Subject: DR, other than supporting the findings of the Assessing Officer, could not bring any distinguishing decision in favour of the revenue.
Referred Sections:
Section 206AA(1) of the Income tax Act 1961,
Section 90(2) of the Act
Section 4 of the Act
Section 5 of the Act
Section 195 of the Act
Sub-section (7)
Sections 4, 5, 9, 90 & 91 of the Act
Referred Cases / Judgments
Emmsons International Ltd Vs. DCIT 171 ITD 140.
Danisco India Private Limited Vs. Union Of India WP(C) 5908/2015 decided on 05/02/2018,
DCIT Vs Serum Institute of India Limited, ITA Nos.1601 to 1604/PN/2014
Others vs. UOI, (2003) 263 ITR 706 (SC)
CIT vs. Eli Lily & Co., (2009) 312 ITR 225 (SC)
IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI `B' BENCH,
NEW DELHI
BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND
SHRI K.N. CHARY, JUDICIAL MEMBER
ITA No. 5632/DEL/2016
[Assessment Year: 2014-15]
&
ITA No. 5633/DEL/2016
[Assessment Year: 2015-16]
The I.T.O [TDS] Vs. Continental India Ltd
International Taxation NH 58, Meerut Roorke Road
Noida Modipuram, Meerut
PAN: AAFCM 5366 B
[Appellant] [Respondent]
Date of Hearing : 14.05.2019
Date of Pronouncement : 17.05.2019
Assessee by : Shri Rohit Jain, Adv.
Shri Deepak Jain, Adv
Revenue by : Shri Abhiskek Kumar, Sr. DR
ORDER
PER N.K. BILLAIYA, ACCOUNTANT MEMBER,
The above two captioned separate appeals by the Revenue are
preferred against the two separate orders of the Commissioner of
2
Income Tax [Appeals] 2, Noida dated 26.08.2016 pertaining to
assessment years 2014-15 and 2015-16.
2. The common grievances raised by the Revenue read as
under:
(i) Whether on the facts and in law, the C1T(A) has erred in holding
that the provisions of DTAA shall prevail over the provisions of'
section 206AA(1) of the Income tax Act 1961, even when the
provision of section 206AA(1) are overriding in nature containing
a clear non-obstante clause.
(ii) Whether the CIT(A) has erred on facts and in law in overlooking
the fact that the intention of section 206AAof the Act is to
strengthen the PAN and TDS mechanism and that the provisions
of section 206AA do not have a bearing on the ultimate tax
liability of the assessee.
(iii) Whether the CIT(A) has erred on facts and in law in giving
precedence to the DTAA over the overriding provisions of
Section 206AA(1) even when the DTAA does not deal with the
rates of TDS, while section 206AA(I) deals exclusively with the
rates of TDS.
3
3. At the very outset, the ld. AR stated that the impugned
issue is squarely covered in favour of the assessee and
against the revenue by the decision of the co -ordinate bench
in the case of Emmsons International Ltd Vs. DCIT 171 ITD
140.
4. The ld. DR, other than supporting the findings of the
Assessing Officer, could not bring any distinguishing decision
in favour of the revenue.
5. We have given a thoughtful consideration to the orders
of the authorities below. We find force in the contention of
the ld. AR. Similar issue was considered by the co -ordinate
bench [supra]. The relevant findings of the same read as
under:
"5. We have gone through the record in the light of the
submissions on either side. At the outset it is the submission of
the Ld. AR that the issue that is substantially involved in this
appeal is this whether Section 206AA of the Act override the
provisions of Section 90(2) of the Act and whether in cases of
the payments made to non-residents, what is the rate of tax to
4
be applied, whether it is as per Section 206AA or as per the
provisions of DTAA. He submitted that in a number of decisions
of the tribunal this issue has been decided in favour of the
assessee and recently in Danisco India Private Limited Vs. Union
Of India WP(C) 5908/2015 decided on 05/02/2018, the Hon'ble
jurisdictional High Court noted the order of the Pune tribunal in
DCIT Vs Serum Institute of India Limited, ITA Nos.1601 to
1604/PN/2014 (Assessment Year : 2011-12) to hold that section
206AA of the Act does not override the provisions of Section
90(2) of the Act and that in the cases of payments made to non-
residents, the rate of tax to be applied is as prescribed under
the DTAA and not as per Section 206AA of the Act because the
provisions of the DTAA are more beneficial.
6. The Hon'ble jurisdictional High Court extracted the following
observations of the Tribunal in Serum Institute of India Limited
(supra) with approval:
"The case of the Revenue is that in the absence of furnishing of
PAN, assessee was under an obligation to deduct tax @ 20%
following the provisions of section 206AA of the Act. However,
assessee had deducted the tax at source at the rates
prescribed in the respective DTAAs between India and the
relevant country of the non-residents; and, such rate of tax
being lower than the rate of 20% mandated by section 206AA
of the Act. The CIT(A) has found that the provisions of section
90(2) come to the rescue of the assessee. Section 90(2)
provides that the provisions of the DTAAs would override the
5
provisions of the domestic Act in cases where the provisions of
DTAAs are more beneficial to the assessee. There cannot be any
doubt to the proposition that in case of non-residents, tax
liability in India is liable to be determined in accordance with
the provisions of the Act or the DTAA between India and the
relevant country, whichever is more beneficial to the assessee,
having regard to the provisions of section 90(2) of the Act. In
this context, the CIT(A) has correctly observed that the
Hon'ble Supreme Court in the case of Azadi Bachao Andolan and
Others vs. UOI, (2003) 263 ITR 706 (SC) has upheld the
proposition that the provisions made in the DTAAs will prevail
over the general provisions contained in the Act to the extent
they are beneficial to the assessee. In this context, it would be
worthwhile to observe that the DTAAs entered into between
India and the other relevant countries in the present context
provide for scope of taxation and/or a rate of taxation 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 Bachao
Andolan and Others (supra). Thus, in so far as the applicability
of the scope/rate of taxation with respect to the impugned
6
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 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 vs. Eli Lily & Co., (2009) 312
ITR 225 (SC) observed that the provisions of tax withholding
i.e. section 195 of the Act Therefore, in view of the aforesaid
schematic interpretation of the Act, section 206AA of the Act
cannot be understood to override the charging sections 4 and 5
of the Act. Thus, where section 90(2) of the Act provides that
DTAAs override domestic law in cases where the provisions of
7
DTAAs are more beneficial to the assessee and the same also
overrides the charging sections 4 and 5 of the Act which, in
turn, override the DTAAs provisions especially section 206AA of
the Act which is the controversy before us. Therefore, in our
view, where the tax has been deducted on the strength of the
beneficial provisions of section DTAAs, the provisions of section
206AA of the Act cannot be invoked by the Assessing Officer
to insist on the tax deduction @ 20%, having regard to the
overriding nature of the provisions of section 90(2) of the Act.
The CIT(A), in our view, correctly inferred that section 206AA
of the Act does not override the provisions of section 90(2) of
the Act and that in the impugned cases of payments made to
non-residents, assessee correctly applied the rate of tax
prescribed under the DTAAs and not as per section 206AA of
the Act because the provisions of 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. It is therefore, clear that that section 206AA of the Act
does not override the provisions of Section 90(2) of the Act and
that in the cases of payments made to non-residents, assessee
correctly applied the rate of tax prescribed under the DTAAs
and not as per Section 206 AA of the Act because the
8
provisions of the DTAAs were more beneficial. In view of the
settled position of law, we find it difficult to sustain the orders
of the authorities below. With this view of the matter, we find
that the orders of the authorities below are liable to be
quashed and accordingly they are quashed. Thus, we hereby
direct the deletion of 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. Appeals are
allowed accordingly."
3. On the issue whether the treaty overrides the Act, the
quarrel is settled by the decision of the Hon'ble High Court of
Delhi in the case of Danisco India Pvt Ltd 404 ITR 539. The
relevant findings read as under:
"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 preexisting Sub-section (7) with
the present Section 206AA (7). The amendment is mitigating to
a large extent, the rigors of the preexisting laws. The law, as it
existed, went beyond the provisions of W.P.(C) 5908/2015 Page
8 of 11 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
9
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 was under an obligation to
deduct tax @ 20% following the provisions of section
206AA of the Act. However, assessee had deducted the
tax at source at the rates prescribed in the respective
DTAAs between India and the relevant country of the
non-residents; and, such rate of tax being lower than the
rate of 20% mandated by section 206AA of the Act. The
CIT(A) has found that the provisions of section 90(2)
come to the rescue of the assessee. Section 90(2)
provides that the provisions of the DTAAs would override
the provisions of the domestic Act in cases where the
provisions of DTAAs are more beneficial to the assessee.
There cannot be any doubt to the proposition that in case
of non-residents, tax liability in India is liable to be
determined in accordance with the provisions of the Act
or the DTAA between India and the relevant country,
whichever is more beneficial to the assessee, having
regard to the provisions of section 90(2) of the Act. In
this context, the CIT(A) has correctly observed that the
Hon'ble Supreme Court in the case of Azadi Bachao
10
Andolan and Others v. UOI, MANU/SC/1219/2003 :
(2003) 263 ITR 706 (SC) has upheld the proposition that
the provisions made in the DTAAs will prevail over the
general provisions contained in the Act to the extent they
are beneficial to the assessee. In this W.P.(C) 5908/2015
Page 9 of 11 context, it would be worthwhile to observe
that the DTAAs entered into between India and the other
relevant countries in the present context provide for
scope of taxation and/or a rate of taxation 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 Bachao Andolan and Others (supra). Thus, in so far
as the applicability of the scop W.P.(C) 5908/2015 Page 10
of 11 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 only to sums which are
otherwise chargeable to tax under the Act. The Hon'ble
Supreme Court in the case of GE India Technology Centre
11
Pvt. Ltd. v. CIT,MANU/SC/0688/2010 : (2010) 327 ITR
456 (SC) held that the provisions of DTAAs along with the
sections 4, 5, 9, 90 & 91 of the Act are relevant while
applying the provisions of tax deduction at source.
Therefore, in view of the aforesaid schematic
interpretation of the Act, section 206AA of the Act
cannot be understood to override the charging sections 4
and 5 of the Act. Thus, where section 90(2) of the Act
provides that DTAAs override domestic law in cases
where the provisions of DTAAs are more beneficial to the
assessee and the same also overrides the charging
sections 4 and 5 of the Act which, in turn, override the
DTAAs provisions especially section 206AA of the Act
which is the controversy before us. Therefore, in our
view, where the tax has been deducted on the strength of
the beneficial provisions of section DTAAs, the provisions
of section 206AA of the Act cannot be invoked by the
Assessing Officer to insist on the tax deduction @ 20%,
having regard to the overriding nature of the provisions of
section 90(2) of the Act. The CIT(A), in our view,
correctly inferred that section 206AA of the Act does
not override the provisions of section 90(2) of the Act
and that in the impugned cases of payments made to non-
residents, assessee correctly applied the rate of tax
prescribed under the DTAAs and not as per section
206AA of the Act because the provisions of the DTAAs
was more beneficial. Thus, we hereby affirm the ultimate
12
conclusion of the CIT(A) in deleting the tax demand
relatable to difference between 20% and the actual tax
W.P.(C) 5908/2015 Page 11 of 11 rate on which tax was
deducted by the assessee in terms of the relevant
DTAAs. As a consequence, Revenue fails in its appeals.
8. Having regard to the position of law explained in Azadi
Bachao Andolan (supra) and later followed in numerous
decisions that a Double Taxation Avoidance Agreement
acquires primacy in such cases, 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.
The writ petition is partly allowed in the above terms."
4. Respectfully following the findings of the co-ordinate
bench and the Hon'ble High Court [supra], both these appeals
of the revenue are dismissed.
13
5. In the result, the appeals filed by the in ITA Nos. 5632 &
5633/DEL/2016 stand dismissed.
The order is pronounced in the open court on 17.05.2019.
Sd/- sd/-
[K.N. CHARY] [N.K. BILLAIYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 17th May, 2019.
VL/
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT Asst. Registrar
4. CIT(A) ITAT, New Delhi
5. DR ,
14
Date of dictation
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dictating Member
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Member
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Dictating Member for pronouncement
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