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TMI Blog2023 (1) TMI 926X X X X Extracts X X X X X X X X Extracts X X X X ..... tated by provisions of treaty and not under section 206AA. In the case of Jyoti Ltd. [ 2021 (3) TMI 1001 - ITAT AHMEDABAD] held that section 206AA does not override provision of section 90 and, thus, TDS had been rightly deducted by assessee on payment made to non-resident by applying tax rate prescribed under DTAA and not as per section 206AA. CIT(Appeals) has not erred in facts and in law in holding that in case of payments made to non-residents, the assessee was entitled to deduct taxes at source at the rates applicable in the respective Tax Treaties in case PAN of non-resident payee is not available. In the instant facts, it is not the allegation of the Department that taxes have not been deducted at source by taking recourse to relevant clauses of the Tax Treaty enabling the assessee not to deduct tax at source in respect of payments made to non-resident payees. In the instant facts, the assessee has deducted taxes at the beneficial rate of 10% as applicable in the respective Tax Treaties in respect of all payments made to non-resident payees. In light of the above observations, the appeal of the Department is hereby dismissed. - ITA : 321 to 338/Ahd/2021 - - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act and held that the assessee company was under an obligation to deduct higher rate of TDS in case of non-availability of PAN of the non-resident payee. The assessee company, during the period under consideration had made payments to various non-resident parties and had deducted TDS as per the rate mentioned in the Treaty between India and respective countries or as per the rate mentioned in the Act, whichever is more beneficial to the assessee. An intimation under section 154 of the Act for the first quarter of financial year 2010-11 (assessment year 2011-12) was issued by the Asst Commissioner of Income Tax, Centralised Processing Cell, TDS (AO) to the assessee on account of short deduction of TDS (and interest thereon) amounting to ₹ 36,39,590/- on the ground that in case of payments where PAN of the non-resident parties was not available, the assessee was required to deduct tax under section 206AA of the Act and there was short deduction of TDS in case where TDS was deducted at the rate applicable under the respective Tax Treaty. 5. The assessee preferred appeal before Ld. CIT(Appeals) against the aforesaid additions. In appeal, Ld. CIT(Appeals) decided the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an obligation to deduct taxes under section 200AA of the Act at a higher rate of 20%. In our view, this issue has been conclusively settled in view of numerous decisions passed by High Courts and ITAT (including the jurisdictional Ahmedabad Tribunal) in favour of the assessee by holding that in such cases, the assessee is permitted to deduct taxes at the beneficial rates as prescribed under the respective Tax Treaty. 7. This issue was discussed at length by the ITAT in the case of Serum Institute of India Ltd.[2015] 56 taxmann.com 1 (Pune - Trib.) , wherein the ITAT held that TDS on payments made to non-residents who did not furnish their PAN can be deducted as per rate prescribed in DTAA and section 206AA cannot be invoked to insist on tax deduction at rate of 20 per cent. While passing the order, the ITAT made the following important observations: 7. We have carefully considered 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axation which was different from the scope/rate prescribed under the Act. For the said reason, assessee deducted the tax at source having regard to the provisions of the respective DTAAs which provided for a beneficial rate of taxation. It would also be relevant to observe that even the charging section 4 as well as section 5 of the Act which deals with the principle of ascertainment of total income under the Act are also subordinate to the principle enshrined in section 90(2) as held by the Hon'ble Supreme Court in the case of Azadi BachaoAndolan (supra). Thus, in so far as the applicability of the scope/rate of taxation with respect to the impugned payments make to the non-residents is concerned, no fault can be found with the rate of taxation invoked by the assessee based on the DTAAs, which prescribed for a beneficial rate of taxation. However, the case 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the DTAAs was more beneficial. Thus, we hereby affirm the ultimate conclusion of the CIT(A) in deleting the tax demand relatable to difference between 20% and the actual tax rate on which tax was deducted by the assessee in terms of the relevant DTAAs. As a consequence, Revenue fails in its appeals. 7.1 In the case of Danisco India (P.) Ltd.[2018] 90 taxmann.com 295 (Delhi) , the Delhi High Court held that where assessee, an Indian remits payments to company located in Singapore which is not a tax assessee in India, and tax relationship between two countries is regulated in terms of Indo-Singapore DTAA, rate of taxation would be as dictated by provisions of treaty and not under section 206AA. 7.2 In the case of Infosys Ltd. v DCIT [2022] 140 taxmann.com 600 (Bangalore - Trib.) , the ITAT held that if rate of tax applicable under DTAA is lower than 20 per cent tax rate as prescribed under section 206AA, TDS has to be deducted at such lower rate even if non-resident deductee fails to furnish its PAN. 7.3 The Special Bench of the Tribunal in the case of Nagarjuna Fertilizers Chemicals Ltd. v. Asstt. CIT [2017] 78 taxmann.com 264 (Hyd.) had held if rate of tax applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able. 7.5 In the case of DCIT v. Infosys BPO Ltd.[2015] 60 taxmann.com 465 (Bangalore - Trib.) , the ITAT held that where assessee made royalty payments to non-residents, since benefit of DTAA was available to said recipients, their TDS liability could not be more than rate prescribed under DTAA or Act whichever was lower. Further, where Assessing Officer while issuing intimation under section 200A, raised demand for TDS at higher rate ignoring provisions of DTAA, since there was no arithmetical error or incorrect claim apparent from any information in statement, impugned order travelled beyond jurisdiction of Assessing Officer as per provisions of section 200A. 7.6 In the case of Wipro Ltd. [2017] 88 taxmann.com 435 (Bangalore - Trib.) , the ITAT held that provisions of TDS should be read along with provisions of DTAA for computing tax liability of non-resident; when non-resident is eligible for benefit of DTAA on sum in question, there is no scope for deduction of tax at source at 20 per cent as provided under provisions of section 206AA. 7.7 In the case of Uniphos Environtronic (P.) Ltd. v. DCIT [2017] 79 taxmann.com 75 (Ahmedabad - Trib.) , the jurisdictional Ahmedab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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