M/s. Emmsons International Ltd., New Delhi V. DCIT- CPC TDS, Ghaziabad

ITA 5124/DEL/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5526 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: misc
• Appeal Filed On: 13-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Keywords: Double taxation relief
• Section: 206AA; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DLEHI BEFORE SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER I.T.A. NOS.5124 TO 5127/DEL/2015 ASSESSMENT YEAR: 2013-14 M/S EMMSONS INTERNATIONAL LTD. VS DCIT CPC -TDS, 101, SOUTH DELHI HOUSE, GHAZIABAD. ZAMRUDPUR COMMUNITY CENTRE, KAILASH COLONY, NEW DELHI. (PAN:AAACE0442K) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SURESH KUMAR GUPTA, CA RESPONDENT BY: SHRI S.R. SENAPATI, SR. DR DATE OF HEARING: 27.03.2018 DATE OF PRONOUNCEMENT: 02.04.2018 ORDER PER K. NARASIMHA CHARY, JM CHALLENGING THE ORDER DATED 12/06/2015 IN APPEAL NO S .93 TO 96/14-15 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS)-41, NEW DELHI {FOR SHORT LD.CIT(A)} FOR ASSTT. YEAR 2013-14, ASSESS EE PREFERRED THESE APPEALS. 2. FACT IN BRIEF ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF IMPORT AND EXPORT OF MERCHANDISE, AND T HEY HAVE FILED THEIR STATEMENT OF DEDUCTION OF TAX AT SOURCE FOR ALL THE QUARTERS OF THE AY 2013-14, BUT THE ASSESSING OFFICER (DCIT, CENTRAL PROCESSING TDS CELL) HAS COMPUTED THE SHORT DEDUCTION AND INTEREST THEREON. ACCORDING TO THE AS SESSEE THEY HAVE DEDUCTED THE TDS AT THE RATES APPLICABLE UNDER THE DOUBLE TA XATION AVOIDANCE AGREEMENT (DTAA) WITH RESPECTIVE COUNTRIES WHEREAS THE CPC ME CHANICALLY APPLIED THE RATE OF DEDUCTION IN SUCH CASES TO BE 20% AS PRESCRIBED UNDER SECTION 206AA OF THE INCOME TAX ACT, 1961( THE ACT) AS SUCH PAYEES DO N OT HOLD PAN IN INDIA. CONTENTION OF THE ASSESSEE IS THAT THEY HAVE CORRECT LY DEDUCTED THE WITHHOLDING TAX BASED ON THE RATES OF TAX PAYABLE BY SUCH PAYEES O N THE INCOME OF INTEREST EARNED IN INDIA. THE REQUEST OF THE ASSESSEE FOR RE CTIFICATION OF THE SAID ORDER WAS REJECTED. 3. ASSESSEE CARRIED THE MATTER IN APPEAL AND LD. CI TA BY WAY OF IMPUGNED ORDER REJECTED THE CONTENTIONS OF THE ASSESSEE STAT ING THAT SECTION 206 AA OF THE ACT WAS INSERTED W.E.F. 01/04/2010 AND IT LAID DOWN THAT IF PAN OF THE DEDUCTEE IS NOT AVAILABLE, TAX WILL BE DEDUCTED AT THE RATES P RESCRIBED UNDER THE ACT OR AT THE RATE OF 20% , WHICH IS HIGHER. HENCE THE ASSESSEE I S BEFORE US IN THIS APPEAL. 4. IT IS ARGUED ON BEHALF OF THE ASSESSEE THAT THE ASSESSEE HAS CORRECTLY DEDUCTED THE WITHHOLDING TAX UNDER SECTION 195 OF T HE ACT FOR EACH OF THE QUARTERS OF THE FINANCIAL YEAR UNDER REFERENCE AT TH E RATES APPLICABLE TO THE NON- RESIDENT IN INDIA AS PER THE PROVISIONS OF THE DTAA AND SECTION 206AA OF THE ACT CANNOT OVERRIDE SECTION 90(2) OF THE ACT. HE PLACED RELIANCE ON THE DECISIONS REPORTED IN AZADI BACHAO ANDOLAN VS UOI (2003) 263 ITR 706 (SC), AND CIT VERSUS ELY LILY AND COMPANY (2009) 312 ITR 225 (SC). LD. DR PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF THE SUBMISSIONS ON EITHER SIDE. AT THE OUTSET IT IS THE SUBMISSION OF THE LD. AR THAT THE ISSUE THAT IS SUBSTANTIALLY INVOLVED IN THIS APPEAL IS THIS WHETHE R SECTION 206AA OF THE ACT OVERRIDE THE PROVISIONS OF SECTION 90(2) OF THE ACT AND WHETHER IN CASES OF THE PAYMENTS MADE TO NON-RESIDENTS, WHAT IS THE RATE OF TAX TO BE APPLIED, WHETHER IT IS AS PER SECTION 206AA OR AS PER THE PROVISIONS OF DTAA. HE SUBMITTED THAT IN A NUMBER OF DECISIONS OF THE TRIBUNAL THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND RECENTLY IN DANISCO INDIA PRIVATE LIMIT ED VS. UNION OF INDIA WP(C) 5908/2015 DECIDED ON 05/02/2018, THE HONBLE JURIS DICTIONAL HIGH COURT NOTED THE ORDER OF THE PUNE TRIBUNAL IN DCIT VS SERUM INS TITUTE OF INDIA LIMITED, ITA NOS.1601 TO 1604/PN/2014 (ASSESSMENT YEAR : 2011-1 2) TO HOLD THAT SECTION 206AA OF THE ACT DOES NOT OVERRIDE THE PROVISIONS O F SECTION 90(2) OF THE ACT AND THAT IN THE CASES OF PAYMENTS MADE TO NON-RESIDENTS, THE RATE OF TAX TO BE APPLIED IS AS PRESCRIBED UNDER THE DTAA AND NOT AS PER SECT ION 206AA OF THE ACT BECAUSE THE PROVISIONS OF THE DTAA ARE MORE BENEFICIAL. 6. THE HONBLE JURISDICTIONAL HIGH COURT EXTRACTED THE FOLLOWING OBSERVATIONS OF THE TRIBUNAL IN SERUM INSTITUTE OF INDIA LIMITED (SUPRA) WITH APPROVAL: 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 THE ACT. HOWEVER, AS SESSEE HAD DEDUCTED THE TAX AT SOURCE AT THE RATES PRESCRIBED IN THE RE SPECTIVE DTAAS BETWEEN INDIA AND THE RELEVANT COUNTRY OF THE NON-RESIDENTS ; AND, SUCH RATE OF TAX BEING LOWER THAN THE RATE OF 20% MANDATED BY SECTIO N 206AA OF THE ACT. THE CIT(A) HAS FOUND THAT THE PROVISIONS OF SECTION 90(2) COME TO THE RESCUE OF THE ASSESSEE. SECTION 90(2) PROVIDES THAT THE PROVISIONS OF THE DTAAS WOULD OVERRIDE THE PROVISIONS OF THE DOMESTIC ACT IN CASES WHERE THE PROVISIONS OF DTAAS ARE MORE BENEFICIAL TO THE ASSESSEE. THERE CANNOT BE ANY DOUBT TO THE PROPOSITION THAT IN CASE OF NON -RESIDENTS, TAX LIABILITY 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 IS MORE BENEFICIAL TO THE ASSESSEE, HAVING REGARD TO THE PR OVISIONS OF SECTION 90(2) OF THE ACT. IN THIS CONTEXT, THE CIT(A) HAS CORRECT LY OBSERVED THAT THE HON'BLE SUPREME COURT IN THE CASE OF AZADI BACHAO A NDOLAN AND OTHERS VS. UOI, (2003) 263 ITR 706 (SC) HAS UPHELD THE PROPOSI TION 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 ASSESS EE. 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 CHARGING SECTION 4 AS WELL AS SECTION 5 OF THE ACT WHICH DEALS WITH THE PRINCIPLE OF ASCERTAINMENT OF TOTAL INCOME UNDER THE ACT ARE ALSO SUBORDINATE TO THE PR INCIPLE ENSHRINED IN SECTION 90(2) AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF AZADI BACHAO ANDOLAN AND OTHERS (SUPRA). THUS, IN SO FAR AS THE APPLICABILITY OF THE SCOPE/RATE OF TAXATION WITH RESPECT TO THE IMPU GNED PAYMENTS MAKE TO THE NON-RESIDENTS IS CONCERNED, NO FAULT CAN BE FOU ND WITH THE RATE OF TAXATION INVOKED BY 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, H AVING REGARD TO SECTION 206AA OF THE ACT. IN OUR CONSIDERED OPINION, IT WOU LD BE QUITE INCORRECT TO SAY THAT THOUGH THE CHARGING SECTION 4 OF THE ACT A ND SECTION 5 OF THE ACT DEALING WITH ASCERTAINMENT OF TOTAL INCOME ARE SUBO RDINATE TO THE PRINCIPLE ENSHRINED IN SECTION 90(2) OF THE ACT BUT THE PROVI SIONS OF CHAPTER XVII-B GOVERNING TAX DEDUCTION AT SOURCE ARE NOT SUBORDINA TE 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 TA X WITHHOLDING I.E. SECTION 195 OF THE ACT WOULD APPLY ONLY TO SUMS WHICH ARE O THERWISE 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 DEDUC TION 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 SAME AL SO OVERRIDES THE CHARGING SECTIONS 4 AND 5 OF THE ACT WHICH, IN TURN , OVERRIDE THE DTAAS PROVISIONS ESPECIALLY SECTION 206AA OF THE ACT WHIC H IS THE CONTROVERSY BEFORE US. THEREFORE, IN OUR VIEW, WHERE THE TAX HA S BEEN DEDUCTED ON THE STRENGTH OF THE BENEFICIAL PROVISIONS OF SECTION DT AAS, THE PROVISIONS OF SECTION 206AA OF THE ACT CANNOT BE INVOKED BY THE A SSESSING 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 DO ES 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 2 06AA OF THE ACT BECAUSE THE PROVISIONS OF THE DTAAS WAS MORE BENEFI CIAL. THUS, WE HEREBY AFFIRM THE ULTIMATE CONCLUSION OF THE CIT(A) IN DEL ETING THE TAX DEMAND RELATABLE TO DIFFERENCE BETWEEN 20% AND THE ACTUAL TAX RATE ON WHICH TAX WAS DEDUCTED BY THE ASSESSEE IN TERMS OF THE RELEVA NT DTAAS. AS A CONSEQUENCE, REVENUE FAILS IN ITS APPEALS. 7. IT IS THEREFORE, CLEAR THAT THAT SECTION 206AA O F THE ACT DOES NOT OVERRIDE THE PROVISIONS OF SECTION 90(2) OF THE ACT AND THAT IN THE CASES OF PAYMENTS MADE TO NON-RESIDENTS, ASSESSEE CORRECTLY APPLIED THE RAT E OF TAX PRESCRIBED UNDER THE DTAAS AND NOT AS PER SECTION 206 AA OF THE ACT BECA USE THE PROVISIONS OF THE DTAAS WERE MORE BENEFICIAL. IN VIEW OF THE SETTLED POSITION OF LAW, WE FIND IT DIFFICULT TO SUSTAIN THE ORDERS OF THE AUTHORITIES BELOW. WITH THIS VIEW OF THE MATTER, WE FIND THAT THE ORDERS OF THE AUTHORITIES BELOW ARE LIABLE TO BE QUASHED AND ACCORDINGLY THEY ARE QUASHED. THUS, WE HEREBY DIRE CT THE DELETION OF THE TAX DEMAND RELATABLE TO DIFFERENCE BETWEEN 20% AND THE ACTUAL TAX RATE ON WHICH TAX WAS DEDUCTED BY THE ASSESSEE IN TERMS OF THE RELEVAN T DTAAS. APPEALS ARE ALLOWED ACCORDINGLY. 8. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE A RE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND APRIL, 2018. SD/- SD/- (PRASHANT MAHARISHI) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 2 ND APRIL, 2018 VJ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) BY ORDER 5. DR, ITAT ASSTT. REGISTRA R, ITAT