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2019 (9) TMI 261

..... ides the provision of sec.90(2) or not - HELD THAT:- As decided in CALDERYS FRANCE, C/O CALDERYS INDIA REFRACTORIES LTD. [2017 (9) TMI 107 - ITAT PUNE] where the provisions of section 206AA of the Act cannot override the provisions of charging sections 4 and 5 of the Act and also where under section 90(2) of the Act, it is provided that DTAAs would override domestic law, in cases where the provisions of DTAAs are more beneficial to the assessee. - Decided in favour of assessee. - ITA No.1650/PUN/2017 - 4-9-2019 - Ms. Sushma Chowla, JM And Shri Anil Chaturvedi, AM For the Appellant : Shri Shashank Deogadkar For the Respondent : Shri Mehul Shah ORDER PER SUSHMA CHOWLA, JM: The appeal filed by Revenue is against order of CIT(A)-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 memora .....

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..... te of India Limited, which has also been followed by ITAT Bangalore in the case of Infosys BPO Ltd. ITA No.1143/Bang/2014 and in the case of Wipro Ltd. ITA No.1544/2013, and as the appellant has obtained TRC and has deducted tax as per Article 12 of India and Japan DTAA @ 10%, there was no shortfall in deduction of tax at source in respect of payment to nonresident. The special bench of ITAT Hyderabad in the case of Nagarjuna Fertilizers [TS-67-ITAT-2017(HYD)] also held that section 206AA cannot over write beneficial DTAA rates. Therefore the tax demand relatable to difference between 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 Fran .....

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..... by the Pune Bench of Tribunal in DDIT Vs. Serum Institute of India Ltd. (supra), wherein it was held 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 deals with requirements of furnishing PAN by any person, entitled to receive any sum or income on 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-re .....

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..... n invoked by the assessee based on the DTAAs, which prescribed for a beneficial rate of taxation. However, the case of the Revenue is that the tax 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 v. Eli Lily & Co. [2009] 312 ITR 225 .....

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..... , where the tax has been deducted on the strength of beneficial provisions of DTAA, provisions of section 206AA of the Act cannot be invoked by the Assessing Officer to insist that the tax deduction should be @ 20%. Accordingly, since the assessee had received PAN number, it was obliged to pay the taxes as per DTAA i.e. @ 10% of the payment received and 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 .....

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..... of Bharat Hari Singhania (supra), it was held by the Hon ble Supreme Court that the scope and purport of the non-obstante clause has to be ascertained by reading it in the context of the relevant provisions and consistent with the scheme of the enactment. As explained by CBDT while inserting the provision of 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 .....

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