M/s Nagarjuna Fertilizers and Chemicals Limited, Hyderabad V. Asst.CIT,Circle 15(1), Hyderabad

ITA 1187/HYD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6222 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 17-07-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 13-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Recovery proceedings; Double taxation relief; Retrospective amendment; Permanent establishment
• Section: 206AA; 90; 2

Judgement Text

I.T.A.NOS.1187 & 1188/H/2014 ASSESSMENT YEARS : 2011-2012 & 2012-2013 PAGE 21 OF 29 25. IT IS EVIDENT THAT SECTION 206AA CONTAINS A NON-OBSTANTE CLAUSE AND RELYING ON THE SAME, THE STAND TAKEN BY THE AUTHORI TIES BELOW, WHICH IS SUPPORTED BY THE LD. CIT(D.R.) AT THE TIME OF HEARI NG BEFORE US, IS THAT THE PROVISIONS OF SECTION 206AA HAVE A OVERRIDING EFFEC T AND SINCE THE SAID PROVISIONS OVERRIDE ALL OTHER PROVISIONS OF THE INC OME TAX ACT, 1961, THE SAME ARE REQUIRED TO BE GIVEN EFFECT TO. ON THE OTH ER HAND, ONE OF THE CONTENTIONS RAISED ON BEHALF OF THE ASSESSEE IN THI S REGARD IS THAT THE NON- RESIDENTS AT THE RELEVANT TIME WERE NOT EVEN REQUIR ED TO OBTAIN PERMANENT ACCOUNT NUMBERS AS PER THE PROVISIONS OF SECTION 1 39A(8) READ WITH RULE 114C AND SINCE THEY WERE NOT OBLIGED TO EVEN OBTAIN THE PAN, THEY CANNOT BE REQUIRED TO FURNISH THE SAME AS ENVISAGED IN SEC TION 206AA AND THE SAID PROVISIONS, THEREFORE, CANNOT BE APPLIED IN THE CAS E OF NON-RESIDENTS EVEN BY THE OVERRIDING EFFECT GIVEN TO THE SAID PROVISIO NS, WHICH IS REQUIRED TO BE READ DOWN. IN SUPPORT OF THIS CONTENTION, RELIAN CE HAS BEEN PLACED ON BEHALF OF THE ASSESSEE ON THE DECISION OF THE HONB LE ANDHRA PRADESH HIGH COURT IN THE CASE OF MULLAPUDI VENKATARAYUDU VS.- UNION OF INDIA (SUPRA), WHEREIN IT WAS HELD THAT ANY FAILURE TO FILE RETURN MUST CONNOTE OBLIGATION TO FILE THE RETURN. RELIANCE IS ALSO PLACED ON BEHA LF OF THE ASSESSEE IN SUPPORT OF THIS STAND ON THE DECISION OF THE HONBL E KARNATAKA HIGH COURT IN THE CASE OF SMT. KAUSHALLAYA BAI & OTHERS (SUPRA ). 26. IN THE CASE OF SMT. KAUSHALLAYA BAI & OTHERS (S UPRA), THE ASSESSEES HAVING INCOME BELOW THE TAXABLE LIMIT WERE NOT REQU IRED TO OBTAIN PERMANENT ACCOUNT NUMBERS AS PER SECTION 139A OF TH E ACT AND STILL THE PROVISIONS OF SECTION 206AA WERE INVOKED TO DEDUCT TAX AT HIGHER RATE FROM THE AMOUNT OF INTEREST INCOME PAID TO THEM AS A RES ULT OF THEIR FAILURE TO FURNISH THE PERMANENT ACCOUNT NUMBERS TO THE PAYERS /DEDUCTORS. TAKING NOTE OF THIS CONTRADICTION BETWEEN THE PROVISIONS O F SECTION 139A AND 206AA, HONBLE KARNATAKA HIGH COURT READ DOWN THE O VERRIDING PROVISIONS OF SECTION 206AA AND MADE THEM INAPPLICABLE TO THE PERSONS, WHO WERE NOT EVEN REQUIRED TO OBTAIN THE PERMANENT ACCOUNT NUMBE RS BY VIRTUE OF SECTION 139A. ALTHOUGH THE FACTS INVOLVED IN THE PR ESENT CASE ARE SLIGHTLY I.T.A.NOS.1187 & 1188/H/2014 ASSESSMENT YEARS : 2011-2012 & 2012-2013 PAGE 22 OF 29 DIFFERENT, INASMUCH AS, THE NON-RESIDENT PAYEES IN THE PRESENT CASE WERE HAVING TAXABLE INCOME IN INDIA, THE FACTS REMAIN TO BE SEEN IS THAT THEY WERE NOT OBLIGED TO OBTAIN THE PERMANENT ACCOUNT NU MBERS IN VIEW OF SECTION 139A(8) READ WITH RULE 114C. THERE IS THUS A CLEAR CONTRADICTION BETWEEN SECTION 206AA AND SECTION 139A(8) READ WITH RULE 114C, AS WAS PREVAILED IN THE CASE OF KAUSHALLAYA BAI & OTHERS ( SUPRA) AND BY APPLYING THE ANALOGY OF THE SAID DECISION, WE FIND MERIT IN THE CONTENTION RAISED ON BEHALF OF THE ASSESSEE THAT THE PROVISIONS OF SECTI ON 206AA ARE REQUIRED TO BE READ DOWN SO AS TO MAKE IT INAPPLICABLE IN THE C ASES OF CONCERNED NON- RESIDENTS PAYEES WHO WERE NOT UNDER AN OBLIGATION T O OBTAIN THE PERMANENT ACCOUNT NUMBERS. 27. THE NEXT ISSUE THAT REQUIRES OUR CONSIDERATION IN THIS CONTEXT IS WHETHER THE RATE OF TAX AS PROVIDED IN THE RELEVANT DTAAS AND ADOPTED FOR THE PURPOSE OF TAX DEDUCTION AT SOURCE BEING RATE I N FORCE BY VIRTUE OF SECTION 2(37A) WOULD BE APPLICABLE OR THE HIGHER RA TE AS PROVIDED IN SECTION 206 BY VIRTUE OF THE OVERRIDING EFFECT GIVE N TO THE SAID PROVISION, FOR THE PURPOSE OF DEDUCTION OF TAX AT SOURCE. HERE IT IS NECESSARY TO UNDERSTAND THE SCOPE AND APPLICABILITY OF THE PROVI SIONS OF TAX TREATY, VIS- A-VIS, THE PROVISIONS OF DOMESTIC LAW AND THE NORMS GOVERNING THE CO- EXISTENCE OF TAX TREATIES AND DOMESTIC LAW LEGISLAT ION. A USEFUL REFERENCE IN THIS REGARD CAN BE MADE TO THE LANDMARK DECISION OF THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF SANOFI PASTEUR HO LDING SA VS.- DEPARTMENT OF REVENUE & OTHERS (SUPRA). IN THE SAID CASE, THE CORE ISSUE WAS REQUIRED TO BE DECIDED ON APPRECIATION OF SYNER GIES BETWEEN THE DTAA PROVISIONS AND THOSE OF THE DOMESTIC LAW AND WHILE DECIDING THE SAME, THE ORIGINS AND EVOLUTION OF TAX TREATIES AND HOW THOSE CONFLATE, COOPERATE WITH DOMESTIC TAX LEGISLATION AND CONVERGE TO SIGNAL A U NIFIED RAFT OF APPLICABLE NORMS, WERE TAKEN INTO CONSIDERATION BY THE HONBLE ANDHRA PRADESH HIGH COURT IN THE LIGHT OF RELEVANT JUDICIAL PRONOUNCEME NTS INCLUDING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F AZADI BACHAO ANDOLAN (SUPRA) AND P.V.A.L. KULANDAGAN CHETTIAR (SUPRA). I N THIS REGARD, A I.T.A.NOS.1187 & 1188/H/2014 ASSESSMENT YEARS : 2011-2012 & 2012-2013 PAGE 23 OF 29 REFERENCE WAS MADE TO THE DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF AZADI BACHAO ANDOLAN (SUPRA), WHEREIN IT WA S HELD THAT WHEN DOUBLE TAXATION AVOIDANCE TREATY, CONVENTION OR AGR EEMENT (FOR SHORT, TREATY) BECOMES OPERATIONAL AND IS NOTIFIED BY TH E CENTRAL GOVERNMENT FOR IMPLEMENTATION OF ITS TERMS UNDER SECTION 90 OF THE ACT, PROVISIONS OF THE TREATY, WITH RESPECT TO CASES TO WHICH THEY WOU LD APPLY, WOULD OPERATE EVEN IF INCONSISTENT WITH PROVISIONS OF THE ACT. AS A CONSEQUENCE, IF A TAX LIABILITY IS IMPOSED BY THE ACT, THE TREATY MAY BE REFERRED TO FOR NEGATIVING OR REDUCING IT AND IN CASE OF CONFLICT BETWEEN THE PROVISIONS OF THE ACT AND OF THE TREATY, THE PROVISIONS OF THE TREATY WOULD P REVAIL AND ARE LIABLE TO BE ENFORCED. IT WAS ALSO HELD THAT SINCE THE GENERA L PRINCIPLE OF CHARGEABILITY OF TAX UNDER SECTION 4 AND THE GENERA L PRINCIPLE OF ASCERTAINMENT OF TOTAL INCOME UNDER SECTION 5 OF TH E ACT ARE SUBJECT TO THE PROVISIONS OF THE ACT, THE PROVISIONS OF THE TREATY WOULD AUTOMATICALLY OVERRIDE THE PROVISIONS OF THE ACT IN THE MATTER OF ASCERTAINMENT OF CHARGEABILITY TO INCOME TAX AND ASCERTAINMENT OF TH E TOTAL INCOME, TO THE EXTENT OF INCONSISTENCY WITH TREATY TERMS. 28. HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE O F SANOFI PASTEUR HOLDING S.A. VS.- DEPARTMENT OF REVENUE & OTHERS ( SUPRA) ALSO RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS.- P.V.A.L. KULANDAGAN CHETTIAR (SUPRA), WHEREIN IT WAS HELD TH AT THE TAXATION POLITY IS WITHIN THE POWER OF THE GOVERNMENT AND SECTION 9 0 OF THE ACT ENABLES THE GOVERNMENT TO FORMULATE ITS POLICIES THROUGH TR EATIES ENTERED INTO BY IT AND SUCH TREATIES DETERMINE THE FISCAL DOMICILE IN ONE STATE OR THE OTHER AND THIS DETERMINATION IN THE TREATY PREVAILS OVER THE OTHER PROVISIONS OF THE ACT. AFTER TAKING INTO CONSIDERATION, INTER ALI A, THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF AZADI BACHAO A NDOLAN & ANOTHER (SUPRA) AND P.V.A.L. KULANDAGON CHETTIAR (SUPRA), T HE ORIGINS AND EVOLUTION OF TAX TREATIES AND OTHER RELEVANT ASPECTS, IT WAS HELD BY THE HONBLE ANDHRA PRADESH HIGH COURT THAT TREATY PROVISIONS AR E EXPRESSIONS OF SOVEREIGN POLICY OF MORE THAN ONE SOVEREIGN STATE, NEGOTIATED AND ENTERED INTO AT A POLITICAL OR DIPLOMATIC LEVEL AND HAVE SE VERAL EXPLICIT, SUBLIMINAL I.T.A.NOS.1187 & 1188/H/2014 ASSESSMENT YEARS : 2011-2012 & 2012-2013 PAGE 24 OF 29 AND UNARTICULATED CONSIDERATIONS AS THEIR BASIS. PR INCIPLES RELEVANT TO TREATY INTERPRETATION ARE NOT THE SAME AS THOSE PER TAINING TO INTERPRETATION OF MUNICIPAL LEGISLATION. A STRAINED CONSTRUCTION W HICH SUBVERTS THE POLICY UNDERLYING INDIA ENTERING INTO A DOUBLE TAXATION AV OIDANCE TREATY WITH ANOTHER STATE, BY ENABLING DUAL TAXATION THROUGH AR TIFICIAL INTERPRETATION OF TREATY PROVISIONS, EITHER BY THE TAX ADMINISTRAT OR OR BY THE JUDICIAL BRANCH AT THE INVITATION OF THE REVENUE OF ONE OF T HE CONTRACTING STATES TO A TREATY WOULD TRANSGRESS THE INHERENT AND VITAL CO NSTITUTIONAL SCHEME, OF SEPARATION OF POWERS. IT WAS HELD THAT THE PROVISIO NS OF THE TREATY MUST RECEIVE A GOOD FAITH INTERPRETATION AND WHERE THE O PERATIVE TREATYS PROVISIONS ARE UNAMBIGUOUS AND THEIR LEGAL MEANING CLEARLY DISCERNIBLE AND LEND TO AN UN-CONTESTABLE COMPREHENSION ON GOOD FAITH INTERPRETATION, NO FURTHER INTERPRETIVE EXERTION IS AUTHORIZED FOR THAT WOULD TANTAMOUNT TO UNLAWFUL ENCROACHMENT INTO THE DOMAIN OF TREATY- MAKING UNDER ARTICLE 253. IT WAS FURTHER HELD THAT WHERE THE PROVISIONS OF THE ACT AND OF THE DTAA ARE OVERLAPPING AND COMPETING LEGAL MAGISTERIA , THE PROPER INTERPRETIVE ROLE REQUIRES, ON HARMONIOUS CONSTRUCT ION AND IN ACCORDANCE WITH THE RELATIVE WEIGHT AND PRIORITY, TO GIVE EFFE CT TO BOTH COMPETING PROVISIONS, AS PER THE INTER SE WEIGHTAGE MANDATE BY THE OVERREACHING LEGAL NORMS, SET OUT IN SECTION 90(2) OF THE ACT. THE RAT IO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASES OF AZADI BACHAO ANDOLAN AND ANOTHER (SUPRA) AND P.V.A.L. KULANDAGAN CHETTIAR (SUPRA) AS FURTHER EXPLAINED AND CLARIFIED BY THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF SANOFI PASTEUR HOLDING SA VS.- DEPARTMENT OF REVENUE & OT HERS (SUPRA) MAKES IT ABUNDANTLY CLEAR THAT WHENEVER THERE IS A CONFLI CT BETWEEN THE PROVISIONS OF THE TREATY AND THE PROVISIONS OF THE DOMESTIC LAW, THE PROVISIONS OF TREATY WILL PREVAIL AND OVERRIDE EVEN THE CHARGING PROVISIONS OF THE DOMESTIC LAW. KEEPING IN VIEW THIS LEGAL POS ITION, WE DO NOT FIND MERIT IN THE CONTENTION RAISED BY THE LD. CIT(D.R.) THAT AS PER SECTION 90(2) OF THE ACT, TREATY DOES NOT OVERRIDE THE ACT BUT GE TS OVERRIDDEN AND REJECT THE SAME BEING COMPLETELY CONTRARY TO THE PROPOSITI ON PROPOUNDED INTER ALIA BY THE HONBLE APEX COURT. I.T.A.NOS.1187 & 1188/H/2014 ASSESSMENT YEARS : 2011-2012 & 2012-2013 PAGE 25 OF 29 29. THE LD. D.R. IN SUPPORT OF THE REVENUES CASE O N THE ISSUE UNDER CONSIDERATION HAS RAISED AN ARGUMENT THAT THE ROLE OF THE ASSESSEE AS A PAYER OF THE SUM IS LIMITED TO DEDUCTING TAX AT SOU RCE AS PER THE RELEVANT PROVISIONS OF CHAPTER-XVII-B AND HE HAS NOTHING TO DO WITH THE DETERMINATION OF TAX LIABILITY EVENTUALLY IN THE HA NDS OF THE PAYEE, WHICH IS TO BE DONE BY THE ASSESSING OFFICER ALONE AS PER THE RELEVANT CHARGING PROVISIONS OF THE ACT. TO COUNTER THIS ARGUMENT OF THE LD. D.R., RELIANCE HAS BEEN PLACED ON BEHALF OF THE ASSESESE ON THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF ELI LILLY AND CO. (IND IA) P. LIMITED, WHEREIN IT WAS HELD THAT IT CANNOT BE STATED AS A BROAD PRO POSITION THAT THE TDS PROVISIONS, WHICH ARE IN THE NATURE OF MACHINERY PR OVISIONS TO ENABLE COLLECTION AND RECOVERY OF TAX, ARE INDEPENDENT OF CHARGING PROVISIONS, WHICH DETERMINE THE ASSESSABILITY IN THE HANDS OF T HE PAYEE. RELIANCE IS ALSO PLACED ON BEHALF OF THE ASSESSEE ON THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF G.E. TECHNOLOGY CENTRE (P) LIMITED. IN THE SAID CASE, THE CONTENTION WAS RAISED ON BEHALF OF T HE DEPARTMENT THAT THE MOMENT THERE IS REMITTANCE, THE OBLIGATION TO DEDUC T TAX AT SOURCE ARISES AND THE SAME WAS REJECTED BY THE HONBLE SUPREME CO URT BY OBSERVING THAT THE OBLIGATION TO DEDUCT TAX AT SOURCE ARISES ONLY WHEN THERE IS A SUM CHARGEABLE UNDER THE ACT. IT WAS HELD THAT THE RELE VANT TDS PROVISIONS AS CONTAINED IN SECTION 195 HAVE TO BE READ IN CONFORM ITY WITH THE CHARGING PROVISIONS OF SECTIONS 4, 5 & 9 AND WHILE INTERPRET ING THE PROVISIONS OF THE INCOME TAX ACT, ONE CANNOT READ THE CHARGING SECTIO N OF THAT ACT DE HORS THE MACHINERY SECTION. IT WAS HELD THAT THE ACT IS TO BE READ AS AN INTEGRATED CODE. IT WAS HELD THAT THE PROVISIONS FOR DEDUCTION OF TAX AT SOURCE AS CONTAINED IN CHAPTER-XVII AND THE CHARGING PROVISIO NS OF THE INCOME TAX ACT FORM ONE SINGLE INTEGRAL INSEPARABLE CODE AND, THEREFORE, THE PROVISIONS RELATING TO TDS CANNOT BE APPLIED INDEPE NDENT OF THE CHARGING PROVISIONS. IT IS PERTINENT TO NOTE HERE THAT THIS DECISION IN THE CASE OF G.E. TECHNOLOGY CENTRE (P) LIMITED IS RENDERED BY THE HO NBLE SUPREME COURT AFTER TAKING INTO CONSIDERATION THE EARLIER DECISIO N RENDERED IN THE CASE OF I.T.A.NOS.1187 & 1188/H/2014 ASSESSMENT YEARS : 2011-2012 & 2012-2013 PAGE 26 OF 29 TRANSPORTATION CORPORATION OF A.P. LIMITED (SUPRA) ON WHICH RELIANCE HAS BEEN PLACED BY THE LD. CIT, D.R. 30. THE RATIO OF THE TWO DECISIONS OF THE HONBLE S UPREME COURT IN THE CASE OF ILI LILLY AND CO. (INDIA) P. LIMITED (SUPRA ) AND G.E. TECHNOLOGY CENTRE (P) LIMITED (SUPRA) AS DISCUSSED ABOVE CLEAR LY SHOWS THAT THE CHARGING PROVISIONS CONTROL AND OVERRIDE THE MACHIN ERY PROVISIONS DEALING WITH TAX DEDUCTION AT SOURCE. SIMILARLY, THE PROVIS IONS OF DTAAS BY VIRTUE OF SECTION 90(2) TO THE EXTENT MORE BENEFICIAL TO T HE ASSESSEE OVERRIDE THE PROVISIONS OF DOMESTIC LAW AS HELD, INTER ALIA, BY THE HONBLE SUPREME COURT IN THE CASE OF AZADI BACHAO ANDOLAN & ANOTHER (SUPRA) AND P.V.A.L. KULANDAGAN CHETTIAR (SUPRA). SINCE SECTION 206AA FA LLS IN CHAPTER XVII-B DEALING WITH TAX DEDUCTION AT SOURCE, IT FOLLOWS TH AT THE TREATY PROVISIONS WHICH OVERRIDE EVEN THE CHARGING PROVISION OF THE D OMESTIC LAW BY VIRTUE OF SECTION 90(2) WOULD ALSO OVERRIDE THE MACHINERY PROVISIONS OF SECTION 206AA IRRESPECTIVE OF NON-OBSTANTE CLAUSE CONTAINED THEREIN AND THE SAME IS REQUIRED TO BE RESTRICTED TO THAT EXTENT AND REA D DOWN TO GIVE EFFECT TO THE RELEVANT PROVISIONS OF DTAAS, WHICH ARE OVERRID ING BEING BENEFICIAL TO THE ASSESSEE. 31. THERE IS ONE MORE BASIS TO SUPPORT THE ABOVE CO NCLUSION. AS RIGHTLY POINTED OUT ON BEHALF OF THE ASSESSEE, CHAPTER-XA C ONTAINING THE PROVISION RELATING TO GENERAL ANTI-AVOIDANCE RULE (GAAR) HAS BEEN INSERTED IN THE STATUTE BY THE FINANCE ACT, 2013 WITH EFFECT FROM 1 ST APRIL, 2016 AND ALTHOUGH THE PROVISIONS CONTAINED IN THE SAID CHAPT ER ARE GIVEN OVERRIDING EFFECT BY VIRTUE OF NON-OBSTANTE CLAUSE CONTAINED IN SECTION 95, A SEPARATE PROVISION HAS BEEN INSERTED SIMULTANEOUSLY IN THE F ORM OF SUB-SECTION (2A) IN SECTION 90 PROVIDING SPECIFICALLY THAT NOTWITHST ANDING ANYTHING CONTAINED IN SUB-SECTION (2), THE PROVISIONS OF CHA PTER XA OF THE ACT SHALL APPLY TO THE ASSESSEE EVEN IF SUCH PROVISIONS ARE N OT BENEFICIAL TO HIM. AS RIGHTLY POINTED OUT ON BEHALF OF THE ASSESSEE, NO S UCH PROVISION, HOWEVER, IS MADE SEPARATELY AND SPECIFICALLY IN SECTION 90 T O GIVE OVERRIDING EFFECT TO SECTION 206AA OVER SECTION 90(2), WHICH CLEARLY SHOWS THAT THE INTENTION I.T.A.NOS.1187 & 1188/H/2014 ASSESSMENT YEARS : 2011-2012 & 2012-2013 PAGE 27 OF 29 OF THE LEGISLATURE IS NOT TO GIVE OVERRIDING EFFECT TO SECTION 206AA OVER THE PROVISIONS OF THE RELEVANT DTAA WHICH ARE BENEFICIA L TO THE ASSESSEE. IN THE CASE OF SANOFI PASTEUR HOLDING SA VS.- DEPARTMENT OF REVENUE & OTHERS (SUPRA), THE CONTENTION RAISED ON BEHALF OF THE REV ENUE WAS THAT THE RELEVANT RETROSPECTIVE AMENDMENTS MADE IN THE INCOM E TAX ACT, 1961 OVERRIDE THE TAX TREATIES AND THE SAME WAS REJECTED BY THE HONBLE ANDHRA PRADESH HIGH COURT ON THE GROUND THAT THE RELEVANT AMENDMENTS WERE NOT FORTIFIED BY A NON-OBSTANTE CLAUSE EXPRESSED TO OVERRIDE TAX TREATIES AS WAS MADE IN CASE OF THE GAAR PROVISIONS SPECIFICALL Y BY INSERTING SUB- SECTION (2A) IN SECTION 90 TO ENABLE APPLICATION OF CHAPTER X-A EVEN IF THE SAME BE NOT BENEFICIAL TO THE ASSESSEE THEREBY ENAC TING AN OVERRIDE EFFECT OVER THE PROVISIONS OF SECTION 90(2). IN THE CASE O F BHARAT HARI SINGHANIA (SUPRA), IT WAS HELD BY THE HONBLE SUPREME COURT T HAT THE SCOPE AND PURPORT OF THE NON-OBSTANTE CLAUSE HAS TO BE ASCERTAINED BY READING IT IN THE CONTEXT OF THE RELEVANT PROVISIONS AND CONSISTE NT WITH THE SCHEME OF THE ENACTMENT. AS EXPLAINED BY CBDT WHILE INSERTING THE PROVISION OF SECTION 206AA VIDE CIRCULAR NO. 5 OF 2010, THE INTE NTION OF THE SAID PROVISION IS MAINLY TO STRENGTHEN PAN MECHANISM AND KEEPING IN VIEW THIS LIMITED FUNCTION AND PURPOSE, WE ARE OF THE VIEW TH AT NON-OBSTANTE CLAUSE CONTAINED IN THE MACHINERY PROVISION OF SECTION 206 AA IS REQUIRED TO BE ASSIGNED A RESTRICTIVE MEANING AND THE SAME CANNOT BE READ SO AS TO OVERRIDE EVEN THE RELEVANT BENEFICIAL PROVISIONS OF THE TREATIES, WHICH OVERRIDE EVEN THE CHARGING PROVISIONS OF THE INCOME TAX ACT BY VIRTUE OF SECTION 90(2). IN OUR OPINION, IT, THEREFORE, CANNO T BE SAID THAT THE PROVISIONS OF SECTION 206AA, DESPITE THE NON-OBSTANTE CLAUSE CONTAINED THEREIN, WOULD OVERRIDE THE PROVISIONS OF DTAA TO T HE EXTENT THEY ARE MORE BENEFICIAL TO THE ASSESSEE AND IT IS THE BENEFICIAL PROVISION OF TREATY THAT WILL OVERRIDE THE MACHINERY PROVISIONS OF SECTION 2 06AA. 32. IN THE CASE OF BOSCH LIMITED (SUPRA) RELIED UPO N BY THE LD. CIT(D.R.) IN SUPPORT OF THE REVENUES CASE, THE ISSUE RELATIN G TO THE APPLICABILITY OF SECTION 206AA HAD COME UP FOR CONSIDERATION BEFORE THE BANGALORE BENCH OF THIS TRIBUNAL IN TWO CONTEXTS. FIRST, IT WAS CON SIDERED IN THE CONTEXT OF I.T.A.NOS.1187 & 1188/H/2014 ASSESSMENT YEARS : 2011-2012 & 2012-2013 PAGE 28 OF 29 GROSSING UP AND WHILE DECIDING THE SAME, IT WAS HEL D BY THE TRIBUNAL THAT THE VERY NATURE OF RELEVANT INCOME BEING BUSINESS I NCOME NOT CHARGEABLE TO TAX IN THE HANDS OF THE NON-RESIDENT RECIPIENTS HAVING NO PERMANENT ESTABLISHMENT IN INDIA, THE PAYMENTS DID NOT REQUIR E WITHHOLDING OF TAX AT SOURCE UNDER SECTION 195 OF THE ACT AND THE ASSESSE E WAS NOT UNDER AN OBLIGATION TO WITHHOLD TAX EVEN AS PER THE PROVISIO NS OF SECTION 206AA AT HIGHER RATE OF 20%. IN OTHER CONTEXT, THE AMOUNT PA ID TO THE NON-RESIDENT WAS FOUND BY THE TRIBUNAL TO BE IN THE NATURE OF FE ES FOR TECHNICAL SERVICES CHARGEABLE TO TAX IN THE HANDS OF THE NON-RESIDENT IN INDIA AND SINCE THERE WAS A FAILURE ON THE PART OF THE CONCERNED NON-RESI DENT TO FURNISH PAN TO THE ASSESSEE, THE ASSESSEE WAS HELD TO BE LIABLE TO WITHHOLD TAX AT HIGHER OF RATES PRESCRIBED IN SECTION 206AA BY THE TRIBUNA L. IT, HOWEVER, APPEARS THAT ALL THE RELEVANT ASPECTS AS DISCUSSED ABOVE, S UCH AS OVERRIDING EFFECT OF THE TREATY PROVISIONS AS PER SECTION 90(2), THE LIMITED EFFECT OF NON- OBSTANTE CLAUSE CONTAINED IN THE MACHINERY PROVISION OF SEC TION 206AA ETC. WERE NOT ARGUED BEFORE THE TRIBUNAL ON BEHALF OF TH E ASSESSEE AND THE TRIBUNAL, THEREFORE, HAD NO OCCASION TO CONSIDER TH E SAME WHILE DECIDING THIS ISSUE. ON THE OTHER HAND, PUNE BENCH OF ITAT I N THE CASE OF SERUM INSTITUTE OF INDIA LIMITED (SUPRA) HAS CONSIDERED S OME OF THESE RELEVANT ASPECTS AND AFTER CONSIDERING THE PROPOSITIONS PROP OUNDED BY THE HONBLE SUPREME COURT IN THE CASE OF AZADI BACHAO ANDOLAN & ANOTHER (SUPRA), ELI LILLY AND CO. (INDIA) P. LIMITED (SUPRA) AND G.E. T ECHNOLOGY CENTRE (P) LIMITED (SUPRA), IT WAS HELD BY THE TRIBUNAL, AND I N OUR OPINION, RIGHTLY SO, THAT SECTION 206AA OF THE ACT CANNOT OVERRIDE THE PROVISIONS OF SECTION 90(2) OF THE ACT. 33. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTION 206AA OF THE ACT WILL NOT HAV E 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 S ECTION 206AA BY VIRTUE OF SECTION 90(2). IN OUR OPINION, THE ASSESSEE THEREFO RE CANNOT BE HELD LIABLE TO DEDUCT TAX AT HIGHER OF THE RATES PRESCRIBED IN SECTION 206AA IN CASE OF I.T.A.NOS.1187 & 1188/H/2014 ASSESSMENT YEARS : 2011-2012 & 2012-2013 PAGE 29 OF 29 PAYMENTS MADE TO NON-RESIDENT PERSONS HAVING TAXABL E INCOME IN INDIA IN SPITE OF THEIR FAILURE TO FURNISH THE PERMANENT ACC OUNT NUMBERS. WE, ACCORDINGLY, ANSWER THE QUESTION REFERRED TO THIS S PECIAL BENCH IN THE NEGATIVE AND IN FAVOUR OF THE ASSESSEE AND ALLOW BO TH THE APPEALS OF THE ASSESSEE FOR A.YS. 2011-12 AND 2012-13. 34. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 13 TH , 2017. SD/- SD /- SD/- (JUSTICE DEV DARSHAN SUD) (D. MANMOHAN) ( P.M. JAGTAP) PRESIDENT VICE-PRESIDENT ACCOUNTANT MEMBER HYDERABAD, THE 13 TH DAY OF FEBRUARY, 2017 COPIES TO : (1) M/S. NAGARJUNA FERTILIZERS AND CHEMICALS LIMITED, 8-2-548, CORPORATE BUILDING, NAGARJUNA HILLS, PUNJAGUTTA, HYDERABAD-500 082 (2) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-15(1), HYDERABAD, I.T. TOWERS, A.C. GUARDS, HYDERABAD (3) ASSISTANT DIRECTOR OF INCOME TAX, IT-II, HYDERABAD, I.T. TOWERS, A.C. GUARDS, HYDERABAD (4) COMMISSIONER OF INCOME TAX(APPEALS)-II, HYDERA BAD; (5) COMMISSIONER OF INCOME TAX- , HYDERABA D, (6) THE DEPARTMENTAL REPRESENTATIVE (7) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, HYDERABAD BENCHES, HYDERABAD LAHA/SR. P.S.