DTAA provisions in Income Tax Act will override other provisions in Income Tax Act if beneficial to Tax Payer: ITAT Hyderabad [Read Order]

Double Taxation - Avoidance - Taxscan

Recently, in Nagarjuna Fertilizers and Chemicals Limited v. ACIT, the Hyderabad bench of the Income Tax Appellate Tribunal held that the provisions of the Double Taxation Avoidance Agreement (DTAA), to the extent they are beneficial to the taxpayer, will override some of the sections of the Income Tax Act, 1961.

Coming to the facts of the case, the appellant-assessee,  a Public Limited Company, had made certain payments for technical services to non-residents in 2011-12 and 2012-13.

Some payments were made to non-residents in jurisdictions with which India did not have any Double Taxation Avoidance Agreement (DTAA). In such cases, the taxpayer deducted 20 per cent tax at source as the non-residents did not furnish Permanent Account Number (PAN).

The income tax department had challenged this because the non-residents did not submit PAN card details. And there was no tax rate prescribed for such jurisdictions.

Allowing the second appeal filed by the assessee, the Special bench held that if the rate of tax applicable under DTAA is lower than the 20% tax rate prescribed under section 206AA, TDS would have to be deducted at such lower rate even if the non-resident deductee fails to furnish his PAN.

The bench said, “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 of the Income Tax Act by virtue of section 90(2).

In our opinion, the assessee therefore cannot be held liable to deduct tax at higher of the rates prescribed in section 206AA of the Income Tax Act 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.”

Read the full text of the order below.

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