Section 90(2) of the Income Tax Act, which allows the provisions of DTAAs to prevail in case they are more beneficial than domestic law, overrides section 206AA concerning tax deductions for non-residents.

ORDER :

(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

1. Heard learned advocate Mr. Bandish S. Soparkar for the appellant and learned advocate Ms. Maithili D. Mehta for the respondent.

2. These appeals are filed under section 260A of the INCOME TAX ACT , 1961 (For short “the Act”) wherein following substantial questions of law are proposed:

“i) Whether the Hon'ble ITAT has erred in law and on facts of the case in coming to the conclusion that Sec. 206AA of the I.T. Act does not override the provisions of Section 90(2) of the Act, despite the fact that section 206AA of the I.T. Act starts with a non obstante clause?

(ii) Whether the Hon'ble ITAT has erred in law and on facts of the case in ignoring the memorandum explaining the provisions of the Finance (No. 2) Bill, 2009 which clearly states that the Sec. 206AA of the I. T. Act applies to Non- residents and also ignoring the Press Release of CBDT No. 402/92/2006-MC (04 of 2010) dated 20.01.2010 which reiterates that Sec. 206AA of the I.T. Act will also apply to all Non- Residents in respect of payment/remittances liable to TDS where PAN is not provided to the deductor?

(iii) Whether the Hon'ble ITAT has erred in law and on facts in concluding that Section 206AA of the I.T. Act, which provides a higher tax @20% in the event of foreign entity not obtaining the Permanent Account Number in India, cannot be pressed into service to impose obligation on the Non-residents to obtain PAN?”

3. Facts arising in this group of appeals are identical. The issue involved in this group of appeals pertains to alleged short deduction of TDS and raising demand by invoking provisions of section 206AA of the Act. The respondent has deducted TDS at the rate mentioned in DTAA treaty between India and respective countries or as per the rate mentioned in the INCOME TAX ACT ,1961 whichever is more beneficial to the assessee and even in the cases where recipient of the payments who are non resident parties and did not furnish PAN. The appellant Revenue therefore by invoking section 206AA of the Act held the assessee liable for obligation to deduct TDS at higher rate on payment made to non residents, who did not have PAN, at the rate of 20%.

4. Learned CIT(Appeals) held that the assessee is not liable to deduct the tax at a higher rate in view of the provisions of section 90(2) of the Act.

5. Being aggrieved, the appellant Revenue preferred appeals before the Tribunal. The Tribunal by the impugned order has upheld the decision of CIT(Appeals) by dismissing the appeals filed by the Revenue by observing as under:

“7. We have carefully considered the rival submissions. Section 206AA of the Act has been included in Part B of Chapter XVII dealing with Collection and Recovery of Tax Deduction at source. Section 206AA of the Act deals with requirements of furnishing PAN by any person, entitled to receive any sum or income on which tax is deductible under Chapter XVII-B, to the person responsible for deducting such tax. Shorn of other details, in so far as the present controversy is concerned, it would suffice to note that section 206AA of the Act prescribes that where PAN is not furnished to the person responsible for deducting tax at source then the tax deductor would be required todeduct tax at the higher of the following rates, namely, at the rate prescribed in the relevant provisions of this Act; or at the rate/rates in force; or at the rate of 20%. In the present case, assessee was responsible for deducting tax on payments made to non-residents on account of royalty and/or fee for technical services. The dispute before us relates to the payments made by the assessee to such non- residents who had not furnished their PANs to the assessee. T