2018 (12) TMI 1341 - HC - Income Tax

Requirement to furnish Permanent Account Number - Whether the Tribunal was correct in law and on facts in coming to the conclusion that Sec. 206AA does not override the provision of Sec. 90(2) of the Income Tax Act, despite the fact that Sec. 206AA starts with a non-obstance clause? - tax liability on the payee at a lower rate as per Double Taxation Avoidance Agreement (DTAAs) - Held that - We notice that identical situation had came before the Delhi High Court in case of Danisco India Pvt Ltd Vs. Union of India & Ors 2018 (2) TMI 1289 - DELHI HIGH COURT having regard to the position of law explained in Azadi Bachao Andolan (2003 (10) TMI 5 - SUPREME Court) and later followed in numerous decisions that a 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 as dictated by the provisions of the treaty.

Summary

Issues:
Interpretation of Section 206AA and Section 90(2) of the Income Tax Act, 1961.

Analysis:
The High Court was presented with the issue of whether Section 206AA of the Income Tax Act, 1961 overrides the provision of Section 90(2) of the Act. The case involved an assessee, a Limited Company, who had deducted tax at source (TDS) at a rate of 10% while making payments to a non-resident without a Permanent Account Number (PAN). The assessing officer contended that TDS should have been deducted at a higher rate of 20% as per Section 206AA. However, the Tribunal held that the assessee was not liable to deduct tax at a higher rate due to the provisions of Section 90(2) which related to Double Taxation Avoidance Agreements (DTAAs).

The High Court referred to a similar case before the Delhi High Court, where the issue was discussed extensively. The Delhi High Court observed that the law prior to the amendment of Section 206AA resulted in an additional 10% tax being levied if the non-resident payee did not possess a PAN, even if the DTAA mandated a lower rate of tax. The Court emphasized the primacy of DTAAs in determining the applicable tax rate for overseas residents operating in territories with agreements with India.

Given the detailed discussion in the Delhi High Court judgment and the Tribunal's decision, the High Court concurred with the interpretation of the relevant statutory provisions. The Court dismissed the Income Tax Appeals, affirming that the assessee was not required to deduct tax at a higher rate under Section 206AA due to the provisions of Section 90(2 and the DTAA in place.