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2021 (4) TMI 1190 - AT - Income TaxTDS at the higher rate of 20% in case of payee without PAN under the provisions contained u/s 206AA - Section 206AA overriding effect on DTAA or not? - DTAA between India and Neitherland - Short deduction of TDS - non-provision of PAN in case of Engine Lease Finance B.V. (ELFC), a non-resident company, taxed resident in Neitherland, which was not mentioned at the time of return as the foreign company did not have PAN.HELD THAT - As engine is a part of aircraft and cannot be said to be an aircraft and payment made for rent of engine are covered under equipment as per Article 12 (4) of the DTAA between India and Neitherland; that under Article 12(4) of the DTAA between India and Neitherland, the term royalty does not cover use of, or the right to use equipment itself; that rental of aircraft engine is neither a copyright nor a payment of any information; that under Article 12(6) of the DTAA, fee for technical services also does not include the amount paid for services that are ancillary and subsidiary to the rental of ships, aircrafts, containers or other equipment used in connection with the operation of ships or aircrafts in international traffic; the assessee is entitled for beneficial provisions of DTAA. So, following the order passed by the coordinate Bench of the Tribunal in cases of DDIT (IT-II), Pune vs. Serum Institute of India Ltd. 2015 (6) TMI 26 - ITAT PUNE , DCIT vs. M/s. Infosys BPO Ltd. 2020 (1) TMI 1011 - ITAT BANGALORE and the judgment of Hon ble Delhi High Court in case of Danisco India Pvt. Ltd. vs. UOI 2018 (2) TMI 1289 - DELHI HIGH COURT we are of the considered view that ld. CIT (A) has erred in holding that in this case, provisions contained u/s 206AA overrides beneficial provisions of DTAA between India and Neitherland. Consequently, assessee has rightly deducted the tax @ 10% as per provisions contained under DTAA as section 206AA cannot have overriding effect on DTAA, hence no demand is payable by the assessee. Hence, question framed is decided in favour of the assessee.
Issues Involved:
1. Short deduction of tax for different quarters of FY 2012-13. 2. Interest on short deduction of tax. 3. Applicability of Section 206AA of the Income-tax Act, 1961 versus the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the Netherlands. Detailed Analysis: 1. Short Deduction of Tax: The appellant, M/s. Air India Limited, sought to delete the demands raised on account of short deduction of tax for the second, third, and fourth quarters of FY 2012-13. The amounts in question were ?73,00,719, ?80,82,662, and ?57,05,582 respectively. The issue arose because the appellant deducted tax at 2.31% instead of the higher rate mandated by Section 206AA due to the non-resident company, Engine Lease Finance B.V. (ELFC), not having a PAN. The appellant argued that they mistakenly treated ELFC as an Indian company and deposited the tax from their account. 2. Interest on Short Deduction of Tax: The appellant also contested the interest demands of ?15,28,222, ?13,78,108, and ?8,07,085 for the respective quarters. The interest was levied due to the short deduction of tax as mentioned above. 3. Applicability of Section 206AA versus DTAA Provisions: The core issue was whether the appellant was required to deduct tax at the higher rate of 20% under Section 206AA due to the non-resident company not having a PAN or if they were entitled to the beneficial provisions of the DTAA, which prescribed a lower tax rate of 10%. Judgment Analysis: Short Deduction of Tax and Interest: The Tribunal noted that the appellant had not deducted TDS from the payments but had deposited the tax from their account, absorbing it as a cost. The CIT (A) had confirmed the demands, but the Tribunal found that the appellant was entitled to the beneficial provisions of the DTAA. Applicability of Section 206AA versus DTAA: The Tribunal examined the provisions of the DTAA between India and the Netherlands, specifically Article 7 and Article 12(4), which deal with the taxation of profits and royalties. It was undisputed that ELFC, the lessor, was a foreign company without a Permanent Establishment (PE) in India. The Tribunal referred to the judgments in the cases of Serum Institute of India Ltd., Infosys BPO Ltd., and Danisco India Pvt. Ltd., which established that DTAA provisions override domestic law when they are more beneficial to the taxpayer. The Tribunal concluded that Section 206AA, which mandates a higher tax rate in the absence of a PAN, does not override the beneficial provisions of the DTAA. The DTAA prescribed a tax rate of 10%, which was more beneficial to the appellant. Therefore, the appellant was correct in deducting tax at 10%, and the demands for short deduction and interest were not justified. Conclusion: The Tribunal held that the CIT (A) erred in applying Section 206AA over the DTAA provisions. The tax demands and interest for short deduction were ordered to be deleted. Consequently, all appeals filed by the appellant were allowed. Order Pronouncement: The order was pronounced in open court on April 23, 2021.
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