Sandeep Ahuja & Co.

Established in the year 1986, we are a leading chartered accountancy firm based in Delhi & NCR rendering comprehensive professional services which include statutory audit, internal audit, direct tax, transfer pricing, GST, bank audit, propriety audit, cost accounting, internal financial controls and risk advisory.

Monday, April 6, 2015

Overriding Effect of Sec 90(2) on Sec 206AA as established by Serium Institute of India Limited Case

 As established by Judgment in case of Serum Institute of India Limited (ITAT Pune) now Section 90(2) is overriding on Section 206AA.
 Section 206AA of the Act provides that where PAN is not furnished to the person who is making payment to Non- resident  and is responsible for deducting TDS from the payment then the TDS will be applicable at the rates higher of the following:
ü  At the rate prescribed in the relevant provisions of this Act; or at the rate/rates in force; or
ü  At the rate of 20%.
 The Hon’ble ITAT has clarified that:
ü  Sec. 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.
ü  That the Hon’ble Supreme Court in the case of Azadi Bachao Andolan and Others vs. UOI, 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.
ü  Even the charging Sections 4 as well as Section 5 of the Act which deals with the principle of ascertainment of total income under the Act also subordinate Section 90(2)
ü  Section 206AA of the Act which is not a charging Section but is a part of a procedural provisions dealing with collection and deduction of tax at source.
ü  The provisions of Section 195 of the Act which provides for the responsibility on the assessee to deduct TDS on payments to a non-resident and can not be treated as charging provision.
ü  That it was established by The Hon’ble Supreme Court in GE India Technology Centre Pvt. Ltd. vs. CIT, case 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.
ü  Section 206AA of the Act cannot override the charging Sections 4 and 5 of the Act.
ü  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.
ü  DTAA overrides the charging Sections 4 and 5 of the Act which, override provisions of Section 206AA of the Act

NOW TDS DEPARTMENT HAS RAISED DEMANDS FOR SHORT DEDUCTION OF TDS FROM PAYMENTS MADE TO NON –RESIDENTS WHERE NO PAN IS GIVEN AND DTAA RATE IS APPLIED.
Many TDS Assessees have got demand on Form 27Q filed by them for not quoting the PAN of the    non resident on payment  made to them for last many years by raising short deduction demand (difference between TDS to be deducted @20% and TDS actually deducted applying DTAA rates) and interest on short deduction.
This led to a question whether TDS was to be deducted at the rate prescribed by the DTAA or 206AA and if as prescribed by DTAA then what the assessee should do to get the demands of TDS CPC be deleted.
Whether assessee should go for appeal or TDS CPC should sumoto delete the demands os raised ?
In view of the schematic interpretation of the Act established in Serom Institute of India Limited, Sec 206AA of the Act cannot override the charging sec 4 and 5 of the Act and where sec 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.
In a situation where payment has to be made to a non- resident, TDS has to be deducted at a rate prescribed by the DTAA in this regard if it is more beneficial to the assessee. In this situation assessee is not liable to receive PAN u/s 206AA from the non-resident. Reason for the same is that as per the provisions of Sec 139A (8) read with rule 114C (1) of the Income Tax Rules, 1962, non- residents are not required to apply for PAN. Therefore, provisions of Sec 206AA will not get attracted a in case where payment is made to a non-resident in accordance with the provisions of the DTAA.
Puja Aggarwal ( CA Article at Sandeep Ahuja & Co )

No comments:

Post a Comment