TMI Blog2019 (9) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... -3, Nashik, dated 20.03.2017 relating to assessment year 2016-17 against order passed under section 200A r.w.s. 154 of the Income-tax Act, 1961 (in short the Act ). 2. The Revenue has raised the following grounds of appeal:- 1) The CIT(A) erred in law in concluding that sec 206AA is not applicable in case of non-residents as the DTAA overrides the Act as per section 90(2). 2) The decision of the CIT(A) is not according to the law and erred in ignoring the memorandum explaining the provisions of the Finance (No.2) Bill, 2009 which clearly states that the sec 206AA applies to non-residents and also Press Release of CBDT No.402/92/2006-MC (04 of 2010) dated 20.01.2010 which reiterates that sec. 206AA will also apply to all non-residents in respect of payments/remittances liable to TDS. 3) The CIT(A) is erred in ignoring the decision of the ITAT Bangalore in the case of Bosch Ltd. vs ITO, ITA No.552 to 558 (Bang.) of 2011 dated 11.10.2012, in which it was held that if the recipient has not furnished the PAN to the deductor, the deductor is liable to withhold tax at the higher rates prescribed u/s. 206AA. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een 20% and the actual tax rate on which the tax was deducted by the appellant in term of relevant DTAA is deleted. 6. The Revenue is in appeal against the order of CIT(A). 7. The learned Departmental Representative for the Revenue placed reliance on the provisions of the Act and the intimation issued. 8. The learned Authorized Representative for the assessee pointed out that the issue stands covered by the order of Tribunal in the case of DDIT Vs. Serum Institute of India Ltd. (2015) 170 TTJ 119 (Pune-Trib.), which has been applied by CIT(A) and further by Pune Bench of Tribunal in DCIT Vs. Calderys France (2017) 166 ITD 307 (Pune-Trib.), wherein the aforesaid proposition was applied. 9. We have heard the rival contentions and perused the record. The issue which arises before us is with regard to rate to be applied on the payments made by assessee to a non-resident company. In the facts of the case, the assessee had paid technical fees of ₹ 88,66,667/- and ₹ 2,21,66,667/- on March, 16 to KEC Japan Company Ltd. The assessee had deducted tax @ 10% as per provisions of DTAA and the Assessing Officer on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which tax 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 at 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 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 rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 v. Eli Lily Co. [2009] 312 ITR 225/ 178 Taxman 505 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 Center (P.) Ltd. v. CIT [2010] 327 ITR 456/ 193 Taxman 234/7 taxmann.com 18 held that the provisions of DTAAs along with the sections 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the payee had deducted the tax @ 20% under section 206AA of the Act but the provisions of DTAA being more beneficial had to be applied. 12. Similar view has been taken by the Special Bench of Hyderabad Tribunal in Nagarjuna Fertilizers Chemicals Ltd. Vs. ACIT (supra), wherein it was held as under:- 30. The ratio of the two decisions of the Hon ble Supreme Court in the case of Ili Lilly And Co. (India) P. Limited (supra) and G.E. Technology Centre (P) Limited (supra) as discussed above clearly shows that the charging provisions control and override the machinery provisions dealing with tax deduction at source. Similarly, the provisions of DTAAs by virtue of section 90(2) to the extent more beneficial to the assessee override the provisions of Domestic Law as held, inter alia, by the Hon ble Supreme Court in the case of Azadi Bachao Andolan Another (supra) and P.V.A.L. Kulandagan Chettiar (supra). Since section 206AA falls in Chapter XVII-B dealing with tax deduction at source, it follows that the treaty provisions which override even the charging provision of the Domestic Law by virtue of section 90(2) would also override the machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 206AA vide Circular No. 5 of 2010, the intention of the said provision is mainly to strengthen PAN mechanism and keeping in view this limited function and purpose, we are of the view that non-obstante clause contained in the machinery provision of section 206AA is required to be assigned a restrictive meaning and the same cannot be read so as to override even the relevant beneficial provisions of the Treaties, which override even the charging provisions of the Income Tax Act by virtue of section 90(2). In our opinion, it, therefore, cannot be said that the provisions of section 206AA, despite the non-obstante clause contained therein, would override the provisions of DTAA to the extent they are more beneficial to the assessee and it is the beneficial provision of treaty that will override the machinery provisions of section 206AA. 11. In view of the settled position of the issue which is raised before us, we find no merit in the grounds of appeal raised by Revenue. Upholding the order of CIT(A), we dismiss the grounds of appeal raised by Revenue. 12. In the result, the appeal of Revenue is dismissed. Order pronounced on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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