No 20% TDS for NRs without PAN If DTAA Offers Lower Rate: High Court

This matter is for a short deduction of TDS and raising a demand by invoking provisions of section 206AA of the Act. The assessee has deducted TDS at the rate mentioned in the 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, even in cases where recipients of the payments are nonresident parties and did not furnish PAN.

The appellant Revenue, therefore, by invoking section 206AA of the Act, held the assessee liable for the obligation to deduct TDS at a higher rate on payments made to non-residents who did not have PAN, at the rate of 20%.

Learned CIT (Appeals) gave a decision in favour of the Assessee and 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.

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. Tribunal has followed the decision in the case of Danisco India (P) Ltd. v. Union of India, reported in 404 ITR 539 (Delhi).

The Hon’ble Delhi High Court, in the case of Commissioner of Income Tax (International Taxation) v. Air India Ltd., reported in 456 ITR 117 (Delhi), followed the above decision as well. The Hon’ble Supreme Court also dismissed the SLP arising out of the order passed by the Delhi High Court in the case of Commissioner of Income Tax (International Taxation) v. Air India Ltd., reported in 456 ITR 139 (SC).

The Hon’ble Bombay High Court, in the case of the Commissioner of Income Tax (International Taxation), Pune v. Serum Institute of India Ltd. (Order dated December 17, 2018 passed in Income Tax appeal No. 548 of 2016 and allied matters), has followed the decision of the Delhi High Court in the case of Danisco India (P) Ltd. (supra) to hold that the assessee was not liable to deduct tax at the rate of 20% as per the provisions of section 206AA of the Act in view of DTAA read with section 90(2) of the Act.

The Karnataka High Court, in the case of Commissioner of Income Tax, International Taxation v. Wipro Ltd., reported in (2023) 146 taxmann.com 129 (Karnataka), has also followed the decision in the case of Danisco India (P) Ltd. (supra) and held that, as per DTAA, the maximum deduction shall not exceed 10%, which the assessee has deducted and any other interpretation to permit the taxing authority to raise a demand beyond 10% would be incongruous.

In view of the above dictum of law and considering the facts of the case, the respondent assessee has deducted the tax at source on payments made to non-residents on account of royalty and/or fees for technical services at the rates prescribed in the respective DTAAs between India and the respective countries of non residents and such rate of tax is lower than the rate of 20% as provided under section 206AA of the Act. CIT (Appeals) and the Tribunal have rightly arrived at concurrent findings to the effect that, as per section 90(2) of the Act, the provisions of DTAA would override the provisions of the Domestic Act where the provisions of the DTAA are more beneficial to the assessee. The Tribunal, therefore, has rightly affirmed the conclusion arrived at by CIT(Appeals) in deleting the tax demand relatable to the difference between 20% and the actual tax rate on which tax was deducted by the respondent assessee in terms of the relevant DTAAS.

In view of the foregoing reasons, the appeals fail and are accordingly dismissed. Questions of law are answered in favour of the assessee and against the Revenue. No order as to costs.