Deputy Commissioner Of Income Tax, (International Taxation), Circle- 1(1), Bangalore V. M/s. Edgeverve Systems LImited, Bangalore

ITA 12/BANG/2020

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6803 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 10-09-2020
• Assessment Year: 2017-2018
• Appeal Filed On: 06-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R PREMIJCIT
• Keywords: Double taxation relief; TDS
• Section: 206AA; 115A

Judgement Text

IT(IT)A NO.12 TO 14/BANG/2020: M/S.EDGEVERVE SYSTEMS LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER IT(IT) A NO.12 TO 14/BANG/2020 ASSESSMENT YEAR :2017-18 TO 2019-20 DEPUTY COMMISSIONER OF INCOME-TAX, INTERNATIONAL TAXATION, CIRCLE-1(1), ROOM NO.441, 4 TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, 6 TH BLOCK, BANGALORE-560095. VS. M/S. EDGEVERSE SYSTEMS LTD., 44/97A KONAPPANA AGRAHARA, HOSUR ROAD, ELECTRONIC CITY, BANGALORE 560 100. PAN : AADCE6300K TAN: BLRE06897C APPELLANT RESPONDENT REVENUE BY : SMT.R.PREMI, JCIT , DR(ITAT) ASSESSEE BY : SHRI. SUDHEENDRA, ADVOCATE DATE OF HEARING : 10.09 .20 20 DATE OF PRONOUNCEMENT : 10 . 09 .20 20 O R D E R PER BENCH: THESE ARE APPEALS BY THE REVENUE AGAINST A COMMON O RDER DATED 24.6.2019 OF CIT(A)-12, BENGALURU, RELATING TO AY 2017-18 TO 2019-20. 2. THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF PRODUCTS, PLATFORMS AND SERVICES. DURING THE PREVIOUS YEAR R ELEVANT TO AY 2017-18 TO 2019- 20, THE ASSESSEE MADE IN ALL ABOUT 34 PAYMENTS WHIC H ARE LISTED OUT IN THE IMPUGNED ORDER OF THE CIT(A) TO NON-RESIDENTS AFTER GROSSING UP THE INVOICE AMOUNT AND DEDUCTING TAX AT SOURCE THEREON AT THE R ATES IN FORCE AS PER SEC.195 OF THE INCOME TAX ACT, 1961 (ACT). IT WAS THE PLEA OF THE ASSESSEE THAT THE PAYMENTS IT(IT)A NO.12 TO 14/BANG/2020 M/S.EDGEVERVE SYSTEMS LTD. MADE TO NON-RESIDENT WERE NOT CHARGEABLE TO TAX AND THEREFORE THE ASSESSEE WAS NOT UNDER ANY OBLIGATION TO DEDUCT TAX AT SOURCE ON THE AFORESAID PAYMENTS. THIS PLEA WAS REJECTED BY THE REVENUE AUTHORITIES IN THE APPLICATION FILED BY THE ASSESSEE U/S.248 OF THE ACT PLEADING THAT THE THE ASSESSEE W AS NOT UNDER ANY OBLIGATION TO DEDUCT TAX AT SOURCE ON THE AFORESAID PAYMENTS MADE TO NON-RESIDENTS. THE ASSESSEE ALSO MADE A CLAIM IN THE ALTERNATIVE AND W ITHOUT PREJUDICE TO THE MAIN GROUND THAT THE ASSESSEE WAS NOT UNDER ANY OBLIGATI ON TO DEDUCT TAX AT SOURCE ON THE AFORESAID PAYMENTS TO NON-RESIDENTS, THAT THE R ATE AT WHICH TAX HAS TO BE DEDUCTED IS NOT AT HIGHER RATE AS PRESCRIBED BY SEC .206AA OF THE ACT BUT AT THE RATE APPLICABLE AS PER THE TREATY FOR DOUBLE TAXATION AV OIDANCE (DTAA) BETWEEN INDIA AND THE COUNTRY OF WHICH THE PAYEES WERE TAX RESIDENTS. SECTION 206AA WAS INTRODUCED FROM FY 2010-11. SECTION 206AA REQUIRES EVERY TAXPAYER WHO RECEIVES TAXABLE INCOME TO FURNISH THEIR PAN TO THE PAYER OF SUCH INCOME. THIS APPLIES TO BOTH THE RESIDENT AS WELL AS NON-RESIDEN T RECIPIENTS. THE PAYMENTS IN CASE OF RESIDENTS WOULD INCLUDE SALARY, RENT, PROFE SSIONAL RECEIPTS, CONTRACTUAL RECEIPTS AND SO ON. IN THE CASE OF NON-RESIDENT, , THESE WOULD INCLUDE ALL RECEIPTS THAT ARE TAXABLE IN INDIA. A RECIPIENT OF TAXABLE I NCOME SHOULD FURNISH PAN TO COMPLY WITH THE PROVISIONS OF TDS UNDER THE INCOME TAX ACT. UPON FURNISHING OF THE PAN, PAYMENTS MADE TO THE RECIPIENT WOULD BE TA XED AT THE RATE OF TDS SPECIFIED UNDER THE VARIOUS TDS PROVISIONS OF THE I NCOME TAX ACT. A RECIPIENT WHO DOES NOT FURNISH PAN WOULD SUFFER TDS AT THE HI GHER RATES SPECIFIED IN SECTION 206AA. THE RECIPIENT IS ALSO REQUIRED TO FU RNISH HIS PAN TO THE PAYER AND BOTH OF THEM ARE REQUIRED TO INDICATE THE SAME IN A LL CORRESPONDENCE, BILLS, VOUCHERS AND OTHER DOCUMENTS WHICH ARE SENT TO EACH OTHER. A RECIPIENT WHO FAILS TO FURNISH PAN TO THE PERSON MAKING A PAYMENT WOULD SUFFER TDS AT THE HIGHER OF THE RATES MENTIONED BELOW: AT THE RATE SPECIFIED IN THE RELEVANT PROVISION O F THE ACT; IT(IT)A NO.12 TO 14/BANG/2020 M/S.EDGEVERVE SYSTEMS LTD. AT THE RATE OR RATES IN FORCE, I.E., THE RATE PRE SCRIBED IN THE FINANCE ACT.; AT THE RATE OF 20% 3. THE AO REJECTED THE PLEA OF THE ASSESSEE THAT I T IS ONLY THE RATES OF TAXES MENTIONED IN THE DTAA THAT SHOULD BE ADOPTED FOR TH E PURPOSE OF GROSSING UP AND ALSO FOR DETERMINING THE TAX LIABILITY. ACCORDING TO THE AO, THE PROVISIONS OF THE ACT, ESPECIALLY NON-OBSTANTE CLAUSE IN SEC.206AA OF THE ACT HAVE AN OVERRIDING EFFECT ON THE DTAA. 4. ON APPEAL BY THE ASSESSEE, THE CIT(A) ACCEPTED T HE PLEA OF THE ASSESSEE THAT THE DTAA WILL OVERRIDE THE PROVISIONS OF THE A CT INCLUDING SEC.206AA OF THE ACT AND THAT THE RATE OF TAX TO BE APPLIED FOR GROS SING UP SHOULD BE AS PER THE DTAA. 5. AGGRIEVED BY THE ORDERS OF THE CIT(A), THE REVE NUE IS IN APPEAL BEFORE THE TRIBUNAL. THE GROUNDS OF APPEAL OF THE REVENUE IN AY 2009-10 & 2010-11 ARE IDENTICAL. THE GROUNDS OF APPEAL OF THE REVENUE IN AY 2011-12 & 112-13 ARE IDENTICAL. THE SUM AND SUBSTANCE OF THESE GROUNDS IS THAT SEC.206AA OF THE ACT HAS A NON OBSTANTE CLAUSE AND THEREFORE IT OVERRIDE S THE RATES PRESCRIBED IN DTAA. 6. AT THE TIME OF HEARING IT WAS NOT DISPUTED THAT THE ISSUE RAISED BY THE REVENUE IN ITS APPEALS ARE ALREADY DECIDED BY A SPECIAL BENCH OF ITAT, HYDERABAD. THE ISSUE REGARDING THE APPLICABILITY OF PROVISIONS OF SECTIO N 206AA OF THE ACT, IN CASES OF TAX TO BE DEDUCTED AT SOURCE, WHEN THE INCOME IS EX IGIBLE TO TAX UNDER DTAA AND THE PAYEES ARE UNABLE TO PROVIDE VALID PERMANENT AC COUNT NUMBERS, CAME UP FOR CONSIDERATION BEFORE THE SPECIAL BENCH, ITAT IN THE CASE OF NAGARJUNA FERTILIZERS IT(IT)A NO.12 TO 14/BANG/2020 M/S.EDGEVERVE SYSTEMS LTD. & CHEMICALS LTD. VS. AC IT (2017) 78 TAXMANN.COM 26 4 (HYDERABAD-TRIBUNAL) (SB). THE QUESTION BEFORE THE SPECIAL BENCH WAS WHE THER THE PROVISIONS OF SECTION 206AA HAD OVERRIDING EFFECT FOR ALL OTHER PROVISION S OF THE ACT, WHETHER THE ASSESSE HAS TO DEDUCT TAX AT SOURCE AT THE RATES PR ESCRIBED IN SECTION 206AA IN CASE THE PAYEES ARE UNABLE TO FURNISH THEIR PANS, EVEN I N CASES WHERE TAX LIABILITY ARISES OUT OF THE TREATY. THE DTAA PROVIDES FOR A RATE OF 10% WHEREAS AS PER THE PROVISIONS OF SEC.206AA OF THE ACT, THE RATE OF TAX DEDUCTION AT SOURCE IS 20%. 7. THE PLEA OF THE REVENUE WAS THAT SECTION 206AA STARTS WITH A NON-OBSTANTE CLAUSE AND THEREFORE IT OVERRIDES ALL OTHER PROVISI ONS OF THE ACT INCLUDING 90(2), 115A AND 139A. THE PLEA OF THE ASSESSEE WAS THAT DT AA WAS SUPREME AND IN THIS REGARD RELIANCE WAS PLACED ON THE HONBLE SUPREME C OURT DECISION IN THE CASE OF AZADI BACHAO ANDOLAN (2003) 263 ITR 706 (SC), WHER EBY IT WAS HELD THAT DTAA, EVEN IF INCONSISTENT, WILL PREVAIL OVER THE A CT. RELIANCE WAS ALSO PLACED ON THE DECISIONS OF THE HONBLE ANDHRA PRADESH HIGH CO URT IN THE CASE OF SANOFI PASTEUR (2013) 354 ITR 316 (AP) WHEREIN IT WAS OBSE RVED THAT DTAA BEING A SOVEREIGN MATTER, THE MACHINERY PROVISIONS CANNOT O VERRIDE OR CONTROL THAT. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF KAUSHALLAYA BAI AND OTHERS (2012) 346 I TR 156 (KAR) WHEREIN IT HAS HELD THAT THE PROVISIONS OF SECTION 206AA ARE TO BE READ DOWN. 8. THE SPECIAL BENCH HELD THAT DTAA OVERRIDES THE A CT, EVEN IF IT IS INCONSISTENT WITH THE ACT. DTAAS ARE ENTERED INTO B ETWEEN TWO NATIONS IN GOOD FAITH AND ARE SUPPOSED TO BE INTERPRETED IN GOOD FA ITH. OTHERWISE IT WOULD AMOUNT TO THE BREACH OF ARTICLE 253 OF THE CONSTITUTION. IT(IT)A NO.12 TO 14/BANG/2020 M/S.EDGEVERVE SYSTEMS LTD. 9. THE HONBLE DELHI HIGH COURT IN THE CASE OF DANISCO INDIA PRIVATE LIMITED VS. UNION OF INDIA & ORS. (DELHI HIGH COURT ) IN W.P.(C) 5908/2015 JUDGEMENT/ORDER DATED 05/02/2018 HELD THAT WHERE RE CIPROCATING STATES MUTUALLY AGREE UPON ACCEPTABLE PRINCIPLES FOR TAX TREATMENT, THE PROVISION IN SECTION 206AA (AS IT EXISTED) HAS TO BE READ DOWN TO MEAN THAT WH ERE THE DEDUCTEE I.E THE OVERSEAS RESIDENT BUSINESS CONCERN CONDUCTS ITS OPERATION FR OM A TERRITORY, WHOSE GOVERNMENT HAS ENTERED INTO A DOUBLE TAXATION AVOID ANCE AGREEMENT WITH INDIA, THE RATE OF TAXATION WOULD BE AS DICTATED BY THE PR OVISIONS OF THE TREATY. 10. IN VIEW OF THE AFORESAID DECISIONS ON THE ISSU E, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN THE APPEALS OF THE REVENUE. 11. IN THE RESULT, THE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF SEPTEMBER, 2020. SD/- SD/- SD/ - SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER (N. V. VASUDEVAN) VICE PRESIDENT BANGALORE: DATED: 10 TH SEPTEMBER, 2020. */DESAI MURTHY/ IT(IT)A NO.12 TO 14/BANG/2020 M/S.EDGEVERVE SYSTEMS LTD. COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.