2023 (2) TMI 904 - AT - Income Tax

Rate of TDS on payment to non resident - Non-availability of PAN of non resident - payments in the nature of fees for technical services - provisions of section 90(2) read with DTAA overrides the provision of section 206AA or not? - Whether assessee is liable for deduction of tax at higher rate for want of Permanent Account Number of the concerned non-resident payees as per the provisions of section 206A? - HELD THAT - There is no dispute to the fact that all the payments were made to the non resident of the countries with whom there are DTAA agreement by India. There is no dispute to the fact that the assessee had applied rate at lower level while the AO had applied higher rates as per Act considering appellant to be assessee in default. The order of the CIT(A) shows that the judgment of Danisco India Pvt. Ltd Vs. UOI 2018 (2) TMI 1289 - DELHI HIGH COURT wherein case of Dy. CIT Vs. Serum Institute of India 2015 (6) TMI 26 - ITAT PUNE Further without a wording of discussion to distinguish the legal proposition on facts or law, CIT(A) had failed to follow the same. This leaves no doubt in the mind of this bench that the ld Tax Authorities below have fallen in error in not extending the benefits of section 90(2) - DR could not point out the provisions of the Act or DTAA to support the observations of CIT(A). The matter of fact remains that what were the rates of taxation under DTAA are not coming up from the matter before this bench therefore, the issue requires to be restored to the files of Ld. AO to take into consideration the rate of the DTAA and recalculate the tax demand considering difference between the rate applied by the Ld. AO and the rates on which tax deducted by the assessee in terms of the relevant DTAA. As far as the claim of refund is concerned there is no force in the submissions of the ld DR that claim is being raised belated as order of the CIT(A) shows that rectification petition u/s 154 was filed by the assessee wherein, the request for refund of the excess TDS deducted was made and being aggrieved by non rectification and non-refund of the tax deposited appeal was filed. This issue is also subject to the determination of tax rates as directed to be recalculated.

Summary

Issues Involved:
- Interpretation of section 206AA of the Income Tax Act, 1961 in relation to section 90(2) and Double Taxation Avoidance Agreements (DTAA).
- Applicability of tax rates under DTAA for non-residents without Permanent Account Number (PAN).
- Claim of refund for excess Tax Deducted at Source (TDS) by the assessee.

Detailed Analysis:
1. The appeals were filed by the assessee against the orders of the ld CIT(A) for Assessment Years 2016-17 and 2017-18, challenging the demand raised due to short deduction of taxes on payments made to non-residents. The ld AO held the assessee liable for higher tax deduction due to the absence of PAN of non-resident payees. The assessee argued that DTAA provisions should override section 206AA, citing relevant case laws like Danisco India Pvt. Ltd. Vs. Union of India and Dy. DDIT Vs. Serum Institute of India. However, the ld CIT(A) upheld the default assessment, emphasizing the requirement for PAN details for availing treaty benefits.

2. The grounds raised in both appeals primarily challenged the conclusion that section 206AA overrides section 90(2) applicable to non-residents covered by DTAA. The appellant relied on legal precedents to support the claim that tax rates under DTAA should apply, not section 206AA rates. Additionally, the appellant sought a refund of excess TDS deposited, arguing that TDS was not deducted from the bills but borne by the appellant.

3. During the hearing, the ld AR reiterated the arguments made before the ld CIT(A), emphasizing the applicability of DTAA rates. Case laws and CBDT Circulars were cited to support the claim for a refund of excess TDS. On the other hand, the ld DR supported the ld CIT(A)'s findings and contended that a refund claim should have been raised earlier in the proceedings.

4. The ITAT bench analyzed the case and referenced the judgment in Danisco India Pvt. Ltd. Vs. Union of India to establish that section 206AA does not override section 90(2) and DTAA provisions. The bench highlighted that tax deduction provisions should be viewed in conjunction with DTAA and relevant sections of the Income Tax Act. It was concluded that the ld Tax Authorities erred in not applying the benefits of section 90(2) and directing a recalculation based on DTAA rates.

5. Ultimately, the bench allowed the grounds raised by the assessee, directing the matter to be restored to the ld AO for reconsideration of tax rates under DTAA. The claim for a refund was also upheld, rejecting the argument that it was belated. The appeals were allowed for statistical purposes, emphasizing the need for a reassessment based on DTAA rates and the refund claim.