CA Margav Shukla

One of the decisions rendered by the Bangalore ITAT in the year 2012 relating to Section 206AA, in case of Bosch Ltd. (141 ITD 38) confirming its ability to Override the provisions of the Entire Income Tax Act. However as regards dispute that was there before the Hon. bench was only with regard to Section 139A(8)(d) read with Rule 114C and 206AA. What was however not discussed or argued was the matter in light of provisions of Section 90(2), which states that provisions of DTAA would apply in a case if the same are beneficial to the assessee then the Domestic Law.

The similar matter came to be decided recently before a Pune bench of ITAT in case of Serum Institute (170 TTJ 119) wherein what was to be decided was whether a resident who has to deduct the TDS of non resident u/s 195 who does not have PAN can deduct tax at the rate prescribed in DTAA if the same is beneficial applying the provisions of Section 90(2) of the Act or whether Section 206 AA would apply which states that TDS is to be deducted at rates in force or rates specified in relevant provisions or 20 % whichever is higher.

Thus what was to be decided by the bench was whether provisions of Section 90(2) or that of 206AA of the Act will prevail and apply on the facts of the case.

Pune Bench in its order considered the decision of Bangalore tribunal which had stated that 206AA overrides the Income Tax Act, 1961. But whether treaty was also overrided by the provisions of 206AA was not before the Bangalore bench of tribunal.

The DTAA’s are entered into between 2 countries for the purpose of Avoidance of Taxation and whether machinery provisions of TDS under Chapter XVII could decide the rate of withholding as against what has been decided by the Countries mutually under the agreement.

Sec 206AA states as under :

206AA (1) Notwithstanding anything contained in any other pro-visions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:—

 (i) at the rate specified in the relevant provision of this Act; or

(ii) at the rate or rates in force; or

(iii) at the rate of twenty per cent.

Section 90(2) states as under :

“90 (2) Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.”

Further Circular No. 333 of 02/04/1982 has stated as under :

Specific provisions made in double taxation avoidance agreement -Whether it would prevail over general provisions contained in Income-tax Act

1. It has come to the notice of the Board that sometimes effect to the provisions of double taxation avoidance agreement is not given by the Assessing Officers when they find that the provisions of the agreement are not in conformity with the provisions of the Income-tax Act, 1961.

2.The correct legal position is that where a specific provision is made in the double taxation avoidance agreement, that provisions will prevail over the general provisions contained in the Income-tax Act.  In fact that the double taxation avoidance agreements which have been entered into by the Central Government under section 90 of the Income-tax Act, also provide that the laws in force in either country will continue to govern the assessment and taxation of income in the respective countries except where provisions to the contrary have been made in the agreement.

3. Thus, where a double taxation avoidance agreement provides for a particular mode of computation of income, the same should be followed, irrespective of the provisions in the Income-tax Act.  Where there is no specific provision in the agreement, it is basic law, i.e., the Income-tax Act, that will govern the taxation of income.

Circular : No. 333 [F. No. 506/42/81-FTD] dated 2-4-1982.

It has already been decided in the celebrated case of Azadi Bachao Aandolan that treaty provisions will always override the domestic laws if the same are more beneficial to the assessee. The decision further went on to say that when provisions of Section 206AA would in consequence be also overided.

Further reliance was placed by the counsel on the decisions of Supreme Court in case of GE India Technology centre Pvt. Ltd. by the Supreme Court (327 ITR 456) that Charging provisions of Section 4,5, 9, 90,91 and 195 are to be read in consonance with DTAA and then provisions of TDS are to be applied. Thus when Charging Section 4,5 and 9 were to be read with DTAA, section 206AA cannot be understood to override the DTAA.

Thus bench held as under by making conjoint reading of Section 195, 90(2) and 206AA that when rate of TDS as prescribed by the relevant DTAA in question was beneficial then the rate as per domestic Act. The rate as per DTAA is to be applied and provisions of Section of 206AA will not apply.

Thus what can be concluded from the above is that Tribunal has upheld applicability of DTAA over the provisions of Section 206AA of the Act and hence the said judgement can now be used while deducting the TDS of Non- resident and beneficial provisions of Treaty can be considered.

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September 2020