CIT & Anr. v. Manthan Software Services Pvt. Ltd. (Supreme Court of India)
Supreme Court order on DTAA Rate vs. Section 206AA – Whether 206AA Overrides a Treaty Rate When Non-Resident Has No PAN
The Supreme Court in CIT & Anr. v. Manthan Software Services Pvt. Ltd. disposed of the Revenue’s SLPs after noting that the issue was already settled by its earlier judgment in CIT (International Taxation) v. Air India Ltd., thereby giving finality to the principle that DTAA provisions override Section 206AA even where a non-resident does not have a PAN. The underlying dispute arose when the Assessing Officer insisted on 20% TDS under Section 206AA on aircraft engine lease rentals paid by Air India to a Netherlands-based lessor, despite the India–Netherlands DTAA prescribing a 10% rate. The Delhi High Court rejected the Revenue’s contention that 206AA, being a non-obstante TDS provision, superseded Section 90(2), holding instead that DTAA benefits apply to both charge and withholding of tax. Relying on precedents such as Azadi Bachao Andolan, GE India, and Danisco, the Court held that 206AA is merely procedural and cannot override treaty obligations or the charging provisions of the Act. It further noted that Parliament’s later amendment to Section 206AA(7) demonstrated legislative intent to avoid penalising non-residents without PAN. The Supreme Court’s dismissal of the Revenue’s SLP (456 ITR 139) confirms that TDS must be deducted at the beneficial DTAA rate.
1. SLP (C) 21435/2023 and Connected Matters
The Supreme Court recorded that:
Senior counsel for the respondent pointed out that the issue in these SLPs was squarely covered by the Court’s earlier judgment in:
CIT (International Taxation) v. Air India Ltd. [(2023) 153 taxmann.com 181 (SC)].
Accordingly, the Bench adjourned these SLPs to the next day for consideration after fresh matters, acknowledging that the matter appeared to be covered and settled.
Outcome:
“These Special Leave Petitions are disposed of as the lis between the parties no longer survives for consideration. All pending applications including the application for condonation of delay shall stand disposed of.”
DTAA Rate vs. Section 206AA – Whether Section 206AA Overrides a Treaty Rate When a Non-Resident Has No PAN?
Air India – Related Case Discussion
Delhi High Court: CIT (Intl. Tax)-1 v. Air India Ltd., [2023] 456 ITR 117
Core Issue:
Whether, in the case of a non-resident without a PAN, Section 206AA (requiring 20% TDS) overrides the beneficial rate prescribed under an applicable DTAA, particularly when the case is not covered under the exceptions in Section 206AA(7).
Holding: The Delhi High Court held that:
