Dr. Reddy's Laboratories Ltd., Hyd, Hyderabad V. ADIT, International Taxation-I, Hyd, Hyderabad

ITA 828/HYD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2469 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 08-02-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 17-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R LAXMAN
• Assessee Lawyers: K R SEKAR
• Keywords: Double taxation relief
• Section: 206AA; 201(1)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.827/HYD/2015 ASSESSMENT YEAR: 2011-12 & ITA NO. 828/HYD/2015 ASSESSMENT YEAR: 2012-13 DR. REDDYS LABORATORIES LIMITED, HYDERABAD. PAN AAACD7999Q VS. ASST. DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION-I, HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.R. SEKAR REVENUE BY : SHRI R. LAXMAN DATE OF HEARING : 08-02-2018 DATE OF PRONOUNCEMENT : 28-02-2018 ORDER PER P. MADHAVI DEVI, J.M.: BOTH ARE ASSESSEES APPEALS FOR THE A.Y 2011-12 AND 2012-13. THESE APPEALS ARE AGAINST THE ORDERS OF THE CIT(A)-10, HYDERABAD DATED 30.03.2015. 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE COMPANY HAD REMITTED AMOUNTS TO VARIOUS NON-RESIDENTS TOTALING TO 5.36 CRORES (APPROXIMATELY). THE A.O NOTICED THAT THE ASSESSEE DEDUCTED TDS U/S 195 OF THE ACT AT A LOWER RATE THAN SPECIFIED BY THE IT ACT FOR THE F.Y 2010-11. ON PERUSAL OF THE FORMS 15CA / CB SUBMITTED BY THE ASSESSEE TO THE DEPARTMENT, THE A.O OBSERVED THAT THE ASSESSEE DID NOT QUOTE THE PAN OF THE RECIPIENTS. OBSERVING THAT THE 2 ITA NO. 827 & 828 HYD/2015 DR. REDDYS LABORATORIES, LTD., HYDERABAD. FOREIGN COMPANIES HAD NO PAN ISSUED BY THE IT DEPARTMENT OF INDIA, THE A.O SOUGHT TO APPLY THE PROVISIONS OF SEC. 206AA OF THE IT ACT AND HELD THAT THE ASSESSEE IS LIABLE TO DEDUCT TAX AT THE HIGHER RATE OF 20% AND ALSO APPLICABLE CESS ON SUCH PAYMENTS. HE, THEREFORE, SOUGHT TO TREAT THE ASSESSEE AS AN ASSESSEE IN DEFAULT U/S 201(1) & LEVY INTEREST U/S 201(1A) OF THE IT ACT. 3. IN RESPONSE TO THE SHOW CAUSE NOTICES ISSUED U/S 201(1) & (1A) OF THE ACT, ASSESSEE SUBMITTED ITS EXPLANATION THAT OUT OF TOTAL OF 300 TRANSACTIONS, IT HAS DEDUCTED TAX AT SOURCE @ 20% IN 180 TRANSACTIONS AND WITH RESPECT TO 63 TRANSACTIONS, THE FOREIGN COMPANY HAD PAN ISSUED IN INDIA AND THEREFORE LESSER AMOUNT OF TDS WAS MADE. WITH RESPECT TO 15 TRANSACTIONS, COMPANY ADMITTED THAT THERE WAS NO PAN IN INDIA FOR THE FOREIGN COMPANIES AND TDS WAS DONE AT A LESSER RATE THAN THAT SPECIFIED U/S. 206AA OF THE IT ACT, ON THE GROUND THAT THE NON-RESIDENTS ARE EXEMPT FROM OBTAINING A PAN IN INDIA IN VIEW OF SEC. 139(A) R.W.R 114(C)(1)(B) OF THE IT RULES. THE A.O HOWEVER, FOLLOWING THE DECISION OF ITAT BANGALORE IN THE CASE OF BOSCH LIMITED REPORTED IN 131 ITD 38 BANGALORE, HELD THAT TAX HAS TO BE DEDUCTED @ 20% ON THE PAYMENTS MADE TO NON-RESIDENTS WHO DID NOT HAVE PAN. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE ORDER OF THE A.O AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF 3 ITA NO. 827 & 828 HYD/2015 DR. REDDYS LABORATORIES, LTD., HYDERABAD. NAGARJUNA FERTILIZERS AND CHEMICALS LIMITED, WHEREIN THE ASSESSEE IS ONE OF THE INTERVENERS. THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE ASSESSEE HAS DEDUCTED TAX IN ACCORDANCE WITH RESPECTIVE DTAA @ 10% AND THE SPECIAL BENCH OF THE TRIBUNAL HAS HELD THAT THE PROVISION OF SEC. 206AA OF THE IT ACT THOUGH WILL HAVE AN OVERRIDING EFFECT OVER ALL OTHER PROVISIONS OF THE ACT, THE PROVISIONS OF THE TREATY TO THE EXTENT THEY ARE BENEFICIAL TO THE ASSESSEE, WILL OVERRIDE SECTION 206AA OF THE ACT BY VIRTUE OF SEC. 90(2) OF THE IT ACT. HE SUBMITTED THAT THE ASSESSEES PAYMENTS MADE TO NON-RESIDENTS ARE COVERED BY THE DTAA AND THEREFORE, THIS DECISION IS APPLICABLE TO THE CASE OF ASSESSEE AS WELL. 5. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT THE A.O SHOULD BE DIRECTED TO VERIFY WHETHER THE PAYMENTS TO THE NON-RESIDENTS WHEREIN THE TAX IS DEDUCTED AT THE LOWER RATE @ 10% ARE COVERED BY THE DTAA PROVISIONS ARE NOT. 6. THE LD. COUNSEL FOR THE ASSESSEE, IN REBUTTAL, SUBMITTED THAT THE A.O HAS ACCEPTED THE 10% DEDUCTION OF TAX AT SOURCE IN THE CASE OF NON-RESIDENTS WITH PAN, AND THEREFORE HE IS DEEMED TO HAVE CONSIDERED THE APPLICABILITY OF THE DTAA PROVISIONS TO ALL THE TRANSACTIONS. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE A.O HAS FOLLOWED THE DECISION OF THE BANGALORE TRIBUNAL IN THE CASE OF BOSCH LIMITED (CITED SUPRA) TO HOLD THAT THE PROVISION OF SEC. 206AA OF THE IT ACT WILL PREVAIL WHERE NON-RESIDENTS DO NOT HAVE A PAN NUMBER. THE HONBLE SPECIAL BENCH IN THE 4 ITA NO. 827 & 828 HYD/2015 DR. REDDYS LABORATORIES, LTD., HYDERABAD. CASE OF NAGARJUNA FERTILIZERS AND CHEMICALS LIMITED (CITED SUPRA) HAS HELD THAT THE TREATY PROVISIONS WHICH ARE BENEFICIAL TO THE NON-RESIDENTS PREVAIL OVER THE PROVISIONS OF SEC. 206AA OF THE ACT. THUS, IT IS CLEAR THAT THE DECISION OF THE TRIBUNAL IN THE CASE OF BOSCH LTD., (CITED SUPRA) HAS BEEN SET ASIDE TO THE EXTENT THE TRANSACTIONS ARE COVERED UNDER THE RESPECTIVE DTAA AND THE PROVISIONS OF DTAA ARE MORE BENEFICIAL TO THE NON-RESIDENTS. IN VIEW OF THE FACT THAT THE A.O HAS NOT EXAMINED THE NATURE OF THE PAYMENTS AS TO WHETHER THEY ARE COVERED BY THE RESPECTIVE DTAA PROVISIONS OR NOT, WE DEEM IT FIT AND PROPER TO REMAND THE ISSUE TO THE FILE OF THE A.O ONLY FOR VERIFICATION AS TO WHETHER THESE 15 TRANSACTIONS FALL WITHIN THE PURVIEW OF DTAA PROVISIONS, AND IF THEY DO SO, THEN THE ASSESSEE SHALL NOT BE TREATED AS AN ASSESSEE IN DEFAULT U/S 201(1) OF THE IT ACT TO SUCH AN EXTENT, AND NO INTEREST U/S 201(1A) SHALL BE LEVIABLE THEREON. 8. IN THE RESULT, THE ASSESSEES APPEALS FOR BOTH THE ASSESSMENT YEARS ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY, 2018. SD/- SD/- (B. RAMAKOTAIAH) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 28 TH FEBRUARY, 2018 KRK 5 ITA NO. 827 & 828 HYD/2015 DR. REDDYS LABORATORIES, LTD., HYDERABAD. 1 DR. REDDYS LABORATORIES LIMITED, 8-2-337, ROAD NO. 3, BANJARA HILLS, HYDERABAD 500034. 2 ASST DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION I, HYDERABAD. 3 CIT(A)-X`, HYDERABAD 4 CIT (IT & TP), HYDERABAD. 5 THE DR, ITAT HYDERABAD 6 GUARD FILE