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TMI Blog2017 (9) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of DTAA being more beneficial had to be applied. - Decided in favour of assessee. - ITA No. 1265/PUN/2015 - - - Dated:- 14-7-2017 - Ms. Sushma Chowla, JM And Shri Anil Chaturvedi, AM Appellant by : Shri Ajay Modi Respondent by : Shri Niraj Seth ORDER Per Sushma Chowla, JM The appeal filed by the Revenue is against the order of CIT(A)-13, Pune, dated 29.06.2015 relating to assessment year 2011-12 against order passed under section 143(3) r.w.s. 144C(3) of the Income-tax Act, 1961 (in short the Act ). 2. The Revenue has raised the following grounds of appeal:- 1) Whether the CIT(A)-13 erred in facts and in law in concluding that subsequent obtaining of PAN by the deductee would absolve the assessee from the application of the provision of the section 206AA of the I.T. Act. 2) Whether the Ld. CIT(A)-13, Pune was right in law and on facts in coming to the conclusion that the Sec.206AA of the I.T. Act, does not override the provision of sec.90(2) of the I.T. Act, despite the fact that Sec.206AA starts with a non-obstante clause. 3) Whether the Ld. CIT(A)-13, Pune was right in ignoring the memorandum explaining the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total tax deducted was ₹ 1,89,80,100/-. In the return of income, however, the assessee claimed that the amount was taxable @ 10% being royalty / FTS as per Article 13 of the DTAA between India and France. The assessee thus, claimed the refund of ₹ 1,08,53,871/-, in its return of income. The Assessing Officer noted as far as taxability of amount was concerned, there was no dispute, however, the only dispute was vis- -vis applicability of tax rates on such provisions. The Assessing Officer noted that the Indian entity had deducted the taxes on such payments as per provisions of section 206AA of the Act. Referring to the provisions of the Act, the Assessing Officer further noted that the assessee had received PAN number on 14.08.2012 and the scanned copy of PAN details are placed at page 3 of the assessment order. The Assessing Officer noted that under the provisions of section 206AA of the Act, no such situation was envisaged. There was no provision under the Act to allow refund, where the tax was deducted at higher rate as per provisions of section 206AA of the Act and where the deductee obtains PAN in subsequent period. In view thereof, proposition made by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the law as provided u/s 143(3). 2.6 Even otherwise, I have taken the position in my appellate Order of Serum Institute of India Limited vide Appeal No.Pn/CIT(A)-IT/TP/DDIT(Int.tax)-II/95,94,96/2011-12 56/2012-13 dated 28.01.2013 for the AY 2011-12 (Qrt I/II/III/IV) that even if the provisions of the Income Tax Act require the deductee to obtain PAN, such a provision cannot override the bilateral agreement between the countries ie DTAA. This Order is confirmed by the honourable Pune Tribunal and reported at (2015) 56 taxmann.com 1(Pune Trib). Accordingly, the assessees are not required to deduct tax at the higher rate even when the non-resident deductee does not have PAN. Therefore, even if the issue is examined from this perspective, the Appellant s income is taxable @ 10%. 2.7 In view of the above discussion, I hold that the Appellant s income is taxable @ 10% as provided under Article 13 of the India-France DTAA. The learned AO is directed to assess the Appellant s income accordingly and refund the excess tax. 6. The Revenue is in appeal against the order of CIT(A). 7. The learned Departmental Representative for the Revenue pointed out that there was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered the rival submissions. Section 206AA of the Act has been included in Part B of Chapter XVII dealing with Collection and Recovery of Tax Deduction at source. Section 206AA of the Act deals with requirements of furnishing PAN by any person, entitled to receive any sum or income on which tax is deductible under Chapter XVII-B, to the person responsible for deducting such tax. Shorn of other details, in so far as the present controversy is concerned, it would suffice to note that section 206AA of the Act prescribes that where PAN is not furnished to the person responsible for deducting tax at source then the tax deductor would be required to deduct tax at the higher of the following rates, namely, at the rate prescribed in the relevant provisions of this Act; or at the rate/rates in force; or at the rate of 20%. In the present case, assessee was responsible for deducting tax on payments made to non-residents on account of royalty and/or fee for technical services. The dispute before us relates to the payments made by the assessee to such non-residents who had not furnished their PANs to the assessee. The case of the Revenue is that in the absence of furnishing of PAN, assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the tax deduction at source was required to be made at 20% in the absence of furnishing of PAN by the recipient non-residents, having regard to section 206AA of the Act. In our considered opinion, it would be quite incorrect to say that though the charging section 4 of the Act and section 5 of the Act dealing with ascertainment of total income are subordinate to the principle enshrined in section 90(2) of the Act but the provisions of Chapter XVII-B governing tax deduction at source are not subordinate to section 90(2) of the Act. Notably, section 206AA of the Act which is the centre of controversy before us is not a charging section but is a part of a procedural provisions dealing with collection and deduction of tax at source. The provisions of section 195 of the Act which casts a duty on the assessee to deduct tax at source on payments to a non-resident cannot be looked upon as a charging provision. In-fact, in the context of section 195 of the Act also, the Hon'ble Supreme Court in the case of CIT v. Eli Lily Co. [2009] 312 ITR 225/ 178 Taxman 505 observed that the provisions of tax withholding i.e. section 195 of the Act would apply only to sums which are otherwise c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked by the Assessing Officer to insist that the tax deduction should be @ 20%. Accordingly, since the assessee had received PAN number, it was obliged to pay the taxes as per DTAA i.e. @ 10% of the payment received and if the payee had deducted the tax @ 20% under section 206AA of the Act but the provisions of DTAA being more beneficial had to be applied. 12. Similar view has been taken by the Special Bench of Hyderabad Tribunal in Nagarjuna Fertilizers Chemicals Ltd. Vs. ACIT (supra), wherein it was held as under:- 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. Similarly, 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 section 206AA falls in Chapter XVII-B dealing with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 restrictive 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. 13. The Special Bench of Hyderabad Tribunal thus, held as under:- 33. In view of the above discussion, we are of the view that the provisions of section 206AA of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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