TMI Blog2019 (5) TMI 1161X X X X Extracts X X X X X X X X Extracts X X X X ..... BAD [ 2018 (4) TMI 1272 - ITAT DELHI] Whether the treaty overrides the Act ? - Having regard to the position of law explained in Azadi Bachao Andolan [ 2003 (10) TMI 5 - SUPREME COURT] and later followed in numerous decisions that a Double Taxation Avoidance Agreement acquires primacy in such cases, where reciprocating states mutually agree upon acceptable principles for tax treatment, the provision in Section 206AA (as it existed) has to be read down to mean that where the deductee i.e the overseas resident business concern conducts its operation from a territory, whose Government has entered into a Double Taxation Avoidance Agreement with India, the rate of taxation would be as dictated by the provisions of the treaty. See DANISCO INDIA PRIVATE LIMITED VERSUS UNION OF INDIA AND ORS. [ 2018 (2) TMI 1289 - DELHI HIGH COURT] - Decided against revenue. - ITA No. 5632/DEL/2016, ITA No. 5633/DEL/2016 - - - Dated:- 17-5-2019 - Shri N.K. Billaiya, Accountant Member, And Shri K.N. Chary, Judicial Member For the Assessee : Shri Rohit Jain, Adv., Shri Deepak Jain, Adv For the Revenue : Shri Abhiskek Kumar, Sr. DR ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that in a number of decisions of the tribunal this issue has been decided in favour of the assessee and recently in Danisco India Private Limited Vs. Union Of India WP(C) 5908/2015 decided on 05/02/2018, the Hon ble jurisdictional High Court noted the order of the Pune tribunal in DCIT Vs Serum Institute of India Limited, ITA Nos.1601 to 1604/PN/2014 (Assessment Year : 2011-12) to hold that section 206AA of the Act does not override the provisions of Section 90(2) of the Act and that in the cases of payments made to non-residents, the rate of tax to be applied is as prescribed under the DTAA and not as per Section 206AA of the Act because the provisions of the DTAA are more beneficial. 6. The Hon ble jurisdictional High Court extracted the following observations of the Tribunal in Serum Institute of India Limited (supra) with approval: 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 cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urged has been rendered largely academic on account of corrective amendment made by the Parliament-which substituted preexisting Sub-section (7) with the present Section 206AA (7). The amendment is mitigating to a large extent, the rigors of the preexisting laws. The law, as it existed, went beyond the provisions of W.P.(C) 5908/2015 Page 8 of 11 DTAA which in most cases mandates a 10% cap on the rate of tax applicable to the state parties. Section 206AA (prior to its amendment) resulted in a situation, where, over and above the mandated 10%, a recovery of an additional 10%, in the event, the non- resident payee, did not possess PAN. 7. In this context, the ITAT in Serum Institute of India (Supra) discussed this very issue in some detail and stated, as follows: ............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 rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 controversy before us. Therefore, in our view, where the tax has been deducted on the strength of the 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, asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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