TDS to be deducted as per Tax Treaties rates even when PAN of non-resident payee not available

DCIT Vs Adani Wilmar Ltd. (ITAT Ahmedabad)

ITAT Ahmedabad held that in case of payments to non-resident, when PAN of non-resident payee is not available, TDS is to be deducted at the rates applicable in respective Tax Treaties.

Facts- In the intimation passed by AO dated the 03-08-2020, he has invoked section 206AA of 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 non­resident 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 u/s. 154 of the Act for the first quarter of F.Y. 2010-11 (A.Y. 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 Rs. 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 u/s. 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.

The assessee preferred appeal before Ld. CIT(Appeals) against the aforesaid additions. In appeal, Ld. CIT(Appeals) decided the issue in favour the assessee on the ground that the assessee’s own case. Being aggrieved, revenue has preferred the present appeal.

Conclusion- We are of the considered view, that Ld. CIT(Appeals) has not erred in facts and in law in holding that in case of payments made to non­residents, 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.

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