of aircraft. The above payment, as per appellant, is taxable as "fees for technical services' under explanation 2 to section 9(l)(vii) of the Income Tax Act, 1961 ('the Act')- Further the appellant submitted that according to section 115A (BB), tax is chargeable on fees for technical services is 11.33% (inclusive of surcharge and cess). The AO on the contrary has .....

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case tax is required to be deducted under chapter XVII-B of the Act. Section 20GAA does not cast a new obligation on the appellant to obtain a PAN if the same is not required by virtue of section 139A. The argument also gets credence from the facts that by virtue of power vested under section 139A(8) CBDT can exempt certain class of people who are not required to obtain PAN. In exercise of its powers vested u/s. 139A(8) the CBDT has inserted Rule 114C(1) by Income-tax (16th Amendment) Rules, 199 .....

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ction 206AA which is general in nature. However the rates prescribed in section 1.15A are only when the agreement pertains to a matter included in Industrial Policy as subsection (1) clause of (b). No such evidences have been produced before by the appellant i.e. agreement with the Honeywell falls under Industrial policy, it is inconceivable that the until and unless the matter pertains to industrial policy the rates of section 115A (l)(b) would be applicable and hence the action of the AO apply .....

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al placed before us. Through this appeal a limited issue raised by assessee is against the order of ld. CIT(A) confirming the action of ld. Assessing Officer for applying TDS deduction @ 20% as per provisions of section 206A of the Act as against TDS deducted by assessee @ 11.33% covered u/s 115A(10(b) of the Act. We observe that similar issue as almost identical facts came up before the Co- ordinate Bench in the case of Alembic Ltd. vs. ITO (supra) wherein the Co-ordinate Bench allowed assessee .....

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nts. 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. .....

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ance 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 agg .....

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lanation.-For the purposes of this section,- (a) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9 ; (b) "foreign currency" shall have the same meaning as in the Explanation below item (g) of sub-clause (iv) of clause (15) of section 10 ; Sec. 206AA. 69. After section 206A of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2010, namely:- "206AA. .....

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cified in the relevant provision of this Act; or (ii ) at the rate or rates in force; or (iii ) at the rate of twenty per cent. (2) No declaration under sub-section (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 certificat .....

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rnished his Permanent Account Number to the deductor and the provisions of sub- section (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 as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act sha .....

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to 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 .....

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t source at lower rates than 20% in the absence of PAN of the deductees by confirming application of provisions of section 206AA of the Act and was of the view that no such provisions was brought before him by the assessees which bars the application of sec.206AA of the Act over the persons covered under DTAA. 31. Now summarizing the decisions of ld. CIT(A)s we come across following two questions which need adjudication:- (1) As to whether provisions of section 206AA are applicable on payments m .....

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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 d .....

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lowing rates, namely, at the rate prescribed in the relevant provisions of this Act; or al 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 furnishing of PAN .....

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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(A) has c .....

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ate 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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urnishing 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 i .....

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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, sectio .....

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rength of the beneficial provisions of section DTAAs, the revisions 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 on 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 .....

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IT 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 provision .....

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- i.e. taxability @ 20% in the event of foreign entity not obtaining the permanent account number in India, therefore, cannot be pressed into service, as has been done in the course of processing of return under section 200A. To that extent, short deduction of tax at source demand, raised in the course 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 .....

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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 Tribunal. .....

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