Srei Equipment Finance Ltd., Kolkata V. ITO, (International Taxation), kolkata, Kolkata

ITA 624/KOL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0684 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 07-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR CIT LD
• Assessee Lawyers: VINOD KUMAR DUBEY F CA LD
• Keywords: Business income; Double taxation relief; Retrospective amendment; Permanent establishment
• Section: 206AA; 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : A BE NCH, KOLKATA BEFORE : SHRI J. SUDHAKAR REDDY,ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO. 624/KOL/2016 A.Y 2012-13 M/S. SREI EQUIPMENT VS. I.T.O.(INTERNATIONAL FINANCE LTD TAXATION), KOLKATA PAN:AAKCS3431L [APPELLANT ] [RESPONDENT ] APPELLANT BY : SHRI VINOD KUMAR DUBEY, FCA, L D.AR RESPONDENT BY : SHRI SAURABH KUMAR, ADDL. CIT , LD. SR.DR DATE OF HEARING : 25-10-2017 DATE OF PRONOUNCEMENT : 20-12-2017 ORDER SHRI S.S.VISWANETHRA RAVI, JM: THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DT. 29-01-2016 OF THE CIT-A, 22, KOLKATA FOR THE A.Y 2012-13. 2. THE ONLY ISSUE IS TO BE DECIDED AS TO WHETHER TH E CIT-A JUSTIFIED IN CONFIRMING THE ORDER OF ISSUANCE OF INTIMATION FOR SHORT DEDUCTION OF TDS IGNORING THE OVERRIDING EFFECT OF PROVISIONS OF DTAA ON THE PROVISIONS OF THE INCOME-TAX ACT INCLUDING SECTION 206AA OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE LD.AR SUBMITS THAT THE ISSUE IN HAND IN RESP ECT OF SHORT DEDUCTION OF PAYMENTS OF TDS/LATE PAYMENT INTEREST IN RESPECT OF NON-RESIDENT PAYEES RELATING TO QUARTER(Q)-1, QUART ER(Q)-2 AND QUARTER(Q)-3 FOR THE F.Y 2011-12 I.E RELATING TO A. Y UNDER CONSIDERATION OF RS.36,26,907/- FOR NON FURNISHING OF PAN OF THE DEDUCTEES AND THEREFORE, BY INVOKING THE PROVISION S OF 260AA OF THE ACT CHARGED HIGHER RATE OF TAX @ 20%. THIS ACTION OF THE AO WAS CONFIRMED BY THE CIT-A. ITA NO. 624/KOL/2016 M/S.SREI EQUIPMENT FINANCE LTD 2 4. HE FURTHER SUBMITS THAT THE ISSUE IN HAND IS SQU ARELY COVERED BY THE DECISION/ORDER DT. 13-02-2017 OF THE HONBLE SP ECIAL BENCH (ITAT, HYDERABAD) IN THE CASE OF NAGARJUNA FERTILIZ ERS & CHEMICALS LTD AND ARGUED THAT THE PROVISION OF TREATY TO THE EXTENT THAT THEY ARE BENEFICIAL TO THE ASSESSEE OVERRIDES THE PROVISIONS OF SECTION 206AA BY VIRTUE OF PROVISIONS OF SECTION 19(2) OF THE ACT AND PLACED ON RECORD THE SAME. LD. AR FURTHER SUBMITS THAT THIS TRIBUNAL SET ASIDE THE INTIMATION ISSUED U/SEC. 200A OF THE ACT IN BAT CH OF APPEALS IN ASSESSEES OWN CASE FOR A.YS 11-12 AND 12-13 BY PL ACING RELIANCE ON THE DECISION OF THE HONBLE SPECIAL BENCH IN THE CA SE OF NAGARJUNA FERTILIZERS & CHEMICALS LTD. HE SUBMITS THAT THE FA CTS AND CIRCUMSTANCES IN SAID APPEALS ARE SIMILAR TO THE F ACTS OF THE PRESENT APPEAL. IN VIEW OF THE SAME, THE INTIMATION DT. 19- 11-2012 ISSUED BY THE AO (ITO, INTL TAXN WARD 2(1) MAY BE SET ASIDE A ND PRAYED TO ALLOW THE GROUNDS OF APPEAL. 5. ON THE OTHER HAND, THE LD.DR RELIED ON THE ORDER S OF THE AUTHORITIES BELOW IN HOLDING THE SAME. 6. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ISSUE IN HAND IS COVERED IN FAVOUR OF ASSESSEE BY THE SAID ORDER DT. 13-09-2017 OF THE CO -ORDINATE BENCH, ITAT, KOLKATA IN ASSESSEES OWN CASE. RELEVANT PORT ION OF FINDING DT. 13-09-2017 IN ASSESSEES CASE IS REPRODUCED HEREIN BELOW FOR BETTER UNDERSTANDING:- 12. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERI AL ON RECORD. WE FIND AS REFERRED BY THE LD.AR REGARDING THE DECISION OF THE HONBLE SPECIAL BENCH AT HYDERABAD DECIDED THE SIMILAR ISSUE ARISING OUT OF CONFLICTIN G DECISIONS OF BANGALORE BENCH IN THE CASE OF BOSCH LTD AND PUNE BENCH IN THE CASE OF SE RUM INSTITUTE OF INDIA LIMITED SUPRA. THE SPECIAL BENCH FORMULATED THE QUESTION AS UNDER :- WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE PROVISIONS OF SECTION 206AA OF THE ACT HAVE AN OVERRIDE EFFECT FOR ALL OTHER PROVISIONS OF THE ACT AND THE ASSESSEE IS REQUIRED TO DEDUCT TAX THEREIN IN THE C ASE OF PERSON(S) HAVING TAXABLE INCOME IN INDIA, INCLUDING NON-RESIDENT, WHO DOES NOT FURN ISH THEIR PAN ? 13. THE SPECIAL BENCH OBSERVED THAT SECTION 206AA F ALLS IN CHAPTER XVII-B OF THE ACT DEALING WITH TAX DEDUCTION AT SOURCE, IT FOLLOW S THAT THE TREATY PROVISIONS WHICH OVERRIDE EVEN THE CHARGING PROVISION BY VIRTUE OF SECTION 90(2) OF THE ACT WOULD ALSO OVERRIDE THE PROVISIONS OF SECTION 206AA IRRESPECTI VE OF NON-OBSTANTE CLAUSE CONTAINED THEREIN AND THE SAME IS REQUIRED TO BE RESTRICTED T O THAT EXTENT AND READ DOWN TO GIVE ITA NO. 624/KOL/2016 M/S.SREI EQUIPMENT FINANCE LTD 3 EFFECT TO THE RELEVANT PROVISIONS OF DTAA, WHICH AR E OVERRIDING BEING BENEFICIAL TO THE ASSESSEE. THE SPECIAL BENCH OPINED AND HELD THAT TH E PROVISIONS OF SECTION 206AA OF THE ACT WILL NOT HAVE OVERRIDING EFFECT FOR ALL OTHER P ROVISIONS OF THE ACT AND THE PROVISIONS OF THE TREATY TO WHICH EXTENT THEY ARE MORE BENEFICIAL TO THE ASSESSEE. RELEVANT FINDINGS OF THE SPECIAL BENCH IN THE CASE OF SUPRA HELD AS UNDE R:- 30. THE RATIO OF THE TWO DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF HI LILLY AND CO. (INDIA) P. LIMITED (SUPRA) AND G.E. T ECHNOLOGY CENTRE (P) LIMITED (SUPRA) AS DISCUSSED ABOVE CLEARLY SHOWS THAT THE CHARGING PROVISIONS CONTROL AND OVERRIDE THE MACHINERY PROVISIONS DEALING WITH TAX DEDUCTION AT SOURCE. SIMILARLY, THE PROVISIONS OF DTAAS BY VIRTUE OF SECTION 90(2) TO THE EXTENT MORE BENEFICIAL TO THE ASSESSEE OVERRIDE THE PROVISIONS OF DOMESTIC LAW AS HELD INTER ALIA, BY THE HON'BLE SUPREME COURT IN THE CASE OF AZADI BACHAO ANDOLAN & ANOTHER (.SUPRA) AND P.V.A.L., KULANDAGAN CHETTIAR (SUPRA). SINCE SECTION 206AA FALLS IN CHAPTER XVII- B DEALING WITH TAX DEDUCTION AT SOURCE, IT FOLLOWS THAT THE' TREATY PROVISIONS WHIC H OVERRIDE EVEN THE CHARGING PROVISION OF THE DOMESTIC LAW BY VIRTUE OF SECTION 90(2) WOUL D ALSO OVERRIDE THE MACHINERY PROVISIONS OF SECTION 206AA IRRESPECTIVE OF NON-OBS TANTE CLAUSE CONTAINED THEREIN AND THE SAME IS REQUIRED TO BE RESTRICTED TO THAT EXTEN T AND READ DOWN TO GIVE EFFECT TO THE RELEVANT PROVISIONS OF DTAS, WHICH ARE OVERRIDING B EING BENEFICIAL TO THE ASSESSEE. 31. THERE IS ONE MORE BASIS TO SUPPORT THE ABOVE C ONCLUSION. AS RIGHTLY POINTED OUT ON BEHALF OF THE ASSESSEE, CHAPTER-XA CONTAINING TH E PROVISION RELATING TO GENERAL ANTI- AVOIDANCE RULE (GAAR) HAS BEEN INSERTED IN THE STAT UTE BY THE FINANCE ACT, 2013 WITH EFFECT FROM 1 ST APRIL, 2016 AND ALTHOUGH THE PROVISIONS CONTAINED IN THE SAID CHAPTER ARE GIVEN OVERRIDING EFFECT BY VIRTUE OF NON-OBSTANTE CLAUSE CONTAINED IN SECTION 95, A SEPARATE PROVISION HAS BEEN INSERTED SIMULTANEOUSLY IN THE FORM OF SUB-SECTION (2A) IN SECTION 90 PROVIDING SPECIFICALLY THAT NOTWITHSTAND ING ANYTHING CONTAINED IN SUB-SECTION (2), THE PROVISIONS OF CHAPTER XA OF THE ACT SHALL APPLY TO THE ASSESSEE EVEN IF SUCH PROVISIONS ARE NOT BENEFICIAL TO HIM. AS RIGHTLY PO INTED OUT ON BEHALF OF THE ASSESSEE, NO SUCH PROVISION, HOWEVER, IS MADE SEPARATELY AND SPE CIFICALLY IN SECTION 90 TO GIVE OVERRIDING EFFECT TO SECTION 2-06AA OVER-SECTION 9 0(2), WHICH CLEARLY SHOWS THAT THE INTENTION OF THE LEGISLATURE IS NOT TO GIVE OVERRI DING EFFECT TO SECTION 206AA OVER THE PROVISIONS OF THE RELEVANT DTAA WHICH ARE BENEFICIA L TO THE ASSESSEE. IN THE CASE OF SANOFI PASTEUR HOLDING SA V. DEPARTMENT OF REVENUE & OTHERS (SUPRA), THE CONTENTION RAISED ON BEHALF OF THE REVENUE WAS THAT THE RELEVA NT RETROSPECTIVE AMENDMENTS MADE IN THE INCOME TAX ACT, 1961 OVERRIDE THE TAX TREATI ES AND THE SAME WAS REJECTED BY THE HONBLE ANDHRA PRADESH HIGH COURT ON THE GROUND THA T THE RELEVANT AMENDMENTS WERE NOT FORTIFIED BY A NON-OBSTANTE CLAUSE EXPRESSED TO OVERRIDE TAX TREATIES AS WAS MADE IN CASE OF THE GAAR PROVISIONS SPECIFICALLY BY INSERTI NG SUB SECTION (2A) IN SECTION 90 TO ENABLE APPLICATION OF CHAPTER X-A EVEN IF THE SAME BE NOT BENEFICIAL TO THE ASSESSEE THEREBY ENACTING AN OVERRIDE EFFECT OVER THE PROVIS IONS OF SECTION 90(2). IN THE CASE OF BHARAT HARI SINGHANIA (SUPRA), IT WAS HELD BY THE H ON'BLE SUPREME COURT THAT THE SCOPE AND PURPORT OF THE NON-OBSTANTE CLAUSE HAS TO BE AS CERTAINED BY READING IT IN THE CONTEXT OF THE RELEVANT PROVISIONS AND CONSISTENT WITH THE SCHEME OF THE ENACTMENT. AS EXPLAINED BY CBDT WHILE INSERTING THE PROVISION OF SECTION 20 6AA VIDE CIRCULAR NO. 5 OF 2010, THE INTENTION OF THE SAID PROVISION IS MAINLY TO STRENG THEN PAN MECHANISM AND KEEPING IN VIEW THIS LIMITED FUNCTION AND PURPOSE, WE ARE OF T HE VIEW THAT NON-OBSTANTE CLAUSE CONTAINED IN THE MACHINERY PROVISION OF SECTION 206 AA IS REQUIRED TO BE ASSIGNED A RESTRICTIVE MEANING AND THE SAME CANNOT BE READ SO AS TO OVERRIDE EVEN THE RELEVANT BENEFICIAL PROVISIONS OF THE TREATIES, WHICH OVERRI DE EVEN THE CHARGING PROVISIONS OF THE INCOME TAX ACT BY VIRTUE OF SECTION 90(2). IN OUR O PINION, IT, THEREFORE, CANNOT BE SAID THAT THE PROVISIONS OF SECTION 206AA, DESPITE THE N ON-OBSTANTE CLAUSE CONTAINED THEREIN, WOULD OVERRIDE THE PROVISIONS OF DTAA TO THE EXTENT THEY ARE MORE BENEFICIAL TO THE ASSESSEE AND IT IS THE BENEFICIAL PROVISION OF TREA TY THAT WILL OVERRIDE THE MACHINERY PROVISIONS OF SECTION 206AA. 32. IN THE CASE OF BOSCH LIMITED (SUPRA) RELIED UP ON BY THE ID. CIT(D.R.) IN SUPPORT OF THE REVENUE'S CASE, THE ISSUE RELATING T O THE APPLICABILITY OF SECTION 206AA HAD COME UP FOR CONSIDERATION BEFORE THE BANGALORE BENC H OF THIS TRIBUNAL IN TWO CONTEXTS. FIRST, IT WAS CONSIDERED IN THE CONTEXT OF GROSSING UP AND WHILE DECIDING THE SAME, IT WAS HELD BY THE TRIBUNAL THAT THE VERY NATURE OF RELEVA NT INCOME BEING BUSINESS INCOME NOT CHARGEABLE TO TAX IN THE HANDS OF THE NON-RESIDENT RECIPIENTS HAVING NO PERMANENT ESTABLISHMENT IN INDIA, THE PAYMENTS DID NOT REQUIR E WITHHOLDING OF TAX AT SOURCE UNDER SECTION 195 OF THE ACT AND THE ASSESSEE WAS NOT UND ER AN OBLIGATION TO WITHHOLD TAX EVEN AS PER THE PROVISIONS OF SECTION 206AA AT HIGHER RA TE OF 20%. IN OTHER CONTEXT THE AMOUNT PAID TO THE NON-RESIDENT WAS FOUND BY THE TR IBUNAL TO BE IN THE NATURE OF FEES FOR TECHNICAL SERVICES CHARGEABLE TO TAX IN THE HANDS O F THE NON-RESIDENT IN INDIA AND SINCE THERE WAS A FAILURE ON THE PART OF THE CONCERNED NO N-RESIDENT TO FURNISH PAN TO THE ASSESSEE, THE ASSESSEE WAS HELD TO BE LIABLE TO WIT HHOLD TAX AT HIGHER OF RATES PRESCRIBED IN SECTION 206AA BY THE TRIBUNAL. IT, HOWEVER, APPE ARS THAT ALL THE RELEVANT ASPECTS AS DISCUSSED ABOVE, SUCH AS OVERRIDING EFFECT OF THE T REATY PROVISIONS AS PER SECTION 90(2), THE LIMITED EFFECT OF NON-OBSTANTE CLAUSE CONTAINED IN THE MACHINERY PROVISION OF SECTION ITA NO. 624/KOL/2016 M/S.SREI EQUIPMENT FINANCE LTD 4 206AA ETC. WERE NOT ARGUED BEFORE THE TRIBUNAL ON B EHALF OF THE ASSESSEE AND THE TRIBUNAL, THEREFORE, HAD NO OCCASION TO CONSIDER TH E SAME WHILE DECIDING THIS ISSUE. ON THE OTHER HAND, PUNE BENCH OF ITAT IN THE CASE OF S ERUM INSTITUTE OF INDIA LIMITED (SUPRA) HAS CONSIDERED SOME OF THESE RELEVANT ASPEC TS AND AFTER CONSIDERING THE PROPOSITIONS PROPOUNDED BY THE HON'BLE SUPREME COUR T IN THE CASE OF AZADI BACHAO ANDOLAN & ANOTHER (SUPRA), ELI LILLY AND CO. (INDIA ) P. LIMITED (SUPRA) AND G.E. TECHNOLOGY CENTRE (P) LIMITED (SUPRA), IT WAS HELD BY THE TRIBUNAL, AND IN OUR OPINION, RIGHTLY SO, THAT SECTION 206AA OF THE ACT CANNOT OV ERRIDE THE PROVISIONS OF SECTION 90(2) OF THE ACT. 33. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTION 206AA OF THE ACT WILL NOT HAVE 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 OVERRIDE SECTION 206AA BY VIRTUE OF SECTION 90(2). IN OUR OPINION, THE ASSESSEE THEREFORE CANNOT BE HELD LIABLE TO DEDUCT TAX AT HIGHER OF TH E RATES PRESCRIBED IN SECTION 206AA IN CASE OF PAYMENTS MADE TO NON-RESIDENT PERSONS HAVIN G TAXABLE INCOME IN INDIA IN SPITE OF THEIR FAILURE TO FURNISH THE PERMANENT ACCOUNT N UMBERS. WE, ACCORDINGLY, ANSWER THE QUESTION REFERRED TO THIS SPECIAL BENCH IN THE NEGA TIVE AND IN FAVOUR OF THE ASSESSEE AND ALLOW BOTH THE APPEALS OF THE ASSESSEE FOR A.YS. 20 11-12 AND 2012-13. 14. IN THE PRESENT CASE, WE FIND THAT THE ASSESSEE INITIALLY DEDUCTED TAX AT RS.1,70,910/- I.E @ 10% OF TOTAL PAYMENT OF RS.17,09 ,099/- MADE TO MR. DANIEL YUL SINN YEUNG UNDER THE HEAD CONSULTANCY FEES IN PURSUAN CE TO ARTICLE 12(4) OF INDO-SINGAPORE DTAA. THE ITO RAISED A DISPUTE OF SHORT DEDUCTION O F TAX AND RAISED A DEMAND BY APPLYING HIGHER RATES OF TAX AT 20% AS CONTEMPLATED U/SEC. 206AA OF THE ACT, WHICH WAS CHALLENGED BEFORE THE CIT-A CONTENDING THAT THE S ERVICES OFFERED BY THE NON-RESIDENT DOES NOT FALL UNDER THE HEAD FEES FOR TECHNICAL S ERVICES AND BY MISTAKE THE ASSESSEE DEDUCTED THE TDS @ 10% AND CLAIMED DTAA PROVISION S HALL HAVE OVERRIDING EFFECT ON THE PROVISIONS OF SECTION 206AA OF THE ACT. WE FIND THAT THE FACTS IN THE PRESENT CASE ARE SIMILAR TO THE FACTS OF THE CASE BEFORE SPECIAL BEN CH SUPRA AND THE PRINCIPLE LAID DOWN THEREIN IS APPLICABLE TO THE PRESENT FACTS AND CIRC UMSTANCES OF THE CASE. THEREFORE, THE INTIMATION DT. 19-11-2012 ISSUED U/S. 200A OF THE B Y THE AO AND CONFIRMED THE CIT-A IS SET ASIDE. 15. COMING TO OTHER APPEALS I.E ITA NOS. 385, 386, 387, 388 & 389/KOL/2016, WE FIND THAT THE ISSUES RAISED THEREIN ARE SIMILAR TO THE ISSUES RAISED IN ITA NO. 384/KOL/2016 EXCEPT IN VARIANCE OF SHORT DEDUCTION OF AMOUNTS AND RELEVANT FINANCIAL QUARTERS. IN VIEW OF OUR VIEW IN THE AFOREMENTIONED APPEAL, WE ADOPT THE SAME VIEW IN THE REST OF THE APPEALS OF THE ASSESSEE. THEREFORE , THE GROUNDS RAISED BY THE ASSESSEE IN ALL THE APPEALS FOR THE A.YS UNDER CONSIDERATION TH EREIN ARE ALLOWED. 7. IN VIEW OF ABOVE, THE INTIMATION DT. 19-11-2012 ISSUED U/S. 200A OF THE ACT BY THE AO AND CONFIRMED BY THE CIT- A IS SET ASIDE. THEREFORE, THE GROUNDS RAISED BY THE ASSESSEE ON T HIS ISSUE ARE ALLOWED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASS ESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 -12-2017 SD/- SD/- J. SUDHAKAR REDDY S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :20-12-2017 ITA NO. 624/KOL/2016 M/S.SREI EQUIPMENT FINANCE LTD 5 PP(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT/ASSESSEE: M/S. SREI EQUIPMENT FINANCE LTD , 86C VISHWAKARMA, TOPSIA ROAD, SOUTH, TOPSIA, KOLKAT A-46. 2 RESPONDENT/REVENUE: INCOME TAX OFFICER (INTERNATION AL TAXATION), WARD, ROOM NO. 215, 2 ND FLOOR, AAYKAR BHAVAN POORVA, 110 SHANTIPALLY, KOLKATA-107. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER SR.P.S, HEAD OF OFFICE ITAT KOLKATA