TMI Blog2017 (1) TMI 669X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, dated 21/01/2014 vide appeal No.CIT(A)/GNR/26/Intl.Taxn/2012-13 arising out of intimation u/s 200A of the Act dated 4.11.2011 passed by ITO (Intl.Taxn), Baroda, relating to deduction of withholding tax u/s 195 of the IT Act, 1961 (in short the Act) at lower rate on payment made to non-resident for quarter 1st of Asst. Year 2001-12. Assessee has raised following grounds of appeal :- 1. Re: Deduction of withholding tax u/s 195 on payments to Non Residents: 1.1 On the facts and in the circumstances 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 indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by the appellant and reproduced in paragraph above and I agree with the contentions of the appellant that section 206AA and section 139A operates in different fields Requirement for obtaining PAN arc dealt with' in the provisions of section 139A, whereas section 206AA deals with the consequences on failure to furnish PAN in 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, 1998 with effect from 1-11-1998. Rule 114C (1) lists out persons to whom S. 139A shall not apply. Clause (b) 'of this rule exempts nonresidents referred in S. 2(30) from the application of S. 139A. Accordingly the vigor of sections 206AA cannot compel the non-resident to obtain a PAN in India. 139A being a special provisions will override section 206AA which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence 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-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-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hers 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 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 shall apply to the extent they are 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions. 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 deductor would be required to deduct tax at the higher of the following 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, assessee was under an obliga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x 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 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 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, w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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