Span Air Pvt. Ltd, New Delhi V. ITO TDS WARD 51, Ghaziabad

ITA 4434/DEL/2019

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Span Air Pvt. Ltd. appealed against the orders of the CIT(A) which upheld the demand for short deduction of tax on payments made to non-residents. The payments were made for fees for technical services and other income, which were subject to higher tax rates due to the absence of Permanent Account Numbers (PAN) of the non-resident payees. The assessee argued that the lower rates under the DTAA should apply, citing section 90(2) of the Income Tax Act and relevant judicial precedents. The CIT(A) rejected these arguments, leading to the current appeal. The ITAT found merit in the assessee's arguments, noting that the provisions of the DTAA, which are more beneficial, should override the domestic law provisions that require a higher tax deduction rate in the absence of PAN.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131207 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 12-02-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 14-05-2019
• Other Referred Cases: Danisco India Pvt. Ltd. Vs. Union of India (2018) 404 ITR 539 (D. H. C), Dy. DDIT Vs. Serum Institute of India (2015) 68 SOT 254 (Pune ITAT), Emmsons International Ltd Vs. DCIT, Multibase India Ltd Vs. ITO 2018 93 taxmman.com 204 (Guj), CIT vs. Eli Lily & Co., (2009) 312 ITR 225 (SC), GE India Technology Centre Pvt. Ltd. vs. CIT, (2010) 327 ITR 456 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; TDS
• Section: 154; 206AA; 195; 200A

Judgement Text

Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”: NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No. 4434 & 4435/Del/2019 (Assessment Year: 2016-17 & 2017-18) Span Air Pvt. Ltd, 303, 3 rd Floor, Rasvilas Salcon Plot NO. D-1, District Centre, Saket, New Delhi -110017 Vs. ITO (TDS), Ward-1, Ghaziabad (Appellant) (Respondent) PAN: AAACS2411E Assessee by : Sh. M. R. Sahu, CA Revenue by: Sh. Sanjay Kumar, Sr. DR Date of Hearing 13/02/2023 Date of pronouncement /02/2023 O R D E R PER ANUBHAV SHARMA, J. M.: 1. These are the appeals filed by the assessee against the orders of the ld CIT(A)XXV, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. 'FAA') dated 18.03.2019 and 19.03.2019 ) for Assessment Years 2016-17 and 2017-18 in appeal No. 10306/18-19 and 10307/18-19 passed u/s 200A of the Income Tax Act, 1961 (hereinafter referred as 'the Act') by the Id Assessing Officer, CPC-TDS, Vaishali, Ghaziabad (hereinafter referred as the Ld. AO 2. The facts in brief are that the assessee’s return was processed and intimation u/s 200A was issued raising a demand on account of short deduction of the taxes. The assessee had made certain payments in the nature of fees for technical services to non residents and other income of non-resident and filed e-TDS quarterly statement in Form 27Q for relevant Financial year. The ld AO(TDS), CPC, Ghaziabad through automatic system held that the assessee is liable for deduction of tax at higher rate for want of Permanent Account Number of the concerned non-resident payees as per the provisions of section ITA No. 4434 & 4435/Del/2019 Span Air Pvt. Ltd Vs ITO (TDS) Page | 2 206A of the Act. The assessee had challenged the same before ld CIT(A) primarily submitting that the amounts are paid to the non-resident of those countries with whom DTAA agreement were signed by India at the lower rate as prescribed in the relevant Articles of DTAA being favourable in comparison to the Act were liable to be applied as per section 90(2) of the Act read with CBDT Circular no 333 dated 02.04.1982. Reliance was heavily placed on the judgment in the case of Danisco India Pvt. Ltd. Vs. Union of India (2018) 404 ITR 539 (D. H. C) and the Pune Tribunal order in the case of Dy. DDIT Vs. Serum Institute of India (2015) 68 SOT 254 (Pune ITAT) to contend that provisions of section 90(2) overrides the provision of section 206AA. Accordingly, rate specified under DTAA shall be applicable to non-resident having no PAN account in India. The ld CIT(A) however, discredited the claim of assessee holding that as deductees have no PAN details accordingly, appellant has been rightly held to be assessee in default for short deduction of tax. Further in regard to appeal for Assessment Year 2017-18 it was also held that for availing the treaty benefit the deductee has to subject itself to the tax jurisdiction by getting PAN and filing return of income. The same has not been done. 3. The assessee in appeals raising following grounds which are common in both the appeal and for convenience grounds for Assessment Year 2016-17 are being reproduced:- “1. That having regard to the facts of the case, provisions of law and judicial propositions the Ld. CIT(A) grossly erred in concluding that the section 206AA of the I.T Act, 1961 overrides provisions of section 90(2) applicable to non residents of the foreign country with whom DTAAS were signed. 2.That having regard to the facts of the case, provisions of law and judicial propositions the Ld. CIT(A) grossly erred in ignoring the decision of the Delhi High Court in the case of Danisco India (P) Ltd Vs. UOI (2018) 404 ITR 539 (Del.HC), in which it was held that section 206AA of the Act does not override the provisions of section 90(2) of the Act and that in case of payments made to non residents, the rate of tax to be applied as prescribed under the DTAA and not as per section 206AA of the Act because provisions of the DTAA are more beneficial to the assessee. That the appellant prays for deletion of demand of Rs3,60,350/- confirmed by Ld.CIT(A). 3. That having regard to the facts of the case, provisions of law and judicial propositions the Ld. CIT(A) grossly erred in not allowing refund of the excess TDS deposited by the appellant on grossing up of the bills, as TDS deposited by the appellant was not deducted from the bills rather TDS on the grossing up amount ITA No. 4434 & 4435/Del/2019 Span Air Pvt. Ltd Vs ITO (TDS) Page | 3 was borne by the appellant. That the appellant prays for refund of the excess TDS deposited amounting to Rs1,44,856/- not allowed by Ld.CIT(A).” 4. Heard and perused the record. 5. The ld AR reasserted the facts of the case and the submission which was made before the ld First Appellate Authority and heavily relied upon the judgment in Danisco India (P) Ltd Vs. UOI (supra) and Delhi Tribunal order in the case of Emmsons International Ltd Vs. DCIT (supra). Reliance was also placed in case Multibase India Ltd Vs. ITO 2018 93 taxmman.com 204 (Guj) and it was submitted that as assessee had mistakenly deducted the taxes, was entitled for refund of the same. Circular No. 7/2007 dated 23.10.2007 of CBDT was relied to specifically submit that the case of the assessee falls into the category of circumstances where taxes deducted at source is allowed as refund. 6. The ld DR further supported the findings of the ld CIT(A). It was also submitted that without raising claim of refund before the Tax Authorities below, here in appeal the claim cannot be raised. 7. Giving thoughtful consideration to the matter on record and the submission it comes up that there is no dispute to the fact that all the payments were made to the non resident of the countries with whom there are DTAA agreement by India. There is no dispute to the fact that the assessee had applied rate at lower level while the ld AO had applied higher rates as per Act considering appellant to be assessee in default. The order of the ld CIT(A) shows that the judgment of Hon'ble Delhi High Court in case of Danisco India Pvt. Ltd Vs. UOI (supra) wherein, Pune Tribunal in case of Dy. CIT Vs. Serum Institute of India (supra) was reproduced at page 11 to 14 of the order. Further without a wording of discussion to distinguish the legal proposition on facts or law, the ld CIT(A) had failed to follow the same. 8. It can be observed that the Pune Bench of ITAT has dealt with the issue and it observed; “Thus, in so far as the applicability of the scope/rate of taxation with respect to the impugned payments make to the non-residents is concerned, no fault can be found with the rate of taxation invoked by ITA No. 4434 & 4435/Del/2019 Span Air Pvt. Ltd Vs ITO (TDS) Page | 4 the assessee based on the DTAAs, which prescribed for a beneficial rate of taxation. However, the case of the Revenue is that the tax deduction at source 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 Act. In our considered opinion, it would be quite incorrect to say that though the charging section 4 of the Act and section 5 of the Act dealing with ascertainment of total income are subordinate to the principle enshrined in section 90(2) of the Act but the provisions of Chapter ITA Nos.1601 to 1604/PN/2014 XVII-B governing 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 provisions dealing with collection and deduction of tax at source. The provisions of section 195 of the Act which casts a duty on the assessee to deduct 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 of the Act also, the Hon'ble Supreme Court in the case of CIT vs. Eli Lily & Co., (2009) 312 ITR 225 (SC) observed that the provisions of tax withholding i.e. section 195 of the Act would apply only to sums which are otherwise chargeable to tax under the Act. The Hon'ble Supreme Court in the case 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 tax deduction at source. Therefore, in view of the aforesaid schematic interpretation of the Act, section 206AA of the Act cannot be understood to override 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 same also overrides the charging sections 4 and 5 of the Act which, in turn, override the DTAAs provisions especially section 206AA of the Act which is the controversy before us. Therefore, in our view, where the tax has been deducted on the strength of the beneficial provisions of ITA No. 4434 & 4435/Del/2019 Span Air Pvt. Ltd Vs ITO (TDS) Page | 5 section DTAAs, the provisions of section 206AA of the Act cannot be 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 section 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, assessee correctly applied the rate of tax prescribed under the DTAAs and not as per section 206AA of the Act because the provisions of the DTAAs was more beneficial.” 9. This leaves no doubt in the mind of this bench that the ld Tax Authorities below have fallen in error in not extending the benefits of section 90(2) of the Act. The ld DR could not point out the provisions of the Act or DTAA to support the observations of Ld. CIT(A). 10. But, the matter of fact remains that what were the rates of taxation under DTAA are not coming up from the matter before this bench therefore, the issue requires to be restored to the files of Ld. AO to take into consideration the rate of the DTAA and recalculate the tax demand considering difference between the rate applied by the Ld. AO and the rates on which tax deducted by the assessee in terms of the relevant DTAA. 11. Furthermore, as far as the claim of refund is concerned there is no force in the submissions of the ld DR that claim is being raised belated as order of the ld CIT(A) shows that rectification petition u/s 154 was filed by the assessee wherein, the request for refund of the excess TDS deducted was made and being aggrieved by non rectification and non-refund of the tax deposited appeal was filed. Further, this issue is also subject to the determination of tax rates as directed to be recalculated. 12. Consequently, the grounds raised are allowed and the Appeals are allowed for statistical purposes. Order pronounced in the open court on 16/02/2023. -Sd/- -Sd/- (N. K. BILLAIYA) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER ITA No. 4434 & 4435/Del/2019 Span Air Pvt. Ltd Vs ITO (TDS) Page | 6 Dated: 16/02/2023 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi