2018 (4) TMI 1272 - AT - Income Tax

Section 206AA overriding the provisions of Section 90(2) - whether in cases of the payments made to non-residents, what is the rate of tax to be applied, whether it is as per Section 206AA or as per the provisions of DTAA? - Held that - Section 206AA of the Act does not override the provisions of Section 90(2) of the Act and that in the cases of payments made to non-residents, assessee correctly applied the rate of tax prescribed under the DTAAs and not as per Section 206 AA of the Act because the provisions of the DTAAs were more beneficial. The orders of the authorities below cannot be sustained Direct the deletion of 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. Appeals are allowed accordingly.

Summary

Issues:
Whether Section 206AA of the Income Tax Act overrides Section 90(2) of the Act in cases of payments made to non-residents, and what is the correct rate of tax to be applied in such scenarios.

Analysis:
The case involved an appeal challenging the order passed by the Commissioner of Income-tax (Appeals) for the assessment year 2013-14. The appellant, a limited company engaged in import and export business, had filed TDS statements for all quarters but the assessing officer computed short deduction and interest. The appellant claimed to have deducted TDS based on rates under the DTAA with respective countries, while the CPC applied a fixed rate of 20% under Section 206AA due to non-PAN holders. The appeal contended that Section 206AA cannot override Section 90(2) of the Act, which was rejected by the CIT(A).

The main argument was whether Section 206AA overrides Section 90(2) and the correct rate of tax for non-resident payments. The appellant cited precedents where the tribunal ruled in favor of the assessee and referred to a recent High Court decision supporting DTAA rates over Section 206AA. The tribunal noted that DTAAs prevail if more beneficial to the assessee, as upheld by the Supreme Court in previous cases. It was emphasized that Section 206AA is procedural and does not override charging sections like 4 and 5 of the Act or DTAA provisions under Section 90(2).

The tribunal concurred that Section 206AA does not supersede Section 90(2) and that the appellant correctly applied DTAA rates, which were more advantageous. The orders of the lower authorities were quashed, directing the deletion of tax demand based on the difference between 20% and actual tax rate deducted under relevant DTAAs. Consequently, all appeals of the assessee were allowed, affirming the precedence of DTAA rates over Section 206AA in non-resident payments.