Revenue's Appeals Dismissed on Section 206AA vs. DTAA Issue

The appeals filed by the revenue challenging the applicability of section 206AA of the Income-tax Act, 1961 to payments made to non-resident entities under DTAA were dismissed. The CIT(A) ruled in favor of the assessee, aligning with previous decisions that section 206AA does not apply to non-resident recipients covered under DTAA. The Special Bench emphasized that DTAA prevails over the Act, leading to the dismissal of the revenue's appeals. The established legal principle supported by the Hyderabad ITAT and Delhi High Court rulings reinforced the non-applicability of section 206AA in this case.

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Issues:
Applicability of provisions of section 206AA of the Income-tax Act,1961 to payments made to non-resident entities under DTAA.

Analysis:
1. The appeals filed by the revenue challenged the order passed by Ld. CIT(A)-12, Bengaluru for the assessment years 2011-12 to 2014-15, focusing on the applicability of section 206AA of the Income-tax Act, 1961 to payments made to non-resident entities.

2. Section 206AA of the Act, introduced from financial year 2010-11, mandates taxpayers to provide their PAN number to the payer of income. Failure to furnish PAN results in higher TDS rates. The A.O. invoked section 206AA while initiating proceedings u/s 201(1) and 201(1A) of the Act, but Ld. CIT(A) ruled it inapplicable to non-resident entities covered under DTAA. Revenue appealed against this decision.

3. The issue was previously decided in favor of the assessee by the Bangalore bench of ITAT in a similar case. The tax effect in the revenue's appeals was below prescribed limits. As the issue was common in all appeals, they were disposed of on merits.

4. The Bangalore bench's decision in M/s. Bharath Fritz Werner Ltd case highlighted that section 206AA does not apply to non-resident recipients covered under DTAA. The CIT(A) accepted this stance, aligning with the Hyderabad ITAT's Special Bench decision and the Delhi High Court's ruling in Danisco India Private Ltd. case.

5. The Special Bench held that DTAA prevails over the Act, even if inconsistent, emphasizing good faith interpretation of DTAAs. This view was supported by the Delhi High Court's decision. Consequently, the appeals by the revenue were dismissed, upholding the CIT(A)'s decision.

6. The coordinate bench's alignment with the Hyderabad ITAT and Delhi High Court rulings reinforced the non-applicability of section 206AA to recipients covered by DTAA. Thus, all revenue appeals were dismissed based on this established legal principle.

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