9911796707
TMI Blog2018 (2) TMI 1289X X X X Extracts X X X X X X X X Extracts X X X X ..... Petitioner : Mr. Sujit Ghosh, Ms. Kanupriya Bhargava and Ms. Mannat Waraich, Advs. For The Respondents : Mr. Prasanta Verma, SCGC with Ms.Shalu Goswami, Adv. for UOI/R1. Mr. Ruchir Bhatia, Sr. Standing Counsel and Mr. Puneet Rai, Jr. Standing Counsel for Income Tax Deptt. And Mr. C. Mukund, Ms.Geetika Matta and Mohd. Farib Ahmed, Advs. ORDER HON'BLE MR. JUSTICE S. RAVINDRA BHAT (ORAL) The petitioner is aggrieved of Section 206AA of the Income Tax Act ( the Act ) (introduced by Finance Bill No. 2 of 2009) that directs a levy of 20% in the case of outward remittances in the hands of the payer (hereafter referred to as the deductor ) and is applicable to assessees that are non-residents of India. Section 206AA to the extent it is relevant, reads as follows : 206AA. (1) Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or (c) consist of the development and transfer of a technical plan or technical design, but excludes' any service that does not enable the person acquiring the, service to apply the technology contained therein. For the purposes of (6) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person. 5. Notwithstanding paragraph 4, fees for technical services does not include payments : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph3(a); (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement. 3. The services rendered by DuPont-it is not disputed, are covered by the expression fees for technical services . Thus, on an application of the principle of law enunciated in Azadi Bachao Andolan Vs. Union of India, (2003) 263 ITR 706 (SC), even if the tax rate for the activity which would form part of the expression fees for technical services is higher, not more than 10% can be recovered by the Indian Tax Authorities. The petitioner contends that Section 206AA (i) has the effect of undoing the provisions of DTAA, besides being in violation of Article 265 of Constitution of India. The petitioner in support of its contention that the levy of 20% rate is unconstitutional relies upon the recommendations of Justice Easwar s Committee s report of 2016 made to the Central Government. Upon a review of existing tax laws, Justice Easwar s Committee made the following specific recommendations: Unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and instead demands a specific identification number or code as provided. It is also pointed out that Section 206AA was interpreted by a Bench of the Income Tax Tribunal in Dy. Director of Income Tax Vs. Serum Institute of India Ltd. (ITA 792/PN/2013, decided on 30.3.2015) 6. After hearing the counsel for the parties, it is quite apparent that the issue urged has been rendered largely academic on account of corrective amendment made by the Parliament-which substituted pre-existing Sub-section (7) with the present Section 206AA (7). The amendment is mitigating to a large extent, the rigors of the pre- existing laws. The law, as it existed, went beyond the provisions of DTAA which in most cases mandates a 10% cap on the rate of tax applicable to the state parties. Section 206AA (prior to its amendment) resulted in a situation, where, over and above the mandated 10%, a recovery of an additional 10%, in the event, the non- resident payee, did not possess PAN. 7. In this context, the ITAT in Serum Institute of India (Supra) discussed this very issue in some detail and stated, as follows: ............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 ..... e of the Revenue is that 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., MANU/SC/0487/2009 : (2009) 312 ITR 225 (SC) observed that the provisions of tax withholding i.e. section 195 of the Act would apply onl ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
