2017 (2) TMI 642 - AT - Income Tax

ITAT Ahmedabad: DTAA Prevails Over Domestic Laws for TDS

Uniphos Environtronic Pvt. Ltd. Versus The DCIT CPC-TDS, Ghaziabad

The ITAT Ahmedabad allowed the appeal of the assessee, citing the precedence set by previous judicial decisions and the application of DTAA provisions in ... Higher rate of TDS @20% for non-furnishing of PAN - proceedings under section 200A - whether cannot be at a rate prescribed u/s 206AA which is higher than the rate at which the relevant income is chargeable to tax under Act or DTAA - DTAA between India and GermanyHeld that:- As decided in the case of Infosys BPO Ltd [2015 (9) TMI 792 - ITAT BANGALORE ] in which it was held that the provisions of IT Act, 1961 cannot override the provisions of DTAA. We noticed that the assessee had deducted the tax at source at the rates prescribed in respective DTAAs between India and Germany at the prescribed rate of 10%. We have also considered that, where the tax has been deducted on the strength of the beneficial provisions of DTAAs, in that case, the provisions of section 206AA of the act cannot be invoked because section 90(2) of the act provides that the provisions of the act shall apply to the extent they are more beneficial to the assessee. In view of the above stated facts and legal findings, in our considered opinion the ld. CIT(A) has not substantiated the sustaining of impugned demand raised by the assessing officer ,therefore, we allow the appeal of the assessee. Issues:- Interpretation of section 200A of the Income Tax Act, 1961- Application of Double Taxation Avoidance Agreement (DTAA) between India and Germany- Determination of TDS rate for legal services received from a foreign law firm- Conflict between section 206AA and section 90(2) of the Income Tax Act- Consistency in judicial decisions on TDS deductions for non-residentsAnalysis:1. Interpretation of section 200A of the Income Tax Act, 1961:The case involved an appeal for the assessment year 2012-13 concerning the order of the CIT(A) in proceedings under section 200A of the Income Tax Act. The assessing officer determined a demand on the grounds of short deduction of TDS by the assessee, leading to an appeal by the assessee against this order.2. Application of Double Taxation Avoidance Agreement (DTAA) between India and Germany:The assessee received legal services from a German law firm and remitted a sum equivalent to Indian currency. The assessee had deducted TDS at a rate of 10% in accordance with the provisions of Article 12 of the DTAA between India and Germany. However, the assessing officer contended that the TDS should have been deducted at a higher rate of 20.6%.3. Determination of TDS rate for legal services received from a foreign law firm:The dispute arose from the variance in the TDS rate applied by the assessee and the rate demanded by the assessing officer. The assessing officer argued that the assessee should have deducted TDS at a higher rate, leading to the creation of a demand for the shortfall in TDS deduction.4. Conflict between section 206AA and section 90(2) of the Income Tax Act:The assessee argued that the provisions of section 90(2) of the Income Tax Act, which allow for the application of DTAA provisions over domestic law, should prevail in determining the TDS rate for payments to non-residents. This argument was supported by judicial decisions highlighting the supremacy of DTAA provisions over domestic tax laws.5. Consistency in judicial decisions on TDS deductions for non-residents:The ITAT Ahmedabad, in a previous decision concerning the same assessee for the assessment year 2014-15, had ruled in favor of the assessee, emphasizing that the provisions of applicable tax treaties override the Income Tax Act unless the Act is more beneficial to the assessee. This decision supported the assessee's position regarding the TDS rate applicable to payments made to non-residents.In conclusion, the ITAT Ahmedabad allowed the appeal of the assessee, citing the precedence set by previous judicial decisions and the application of DTAA provisions in determining the TDS rate for payments to non-residents. The judgment emphasized the supremacy of DTAA provisions over domestic tax laws in cases where they are more beneficial to the taxpayer.