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2017 (9) TMI 107 - AT - Income TaxRate of TDS - payment to non residents - @25% u/s 206AA in the absence of PAN or 10% as per DTAA - Sec.206AA overrides the provision of sec.90(2) or not - Held that - 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. Hence, the same would also override the charging sections 4 and 5 of the Act. Interpreting the provisions of the Act, therefore, 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. - Decided in favour of assessee.
Issues Involved:
1. Whether the CIT(A) erred in concluding that subsequent obtaining of PAN by the deductee would absolve the assessee from the application of the provision of section 206AA of the I.T. Act. 2. Whether the CIT(A) was right in law and on facts in concluding that section 206AA of the I.T. Act does not override the provision of section 90(2) of the I.T. Act. 3. Whether the CIT(A) was right in ignoring the memorandum explaining the provisions of the Finance (No.2) Bill, 2009 and the Press Release of CBDT, which states that section 206AA of the I.T. Act applies to non-residents in respect of payments/remittances liable to TDS. Issue-wise Detailed Analysis: 1. Subsequent Obtaining of PAN and Section 206AA: The CIT(A) concluded that the subsequent obtaining of PAN by the deductee does absolve the assessee from the application of section 206AA of the Act. The CIT(A) reasoned that the act of filing a return is a self-assessment, and the AO must determine the taxpayer's total income based on applicable law at the time of finalizing the assessment. The CIT(A) emphasized that there cannot be estoppel against the operation of law and that the erroneous understanding of law by the taxpayer should not result in unjust enrichment of the State. Therefore, the AO should have applied the lower tax rate of 10% under the DTAA once the PAN was obtained and refunded the excess tax deducted. 2. Section 206AA and Section 90(2): The CIT(A) held that section 206AA does not override section 90(2) of the Act. The CIT(A) referenced their earlier decision in the case of Serum Institute of India Limited, which was affirmed by the Pune Tribunal, stating that even if the deductee does not have a PAN, the provisions of the DTAA, which are more beneficial, should apply. The CIT(A) directed that the appellant's income should be taxed at 10% as per the India-France DTAA. 3. Ignoring Memorandum and Press Release: The CIT(A) did not consider the memorandum explaining the Finance (No.2) Bill, 2009, and the Press Release of CBDT, which stated that section 206AA applies to non-residents. The CIT(A) focused on the principle that the DTAA provisions, being more beneficial to the assessee, override the domestic law provisions, including section 206AA. Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, emphasizing that section 206AA, being a procedural provision, cannot override the beneficial provisions of the DTAA as per section 90(2). The Tribunal referenced the Pune Tribunal's decision in DDIT Vs. Serum Institute of India Ltd. and the Special Bench of Hyderabad Tribunal in Nagarjuna Fertilizers & Chemicals Ltd., which supported the view that DTAA provisions override section 206AA. The Tribunal concluded that the assessee was entitled to the lower tax rate of 10% under the DTAA and directed the AO to refund the excess tax deducted. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming that the provisions of section 206AA do not override the beneficial provisions of the DTAA, and the assessee's income should be taxed at the lower rate of 10% as per the DTAA. The subsequent obtaining of PAN by the deductee does absolve the assessee from the higher tax rate under section 206AA.
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