Supreme Court to Examine Whether DTAA Overrides Section 206AA in Wipro, Vodafone, Mphasis Appeals Today [Read Judgement]

In a recent development, the Supreme Court is set to examine whether the Double Taxation Avoidance Agreement (DTAA) prevails over Section 206AA of the Income Tax Act in a group of appeals involving Wipro Ltd., Vodafone Idea Ltd., and Mphasis Ltd., with the matter listed for hearing today.

The issue arose from several disputes where the Income Tax Department had applied a higher TDS rate of 20 percent under Section 206AA on payments made to non-residents who did not furnish a PAN, while the assessees deducted tax at the lower DTAA rate of 10 percent.

In the case of Wipro Ltd., the Karnataka High Court had earlier heard four connected appeals filed by the Revenue against a common order of the Income Tax Appellate Tribunal for the assessment year 2011-12. The Tribunal had held that the TDS provisions must be read along with the DTAA, and that when the foreign recipient is eligible for treaty benefits, the deduction cannot exceed the rate specified in the DTAA. The High Court examined this finding in detail.

During the hearing, counsel for Wipro argued that the company had made payments for technical services to recipients in different treaty countries, and that the DTAA capped the TDS rate at 10 percent. The counsel explained that, under the agreement with Germany, the tax rate could not exceed 10 percent.

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The Revenue’s counsel argued that under Section 206AA, every payee must furnish a PAN, and if the payee fails to do so, the applicable rate becomes 20 percent. They maintained that, since the foreign recipients had not furnished PANs, the higher rate applied and the ruling in Danisco did not support the assessee.

The Division Bench observed that the assessee had made payments to entities located in countries that have DTAA agreements with India. Referring to the reasoning in Danisco, the Court explained that Section 206AA cannot override the charging provisions of the Act when the treaty provides a specific rate.

The Bench agreed with the view that the DTAA rate must prevail and stated that allowing a demand beyond 10 percent would be inconsistent with the treaty. The High Court dismissed all four Revenue appeals and answered the substantial question of law in favour of Wipro.

Meanwhile, in the connected matter involving Manthan Software Services Pvt. Ltd., the Supreme Court, after hearing both sides, directed that the petitions be listed on 24 November 2025. The order records the listing of the tagged matters for further consideration.

As several appeals involving Wipro, Vodafone Idea, Mphasis, and Manthan Software raise the same question on whether the DTAA overrides Section 206AA, the Supreme Court will examine the issue together. The outcome of today’s hearing is expected to settle an important question concerning TDS on payments to non-residents.

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