2016 (2) TMI 896 - AT - Income Tax

Tribunal rules in favor of assessee, emphasizes DTAA over Section 206AA for lower TDS rates

M/s. Wipro Ltd. Versus. Income Tax Officer

The Tribunal allowed the assessee's appeals, finding that the Assessing Officer exceeded jurisdiction under Section 200A by making complex adjustments. It ... Short deduction of tax at source - payment to non-residents - eligibility for the benefit of DTAA - Computing the rate of 20% under section 206AA - Held that:- The provisions of TDS has to be read along with DTAA for computing the tax liability on the sum in question and therefore when the recipient is eligible for the benefit of DTAA then there is no scope for deduction of tax at source @ 20% as provided under the provisions of section 206AA. Similarly, on the issue of jurisdiction, the question of computing the rate of 20% under section 206AA of the Act is a debatable issue when the recipient is eligible for the benefit of provisions of DTAA and therefore the Assessing Officer cannot proceed to make the adjustment while issuing the intimation under Section 200A. This is beyond the scope of the said provisions. - Decided in favour of assessee Issues Involved:1. Jurisdiction of the Assessing Officer under Section 200A.2. Applicability of Section 206AA vis-`a-vis DTAA provisions.3. Requirement of PAN for non-resident deductees.4. Validity of demand raised without opportunity of hearing.5. Interpretation of procedural and charging provisions under the Income Tax Act.Detailed Analysis:1. Jurisdiction of the Assessing Officer under Section 200A:The core issue was whether the Assessing Officer (AO) had the jurisdiction to make adjustments and raise demands under Section 200A of the Income Tax Act. The assessee contended that the AO's actions were beyond jurisdiction as they involved debatable issues requiring detailed reasoning and findings, which are not within the scope of Section 200A. The Tribunal agreed, noting that Section 200A is intended for simple arithmetical corrections and not for complex adjustments involving interpretative issues like the applicability of DTAA benefits.2. Applicability of Section 206AA vis-`a-vis DTAA Provisions:The AO applied a 20% TDS rate under Section 206AA due to the non-furnishing of PAN by non-resident recipients, ignoring the DTAA provisions which provided for a lower rate. The Tribunal held that Section 90(2) of the Act, which allows the provisions of DTAA to override domestic law if more beneficial, should prevail. The Tribunal referenced the Supreme Court's decision in Azadi Bachao Andolan, affirming that DTAA provisions override the domestic tax rates, including those under Section 206AA, when beneficial to the assessee.3. Requirement of PAN for Non-Resident Deductees:The assessee argued that non-residents were not required to obtain PAN under Section 139A, and hence, the higher TDS rate under Section 206AA should not apply. The Tribunal supported this view, stating that Section 206AA's requirement for PAN does not supersede the beneficial provisions of DTAA. The Tribunal emphasized that procedural provisions like Section 206AA cannot override the substantive provisions of DTAA, which are designed to provide relief and avoid double taxation.4. Validity of Demand Raised Without Opportunity of Hearing:The assessee contended that the demand was raised without an opportunity of hearing, violating principles of natural justice. The Tribunal agreed, highlighting that any adjustment or demand involving interpretative issues should involve a proper hearing process. The lack of opportunity to present the assessee's case was deemed a procedural lapse, rendering the AO's actions invalid.5. Interpretation of Procedural and Charging Provisions Under the Income Tax Act:The Tribunal reiterated that procedural provisions (like Section 206AA) should not override charging provisions (like Sections 4, 5, and DTAA provisions). The Tribunal cited the Supreme Court's interpretation in GE India Technology Centre Pvt. Ltd. and Eli Lily & Co., emphasizing that tax deduction at source provisions should align with the overall scheme of the Act, ensuring that the tax liability is determined correctly under the applicable charging provisions.Conclusion:The Tribunal allowed the assessee's appeals, holding that the AO exceeded his jurisdiction under Section 200A by making adjustments involving complex interpretative issues. It was affirmed that DTAA provisions, being more beneficial, override Section 206AA, and non-residents are not mandatorily required to furnish PAN for lower TDS rates. The Tribunal also underscored the necessity of providing an opportunity of hearing before raising demands, ensuring adherence to principles of natural justice.