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2019 (5) TMI 277 - AT - Income TaxRate of TDS - payments made to non-resident entities not having PAN - TDS liability @10% OR 20% - tax prescribed under the DTAAs OR as per 206AA - scope of provisions of section 90(2) - India UK DTAA - override the DTAAs provisions - AO was of the view that the assessee ought to have TDS on remittances at the higher rate as per Section 206AA - HELD THAT - Consideration before us is squarely covered in favour of the assessee by the decision of the Hon ble Delhi High Court in the case of Danisco India (P) Ltd., Vs. UOI 2018 (2) TMI 1289 - DELHI HIGH COURT as held section 206AA of the Act does not override the provisions of section 90(2) 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 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. Double Taxation Avoidance Agreement acquires primacy in such cases, where reciprocating states mutually agree upon acceptable principles for tax treatment, the provision in Section 206AA (as it existed) has to be read down to mean that where the deductee i.e the overseas resident business concern conducts its operation from a territory, whose Government has entered into a Double Taxation Avoidance Agreement with India, the rate of taxation would be-a dictated by the provisions of the treaty. - Decided against revenue.
Issues Involved:
1. Applicability of Section 206AA of the Income-tax Act, 1961, in respect of payments made to non-resident entities. 2. Validity of notice issued under Section 200A beyond the period of limitation. Issue-wise Detailed Analysis: 1. Applicability of Section 206AA of the Income-tax Act, 1961: The primary issue was whether the provisions of Section 206AA, which mandates a higher rate of tax deduction in the absence of a Permanent Account Number (PAN), override the beneficial provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the United Kingdom. The assessee, a public sector undertaking, had entered into an agreement with M/s. Tatra Sipox, UK, for the transfer of technology and deducted tax at 15% as per Article 13 of the DTAA. The Assessing Officer (AO) contended that tax should have been deducted at 20% as per Section 206AA due to the non-resident payee not having a PAN, raising a demand of ?40,44,710/-. The Commissioner of Income Tax (Appeals) [CIT(A)] reversed the AO’s order, relying on the Delhi High Court’s decision in Danisco India (P) Ltd. v. UOI (2018) 404 ITR 539 (Delhi), which held that DTAA provisions override Section 206AA. The Tribunal upheld the CIT(A)’s decision, affirming that Section 206AA does not override the beneficial provisions of the DTAA, and the tax rate prescribed under the DTAA should prevail. The Tribunal referenced the Delhi High Court’s observation that the amendment to Section 206AA mitigated its rigors and that DTAA provisions, being mutually agreed upon by states, acquire primacy. The Tribunal concluded that where tax is deducted under the DTAA, Section 206AA cannot mandate a higher rate of 20%. 2. Validity of Notice Issued Under Section 200A Beyond the Period of Limitation: The assessee’s cross objections included a ground questioning the validity of the notice issued under Section 200A, arguing it was sent beyond the period of limitation. However, this ground was rendered infructuous due to the Tribunal’s decision to dismiss the Revenue’s appeal, which upheld the CIT(A)’s order favoring the assessee on the primary issue of Section 206AA. Conclusion: In conclusion, the Tribunal dismissed both the Revenue’s appeal and the assessee’s cross objections. The Tribunal’s decision reaffirmed that the provisions of the DTAA, being more beneficial to the assessee, override the procedural requirements of Section 206AA, thereby supporting the assessee’s position on the applicable tax rate for payments to non-residents. The notice validity issue was not addressed substantively due to the primary issue’s resolution in favor of the assessee.
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