Whether Section 206AA overrides DTAA or otherway round

[Pavan Namburi]

I have to make a payment to a non-resident vendor towards software license. I do not have the PAN number of the foreign vendor. Would like to know the rate applicable with respect to below

1. Software License is the subject matter of payment. The license key to be received by mail and tool to be downloaded from the website of the vendor.

2. Vendor is located in USA with any permanent establishment in India nor in anyway connected with India.

3. I do not have the PAN number of the vendor so, should i have to take 20% rate straight away irrespective of lower tax benefit available thru DTAA.

4. Also pls advice on grossing up issue as well, is it specific to vendor agreement or is there anything reg grossing up prescribed in the Act or any other direction?

Thanking you in anticipation of a timely response

Pavan Namburi

AI Summary

Tax Deduction at Source when PAN is not furnished can affect entitlement to treaty benefits and withholding rates. Whether Section 206AA or a Double Taxation Avoidance Agreement governs the rate of tax deduction where a non resident payee has not furnished PAN is the central issue. The facts involve payment for an electronically delivered software licence to a treaty country resident without a permanent establishment in India and without PAN. The questions concern the interaction between statutory higher withholding for non furnishing of PAN and entitlement to treaty relief, and whether any statutory obligation to gross up payments exists versus contractual allocation of tax burden.