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2023 (1) TMI 173 - HC - Income TaxTDS provisions to be read along with DTAA for computing the tax liability - scope for deduction of tax @ 20% under Section 206AA - Whether Tribunal is right in law holding that the TDS provisions in the Act has to be read along with DTAA for computing the tax liability on the sum in question and therefore when the recipient is eligible for benefit of DTAA then there is no scope for deduction of tax @ 20% under Section 206AA when the assessing authority has rightly invoked said provision as conditions set out in said provisions are satisfied in case of assessee? HELD THAT - It is not in dispute that the assessee has made payment towards technical services to various recipients in different countries as per DTAA with different countries. In the case of Danisco, the Delhi High Court has held that Section 206AA cannot be understood to override the charging Sections 4 and 5 of the Act. It has further held that the provision in Section 206-AA 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. Thus, we are in respectful agreement with the view taken by the Delhi high Court. As per the DTAA, the maximum deduction shall not exceed 10% which the assessee has deducted. Any other interpretation to permit the taxing authority to raise a demand beyond 10% would be incongruous. Also contended that if the law laid down in Danisco is to be applied, Section 206-AA of the Act would be rendered redundant. Such contention is untenable in the facts of this case because there exists DTAA and tax deduction has been made at source as mandated by the said agreement. Decided in favour of the assessee
Issues involved:
Interpretation of TDS provisions in conjunction with Double Taxation Avoidance Agreement (DTAA) for computing tax liability. Detailed Analysis: Issue 1: TDS provisions and DTAA The appeals challenged the order regarding the application of TDS provisions in conjunction with DTAA for calculating tax liability. The primary question was whether the recipient's eligibility for DTAA benefits precludes the deduction of tax at 20% under Section 206AA of the Income Tax Act when the conditions of said provisions are met. The respondent argued that TDS should align with the rates specified in the respective DTAA agreements, citing the example of a 10% tax rate specified in an agreement with Germany. Issue 2: Legal Precedents The respondent relied on the case of Danisco India Pvt. Ltd. vs. Union of India, where the Delhi High Court held that DTAA provisions have an overriding effect, and subsequent amendments attempting to nullify prior provisions are not valid. The Assessing Officer had invoked Section 200-A of the Income Tax Act to demand an additional 10% tax, contrary to the DTAA rate. The respondent contended that the Danisco case precedent favored their position over the revenue. Issue 3: Interpretation of Section 206AA The Revenue's standing counsel argued that Section 206AA mandates a 20% tax rate in the absence of a Permanent Account Number (PAN) from the payee. As PAN numbers were not provided in this case, the counsel asserted that the Danisco ruling did not apply. However, the court examined the contentions of both parties and reviewed the case records. Judgment and Conclusion: The court acknowledged the payments made by the assessee under various DTAA agreements with different countries for technical services. Citing the Danisco case, the court agreed that Section 206AA cannot override the charging Sections of the Income Tax Act and must be read down to align with DTAA provisions. Consequently, the court upheld the application of the DTAA rate of 10% as deducted by the assessee, dismissing the appeals in favor of the assessee and against the revenue. The court found the Revenue's contention of rendering Section 206AA redundant inapplicable in this context due to the existence of DTAA provisions.
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