| COURT: | ITAT Pune |
| CORAM: | G. S. Pannu (AM), Sushma Chowla (JM) |
| SECTION(S): | 206AA, 90(2) |
| GENRE: | Domestic Tax |
| CATCH WORDS: | TDS deduction |
| COUNSEL: | Rajan Vora |
| DATE: | March 30, 2015 (Date of pronouncement) |
| DATE: | April 1, 2015 (Date of publication) |
| AY: | 2011-12 |
| FILE: | Click here to download the file in pdf format |
| CITATION: | |
| S. 206AA: Even in the absence of PAN payer not required to deduct TDS at 20% if case covered by DTAA | |
The ITAT had to consider whether section 206AA of the Act was applicable in cases which are governed by the DTAAs and whether section 206AA of the Act would override section 90(2) of the Act and therefore the tax deduction was liable to be made @ 20% in absence of furnishing of PANs by the recipient non-residents. HELD by the ITAT:
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 assessee deducted the tax at source at the rates prescribed in the respective DTAAs between India and the relevant country of the non-residents. 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. Section 90(2) provides that the provisions of the DTAAs would override the provisions of the domestic Act in cases where the provisions of DTAAs are more beneficial to the assessee. 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. Section 206AA of the Act is not a charging section but is a part of a procedural provisions dealing with collection and deduction of tax at source. Therefore, 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 (Azadi Bachao Andolan and Others vs. UOI, (2003) 263 ITR 706 (SC), CIT vs. Eli Lily & Co., (2009) 312 ITR 225 (SC) & GE India Technology Centre Pvt. Ltd. vs. CIT, (2010) 327 ITR 456 (SC) followed)
This is like turning s. 206AA redundant in case of NR which cannot be true.
It is one thing that PAN is not mandatory for NR but not having so applied one needs to pay 20% to the Government. moreover the system will not recognise any redundancy in the application of the provisions of the Act. one must use this decison cautiously.
Very Welcome decision. Section 206AA create something which is not created by Section 4,5 & 9. So naturally, if Section 4,5 & 9 do not make something taxable, 195 has no application at all. It is settled in law that 90(2) overrides Section 4,5 & 9 so correct interpretaion by Hon. Bench. Sigh of relief by common taxpayers
It is Good judgement in favour of honest tax payer which will help various companies who make remittance to various countries. Hope no amendment is passed by the Government.
This is good judgement by ITAT Pune. The reason being if a person has to make a single payment once in a life time to foreign party then also AO are insisting on PAN no. for TDS. Because of this provision of 20% TDS (for not providing PAN) many companies were not ready to supply technology and services which India needed badly. With Modi’s concept of ‘ ease of business’ the amendment should be brought in 206AA stating that 20 % TDS for non PAN is not applicable to NR companies.