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TMI Blog2019 (11) TMI 1341X X X X Extracts X X X X X X X X Extracts X X X X ..... arge etc. in case tax is deducted in terms of section 206AA on the payments made to non residents. No contrary provision mandating the levy of surcharge and education cess on the rate of 20% u/s 206AA(1)(iii) has been brought to our notice by the DR. CIT(A) was not justified in upholding the action of the AO in levying the surcharge and education cess on the amount of tax deducted at source u/s 206AA(1)(iii) of the Act. The same is, therefore, directed to be deleted AY 2012-13 - The Hon ble Delhi High Court in the case of Danisco India Private Limited Vs. Union Of India Ors. [ 2018 (2) TMI 1289 - DELHI HIGH COURT] held that 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. There is no merit in the appeals of the Revenue. The grounds raised in the Cross-objections of the Assessee do not require any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest for all the aforesaid Assessment Years. If ultimately in the appellate proceedings it is held that there was no liability on the part of the Assessee to deduct tax at source, then all subsequent proceedings on the basis of the order dated 31.3.2013, as a corollary will have no basis and will become infructuous. 3. The present proceedings arise out of order dated 27.10.2017 passed u/s.154 of the Act. The Revenue audit took an objection stating that the Assessee had to bear taxes if any, payable on Onsite Services Charges and Selling and marketing charges payable to AE and therefore in terms of Sec.195A of the Act, the payments should have been grossed up and tax payable and interest ought to have been calculated accordingly. The provisions of Sec.195A reads thus: Income payable net of tax . 195A. In a case other than that referred to in sub-section (1A) of section 192, where under an agreement] or other arrangement, the tax chargeable on any income referred to in the foregoing provisions of this Chapter is to be borne by the person by whom the income is payable, then, for the purposes of deduction of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 206AA requires every taxpayer who receives taxable income to furnish their PAN to the payer of such income. This applies to both the resident as well as non-resident recipients. The payments in case of residents would include salary, rent, professional receipts, contractual receipts and so on. In the case of non-resident, , these would include all receipts that are taxable in India. A recipient of taxable income should furnish PAN to comply with the provisions of TDS under the Income Tax Act. Upon furnishing of the PAN, payments made to the recipient would be taxed at the rate of TDS specified under the various TDS provisions of the Income Tax Act. A recipient who does not furnish PAN would suffer TDS at the higher rates specified in Section 206AA. The recipient is also required to furnish his PAN to the payer and both of them are required to indicate the same in all correspondence, bills, vouchers and other documents which are sent to each other. A recipient who fails to furnish PAN to the person making a payment would suffer TDS at the higher of the rates mentioned below: At the rate specified in the relevant provision of the Act; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the assessee had suo motu deducted tax at the rate of 20% as per the prescription of clause (iii) of section 206AA(1), which cannot be interfered. This provision provides in unequivocal terms that the tax should be deducted at the rate of twenty per cent. This is the prescribed final rate of tax and there is no mention of charging any further surcharge or education cess on the same. Once the section does not provide for the levy of surcharge and education cess on the fixed rate of 20%, we fail to see how the levy of such surcharge etc. can be inferred in the provision. The legislature cannot be understood as oblivious of the levy of surcharge etc. in certain cases in addition to the specific rates prescribed in the Act itself. The term maximum marginal rate has been defined in section 2(29C) to mean; 'the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual, association of persons or, as the case may be, body of individuals as specified in the Finance Act of the relevant year'. Same position follows from a bare reading of section 115JB which is a special provision for p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 4.8 of the Circular No.17/2014 dated 10.12.2004, whose relevant part reads as under :- '4.8 Compulsory Requirement to furnish PAN by employee Section 206AA: 4.8.1 Section 206AA in the Act makes furnishing of PAN by the employee compulsory in case of receipt of any sum or income or amount, on which tax is deductible. If employee (deductee) fails to furnish his/her PAN to the deductor , the deductor has been made responsible to make TDS at higher of the following rates: ( i ) at the rate specified in the relevant provision of this Act; or ( ii ) at the rate or rates in force; or ( iii ) at the rate of twenty per cent. The deductor has to determine the tax amount in all the three conditions and apply the higher rate of TDS. However, where the income of the employee computed for TDS u/s 192 is below taxable limit, no tax will be deducted. But where the income of the employee computed for TDS u/s 192 is above taxable limit, the deductor will calculate the average rate of income-tax based on rates in force as provided in sec 192. If the tax so calculated is below 20%, deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 206AA of the Act, in cases of tax to be deducted at source, when the income is exigible to tax under DTAA and the payees are unable to provide valid Permanent Account Numbers, came up for consideration before the Special Bench, ITAT in the case of Nagarjuna Fertilizers Chemicals Ltd. Vs. AC IT (2017) 78 taxmann.com 264 (Hyderabad-Tribunal) (SB). The question before the special bench was whether the provisions of section 206AA had overriding effect for all other provisions of the Act, whether the assesse has to deduct tax at source at the rates prescribed in section 206AA in case the payees are unable to furnish their PANs, even in cases where tax liability arises out of the treaty. The DTAA provides for a rate of 10% whereas as per the provisions of Sec.206AA of the Act, the rate of tax deduction at source is 20%. 13. The plea of the revenue was that section 206AA starts with a non-obstante clause and therefore it overrides all other provisions of the Act including 90(2), 115A and 139A. The plea of the Assessee was that DTAA was supreme and in this regard reliance was placed on the Hon ble Supreme Court decision in the case of Azadi Bachao Andolan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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