TaxTMI 
TaxTMI 
2017 (2) TMI 68
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....ducting tax at source @ 20% on the premise that the payment made to parent company was in the nature of Royalty and Fees for technical services and hence liable for deduction of tax at source as per Indian Income-tax as well as Indo-US Tax Treaty (hereinafter also called `the DTAA'). As the non-resident parent company did not have any Permanent account number (PAN), the AO opined that the tax ought to have been deducted at source at a higher rate in terms of the provisions of section 206AA of the Act. A show cause notice was issued which was responded by the assessee contending that tax on 'Royalty' and 'Fees for technical services' was rightly withheld at 20% in terms of the provisions of section 206AA. In support of the contention that the rate of tax withholding at 25%, as proposed by the AO, could not be applied, the assessee relied on certain decisions. Unconvinced with the assessee's contention, the AO came to hold that the assessee should have deducted tax @ 25% plus surcharge and education cess on payments of royalty and fees for technical services made to its parent company. That is how, the appellant was treated as an assessee in default u/s 201(1) and also made liable to....
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....95 on payments made to its non-resident principal, namely, CSC, USA at the rate of 20%, being the rate as per clause (iii) of section 206AA(1). As against the AO's point of view about the rate of 25% specified in the relevant provision, being section 115A, as per clause (i) of section 206AA, the ld. CIT(A), relying on certain decisions, held that the DTAA would prevail over the provisions of the Act and accordingly such rate would be 15%, being the rate of tax as per the DTAA. Thus, it is clear that after the decision of the ld. CIT(A), which has not been assailed by the Revenue, the tax rate as per clauses (i) and (ii) of section 206AA(1) stood determined at 15%. We are desisting from considering as to what should rightly have been the correct rate of tax as per clause (i) of section 206AA(1) or the overall rate as applicable u/s 206AA, as such issues are not before us. 5. Now, the assessee is canvassing a view that it is this rate of 15% which should have been considered for the overall section 206AA(1) instead of the rate of 20% as per clause (iii), being the rate at which the assessee deducted tax at source. In support of this contention, the ld. AR relied on the Tribunal or....
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....e any further and is not applicable to the facts obtaining in the instant case. 6. Adverting to the facts of the instant case, we find that the assessee itself withheld tax at source @ 20% before making payment to its nonresident parent company. The view point of the AO that the rate applicable u/s 115A of the Act at 25% should have been applied, has been overturned by the ld. CIT(A). Now, the assessee is contending that its liability was limited for deducting tax at source @ 15% and the excess tax deducted and paid to the exchequer at the rate of 5% (20% minus 15%) be refunded to it. We have been given a situation in which the assessee itself deducted tax at source @ 20% and the ld. CIT(A) has also upheld the assessee's stand in deducting tax at source @ 20%. Now, the assessee wishes to resile from its suo motu rate of deduction of tax at source made at 20% by claiming that the tax ought to have been rightly deducted at source @ 15% and, hence, the excess so deducted by the assessee should be refunded to it. We cannot agree with this contention of the assessee due to the discussion in the ensuing paras. 7. Chapter XVII of the Act contains provisions for collection and recove....
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....deductee, then, not only the deductee parent company will avail credit for TDS @ 20%, but, the assessee will also get refund of 5%, being the excess amount suo motu paid by it. 8. Scheme of the above referred relevant provisions can be understood with the help of a simple example. Suppose B earns an income of Rs. 100 from A on which A is obliged to deduct tax at source at the rate of 10%. A will deduct Rs. 10 and deposit it with the Government and thereafter a sum of Rs. 90 will be paid to B. In turn, B will show his income at Rs. 100. He will get credit of Rs. 10, being the amount of tax deducted at source by A, against his overall tax liability. In case his total tax liability comes to Rs. 11, he will have to pay a further sum of Re.1 and in case his total tax liability comes to Rs. 9, he will get refund of Re.1 on filing his return of income. It is axiomatic that A has nothing to do with the transaction of income of Rs. 100 in the hands of B. He has simply to deduct tax of Rs. 10 at source before making the remaining payment of Rs. 90 to B. His act of deducting Rs. 10 on behalf of A does not entail his personal liability because he merely makes short payment to A to the exten....
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.... that the deduction of tax at source is simply a mode of collection of tax. It does not in any manner affect the chargeability of the income in the hands of the payee. Section 190 dealing with `Deduction at source and advance payment', clearly stipulates through sub-section (2) that deduction of tax at source shall not: `prejudice the charge of tax on such income under the provisions of sub-section (1) of section 4.' There is a vital distinction between two situations viz., one, in which the amount of income is put to tax at high rate; and two in which the deduction of tax is made from it at higher rate. Obviously, the first situation is a cause of concern as no amount of tax more than what is rightfully due to the exchequer, can be recovered. On the other hand, the second situation simply encompasses a payment of tax on behalf of the deductee without impacting his tax liability in any manner. If such a deduction has voluntarily been made at a higher rate, the deductee, at the time of filing his return, is always entitled to claim the benefit of TDS and the resultant refund, if any due to him. The reliance of the ld. AR on Article 265 of the Constitution of India to bolster his poi....
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.... provide for the levy of surcharge and education cess on the fixed rate of 20%, we fail to see how the levy of such surcharge etc. can be inferred in the provision. The legislature cannot be understood as oblivious of the levy of surcharge etc. in certain cases in addition to the specific rates prescribed in the Act itself. The term "maximum marginal rate" has been defined in section 2(29C) to mean; `the rate of incometax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual, association of persons or, as the case may be, body of individuals as specified in the Finance Act of the relevant year'. Same position follows from a bare reading of section 115JB which is a special provision for payment of tax by certain companies. Explanation to this section provides in comprehensible terms that : `For the purposes of clause (a) of Explanation 1, the amount of income-tax shall include- (i) to (ii) ... (iii) surcharge, if any, as levied by the Central Acts from time to time; (iv) Education Cess on income-tax, if any, as levied by the Central Acts from time to time; and (v) Secondary and Higher Education Cess on income-ta....