2020 (8) TMI 849 - AT - Income Tax

Applicability of provisions of section 206AA - payments made to non-resident entities - A.O. had also invoked section 206AA of the Act while initiating proceedings u/s 201(1) and 201(1A) - CIT(A) held that section 206AA is not applicable to non-resident entities to whom provisions of DTAA is applicable. Aggrieved, the revenue has filed these appeals before us - HELD THAT - As noticed that the coordinate bench in M/S. BHARATH FRITZ WERNER LTD. 2020 (6) TMI 669 - ITAT BANGALORE has followed the decision rendered in the case of Nagarjuna Fertilisers Chemicals Ltd. 2017 (3) TMI 81 - ITAT HYDERABAD and in the case of Danisco India Private Ltd. 2018 (2) TMI 1289 - DELHI HIGH COURT in holding that the provisions of sec.206AA of the Act would not apply to a recipient of income, who is by the DTAA entered by India and his country. We notice that the Ld CIT(A) has decided this issue on identical lines. Accordingly, we uphold the view taken by Ld. CIT(A) on this issue. - Decided against revenue.

Summary

Issues:
Applicability of provisions of section 206AA of the Income-tax Act,1961 to payments made to non-resident entities under DTAA.

Analysis:
1. The appeals filed by the revenue challenged the order passed by Ld. CIT(A)-12, Bengaluru for the assessment years 2011-12 to 2014-15, focusing on the applicability of section 206AA of the Income-tax Act, 1961 to payments made to non-resident entities.

2. Section 206AA of the Act, introduced from financial year 2010-11, mandates taxpayers to provide their PAN number to the payer of income. Failure to furnish PAN results in higher TDS rates. The A.O. invoked section 206AA while initiating proceedings u/s 201(1) and 201(1A) of the Act, but Ld. CIT(A) ruled it inapplicable to non-resident entities covered under DTAA. Revenue appealed against this decision.

3. The issue was previously decided in favor of the assessee by the Bangalore bench of ITAT in a similar case. The tax effect in the revenue's appeals was below prescribed limits. As the issue was common in all appeals, they were disposed of on merits.

4. The Bangalore bench's decision in M/s. Bharath Fritz Werner Ltd case highlighted that section 206AA does not apply to non-resident recipients covered under DTAA. The CIT(A) accepted this stance, aligning with the Hyderabad ITAT's Special Bench decision and the Delhi High Court's ruling in Danisco India Private Ltd. case.

5. The Special Bench held that DTAA prevails over the Act, even if inconsistent, emphasizing good faith interpretation of DTAAs. This view was supported by the Delhi High Court's decision. Consequently, the appeals by the revenue were dismissed, upholding the CIT(A)'s decision.

6. The coordinate bench's alignment with the Hyderabad ITAT and Delhi High Court rulings reinforced the non-applicability of section 206AA to recipients covered by DTAA. Thus, all revenue appeals were dismissed based on this established legal principle.