Income Tax Appellate Tribunal - Pune
Deputy Director Of Income-Tax,, vs Serum Institute Of India Ltd.,, Pune on 5 April, 2017
आयकर अपील
य अ धकरण "बी" यायपीठ पण
ु े म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, PUNE
ी अ नल चतव
ु द
, लेखा सद#य, एवं ी &वकास अव#थी, या यक सद#य के सम( ।
BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं. / ITA Nos. 1574 to 1577/PUN/2014
नधा*रण वष* / Assessment Year : 2012-13
Dy. Director of Income Tax
(International Taxation) - II, Pune
.......अपीलाथ / Appellant
बनाम/Vs.
Serum Institute of India Limited,
16/B-1/Sarosh Bhavan,
Dr. Ambedkar Road,
Pune - 411001
PAN : AABCS4225M
......
यथ / Respondent
Assessee by : Shri Rajendra Agiwal
Revenue by : Shri B.Y. Chavan
सन
ु वाई क तार ख / Date of Hearing : 03-04-2017
घोषणा क तार ख / Date of Pronouncement : 05-04-2017
आदे श / ORDER
PER VIKAS AWASTHY, JM :
These four appeals filed by the Department are directed against the order of Commissioner of Income Tax (Appeals)-IT/TP, Pune dated 22-05-2014 passed u/s. 200A of the Income Tax Act, 1961 (hereinafter referred to as "the Act") common for Quarter I to Quarter IV of the assessment year 2012-13.
2ITA Nos. 1574 to 1577/PUN/2014, A.Y. 2012-13
2. The brief facts of the case as emanating from record are: The assessee company is engaged in manufacturing and export of vaccines.
The assessee made overseas payments after deducting tax at source in accordance with the tax rate provided in the Double Taxation Avoidance Agreement (DTAA) with the respective countries. The payments were made on account of royalty and fees for technical services to non-
residents who were not having Permanent Account Number (PAN). The Department under the provisions of section 206AA treated the tax deducted by assessee as 'short deduction'. As per Revenue the assessee was under obligation to deducted tax at source on the aforesaid payments @ 20%. Accordingly, demand was raised for short deduction of tax and interest thereon.
Aggrieved by the demand raised, the assessee filed appeals for the respective quarters of the assessment year 2012-13 before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals), following his own order in the case of assessee for assessment year 2011-12 accepted the appeals of assessee and deleted the demand. Now, the Department is in appeal before the Tribunal assailing the findings of Commissioner of Income Tax (Appeals).
3. The Revenue has assailed the findings of Commissioner of Income Tax (Appeals) by raising identical grounds of appeal in all the four quarters. The grounds raised by the Department in appeal are as under :
1) "The CIT(A) erred in law in concluding that sec 206AA is not applicable in case of non-residents as the DT AA overrides the Act as per section 90(2).3
ITA Nos. 1574 to 1577/PUN/2014, A.Y. 2012-13
2) The decision of the CIT(A) is not according to the law and erred in ignoring the memorandum explaining the provisions of the Finance (No.
2) Bill, 2009 which clearly states that the sec 206AA applies to non- residents and also Press Release of CBDT No. 402/92/2006-MC (04 of 2010) dated 20.01.2010 which reiterates that sec. 206AA will also apply to all non-residents in respect of payments/remittances liable to TDS.
3) The CIT(A) is erred in ignoring the decision of the ITAT Bangalore in the case of Bosch Ltd. vs ITO, ITA No. 552 to 558 (Bang.) of 2011 dated 11.10.2012, in which it was held that if the recipient has not furnished the PAN to the deductor, the deductor is liable to withhold tax at the higher rates prescribed u/s. 206AA."
4. Shri Rajendra Agiwal appearing on behalf of the assessee submitted at the outset that the case of the assessee is squarely covered by the decision of Co-ordinate Bench of the Tribunal in assessee's own case in ITA Nos. 1601 to 1604/PN/2014 for the assessment year 2011-12 decided on 30-03-2015. The ld. AR contended that the assessee has deducted tax at source according to the rates provided in tax treaty. The provisions of tax treaty shall prevail over the provisions of Income Tax Act, if the provisions of DTAA are more beneficial to the assessee.
The ld. AR further submitted that the issue raised in the present set of appeals has also been adjudicated by the Special Bench of the Tribunal in the case of M/s. Nagarjuna Fertilizers and Chemicals Limited Vs. Assistant Commissioner of Income Tax in ITA Nos. 1187 & 1188/H/2014 for the assessment years 2011-12 and 2012-13 decided on 13-02-2017. The ld. AR pointed that in the aforesaid case, the assessee was intervener. The Special Bench of the Tribunal held that the provisions of section 206AA will not have an overriding effect over 4 ITA Nos. 1574 to 1577/PUN/2014, A.Y. 2012-13 the provisions of the treaty to the extent they are beneficial to the assessee. The ld. AR prayed for dismissing the appeals of the Department and upholding the orders of Commissioner of Income Tax (Appeals).
5. Shri B.Y. Chavan representing the Department fairly admitted that the issue raised in the present set of appeals by the Department has been adjudicated by the Co-ordinate Bench of the Tribunal in assessee's own case in assessment year 2011-12.
6. Both sides heard. The only issue in appeals is; Whether the assessee was required to deduct tax at source on the payments made to the non-residents @ 20% under the provisions of section 206AA where the recipients of payments were not having Permanent Account Number. We find that the Department in ITA Nos. 1601 to 1604/PUN/2014 for assessment year 2011-12 had assailed the findings of Commissioner of Income Tax (Appeals) on the issue by raising identical grounds of appeal. The Co-ordinate Bench of the Tribunal dismissing the appeals of the Department, decided the issue in favour of the assessee. The Tribunal held :
"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 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 5 ITA Nos. 1574 to 1577/PUN/2014, A.Y. 2012-13 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 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 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 payments make to the non-residents is concerned, no fault can 6 ITA Nos. 1574 to 1577/PUN/2014, A.Y. 2012-13 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 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 Pvt. Ltd. vs. CIT, (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 7 ITA Nos. 1574 to 1577/PUN/2014, A.Y. 2012-13 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. The issue was also considered by the Special Bench of the Tribunal at Hyderabad in the case of M/s. Nagarjuna Fertilizers and Chemicals Limited Vs. Assistant Commissioner of Income Tax (supra).
The question before the Special Bench for adjudication was :
"Whether on the facts and circumstances of the case, provisions of section 206AA of the Act will have a overriding effect for all other provisions of the Act, and that being the case, assessee is required to deduct tax at the rate prescribed therein in case of persons having taxable income in India, including non-residents, who do not furnish their Permanent Account Numbers".
The Special of the Tribunal after discussing the provisions of sections 90(2) and 206AA of the Act and catena of judgments on the issue concluded as under :
"33. In view of the above discussion, we are of the view that the provisions of section 206AA of the Act will not have a overriding effect for all other provisions of the Act and the provisions of the Treaty to the extent they are beneficial to the assessee will override section 206AA by virtue of section 90(2). In our opinion, the assessee therefore cannot be held liable to deduct tax at higher of the rates prescribed in section 206AA in case of payments made to non-resident persons having taxable income in India in spite of their failure to furnish the Permanent Account Numbers. We, accordingly, answer the question referred to this Special Bench in the negative and in favour of the assessee and allow both the appeals of the assessee for A.Ys. 2011-12 and 2012-13."8
ITA Nos. 1574 to 1577/PUN/2014, A.Y. 2012-13 Thus, in view of the decisions discussed above, we do not find any merit in the appeals filed by the Department. Accordingly, the same are dismissed.
8. In the result, all the four appeals filed by the Department are dismissed.
Order pronounced on Wednesday, the 05th day of April, 2017.
Sd/- Sd/-
(अ नल चतव
ु द / Anil Chaturvedi) ( वकास अव!थी / Vikas Awasthy)
लेखा सद!य / ACCOUNTANT MEMBER #या यक सद!य / JUDICIAL MEMBER
पुणे / Pune; $दनांक / Dated : 05th April, 2017
RK
आदे श क- . त/ल&प अ0े&षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. The CIT(A)-IT/TP, Pune
4. The DIT (TP/IT), Pune
5. वभागीय त न(ध, आयकर अपील य अ(धकरण, "बी" ब,च, पण ु े / DR, ITAT, "B" Bench, Pune.
6. गाड. फ़ाइल / Guard File.
//स या पत त // True Copy// आदे शानुसार / BY ORDER, सहायक पंजीकार / Assistant Registrar, आयकर अपील य अ(धकरण, पुणे / ITAT, Pune