By GEETA JANI I DHISHAT B. MEHTA
Chartered Accountants
Section 90(4),
90(2) of the Act- in the absence of a non-obstante clause u/s. 90(4), it
cannot limit treaty superiority contemplated u/s. 90(2)- mere non-furnishing of
the TRC cannot disentitle a taxpayer from claiming tax treaty benefits.
Facts
The
Taxpayer, an Indian company, made payments to a US entity for services in
relation to installation and commissioning of certain equipment purchased by
the Taxpayer. The Taxpayer did not withhold any taxes as it was not falling
within the ambit of fees for included services (FIS) under the DTAA.
The
AO was of the view that such payments were in the nature of FIS under the DTAA
and, thus, the Taxpayer was liable to appropriately withhold taxes. The CIT(A)
ruled in favour of the AO and also observed that, in the absence of a TRC, the
US entity was not entitled to protection under the DTAA.
Aggrieved,
the Taxpayer filed an appeal before the Tribunal.
Held
– Section 90(2) of the Act provides for an
unqualified treaty override wherein provision of the Act are applicable only to
the extent more beneficial to the Taxpayer. The only exception to the treaty
override principle is in case where the general anti-avoidance provisions
(GAAR) are invoked.
– The restriction on the application of tax
treaty benefits on failure to provide a TRC does not have an overriding effect
over section 90(2) (as opposed to GAAR).
– The requirement to furnish a TRC was
introduced so that the TRC is regarded as sufficient evidence for granting tax
treaty benefit and the AO is denuded of the powers to demand further details in
support of the tax treaty benefits claimed.
The TRC provision cannot be construed as a limitation to the superiority of the
tax treaty over the domestic law.
– Thus, mere non-furnishing of a TRC cannot be
a reason to deny tax treaty benefit. However, the Taxpayer should substantiate
its eligibility to claim tax treaty benefits by means other than a TRC.
Substantiating residential status by any other mode is far more onerous
compared to TRC, as the TRC can be easily obtained from the US authorities for
a modest user fee after filing a statutory form.
– A mere declaration by the US entity, without
any material to substantiate the basic facts set out in the declaration, cannot
be accepted as legally sustainable foundation for a finding of fact. Also, same
does not amount to certification by any authority and hence did not prove its
residential status.
– As the Taxpayer was earlier not asked to
submit evidence other than a TRC to prove residential status of the US entity,
the matter was remanded to the AO for fresh adjudication, with direction to
give the Taxpayer a fresh opportunity to furnish evidence not limited to, but
including, the TRC in support of the US entity’s entitlement to the tax treaty
benefits of the DTAA.
