Deputy Commissioner Of Income Tax, International Taxation, Circle- 1(1), Bangalore V. M/s. Bharat Fritz Warner Limited, Bangalore

ITA 1360/BANG/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0118 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 24-06-2020
• Assessment Year: 2011-2012
• Appeal Filed On: 31-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S RAMASUBRAMANIAN
• Keywords: Double taxation relief; TDS
• Section: 206AA; 201(1); 264; 115A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B R BASKARAN , ACCOUNTANT MEMBER IT (IT) A NO. 1360/BANG/2019 ASSESSMENT YEAR : 2011 - 12 THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE 1(1), BENGALURU 560 0-95. VS. M/S. BHARATH FRITZ WERNER LTD., NO.14, HMT FACTORY MAIN ROAD, PEENYA, YESHWANTHPUR POST, BANGALORE 560 022. PAN: AAAC 5723A TAN: BLRB 00311 D APPELLANT RESPONDENT APPELLANT BY : SHRI PRIYADARSHI MISHRA, JT.CIT(DR)(ITAT), BENGALURU. RESPONDENT BY : SHRI S. RAMASUBRAMANIAN, CA DATE OF HEARING : 24.06 .2020 DATE OF PRONOUNCEMENT : 26 .0 6 .2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DATED 11.03.2019 OF THE CIT(APPEALS)-12, BENGALURU RELATING TO ASSES SMENT YEAR 2011-12. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS FOLLOWS:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN LAW AND FACTS OF THE CASE IN ALLOWING THE APPEAL OF THE ASSESSEE ON THE ISSUE OF APPLICABILITY OF SECTION 2 06AA OF THE INCOME-TAX ACT, 1961, IN RESPECT OF PAYMENTS MADE T O NON- RESIDENT ENTITIES. IT(IT)A NO. 1360/BANG/2019 PAGE 2 OF 6 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW AS WELL AS ON FACTS IN HOLDING THAT THERE IS NO SCOPE FOR DEDUCTION OF TAX AT THE RATE OF 30%, AS PROVIDED UN DER THE PROVISIONS OF SECTION 206AA WHEN THE BENEFIT OF DTA A IS AVAILABLE, DESPITE THE OVERRIDING EFFECT OF SECTION 206AA OF THE INCOME-TAX ACT, 1961 DUE TO THE PRESENCE OF A NON-O BSTANTE CLAUSE IN THE SECTION AND A PLAIN READING OF THE SE CTION [INDICATES THAT IT OVERRIDES OTHER PROVISIONS OF THE ACT INCLU DING SECTION 90(2). 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) , ERRED IN RELYING ON THE DECISIONS OF THE HON'BLE IT AT BANGALORE IN ITA NO. 143/(6)/2013 IN THE CASE OF INFOSYS BPO AND DELHI HIGH COURT IN THE CASE OF DANISCO INDICT PVT. LTD ( WP(C) 5908/2015 DATED 5.2.2015. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) OUGHT TO HAVE APPRECIATED THE FACT THAT THE HON'BLE ITAT, BANGALORE IN THE CASE OF BOSCH LTD VS ITO, INTERNAT IONAL TAXATION IN ITA NOS.552 TO 558/B/2011 DATED 10/11/2 012 HAS ACTUALLY UPHELD THE APPLICABILITY OF SECTION 206AA OF THE INCOME- TAX ACT IN FAVOUR OF REVENUE, HENCE HAS ERRED IN AL LOWING THE APPEAL OF THE ASSESSEE. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) OUGHT TO HAVE APPRECIATED THE FACT THAT THE HON'BLE ITAT, BANGALORE IN THE CASE OF DCIT VS INFOSYS BPO [ITA N O.1143(B) AND 8&8/2014 HAS MISINTERPRETED ITS OWN EARLIER DEC ISION IN THE CASE OF BOSCH LTD VS ITO, INTERNATIONAL TAXATION IN ITA NOS.552 TO 558/B/2011 AND HAS ALLOWED THE ASSESSEE' S APPEAL WITHOUT DISTINGUISHING ITS OWN DECISION. HENCE, THE CIT(A) HAS ERRED IN RELYING ON THE DECISION OF THE HON'BLE ITA T IN THE CASE OF MIT VS INFOSYS BPO LTD AND ALLOWING RELIEF TO TH E ASSESSEE. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ), ERRED IN NOT CONSIDERING THE DECISION OF THE JURISD ICTIONAL ITAT IN THE CASE OF BOSCH LTD VS ITO, INTERNATIONAL TAXATIO N ON THE APPLICABILITY OF SECTION 206AA TO THE ASSESSEE'S CA SE. 7. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE U RGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE AO BE RESTORED AND THAT OF THE CIT(A) BE CANCELLED. IT(IT)A NO. 1360/BANG/2019 PAGE 3 OF 6 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF MANUFACTURING METAL CUTTING GRINDING MACHINES, SPAR ES, ACCESSORIES AND RELATED SERVICES. THE DCIT, INTL. TAXATION, CIRCLE 1(1), BANGALORE [DCIT] RECEIVED INFORMATION FROM THE ACIT, TDS CIRCLE 1(1) , BANGALORE THAT AS PER THE TAX AUDIT REPORT IN FORM 3CD, IT HAS BEEN MENTI ONED THAT THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON A PAYMEN T OF RS.2,63,08,939 TOWARDS DESIGN CHARGES AND RS.29,11,816 ON PAYMENT OF EXHIBITION FEES, BOTH PAYMENTS HAD BEEN MADE TO THE NON-RESIDENTS (T AX RESIDENTS OF GERMANY) AND THEREFORE THE DCIT PASSED AN ORDER U/ S. 201(1) & 201(1A) OF THE INCOME-TAX ACT, 1961 [THE ACT] DATED 31.03.2 018 HOLDING THE ASSESSEE TO BE AN ASSESSEE IN DEFAULT FOR NON-DEDUC TION OF TAX AT SOURCE. THE RATE OF TAX WAS ALSO APPLIED BY THE DCIT @ 21.1 15% IN TERMS OF SECTION 206AA OF THE ACT AT A HIGHER RATE BECAUSE OF THE PROVISIONS OF SEC.206AA OF THE ACT. 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-RESIDENT RECIPIENTS. THE PA YMENTS IN CASE OF RESIDENTS WOULD INCLUDE SALARY, RENT, PROFESSIONAL RECEIPTS, CONTRACTUAL RECEIPTS AND SO ON. IN THE CASE OF NON-RESIDENT, TH ESE WOULD INCLUDE ALL RECEIPTS THAT ARE TAXABLE IN INDIA. A RECIPIENT OF TAXABLE INCOME SHOULD FURNISH PAN TO COMPLY WITH THE PROVISIONS OF TDS UN DER THE INCOME TAX ACT. UPON FURNISHING OF THE PAN, PAYMENTS MADE TO T HE RECIPIENT WOULD BE TAXED AT THE RATE OF TDS SPECIFIED UNDER THE VARIOU S TDS PROVISIONS OF THE ACT. A RECIPIENT WHO DOES NOT FURNISH PAN WOULD SUF FER TDS AT THE HIGHER RATES SPECIFIED IN SECTION 206AA. THE RECIPIENT IS ALSO REQUIRED TO FURNISH HIS PAN TO THE PAYER AND BOTH OF THEM ARE REQUIRED TO INDICATE THE SAME IN ALL CORRESPONDENCE, BILLS, VOUCHERS AND OTHER DOCUM ENTS 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: IT(IT)A NO. 1360/BANG/2019 PAGE 4 OF 6 AT THE RATE SPECIFIED IN THE RELEVANT PROVISION OF THE ACT; AT THE RATE OR RATES IN FORCE, I.E., THE RATE PRESC RIBED IN THE FINANCE ACT.; AT THE RATE OF 20% 4. IN AN APPEAL AGAINST THE AFORESAID ORDER, THE AS SESSEE CONTENDED BEFORE THE CIT(APPEALS) THAT THE RATE OF TAX AT WHI CH TDS SHOULD BE MADE BY THE ASSESSEE IS 10% IN ACCORDANCE WITH THE TREAT Y FOR AVOIDANCE OF DOUBLE TAXATION BETWEEN INDIA AND GERMANY (DTAA) AN D NOT AT THE HIGHER RATE OF TAX @ 20% BY INVOKING THE PROVISIONS OF SEC TION 206AA OF THE ACT. THIS SUBMISSION WAS ACCEPTED BY THE CIT(A) AND ON T HE BASIS OF THE DECISION OF THE PUNE BENCH OF THE ITAT IN THE CASE OF SERUM INSTITUTE OF INDIA LTD. IN ITA NO.792/PN/2013. AGGRIEVED BY THE AFORESAID PART OF THE ORDER OF THE CIT(APPEALS) ALLOWING RELIEF TO THE AS SESSEE, THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. AT THE TIM E OF HEARING IT WAS NOT DISPUTED THAT THE ISSUE RAISED BY THE REVENUE I N ITS APPEALS ARE ALREADY DECIDED BY A SPECIAL BENCH OF ITAT, HYDERABAD. THE ISSUE REGARDING THE APPLICABILITY OF PROVISIONS OF SECTION 206AA OF THE ACT, IN CASES OF TAX TO BE DEDUCTED AT SOURCE, WHEN THE INCOME IS EXIGIBLE TO TAX UNDER DTAA AND THE PAYEES ARE UNABLE TO PROVIDE VALID PERMANENT ACCOUN T NUMBERS, CAME UP FOR CONSIDERATION BEFORE THE SPECIAL BENCH, ITAT HY DERABAD IN THE CASE OF NAGARJUNA FERTILIZERS & CHEMICALS LTD. VS. AC IT (2 017) 78 TAXMANN.COM 264 (HYDERABAD-TRIBUNAL) (SB) . THE QUESTION BEFORE THE SPECIAL BENCH WAS WHETHER THE PROVISIONS OF SECTION 206AA HAD OVERRID ING EFFECT FOR ALL OTHER PROVISIONS OF THE ACT, WHETHER THE ASSESSEE HAS TO DEDUCT TAX AT SOURCE AT THE RATES PRESCRIBED IN SECTION 206AA IN CASE THE P AYEES ARE UNABLE TO FURNISH THEIR PANS, EVEN IN CASES WHERE TAX LIABILI TY 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%. IT(IT)A NO. 1360/BANG/2019 PAGE 5 OF 6 6. THE PLEA OF THE REVENUE WAS THAT SECTION 206AA S TARTS WITH A NON- OBSTANTE CLAUSE AND THEREFORE IT OVERRIDES ALL OTHE R PROVISIONS OF THE ACT INCLUDING 90(2), 115A AND 139A. THE PLEA OF THE ASS ESSEE WAS THAT DTAA WAS SUPREME AND IN THIS REGARD RELIANCE WAS PLACED ON THE HONBLE SUPREME COURT DECISION IN THE CASE OF AZADI BACHAO ANDOLAN (2003) 263 ITR 706 (SC) , WHEREBY IT WAS HELD THAT DTAA, EVEN IF INCONSISTE NT, WILL PREVAIL OVER THE ACT. RELIANCE WAS ALSO PLACED ON T HE DECISIONS OF THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF SA NOFI PASTEUR (2013) 354 ITR 316 (AP) WHEREIN IT WAS OBSERVED THAT DTAA BEING A SOVEREIGN MATTER, THE MACHINERY PROVISIONS CANNOT OVERRIDE OR CONTROL THAT. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HONBLE KARN ATAKA HIGH COURT IN THE CASE OF KAUSHALLAYA BAI AND OTHERS (2012) 346 ITR 156 (KAR) WHEREIN IT HAS HELD THAT THE PROVISIONS OF SECTION 206AA ARE T O BE READ DOWN. 7. 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 GO OD FAITH. OTHERWISE IT WOULD AMOUNT TO THE BREACH OF ARTICLE 253 OF THE CO NSTITUTION. 8. 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 T REATMENT, THE PROVISION IN SECTION 206AA (AS IT EXISTED) HAS TO BE READ DOW N TO MEAN THAT WHERE THE DEDUCTEE I.E., THE OVERSEAS RESIDENT BUSINESS C ONCERN CONDUCTS ITS OPERATION FROM A TERRITORY, WHOSE GOVERNMENT HAS EN TERED INTO A DOUBLE TAXATION AVOIDANCE AGREEMENT WITH INDIA, THE RATE O F TAXATION WOULD BE AS DICTATED BY THE PROVISIONS OF THE TREATY. 9. 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 REVENU E. IT(IT)A NO. 1360/BANG/2019 PAGE 6 OF 6 10. IN THE RESULT, THE APPEAL BY THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF JUNE, 2020. SD/- SD/- ( B R BASKARAN ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 26 TH JUNE, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.