Deputy Director of Income-tax, V. Serum Institute of India Ltd., Pune

ITA 1576/PUN/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9607 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-01-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 13-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAVAN
• Keywords: Recovery proceedings; Double taxation relief
• Section: 206AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , ! ' # , $% &' #' , ' # '( BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWAS THY, JM '%. / ITA NOS. 1574 TO 1577/PUN/2014 * +* / ASSESSMENT YEAR : 2012-13 DY. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) II, PUNE ....... / APPELLANT /VS. SERUM INSTITUTE OF INDIA LIMITED, 16/B-1/SAROSH BHAVAN, DR. AMBEDKAR ROAD, PUNE 411001 PAN : AABCS4225M / RESPONDENT ASSESSEE BY : SHRI RAJENDRA AGIWAL REVENUE BY : SHRI B.Y. CHAVAN / DATE OF HEARING : 03-04-2017 / DATE OF PRONOUNCEMENT : 05-04-2017 , / ORDER PER VIKAS AWASTHY, JM : THESE FOUR APPEALS FILED BY THE DEPARTMENT ARE DIRECTED A GAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-IT/TP, PUNE DATED 22-05-2014 PASSED U/S. 200A OF THE INCOME TAX ACT, 196 1 (HEREINAFTER REFERRED TO AS THE ACT) COMMON FOR QUARTER I TO QUAR TER IV OF THE ASSESSMENT YEAR 2012-13. 2 ITA NOS. 1574 TO 1577/PUN/2014, A.Y. 2012-13 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD ARE: THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING AND EXPORT OF VACCINES. THE ASSESSEE MADE OVERSEAS PAYMENTS AFTER DEDUCTING T AX AT SOURCE IN ACCORDANCE WITH THE TAX RATE PROVIDED IN THE DOUBLE TAXATION AVO IDANCE AGREEMENT (DTAA) WITH THE RESPECTIVE COUNTRIES. THE PAYM ENTS WERE MADE ON ACCOUNT OF ROYALTY AND FEES FOR TECHNICAL SERVICE S TO NON- RESIDENTS WHO WERE NOT HAVING PERMANENT ACCOUNT NUMBE R (PAN). THE DEPARTMENT UNDER THE PROVISIONS OF SECTION 206AA TREATE D THE TAX DEDUCTED BY ASSESSEE AS SHORT DEDUCTION. AS PER RE VENUE THE ASSESSEE WAS UNDER OBLIGATION TO DEDUCTED TAX AT SOURC E ON THE AFORESAID PAYMENTS @ 20%. ACCORDINGLY, DEMAND WAS RAISED FOR SHORT DEDUCTION OF TAX AND INTEREST THEREON. AGGRIEVED BY THE DEMAND RAISED, THE ASSESSEE FILED APPEAL S FOR THE RESPECTIVE QUARTERS OF THE ASSESSMENT YEAR 2012-1 3 BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF I NCOME TAX (APPEALS), FOLLOWING HIS OWN ORDER IN THE CASE OF ASSESSE E FOR ASSESSMENT YEAR 2011-12 ACCEPTED THE APPEALS OF ASSE SSEE AND DELETED THE DEMAND. NOW, THE DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL ASSAILING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). 3. THE REVENUE HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) BY RAISING IDENTICAL GROUNDS OF APPEAL IN ALL THE FOUR QUARTERS. THE GROUNDS RAISED BY THE DEPARTMENT IN APPEAL ARE AS UNDER : 1) THE CIT(A) ERRED IN LAW IN CONCLUDING THAT SEC 206 AA IS NOT APPLICABLE IN CASE OF NON-RESIDENTS AS THE DT AA OVERRIDES THE AC T AS PER SECTION 90(2). 3 ITA NOS. 1574 TO 1577/PUN/2014, A.Y. 2012-13 2) THE DECISION OF THE CIT(A) IS NOT ACCORDING TO THE LAW AND ERRED IN IGNORING THE MEMORANDUM EXPLAINING THE PROVISIONS O F THE FINANCE (NO. 2) BILL, 2009 WHICH CLEARLY STATES THAT THE SEC 206 AA APPLIES TO NON- RESIDENTS AND ALSO PRESS RELEASE OF CBDT NO. 402/92 /2006-MC (04 OF 2010) DATED 20.01.2010 WHICH REITERATES THAT SEC. 2 06AA WILL ALSO APPLY TO ALL NON-RESIDENTS IN RESPECT OF PAYMENTS/REMITTA NCES LIABLE TO TDS. 3) THE CIT(A) IS ERRED IN IGNORING THE DECISION OF THE ITAT BANGALORE IN THE CASE OF BOSCH LTD. VS ITO, ITA NO. 552 TO 558 (BANG .) OF 2011 DATED 11.10.2012, IN WHICH IT WAS HELD THAT IF THE RECIPI ENT HAS NOT FURNISHED THE PAN TO THE DEDUCTOR, THE DEDUCTOR IS LIABLE TO WITHHOLD TAX AT THE HIGHER RATES PRESCRIBED U/S. 206AA. 4. SHRI RAJENDRA AGIWAL APPEARING ON BEHALF OF THE ASSESSE E SUBMITTED AT THE OUTSET THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF CO-ORDINATE BENCH OF THE TRIBU NAL IN ASSESSEES OWN CASE IN ITA NOS. 1601 TO 1604/PN/2014 FOR THE ASSESSMENT YEAR 2011-12 DECIDED ON 30-03-2015. THE LD . AR CONTENDED THAT THE ASSESSEE HAS DEDUCTED TAX AT SOU RCE ACCORDING TO THE RATES PROVIDED IN TAX TREATY. THE PROVISIONS OF TAX TREATY SHALL PREVAIL OVER THE PROVISIONS OF INCOME TAX ACT, IF THE PROVIS IONS OF DTAA ARE MORE BENEFICIAL TO THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT THE ISSUE RAISED IN THE PRESENT SET OF APPEALS HAS ALSO BEEN ADJUDICATED BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S. NAGARJUNA FERTILIZERS AND CHE MICALS LIMITED VS. ASSISTANT COMMISSIONER OF INCOME TAX IN ITA NOS . 1187 & 1188/H/2014 FOR THE ASSESSMENT YEARS 2011-12 AND 201 2-13 DECIDED ON 13-02-2017. THE LD. AR POINTED THAT IN THE AFORESAID CASE, THE ASSESSEE WAS INTERVENER. THE SPECIAL BENCH OF THE TRIBU NAL HELD THAT THE PROVISIONS OF SECTION 206AA WILL NOT HAVE AN OVERRIDING EFFECT OVER 4 ITA NOS. 1574 TO 1577/PUN/2014, A.Y. 2012-13 THE PROVISIONS OF THE TREATY TO THE EXTENT THEY ARE BE NEFICIAL TO THE ASSESSEE. THE LD. AR PRAYED FOR DISMISSING THE APPEALS O F THE DEPARTMENT AND UPHOLDING THE ORDERS OF COMMISSIONER OF IN COME TAX (APPEALS). 5. SHRI B.Y. CHAVAN REPRESENTING THE DEPARTMENT FAIRLY AD MITTED THAT THE ISSUE RAISED IN THE PRESENT SET OF APPEALS BY T HE DEPARTMENT HAS BEEN ADJUDICATED BY THE CO-ORDINATE BENCH OF THE T RIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2011-12. 6. BOTH SIDES HEARD. THE ONLY ISSUE IN APPEALS IS; WHETHE R THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE ON THE PAYMENTS MADE TO THE NON-RESIDENTS @ 20% UNDER THE PROVISIONS OF SECTION 206AA WHERE THE RECIPIENTS OF PAYMENTS WERE NOT HAVING PERMANENT AC COUNT NUMBER. WE FIND THAT THE DEPARTMENT IN ITA NOS. 1601 TO 1604/PUN/2014 FOR ASSESSMENT YEAR 2011-12 HAD ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THE ISSUE BY RAISING IDENTICAL GROUNDS OF APPEAL. THE CO-ORDINATE BENCH OF THE TRIBUNAL DISMISSING THE APPEALS OF THE DEPARTMENT, DECIDED T HE ISSUE IN FAVOUR OF THE ASSESSEE. THE TRIBUNAL HELD : 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. SECTION 206AA OF THE ACT HAS BEEN INCLUDED IN PART B OF CHAPTER XVII DEALING WITH COLLECTION AND RECOVERY OF TAX DEDUCTION AT SOURC E. SECTION 206AA OF THE ACT DEALS WITH REQUIREMENTS OF FURNISHING PAN B Y ANY PERSON, ENTITLED TO RECEIVE ANY SUM OR INCOME ON WHICH TAX IS DEDUCTIBLE UNDER CHAPTER XVII-B, TO THE PERSON RESPONSIBLE FOR DEDUC TING SUCH TAX. SHORN OF OTHER DETAILS, IN SO FAR AS THE PRESENT CONTROVE RSY IS CONCERNED, IT WOULD SUFFICE TO NOTE THAT SECTION 206AA OF THE ACT PRESCRIBES THAT WHERE PAN IS NOT FURNISHED TO THE PERSON RESPONSIBLE FOR DEDUCTING TAX AT SOURCE THEN THE TAX DEDUCTOR WOULD BE REQUIRED TO D EDUCT TAX AT THE 5 ITA NOS. 1574 TO 1577/PUN/2014, A.Y. 2012-13 HIGHER OF THE FOLLOWING RATES, NAMELY, AT THE RATE PRESCRIBED IN THE RELEVANT PROVISIONS OF THIS ACT; OR AT THE RATE/RAT ES IN FORCE; OR AT THE RATE OF 20%. IN THE PRESENT CASE, ASSESSEE WAS RESPONSIB LE FOR DEDUCTING TAX ON PAYMENTS MADE TO NON-RESIDENTS ON ACCOUNT OF ROY ALTY AND/OR FEE FOR TECHNICAL SERVICES. THE DISPUTE BEFORE US RELATES T O THE PAYMENTS MADE BY THE ASSESSEE TO SUCH NON-RESIDENTS WHO HAD NOT F URNISHED THEIR PANS TO THE ASSESSEE. THE CASE OF THE REVENUE IS THAT IN THE ABSENCE OF FURNISHING OF PAN, ASSESSEE WAS UNDER AN OBLIGATION TO DEDUCT TAX @ 20% FOLLOWING THE PROVISIONS OF SECTION 206AA OF TH E ACT. HOWEVER, ASSESSEE HAD DEDUCTED THE TAX AT SOURCE AT THE RATE S PRESCRIBED IN THE RESPECTIVE DTAAS BETWEEN INDIA AND THE RELEVANT COU NTRY OF THE NON- RESIDENTS; AND, SUCH RATE OF TAX BEING LOWER THAN T HE RATE OF 20% MANDATED BY SECTION 206AA OF THE ACT. THE CIT(A) HA S FOUND THAT THE PROVISIONS OF SECTION 90(2) COME TO THE RESCUE OF T HE ASSESSEE. SECTION 90(2) PROVIDES THAT THE PROVISIONS OF THE DTAAS WOU LD OVERRIDE THE PROVISIONS OF THE DOMESTIC ACT IN CASES WHERE THE P ROVISIONS OF DTAAS ARE MORE BENEFICIAL TO THE ASSESSEE. THERE CANNOT B E ANY DOUBT TO THE PROPOSITION THAT IN CASE OF NON-RESIDENTS, TAX LIAB ILITY IN INDIA IS LIABLE TO BE DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT OR THE DTAA BETWEEN INDIA AND THE RELEVANT COUNTRY, WHICHEVER I S MORE BENEFICIAL TO THE ASSESSEE, HAVING REGARD TO THE PROVISIONS OF SE CTION 90(2) OF THE ACT. IN THIS CONTEXT, THE CIT(A) HAS CORRECTLY OBSERVED THAT THE HONBLE SUPREME COURT IN THE CASE OF AZADI BACHAO ANDOLAN A ND OTHERS VS. UOI, (2003) 263 ITR 706 (SC) HAS UPHELD THE PROPOSITION THAT THE PROVISIONS MADE IN THE DTAAS WILL PREVAIL OVER THE GENERAL PRO VISIONS CONTAINED IN THE ACT TO THE EXTENT THEY ARE BENEFICIAL TO THE AS SESSEE. IN THIS CONTEXT, IT WOULD BE WORTHWHILE TO OBSERVE THAT THE DTAAS ENTER ED INTO BETWEEN INDIA AND THE OTHER RELEVANT COUNTRIES IN THE PRESE NT CONTEXT PROVIDE FOR SCOPE OF TAXATION AND/OR A RATE OF TAXATION WHICH W AS DIFFERENT FROM THE SCOPE/RATE PRESCRIBED UNDER THE ACT. FOR THE SAID R EASON, ASSESSEE DEDUCTED THE TAX AT SOURCE HAVING REGARD TO THE PRO VISIONS OF THE RESPECTIVE DTAAS WHICH PROVIDED FOR A BENEFICIAL RA TE OF TAXATION. IT WOULD ALSO BE RELEVANT TO OBSERVE THAT EVEN THE CHA RGING SECTION 4 AS WELL AS SECTION 5 OF THE ACT WHICH DEALS WITH THE P RINCIPLE OF ASCERTAINMENT OF TOTAL INCOME UNDER THE ACT ARE ALS O SUBORDINATE TO THE PRINCIPLE ENSHRINED IN SECTION 90(2) AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF AZADI BACHAO ANDOLAN AND OTHER S (SUPRA). THUS, IN SO FAR AS THE APPLICABILITY OF THE SCOPE/RATE OF TA XATION WITH RESPECT TO THE IMPUGNED PAYMENTS MAKE TO THE NON-RESIDENTS IS CONC ERNED, NO FAULT CAN 6 ITA NOS. 1574 TO 1577/PUN/2014, A.Y. 2012-13 BE FOUND WITH THE RATE OF TAXATION INVOKED BY THE A SSESSEE BASED ON THE DTAAS, WHICH PRESCRIBED FOR A BENEFICIAL RATE OF TA XATION. HOWEVER, THE CASE OF THE REVENUE IS THAT THE TAX DEDUCTION AT SO URCE WAS REQUIRED TO BE MADE AT 20% IN THE ABSENCE OF FURNISHING OF PAN BY THE RECIPIENT NON- RESIDENTS, HAVING REGARD TO SECTION 206AA OF THE AC T. IN OUR CONSIDERED OPINION, IT WOULD BE QUITE INCORRECT TO SAY THAT TH OUGH THE CHARGING SECTION 4 OF THE ACT AND SECTION 5 OF THE ACT DEALI NG WITH ASCERTAINMENT OF TOTAL INCOME ARE SUBORDINATE TO THE PRINCIPLE ENSHR INED IN SECTION 90(2) OF THE ACT BUT THE PROVISIONS OF CHAPTER XVII-B GOVERN ING TAX DEDUCTION AT SOURCE ARE NOT SUBORDINATE TO SECTION 90(2) OF THE ACT. NOTABLY, SECTION 206AA OF THE ACT WHICH IS THE CENTRE OF CONTROVERSY BEFORE US IS NOT A CHARGING SECTION BUT IS A PART OF A PROCEDURAL PROV ISIONS DEALING WITH COLLECTION AND DEDUCTION OF TAX AT SOURCE. THE PROV ISIONS OF SECTION 195 OF THE ACT WHICH CASTS A DUTY ON THE ASSESSEE TO DEDUC T TAX AT SOURCE ON PAYMENTS TO A NON-RESIDENT CANNOT BE LOOKED UPON AS A CHARGING PROVISION. IN-FACT, IN THE CONTEXT OF SECTION 195 O F THE ACT ALSO, THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. ELI LILY & CO. , (2009) 312 ITR 225 (SC) OBSERVED THAT THE PROVISIONS OF TAX WITHHOLDIN G I.E. SECTION 195 OF THE ACT WOULD APPLY ONLY TO SUMS WHICH ARE OTHERWIS E CHARGEABLE TO TAX UNDER THE ACT. THE HONBLE SUPREME COURT IN THE CAS E OF GE INDIA TECHNOLOGY CENTRE PVT. LTD. VS. CIT, (2010) 327 ITR 456 (SC) HELD THAT THE PROVISIONS OF DTAAS ALONG WITH THE SECTIONS 4, 5, 9, 90 & 91 OF THE ACT ARE RELEVANT WHILE APPLYING THE PROVISIONS OF T AX DEDUCTION AT SOURCE. THEREFORE, IN VIEW OF THE AFORESAID SCHEMATIC INTER PRETATION OF THE ACT, SECTION 206AA OF THE ACT CANNOT BE UNDERSTOOD TO OV ERRIDE THE CHARGING SECTIONS 4 AND 5 OF THE ACT. THUS, WHERE 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 AND THE S AME ALSO OVERRIDES THE CHARGING SECTIONS 4 AND 5 OF THE ACT WHICH, IN TURN, OVERRIDE THE DTAAS PROVISIONS ESPECIALLY SECTION 206AA OF THE AC T WHICH IS THE CONTROVERSY BEFORE US. THEREFORE, IN OUR VIEW, WHER E THE TAX HAS BEEN DEDUCTED ON THE STRENGTH OF THE BENEFICIAL PROVISIO NS OF SECTION DTAAS, THE PROVISIONS OF SECTION 206AA OF THE ACT CANNOT B E INVOKED BY THE ASSESSING OFFICER TO INSIST ON THE TAX DEDUCTION @ 20%, HAVING REGARD TO THE OVERRIDING NATURE OF THE PROVISIONS OF SECTION 90(2) OF THE ACT. THE CIT(A), IN OUR VIEW, CORRECTLY INFERRED THAT SECTIO N 206AA OF THE ACT DOES NOT OVERRIDE THE PROVISIONS OF SECTION 90(2) OF THE ACT AND THAT IN THE IMPUGNED CASES OF PAYMENTS MADE TO NON-RESIDENTS, A SSESSEE CORRECTLY APPLIED THE RATE OF TAX PRESCRIBED UNDER THE DTAAS AND NOT AS PER 7 ITA NOS. 1574 TO 1577/PUN/2014, A.Y. 2012-13 SECTION 206AA OF THE ACT BECAUSE THE PROVISIONS OF THE DTAAS WAS MORE BENEFICIAL. THUS, WE HEREBY AFFIRM THE ULTIMATE CON CLUSION OF THE CIT(A) IN DELETING THE TAX DEMAND RELATABLE TO DIFFERENCE BET WEEN 20% AND THE ACTUAL TAX RATE ON WHICH TAX WAS DEDUCTED BY THE AS SESSEE IN TERMS OF THE RELEVANT DTAAS. AS A CONSEQUENCE, REVENUE FAILS IN ITS APPEALS. 7. THE ISSUE WAS ALSO CONSIDERED BY THE SPECIAL BENCH OF THE TRIBUNAL AT HYDERABAD IN THE CASE OF M/S. NAGARJUNA FERT ILIZERS AND CHEMICALS LIMITED VS. ASSISTANT COMMISSIONER OF INCOME TAX (S UPRA). THE QUESTION BEFORE THE SPECIAL BENCH FOR ADJUDICATION WAS : WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE , PROVISIONS OF SECTION 206AA OF THE ACT WILL HAVE A OVERRIDING EFF ECT FOR ALL OTHER PROVISIONS OF THE ACT, AND THAT BEING THE CASE, ASS ESSEE IS REQUIRED TO DEDUCT TAX AT THE RATE PRESCRIBED THEREIN IN CASE O F PERSONS HAVING TAXABLE INCOME IN INDIA, INCLUDING NON-RESIDENTS, W HO DO NOT FURNISH THEIR PERMANENT ACCOUNT NUMBERS. THE SPECIAL OF THE TRIBUNAL AFTER DISCUSSING THE PROVISIONS O F SECTIONS 90(2) AND 206AA OF THE ACT AND CATENA OF JUDGM ENTS ON THE ISSUE CONCLUDED AS UNDER : 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 OVE RRIDE SECTION 206AA BY VIRTUE OF SECTION 90(2). IN OUR OPINION, THE ASSESS EE THEREFORE CANNOT BE HELD LIABLE TO DEDUCT TAX AT HIGHER OF THE RATES PR ESCRIBED IN SECTION 206AA IN CASE OF PAYMENTS MADE TO NON-RESIDENT PERS ONS HAVING TAXABLE INCOME IN INDIA IN SPITE OF THEIR FAILURE TO FURNIS H THE PERMANENT ACCOUNT NUMBERS. WE, ACCORDINGLY, ANSWER THE QUESTION REFER RED TO THIS SPECIAL BENCH IN THE NEGATIVE AND IN FAVOUR OF THE ASSESSEE AND ALLOW BOTH THE APPEALS OF THE ASSESSEE FOR A.YS. 2011-12 AND 2012- 13. 8 ITA NOS. 1574 TO 1577/PUN/2014, A.Y. 2012-13 THUS, IN VIEW OF THE DECISIONS DISCUSSED ABOVE, WE DO NOT FIN D ANY MERIT IN THE APPEALS FILED BY THE DEPARTMENT. ACCORDIN GLY, THE SAME ARE DISMISSED. 8. IN THE RESULT, ALL THE FOUR APPEALS FILED BY THE DEPARTM ENT ARE DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 05 TH DAY OF APRIL, 2017. SD/- SD/- ( / ANIL CHATURVEDI) ( ! / VIKAS AWASTHY) ' ! / ACCOUNTANT MEMBER # ! / JUDICIAL MEMBER ' / PUNE; $% / DATED : 05 TH APRIL, 2017 RK , - ./& 0&+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A)-IT/TP, PUNE 4. THE DIT (TP/IT), PUNE 5. &' () , * () , + +, , ' / DR, ITAT, B BENCH, PUNE. 6. '-. /0 / GUARD FILE. // // TRUE COPY// *'1 / BY ORDER, 2 %3 / ASSISTANT REGISTRAR, * () , ' / ITAT, PUNE