Dy. Commissioner of Income Tax-2 International Taxation, Hyderabad V. Skyhigh Network Technologies Private Limited, Bangalore

ITA 641/Hyd/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0629 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Appeal Filed On: 06-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; TDS; Set aside
• Section: 90; 206AA; 201(1); 201; 264; 20

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE S MT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S . RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO S . 641 & 642 /HYD/201 8 ASSESSMENT YEAR S : 2016 - 17 & 2017 - 18 DY. COMMISSIONER OF INCOME - TAX 2, INTERNATIONAL TAXATION VS. SKYHIGH NETWORKS TECHNOLOGIES PVT. LTD., BENGALURU. PAN AARCS 1590 H (APPELLANT) (RESPONDENT) REVENUE BY : SHRI PRABHAT KUMAR GUPTA ASSESSEE BY : NONE DATE OF HEARING : 05 - 0 9 - 201 8 DATE OF PRONOUNCEMENT : 1 2 - 0 9 - 201 8 O R D E R PER S . RIFAUR RAHMAN, A .M.: BOTH THESE A PPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST A COMMON ORDER OF CIT(A) 8 , HYDERABAD, DATED 29 TH JANUARY, 2018 FOR AY S 20 1 6 - 17 & 2017 - 18, WHEREIN, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL, WHICH ARE COMMON, IN BOTH THE APPEALS UNDER CONSI DERATION: 1. THE CIT(A) ERRED IN APPLYING THE PRINCIPLE OF TREATY OVERRIDE TO SECTION 206AA OF THE ACT. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, SECTION 206AA OF THE ACT WILL BE APPLICABLE TO NON - RESIDENTS INCLUDING THOSE WHO ARE RESIDENT S OF COUNTRIES WITH WHOM INDIA HAS A DTAA AND WHO HAVE FAILED TO FURNISH THEIR PERMANENT ACCOUNT NUMBER. THUS, THE CONSEQUENTIAL OBLIGATIONS OF DEDUCTION AT 20% OR HIGHER WOULD BE APPLICABLE IN THE EVENT OF SUCH FAILURE TO FURNISH. THUS, THE CIT(A) ERRED I N DELETING THE DEMAND U/S 201(1) AND INTEREST THEREON U/S 201(1A). 3. THE CIT(A) RELIED ON THE DECISION OF THE SPECIAL BENCH IN THE CASE OF NAGARJUNA FERTILIZERS LTD. [2017] 185 TTJ 569 (HYD TRIB) (SB), BUT THE DEPARTMENT HAS PREFERRED APPEAL BEFORE THE HIGH COURT AGAINST THE SAID ORDER. 2 ITA NO S . 641 & 642 /HYD/201 8 SKYHIGH NETWORKS TECHNOLOGIES PVT. LTD., BANGALORE . 2. BRIEF FACTS OF THE CASE AS TAKEN FROM AY 2016 - 17 ARE THAT THE ASSESSEE MADE PAYMENTS TO M/S AMAZON WEB SERVICES, USA RS. 2,09,48,458/ - IN Q4 OF FY 2015 - 16 AND RS. 21,04,972/ - IN Q1 OF FY 2016 - 17. TAX WAS DEDU CTED AT SOURCE AT 10% ON THE ABOVE PAYMENTS AS PER THE PROVISIONS OF ARTICLE 12(2)(B) OF THE INDIA USA DTAA. THE ASSESSEE SUBMITTED THE COPIES OF INVOICES OF AMAZON WEB SERVICES AND TAX RESIDENCY CERTIFICATE OF THE USA. ARTICLE OF DTAA CONCERNING ROYALTI ES AND FEES FOR TECHNICAL SERVICES PROVIDES THAT THE RATE OF TAX ON SUCH FTS SHALL BE 10%. THE ASSESSEE ACCORDINGLY DEDUCTED TAX AT SOURCE AT 10% AND FILED E - TDS RETURN. THE SAID RETURNS WERE PROCESSED BY THE CPC - TDS RAISING A DEMAND OF EQUAL AMOUNT U/S 2 01(1) AS THE TDS WITHOUT PAN OF DEDUCTEE WAS TO BE AT 20% AS PER THE PROVISIONS OF SECTION 206AA. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 4. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT AS PER SECTION 90 AND CBDT CIRCULAR NO. 333, DATED 02/04/1982, NON - RESIDENT IS ENTITLED TO BENEFICIAL TREATMENT AS PER DTAA WHEN COMPARED TO NORMAL PROVISIONS OF TAX. THEREFORE, IF THE RATE OF TAX DEDUCTION AS PROVIDED IN APPLICABLE DTAA IS MORE BENEFICIAL TO THE RATE PRESCRIBED UNDER INDIAN TAX LAW, EVEN THE ENHANCED RATE OF DEDUCTION U/S 206AA CANNOT BE APPLIED. IN THIS CONNECTION, THE ASSESSEE PLACED RELIANCE ON THE SPECIAL BENCH DECISION OF ITAT, HYDEERABAD IN THE CASE OF NAGARJUNA FERTILIZERS AND CHEMICALS LTD. [2017] 78 TAXMANN.COM 264 WHER EIN IT WAS HELD WHEREIN IT WAS HELD THAT THE ASSESSEE CANNOT BE HELD LIABLE TO DEDUCT TAX AT HIGHER RATES PRESCRIBED IN SECTION 206M IN CASE OF PAYMENTS MADE TO NON - RESIDENT PERSONS HAVING TAXABLE INCOME IN INDIA INSPITE OF THEIR FAILURE TO FURNISH THE PA N. IN VIEW OF THE ABOVE, THE ASSESSEE REQUESTED THAT THE IMPUGNED ORDER MAY BE SET ASIDE. 3 ITA NO S . 641 & 642 /HYD/201 8 SKYHIGH NETWORKS TECHNOLOGIES PVT. LTD., BANGALORE . 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) DELETED THE DEMAND LEVIED U/S 201(1) AND INTEREST THEREON U/S 201(1A) BY OBSERVING AS UNDER: 7. I HAVE CONSIDERED THE ISSUE AND THE SUBMISSIONS MADE BY THE AR. IT IS NOT IN DISPUTE THAT THE PAYEE FURNISHED THE REQUISITE DOCUMENTS I.E. TRC AND TIN, AS PER PROVISIONS OF SECTION 90, AND IS THEREFORE ELIGIBLE FOR BENEFICIAL TREATMENT OF TDS AT 10% ON F T S, IN TERMS OF ARTICLE 12 OF DT AA WITH THE USA. IT APPEARS THAT THE AUTOMATIC PROCESSING IN CPC - TDS RESULTED IN RAISING OF DEMAND SINCE THE PAYEE DID NOT HAVE PAN, HAVING REGARD TO THE PROVISIONS OF SECTION 206 AA PRESCRIBING TDS @ 20%. IT IS SETTLED POS ITION OF LAW THAT BENEFICIAL TREATMENT AS COMPARED TO NORMAL PROVISIONS OF TAX HAS TO BE ACCORDED TO THE NON - RESIDENT IF THE RATE PRESCRIBED IN THE DT AA IS MORE BENEFICIAL. AS POINTED OUT BY THE AR, THE SPECIAL BENCH OF ITAT IN THE CASE OF NAG ARJUNA FERTIL IZERS AND CHEMICALS LIMITED (SUPRA), HELD THAT THE PAYMENTS TO NON - RESIDENTS HAVING TAXABLE INCOME IN INDIA CANNOT BE SUBJECT TO RATES PRESCRIBED U/S 206AA IN CASE OF FAILURE TO FURNISH PAN. IN VIEW OF THE ABOVE, THE DEMAND U/S 201(1) AND INTEREST THEREON U/S 201(1A) LEVIED IS DELETED. 6. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE NOTICED THAT LD. CIT(A) HAS RELIED ON SPECIAL BENCH CASE OF NAGARJUNA FERTILIZERS AND CHEMICALS LTD. (SUPRA), AND ALLOWED THE APPEAL OF THE ASSESSEE. IN THE ABOVE CASE, THE SPECIAL BENCH OF ITAT HELD AS UNDER: 33..WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTION 206AA OF THE ACT WILL NOT HAVE A OVERR IDING 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 DEDU CT TAX AT HIGHER OF THE RATES PRESCRIBED IN SECTION 206AA IN CASE OF PAYMENTS MADE TO NON - RESIDENT PERSONS HAVING TAXABLE INCOME IN INDIA IN SPITE OF THEIR FAILURE TO FURNISH THE PERMANENT ACCOUNT NUMBERS. 8. IN VIEW OF THE RATIO LAID DOWN AS ABOVE BY THE SPECIAL BENCH, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) IN DELETING THE DEMAND U/S 201(1) AND INTEREST THEREON U/S 201(1A) LEVIED BY THE AO 4 ITA NO S . 641 & 642 /HYD/201 8 SKYHIGH NETWORKS TECHNOLOGIES PVT. LTD., BANGALORE . AS THE DECISION OF THE CIT(A) IS IN CONSONANCE WITH THE DECISION OF THE SPECIAL BENCH. ACCORDINGLY, WE D ISMISS THE GROUNDS RAISED BY THE REVENUE IN THIS REGARD. 9. AS THE FACTS AND GROUNDS RAISED IN AY 2017 - 18 ARE MATERIALLY IDENTICAL TO THAT OF AY 2016 - 17, FOLLOWING THE DECISION THEREIN WE DISMISS THE GROUNDS RAISED IN THIS AY ALSO. 10. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 12 TH SEPTEMBER , 2018. ( P. MADHAVI DEVI ) (S . RIFAUR RAHMAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 12 TH SEPTEMBER , 2 018. KV COPY TO: - 1) DCIT 2, INTERNATIONAL TAXATION, ROOM NO. 506, 5 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH , HYDERABAD . 2) M/S SKYHIGH NETWORKS TECHNOLOGIES PVT. LTD., APPT. NO. D202, LABURNUM BI BRIGADE MELENIUM, NEAR BRIGADE SCHOOL, JP NAGAR, 7 TH PHASE, BANGALORE 560 078. 3) CIT(A) 8 , HYDERABAD. 4) CIT (TDS) , HYD . 5 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6 ) GUARD FILE