ITAT rules not override (2) & DTAA, directs tax rate reconsideration, upholds refund claim

The ITAT bench ruled in favor of the assessee, holding that section 206AA does not override section 90(2) and DTAA provisions. The bench directed reconsideration of tax rates under DTAA by the tax authorities and upheld the claim for a refund of excess TDS. The appeals were allowed for statistical purposes, emphasizing the necessity of reassessment based on DTAA rates and acknowledging the validity of the refund claim.

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Issues Involved:
- Interpretation of section 206AA of the Income Tax Act, 1961 in relation to section 90(2) and Double Taxation Avoidance Agreements (DTAA).
- Applicability of tax rates under DTAA for non-residents without Permanent Account Number (PAN).
- Claim of refund for excess Tax Deducted at Source (TDS) by the assessee.

Detailed Analysis:
1. The appeals were filed by the assessee against the orders of the ld CIT(A) for Assessment Years 2016-17 and 2017-18, challenging the demand raised due to short deduction of taxes on payments made to non-residents. The ld AO held the assessee liable for higher tax deduction due to the absence of PAN of non-resident payees. The assessee argued that DTAA provisions should override section 206AA, citing relevant case laws like Danisco India Pvt. Ltd. Vs. Union of India and Dy. DDIT Vs. Serum Institute of India. However, the ld CIT(A) upheld the default assessment, emphasizing the requirement for PAN details for availing treaty benefits.

2. The grounds raised in both appeals primarily challenged the conclusion that section 206AA overrides section 90(2) applicable to non-residents covered by DTAA. The appellant relied on legal precedents to support the claim that tax rates under DTAA should apply, not section 206AA rates. Additionally, the appellant sought a refund of excess TDS deposited, arguing that TDS was not deducted from the bills but borne by the appellant.

3. During the hearing, the ld AR reiterated the arguments made before the ld CIT(A), emphasizing the applicability of DTAA rates. Case laws and CBDT Circulars were cited to support the claim for a refund of excess TDS. On the other hand, the ld DR supported the ld CIT(A)'s findings and contended that a refund claim should have been raised earlier in the proceedings.

4. The ITAT bench analyzed the case and referenced the judgment in Danisco India Pvt. Ltd. Vs. Union of India to establish that section 206AA does not override section 90(2) and DTAA provisions. The bench highlighted that tax deduction provisions should be viewed in conjunction with DTAA and relevant sections of the Income Tax Act. It was concluded that the ld Tax Authorities erred in not applying the benefits of section 90(2) and directing a recalculation based on DTAA rates.

5. Ultimately, the bench allowed the grounds raised by the assessee, directing the matter to be restored to the ld AO for reconsideration of tax rates under DTAA. The claim for a refund was also upheld, rejecting the argument that it was belated. The appeals were allowed for statistical purposes, emphasizing the need for a reassessment based on DTAA rates and the refund claim.

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