2018 (4) TMI 1936 - AT - Income Tax

Benefit of treaty - recipients satisfied conditions of the treaty and can be treated as resident of respective countries as per the DTAA - whether the learned CIT(A) was justified in holding that section 206AA of the Income Tax Act, 1961 do not override the provisions of Double Taxation Avoidance Agreement entered into by the Government of India under section 90? - HELD THAT - We find that, in the case of DDIT Vs Serum Institute of India Pvt. Ltd. 2015 (6) TMI 26 - ITAT PUNE 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, assessee correctly applied the rate of tax prescribed under the DTAAs and not as per section 206AA of the Act because the provisions of the DTAAs was more beneficial. Thus, we hereby affirm the ultimate conclusion of the CIT(A) in deleting the tax demand relatable to difference between 20% and the actual tax rate on which tax was deducted by the assessee in terms of the relevant DTAAs. As a consequence, Revenue fails in its appeals. The views so expressed by the coordinate bench now stand approved by Hon ble Delhi High Court s judgment in the case of Dansico India Pvt. Ltd. 2018 (2) TMI 1289 - DELHI HIGH COURT No judicial precedent to the contrary has been brought to our notice. In this view of the matter, and respectfully following the binding judicial precedents, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter.

Summary

Issues:
1. Interpretation of section 206AA of the Income Tax Act, 1961 vis-a-vis Double Taxation Avoidance Agreement (DTAA) under section 90 of the Act.

Analysis:
The central issue in this appeal was whether section 206AA of the Income Tax Act, 1961 overrides the provisions of the DTAA entered into under section 90 of the Act. The Appellate Tribunal considered the arguments presented by both parties and examined relevant legal precedents to reach a decision. The key contention revolved around whether the recipients were entitled to the benefits of the treaty without fulfilling the conditions of the treaty and being treated as residents of their respective countries as per the DTAA.

The Tribunal referred to a judgment in the case of DDIT Vs Serum Institute of India Pvt. Ltd., where it was observed that section 206AA of the Act pertains to the requirement of furnishing PAN for tax deduction at source. The Tribunal highlighted that the provisions of the DTAA would prevail over the domestic Act if they are more beneficial to the assessee, as per section 90(2) of the Act. It was emphasized that in cases involving non-residents, tax liability is determined based on the more favorable provisions of the Act or the DTAA.

Additionally, the Tribunal underscored that the charging sections 4 and 5 of the Act, which deal with the ascertainment of total income, are subservient to the principle enshrined in section 90(2) of the Act. Therefore, the Tribunal concluded that the provisions of section 206AA of the Act, which relate to tax deduction at source, cannot override the more beneficial provisions of the DTAA. The decision was supported by a recent judgment of the Hon'ble Delhi High Court, reinforcing the primacy of DTAA provisions over domestic tax laws in cases where they are advantageous to the assessee.

Consequently, the Tribunal upheld the CIT(A)'s decision to delete the tax demand based on the difference between the prescribed rate under section 206AA and the actual tax rate applied under the relevant DTAAs. The appeal was dismissed in favor of the assessee, in line with established legal principles and precedents.