9911796707
TMI Blog2017 (3) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... payee, which is within the complete domain of the Assessing Officer to be relevant in this context as the tax at source was deducted by the assessee from the sums paid to the non-residents as per the provisions of section 195(1) read with section 2(37A) of the Act. As, the non-resident payees in the present case were having taxable income in India, the facts remain to be seen is that they were not obliged to obtain the Permanent Account Numbers in view of section 139A(8) read with Rule 114C. There is thus a clear contradiction between section 206AA and section 139A(8) read with Rule 114C, as was prevailed in the case of Kaushallaya Bai & Others (2012 (6) TMI 451 - KARNATAKA HIGH COURT) and by applying the analogy of the said decision, we find merit in the contention raised on behalf of the assessee that the provisions of section 206AA are required to be read down so as to make it inapplicable in the cases of concerned nonresidents payees who were not under an obligation to obtain the permanent Account Numbers. As explained by CBDT while inserting the provision of section 206AA vide Circular No. 5 of 2010, the intention of the said provision is mainly to strengthen PAN mechan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-residents, who do not furnish their Permanent Account Numbers . 2. The relevant facts of the case giving rise to the question referred to this Special Bench, which incorporates the solitary common issue involved in these appeals of the assessee are as fol lows. The assessee is a Public Limited Company. During both the years under consideration, it made certain payments in the nature of fees for technical services to non-residents. Some of such non-residents were the residents of other countries with which India did not have any Double Taxation Avoidance Agreement (DTAA) and in their cases, tax at the higher rate of 20% was stated to be deducted by the assessee where the payees failed to furnish valid Permanent Account Numbers as per the provisions of sect ion 206AA of the Act . In case of other nonresidents, who were the residents of those countries, with which India did have DTAAs, tax at the lower rate as prescribed in the relevant Articles of the DTAA was deducted by the assessee even in case of payees, who did not furnish val id Permanent Account Numbers. While processing the TDS returns filed by the assessee for both the years under consideration by the Automatic System ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in g Ghana 15,427 20% 3,085 10.30% 1,589 1496 2. Giammarco- Italy 9,38,659 20% 1,87,732 10.30% 96,682 91050 3. Epping Herman- Germany AADCE296 2M 26,66,348 20% 5,33,270 10% 266635 26663 5 4. Bank of Montral - Canada 14,12,564 20% 2,82,513 15% 211885 70628 5. Bank of Montral - Canada 8,85,188 20% 1,77,038 15% 132778 44259 6. Epping Herman- Germany AADCE296 2M 66,99,991 20% 1339,998 10% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at 20%. He held that PAN was required to be quoted for making declaration under section 197A of the Act for claiming exemption from TDS to be val id. He also held that section 206AA starting with n on-obstante clause overrides all other sections including Sect ion 90(2), Section 115A and sect ion 139A. Rel iance was placed by him in this regard on the decision of Bangalore Bench of ITAT in the case of Bosch Limited vs. - ITO (2013) 115 TTJ 354, wherein it was held that non-residents having income exceeding the taxable limit were bound to obtain and furnish the permanent Account Numbers and if there was a failure to do so, the assessee was liable to withhold tax at higher of the rates prescribed under section 206AA of the Income Tax Act, i .e. 20%. The intimations issued under section 200A by the Assessing Officer treating the assessee to be in default for short-deduction of tax at source, accordingly, were upheld and conf irmed by the ld. CIT(Appeals) by her common appellate order dated 25.03.2014 passed for both the years under consideration i .e. A.Y. 2011-12 and 2012-13. Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred these appeals before the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome which is chargeable to tax in the hands of the non-resident. He submitted that if the income is found to be chargeable to tax in the hands of a non-resident in India as per sections 4, 5 9 of the Domestic Law, then the relevant DTAA is to be looked into for any provision contained therein, which is more beneficial to the assessee. He contended that if as per the beneficial provision of the Treaty, the tax is payable by a non-resident at a lower rate, the person making payment to such nonresident cannot be held to be liable to deduct tax at higher rate by virtue of section 206AA as the beneficial provisions of the Treaty are required to be applied in such case and not the provision of section 206AA. In support of this content ion, Shri Subrahmanyam relied on the decision of the Hon ble Supreme Court in the case of Union of India Another vs. - Azadi Bachao Andolan Another [263 ITR 706], wherein i t was held that the provisions of such an agreement, with respect to cases to which they apply, would operate even if inconsistent with the provisions of the Income Tax Act. He also relied on the decision of the Hon ble Supreme Court in the case of CIT vs. - P.V.A.L. Kulandagan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T in the case of Infosys BPO Limited [154 ITD 816], wherein i t was held that applying the rate of 20% without considering the provision of relevant DTAA and making the consequent adjustment while framing the intimation under section 200A was beyond the scope of the provision of section 206AA. He pointed out that while coming to the said conclusion in the case of Infosys BPO Limited (supra), the Bangalore Bench of ITAT has not only relied on the decision of the Pune Bench of ITAT in the case of Serum Institute of India Limited (supra) but has also relied on its earlier decision in the case of Bosch Limited (supra), especially the observations recorded in paragraph no. 22 and 23 therein. He contended that Double Taxation Avoidance Agreement thus is mini-legislation and as held, inter alia, by the Hon ble Supreme Court in the case of Azadi Bachao Andolan Another (supra), the provisions of the same to the extent beneficial to the assessee override the provision of the Domestic Law and the provisions of section 206AA of the Domestic Law, which are merely machinery provision in relation to tax recovery, cannot therefore override the beneficial provisions of the DTAA. 9. Shri Rajan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of G,E. Technology Centre (P) Limited vs. - CIT reported in 327 ITR 456, he contended that the machinery provisions of section 206AA cannot control the charging provisions of sections 4, 5 and 9, otherwise section 90(2) will become redundant. He referred to the provisions of section 2(37A) to point out that the rates given in DTAA in the case of nonresidents are required to be considered for deduction of tax at source. He contended that going by the legislative intention of introduction of section 206AA, the overriding effect given to the said provision has to be considered in a restrictive sense and the same cannot be applied qua the entire Act. In this regard, he relied on the decision of the Hon ble Supreme Court in the case of Bharat Hari Singhania Others vs. - CWT Others [207 ITR 1] to contend that the effect of overriding provisions is to be considered keeping in view the intent or object of the relevant provisions. He also relied on the decision of the Hon ble Andhra Pradesh High Court in the case of Sanofi Pasteur Holding SA vs. - Department of Revenue Others [354 ITR 316], and contended that the machinery provisions of section 206AA cannot override the sove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can take away the said benef it. Relying on the decision of the Hon ble Karnataka High Court in the case of Kaushallaya Bai Others vs. - Union of India [(2012) 346 ITR 156], he contended that the overriding provisions of section 206AA are required to be read down in such a situation. 12. The ld. CIT(D.R.) Shri Mohan K. Singhania in reply submitted on behalf of the Revenue that although the Principle of Treaty Override is well known, the treaty does not contain a complete code or complete mechanism providing for levy and collection of tax. He contended that it contains some beneficial provisions, which need to be applied while determining the tax liability in a particular case and to that extent only, the provisions of Income Tax Act get modified/overridden. He contended that the Treaty in any case does not provide for the rate at which tax is required to be deducted at source and not a single instance has been brought on record on behalf of the assessee to show that the Treaty provides for TDS at lower rate than applied by the Assessing Officer by invoking the provision of section 206AA. He contended that if there is no provision in a Treaty providing for TDS at lower rate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1987) AIR 117, he contended that the provision of section 206AA will have i ts full operation inspite of anything contrary contained in any other provisions of the Act. He contended that section 206AA thus would prevail even if the same is in conflict with other provisions of the Act and once a person is caught within the mischief of section 206AA, the other provisions of the Act would not have any application. 15. As regards the plea taken on behalf of the assessee by relying, inter alia, on the decision of the Hon ble Karnataka High Court in the case of Hyderabad Industries Limited vs. - ITO [188 ITR 149] that section 206AA relates to collection of tax and the same being a machinery provision must yield to the charging provision of section 4, Ld. CIT(D.R.) contended that the ratio as laid down by the Hon ble Karnataka High Court in the case of Hyderabad Industries Limited (supra) is that if an amount is not chargeable to tax, it should not be subjected to TDS. He submitted that the undisputed position in the present case, however, is that the amount in question constituted the income of the payee and even tax was also deducted by the assessee as payer from the payment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly involved in the present case has actually been decided by the Bangalore Bench in favour of the Revenue in para no. 21 of its order by holding that the recipients are under obligation to obtain a PAN and furnish the same to the payer and if there is a failure to do so, the payer is liable to withhold tax at the higher of the rates prescribed under section 206AA of the Act, i .e. 20%. He submitted that the decision of the Bangalore Bench of ITAT in the case of Bosch Limited (supra) thus is squarely in favour of the Revenue on the issue under consideration and while deciding the similar issue in favour of the assessee in the case of Serum Institute of India Limited (supra), Pune Bench of ITAT has not taken cognizance of the said decision, which was subsisting. He submitted that even the Bangalore Bench of ITAT while deciding the similar issue in favour of the assessee in the case of Infosys BPO Limited (supra) completely misread its earlier decision rendered in the case of Bosch Limited (supra). He submitted that the subsequent decision rendered by the other Benches of the Tribunal in favour of the assessee on this issue has simply fol lowed the decision of the Pune Bench in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant DTAA provisions and the same being charging provisions would override the machinery provisions of section 206AA. He contended that this principle is clearly laid down by the Hon ble Karnataka High Court in the case of Hyderabad Industries Limited (supra) even though the facts involved in the said case might be different. He submitted that the contention of the ld. D.R. that tax deduction at source has nothing to do with the eventual tax liability in the hands of the payee is devoid of any merit in view of the decision of the Hon ble Supreme Court in the case of G,E. Technology Centre (P) Limited (supra), wherein it was held that section 195 has to be read in conformity with the charging provision of sect ions 4, 5 9. He contended that reliance placed by the ld. D.R. in this regard on the decision of the Hon ble Supreme Court in the case of Transmission Corporation (supra) is clearly misplaced as the issue involved in the said case was relating to the amount on which tax was required to be deducted and not the rate at which tax should have been deducted. He contended that in case of payment made on account of royalty, fees for technical services, interest, etc. as involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ode, whichever is earlier, deduct income- tax thereon at the rates in force . 21. As provided in section 195(1), any person responsible for paying to a non-resident, not being a Company, or to a Foreign Company, inter alia, any other sum chargeable under the provisions of the Act (not being income chargeable under the head salaries ) shall deduct income-tax thereon at the rates in force. The meaning of the term rates in force used in sect ion 195(1) is given in section 2(37A) of the Act and Clause (iii) thereof being relevant in the present context is re-produced hereunder:- Clause 2(37A)- Rate or rates in force or rates in force in relation to an assessment or financial year, mean- (i).... .... ... .... .... ... (ii).. .... .... .... .... .. (iii) For the purposes of deduction of tax u/s 195 of the Act, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-tax specified in an agreement entered into by the Central Government u/s 90 or an agreement notified by the Central Government under section 90A, whichever is applicable by virtue of the provisions of section 90, or s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the various judicial pronouncements cited on behalf of the assessee in support of the stand that charging provisions of sections 4, 5 9 override the machinery provisions governing the tax deduction at source as the same have been rendered in the context where the issue relating to the liability to deduct tax at source from the payments made to the non-residents had arisen apparently when the amount in question paid to the non-residents was not chargeable to tax as per the charging provisions of sections 4, 5 and 9 read with the provisions of the relevant DTAA. These arguments and case laws no doubt will be relevant while considering the extent of overriding effect of section 206AA and we shall consider and deal with the same at the appropriate stage. Suffice it to say at this stage that tax at source was deducted by the assessee from the payments in quest ion made to the nonresidents on account of fees for technical services as per the rates of tax provided in the relevant DTAAs, which were adopted as the rates in force for the purpose of deduction of tax under section 195 by virtue of section 2(37A). 24. Having come to the conclusion that the concerned non-resident persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd relying on the same, the stand taken by the authorities below, which is supported by the ld. CIT(D.R.) at the time of hearing before us, is that the provisions of section 206AA have a overriding effect and since the said provisions override all other provisions of the Income Tax Act, 1961, the same are required to be given effect to. On the other hand, one of the contentions raised on behalf of the assessee in this regard is that the nonresidents at the relevant time were not even required to obtain Permanent Account Numbers as per the provisions of section 139A(8) read with Rule 114C and since they were not obliged to even obtain the PAN, they cannot be required to furnish the same as envisaged in section 206AA and the said provisions, therefore, cannot be applied in the case of non-residents even by the overriding effect given to the said provisions, which is required to be read down. In support of this contention, reliance has been placed on behalf of the assessee on the decision of the Hon ble Andhra Pradesh High Court in the case of Mullapudi Venkatarayudu vs. - Union of India (supra), wherein i t was held that any failure to file return must connote obligation to file the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made to the landmark decision of the Hon ble Andhra Pradesh High Court in the case of Sanofi Pasteur Holding SA vs. - Department of Revenue Others (supra). In the said case, the core issue was required to be decided on appreciation of synergies between the DTAA provisions and those of the Domestic Law and while deciding the same, the origins and evolution of tax treaties and how those conflate, cooperate with domestic tax legislation and converge to signal a unified raft of applicable norms, were taken into consideration by the Hon ble Andhra Pradesh High Court in the light of relevant judicial pronouncements including the decision of the Hon ble Supreme Court in the case of Azadi Bachao Andolan (supra) and P.V.A.L. Kulandagan Chettiar (supra). In this regard, a reference was made to the decision of the Hon ble Supreme Court in the case of Azadi Bachao Andolan (supra), wherein it was held that when Double Taxation Avoidance Treaty, Convention or Agreement (for short, Treaty ) becomes operational and is notified by the Central Government for implementation of its terms under section 90 of the Act , provisions of the Treaty, with respect to cases to which they would apply, woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntracting States to a treaty would transgress the inherent and vital constitutional scheme, of separation of powers. It was held that the provisions of the treaty must receive a good fai th interpretation and where the operative treaty s provisions are unambiguous and their legal meaning clearly discernible and lend to an un-contestable comprehension on good fai th interpretation, no further interpretive exert ion is authorized for that would tantamount to unlawful encroachment into the domain of treaty-making under Article 253. It was further held that where the provisions of the Act and of the DTAA are overlapping and competing legal magisteria, the proper interpretive role requires, on harmonious construction and in accordance with the relat ive weight and priority, to give effect to both competing provisions, as per the inter se weightage mandate by the overreaching legal norms, set out in section 90(2) of the Act. The ratio laid down by the Hon ble Supreme Court in the cases of Azadi Bachao Andolan and Another (supra) and P.V.A.L. Kulandagan Chettiar (supra) as further explained and clarif ied by the Hon ble Andhra Pradesh High Court in the case of Sanofi Pasteur Holding SA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of tax at source as contained in Chapter-XVI I and the charging provisions of the Income Tax Act form one single integral inseparable code and, therefore, the provisions relating to TDS cannot be applied independent of the charging provisions. It is pertinent to note here that this decision in the case of G.E. Technology Centre (P) Limited is rendered by the Hon ble Supreme Court after taking into consideration the earlier decision rendered in the case of Transportation Corporat ion of A.P. Limited (supra) on which reliance has been placed by the ld. CIT, D.R. 30. The ratio of the two decisions of the Hon ble Supreme Court in the case of Ili Lilly And Co. (India) P. Limited (supra) and G.E. Technology Centre (P) Limited (supra) as discussed above clearly shows that the charging provisions control and override the machinery provisions dealing with tax deduction at source. Simi larly, the provisions of DTAAs by virtue of section 90(2) to the extent more beneficial to the assessee override the provisions of Domestic Law as held, inter alia, by the Hon ble Supreme Court in the case of Azadi Bachao Andolan Another (supra) and P.V.A.L. Kulandagan Chettiar (supra). Since sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the scope and purport of the non-obstante clause has to be ascertained by reading it in the context of the relevant provisions and consistent with the scheme of the enactment. As explained by CBDT while inserting the provision of section 206AA vide Circular No. 5 of 2010, the intention of the said provision is mainly to strengthen PAN mechanism and keeping in view this limited function and purpose, we are of the view that non-obstante clause contained in the machinery provision of section 206AA is required to be assigned a restrict ive meaning and the same cannot be read so as to override even the relevant beneficial provisions of the Treaties, which override even the charging provisions of the Income Tax Act by virtue of section 90(2). In our opinion, it, therefore, cannot be said that the provisions of section 206AA, despite the non-obstante clause contained therein, would override the provisions of DTAA to the extent they are more beneficial to the assessee and it is the beneficial provision of treaty that will override the machinery provisions of section 206AA. 32. In the case of Bosch Limited (supra) relied upon by the ld. CIT(D.R.) in support of the revenue s ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
