DTAA Prevails Over S.206AA Of Income Tax Act For TDS On Payments To Non-Residents Without PAN: Gujarat High Court

The Gujarat High Court stated that DTAA (Double Taxation Avoidance Agreement) prevails over Section 206AA of Income Tax Act for TDS on payments to non-residents without PAN. Justices Bhargav D. Karia and Pranav Trivedi was addressing the appeals pertains to alleged short deduction of TDS and raising demand by invoking provisions of section 206AA of the Income Tax Act, 1961. Section 206AA of Income Tax Act, 1961 requires every taxpayer who receives taxable income to furnish their PAN to the payer of such income. This applies to both resident and non-resident recipients. In this case, the assessee/respondent has deducted TDS at the rate mentioned in DTAA treaty between India and respective countries or as per the rate mentioned in the Income Tax Act,1961 whichever is more beneficial to the assessee and even in the cases where recipient of the payments who are non-resident parties and did not furnish PAN. The Revenue/appellant therefore by invoking section 206AA of the Act held the assessee liable for obligation to deduct TDS at higher rate on payment made to non-residents, who did not have PAN, at the rate of 20%. CIT(Appeals) held that the assessee is not liable to deduct the tax at a higher rate in view of the provisions of section 90(2) of the Income Tax Act. Being aggrieved, the Revenue preferred appeals before the Tribunal. The Tribunal has upheld the decision of CIT(Appeals) by dismissing the appeals filed by the Revenue. The bench referred to the case of Commissioner of Income Tax (International Taxation) Pune v. Serum Institute of India Ltd. (Income Tax Appeal No. 548 of 2016) where it was held that the assessee was not liable to deduct tax at the rate of 20% as per the provisions of section 206AA of the Income Tax Act in view of DTAA read with section 90(2) of the Income Tax Act. The bench stated that “the assessee has deducted the tax at source on payment made to non-residents on account of royalty and/or fees for technical services at the rates prescribed in respective DTAAs between India and respective countries of non-residents and such rate of tax being lower than rate of 20% as provided under section 206AA of the Income Tax Act, CIT (Appeals) and the Tribunal have rightly arrived at concurrent findings to the effect that as per section 90(2) of the Act, the provisions of DTAA would override the provisions of the Domestic Act where the provisions of the DTAA are more beneficial to the assessee.” The Tribunal therefore, has rightly affirmed the conclusion arrived at by CIT(Appeals) in deleting the tax demand relatable to difference between 20% and the actual tax rate on which tax was deducted by the assessee in terms of the relevant DTAAS, added the bench. In view of the above, the bench dismissed the appeal. Case Title: Commissioner of Income Tax (International Taxation and transfer Pricing v. M/s Adani Wilmar Ltd. Case Number: R/TAX APPEAL NO. 514 of 2024 Counsel for Appeal/Department: M/s Maithili D Mehta Counsel for Respondent/Assessee: B S Soparkar and Swati Soparkar Click Here To Read/Download The OrderCitation: 2025 LiveLaw (Guj) 91

DTAA Prevails Over S.206AA Of Income Tax Act For TDS On Payments To Non-Residents Without PAN: Gujarat High Court

Mehak Dhiman

Tags