Dy. Director of Income Tax vs. Serum Institute of India Limited Income Tax Appellate Tribunal Pune Bench “B”, Pune Before G.S. Pannu (A. M.) and Sushma Chowla (J. M.) ITA Nos. 1601 to 1604/PN/2014 Assessment Year: 2011-12. Decided on 30-03-2015 Counsel for Revenue / Revenue: B. C. Malakar / Rajan Vora

Facts:
The assessee company was engaged in the business of manufacture and sale of vaccines. In the course of its business activities, assessee made payments to non-residents on account of interest, royalty and fee for technical services. The assessee deducted tax at source on such payment in accordance with the tax rates provided in the Double Taxation Avoidance Agreements (DTA – As) with the respective countries. It was noted by the AO that in case of some of the non-residents, the recipients did not have Permanent Account Numbers (PANs). As a consequence, Revenue treated such payments, as cases of ‘short deduction’ of tax in terms of the provisions of section 206AA which require that the tax shall be deductible at the rate specified in the relevant provisions of the Act or at the rates in force or at the rate of 20%. On appeal, the CIT(A) held that where the DTAA s provide for a tax rate lower than that prescribed in 206AA , the provisions of the DTAA s shall prevail and the provisions of section 206AA would not be applicable. Therefore, he deleted the tax demand raised by the Revenue relatable to the difference between 20% and the actual tax rate provided by the DTAA s.

Before the Tribunal, the Revenue contended that section 206AA would override section 90(2) and therefore, the tax deduction was liable to be made @ 20% in absence of furnishing of PANs by the recipient non-residents.

Held:
The Tribunal, relying on the decisions of the Supreme Court in the cases of Azadi Bachao Andolan and Others vs. UOI, (2003) 263 ITR 706, CIT vs. Eli Lily & Co. (2009) 312 ITR 225 and the case of GE India Technology Centre Pvt. Ltd. vs. CIT (2010) 327 ITR 456 upheld the order of the CIT(A) and held that where the tax had been deducted on the strength of the beneficial provisions of DTAAs, the provisions of section 206AA cannot be invoked by the AO having regard to the overriding nature of the provisions of section 90(2).