In Part I of the Article we have
dealt with overview of the relevant provisions relating to TDS u/s. 195 and
other related sections, various aspects and issues relating to section 195(1),
section 94A and section 195A.
In this part of the Article we are
dealing with various other aspects and applicable sections.
1. Section
195(2) Application by the Payer
Section 195(2) of the Act reads as
under:
“195(2) Where
the person responsible for paying any such sum chargeable under this Act (other
than salary) to a non-resident considers
that the whole of such sum would not be income chargeable in the case of the
recipient, he may make an application to the Assessing Officer to
determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon
such determination, tax shall be deducted under sub-Sec (1) only on that proportion
of the sum which is so chargeable.”
1.1 It is important to note that no specific
rule or form has been prescribed under the Income-tax Rules, 1962. The
application has to be made on a plain paper / letter head.
1.2 An issue often arises as to whether an
application can be made u/s. 195(2) for ‘nil’ withholding order.
The judicial opinion is divided on
the issue. In the following cases it has been held that an application can be
made u/s. 195(2) for ‘nil’ withholding order:
– Mangalore Refinery and Petrochemicals Ltd.
vs. DDIT 113 ITD 85 (Mum)
– Van Oord ACZ India (P.) Ltd. [2010] 323
ITR 130 (Del.)
However, a
contrary view has been taken in the following cases:
– GE India Technology Centre (P.) ltd.
[2010] 327 ITR 456 (SC)
– Czechoslovak Ocean Shipping International
Joint Stock Company vs. ITO 81 ITR 162 (Cal)
– Graphite Vicarb India Ltd. vs. ITO 28 TTJ
425 (Cal) (SB)
– Biocon Biopharmaceuticals (P.) Ltd. vs.
ITO IT 36 taxmann.com 291 (Bang).
It appears that in practice,
application u/s. 195(2) is used for both ‘nil’ as well as ‘lower’ TDS rate
order.
1.3 Another question arises as to in case a
work involves multiple phases, in such scenario, is it sufficient if order u/s.
195 is obtained for phase I of the work or whether order is to be obtained for
all the phases of the work. In Mangalore Refinery and Petrochemicals Ltd.
vs. DDIT 113 ITD 85 (Mum) it has been held that the payer should apply
fresh and obtain order for all phases of the work.
1.4 Whether order u/s. 195(2) of the Act is
subject to revision u/s. 263 by the PCIT or CIT. It has been in the case of BCCI
vs. DIT (Exemption) [2005] 96 ITD 263 (Mum) that order u/s. 195(2) of the
Act is subject to revision
u/s. 263.
1.5 An important point to be kept in mind is,
order u/s. 195(2) are not conclusive and the Assessing Officer (AO) can take a
contrary view in the assessment proceedings. This has been held by the Bombay
High Court in the case of CIT vs. Elbee Services Pvt. Ltd. 247 ITR 109 (Bom).
1.6 Section 195(2) does not
prescribe any time limit for passing order u/s. 195(2). The Citizens Charter
2014 prescribed that decision on application for no deduction of tax or
deduction of tax at lower rate should be taken in 1 month. However, in
practice, such orders take longer time.
1.7 It has to be noted that application u/s.
195(2) cannot be made for Salary payment.
1.8 Appeal under section 248
a) It is important to note that an order
u/s.195(2)/(3) is appealable, under a separate and specific section under the
Act.
b) Section 248 of the Act reads as follows:
“Appeal by a person denying
liability to deduct tax in certain cases.
248. Where under an agreement or other
arrangement, the tax deductible on any income, other than interest,
under section 195 is to be borne by the person by whom the income is payable,
and such person having paid such tax to the credit of the Central
Government, claims that no tax was required to be deducted on such income,
he may appeal to the Commissioner (Appeals) for a declaration that no
tax was deductible on such income.”
c) Section 248, as amended by the Finance Act,
2007 read with section 249(2)(a) provides for an appeal
u/s. 195, subject to fulfillment of following conditions:
i. The tax is deductible on any income other
than interest;
ii. Only if the tax is to be borne by the payer
under the agreement or arrangement. If tax is borne by the payee, a payer
cannot file an appeal u/s. 248 of the Act.
iii. The payer has to first pay the tax to the
credit of the Central Government;
iv. The appeal has to be filed within 30 days of
payment of tax [section 249(2)(a)].
d) It has been held that liability of TDS can be
appealed before CIT(A) u/s. 248 even without order from AO. CMS (India)
Operations & Maintenance Co. 38 taxmann.com 92 (Chennai).
2. Section
195(3), (4) and Section 197 – Application by Payee
2.1 Section 195(3), (4) and section 197 of the
Act apply in respect of application for lower or nil deduction of tax under
specific circumstances and on fulfillment of certain prescribed conditions. The
distinctive features of the aforementioned provisions are discussed below.
2.2 The text of the section 195(3), (4) and
section 197 is given for ready reference and better appreciation of the
distinct language and purposes of the said sections, which relates to
application by the payees for lower or nil deduction of tax at source.
Section 195(3) –
“Subject to rules made under sub-section (5), any person entitled to receive any interest or other sum
on which income-tax has to be deducted under
sub-section (1) may make an application in the prescribed form to the Assessing
Officer for the grant of a certificate authorising him to receive such interest
or other sum without deduction of tax under that sub-section, and where any
such certificate is granted, every person responsible for paying such interest
or other sum to the person to whom such certificate is granted shall, so long
as the certificate is in force, make payment of such interest or other sum
without deducting tax thereon under sub-section (1).”
Section 195(4) – “A
certificate granted under sub-section (3) shall remain in force till the
expiry of the period specified therein or, if it is cancelled by the
Assessing Officer before the expiry of such period, till such cancellation.”
Section 197(1) – “Subject
to rules made under sub-section (2A), where, in the case of any income of
any person or sum payable to any person, income-tax is required to
be deducted at the time of credit or, as the case may be, at the time of
payment at the rates in force under the provisions of sections 192, 193, 194,
194A, 194C, 194D, 194G, 194H, 194-I, 194J, 194K, 194LA, 194LBB, 194LBC and 195,
the Assessing Officer is satisfied that the total income of the recipient
justifies the deduction of income-tax at any lower rates or no deduction of
income tax, as the case may be, the Assessing Officer shall, on an
application made by the assessee in this behalf, give to him such certificate
as may be appropriate.”
2.3 Section 195(3) read with rule 29B and Forms
15C and 15D, in short, provides as follows:
Section 195(3) provides that a
payee entitled to receive interest or other sums liable to TDS and satisfying
certain conditions prescribed in rule 29B can make an application (Form 15C for
banking companies or Form 15D for non-banking companies) i.e.
a. Has been regularly filing tax returns and
assessed to Income-tax;
b. Not in default in respect of tax, interest,
penalty etc.
c. Additional conditions for non-banking
companies:
i. has been carrying on business or profession
in India through a branch for at least 5 years
ii. value of fixed assets in India exceeds Rs. 50
lakh.
d. Certificate issued by the AO valid for the
financial year mentioned therein unless cancelled before.
e. Application
for fresh certificate can be made after expiry of earlier certificate, or
within 3 months before expiry.
2.4 Section 197 read with rule 28AA and Form
13, in short, provides as follows:
a. Any payee can apply for no deduction or lower
rate of deduction
b. Prescribed form – Form 13
c. Prescribed conditions (Rule 28AA):
– Total income / existing
and estimated tax liability justifies lower deduction;
– Considerations for
existing and estimated tax liability justifying lower or nil TDS;
– Tax payable on estimated
income of previous year;
– Tax payable on assessed /
returned of last 3 previous years;
– Existing liability under
the Act;
– Details of advance tax,
TDS & TCS.
d.
AO to issue certificate indicating rate / rates of tax, whichever is
higher, of the following:
– Average rate determined
on the basis of advance tax; or
– Average of average rates
of tax paid by the taxpayer in last 3 years.
e.
Certificate issued by AO can be prospective only
f. Payment / credit made prior to the date of
the certificate is not covered. Circular No. 774 dated 17th March
1999.
3. Lower
withholding – A Comparative Chart
The above discussion and the
comparative features of the aforesaid provisions are summarised in the table
given below.
|
Particulars
|
Section 195(2)
|
Section 195(3)
|
Section 197
|
|
Overview
|
Payer having a belief that portion (not the whole amount) of any
sums payable by him to non-resident is not liable to tax in India, may make
an application to AO to determine taxable portion.
|
Payee may make an application to AO for granting him a
certificate to receive income without TDS.
|
Payee may make an application to AO for granting him certificate
of ‘Nil’ or ‘lower’ withholding.
|
|
Application by
|
Payer
|
Non-resident Payee
|
Payee
|
|
Purpose
|
Determination of portion of such sum chargeable to tax.
|
No withholding
|
Lower / Nil withholding
|
|
Form
|
No Specific Format
|
Rule 29B – Form 15C and 15D
|
Rule 28 -Form 13
|
|
Outcome
|
AO to determine the appropriate proportion chargeable to tax and
issue order accordingly.
|
Certificate issued by the AO subject to conditions specified in
Rule 29B.
|
Certificate to be issued by AO subject to conditions specified
in Rule 28AA.
|
|
Remedy
|
Order can be appealed
u/s. 248.
|
uThere is no provision under Chapter XX of the
Act, to appeal against the certificate issued.
u Possible to pursue application u/s. 264.
u Possible to explore writ jurisdiction – Diamond
Services International (P.) Ltd. [2008] 169 Taxman 201 (Bom).
|
In which cases and circumstances
one should make and application for lower or nil TDS u/s. 195(2) or 197, should
be determined keeping in view the above discussion.
4. Section
195 – Various situations
The various situations could be
faced by a payer as well as a payee has been very lucidly and succinctly
explained in the case of ITO IT vs. Prasad Production Ltd. [2010] 125 ITD
263 (Chennai)(SB), which is summarised as follows:
a) If the bona fide belief of the payer is
that no part of the payment has any portion chargeable to tax, he will submit
necessary information u/s. 195. However, if the department is of the view that
the payer ought to have deducted tax at source, it will have recourse u/s. 201.
b) If the payer believes that whole of the
payment is chargeable to tax and if he deducts and pays the tax, no problem
arises.
c) If the payer believes that only a part
of the payment is chargeable to tax, he can apply u/s. 195(2) for deduction at
appropriate rates and act accordingly.
d) If the payer believes that a part of
the payment is income chargeable to tax, and does not make an application u/s.
195(2), he will have to deduct tax from the entire payment.
e) If the payer believes that the entire
payment or a part of it is income chargeable to tax and fails to deduct tax at
source, he will face all the consequences under the Act. The consequences can
be the raising of demand u/s.201, disallowance u/s. 40(a)(i), penalty,
prosecution, etc.
f) If the payee wants to receive the
payment without deduction of tax, he can apply for a certificate to that effect
u/s. 195(3) and if he gets the certificate, no one is adversely affected.
g) If the payee fails to get the
certificate, he will have to receive payment net of tax.
5. Refund
of Tax withheld under section 195
A very important and practical
issue arises as to whether it is possible to obtain refund of tax withheld and
paid u/s. 195.
5.1 Circular No. 7/2007 dated 23-10-07 and
Circular No. 7/2011 dated 27-9-2011 prescribe various situations and conditions
under which refund can be obtained.
Conditions to be satisfied for
refund:
– Contract is cancelled and no
remittance is made to the NR
– Remittance is duly made to the NR, but the
contract is cancelled and the remitted amount has been returned to the
payee
– Contract is cancelled after partial
execution and no remittance is made to the NR for the non-executed part;
– Contract is cancelled after partial execution
and remittance related to non-executed part made to the NR has been returned
to the payee or no remittance is made but tax was deducted and deposited
when the amount was credited to the account of the NR;
– Remitted amount gets exempted from tax
either by amendment in law or by notification
– An order is passed u/s. 154 or 248 or 264
reducing the TDS liability of the payee;
– Deduction of tax twice by mistake from
the same income;
– Payment of tax on account of grossing up
which was not required
– Payment of tax at a higher rate under
the domestic law while a lower rate is prescribed in DTAA.
5.2 In the
following cases it has been held that pursuant to favorable appellate order
whether u/s. 248 or otherwise, refund of TDS has to be granted:
– Telco vs.
DCIT [2005] 92 ITD 111 (Mum);
– Samcor Glass
Ltd. vs. ACIT [2005] 94 ITD 202 (Del);
– Kotak
Mahindra Primus Ltd. vs. DDIT TDS [2007] 105 TTJ 578 (Mum).
5.3 In
the case of Tata Chemicals Ltd. [2014] 363 ITR 658 (SC), the apex
court has held that an assessee is entitled to interest on refund of excess
deduction or erroneous deduction of tax at source u/s. 195.
Pursuant to the aforementioned
decision of the SC, CBDT has issued Circular 11/2016 dated 26-4-16 and mentioned
that, ‘In view of the above judgment of the Apex Court it is settled that if a
resident deductor is entitled for the refund of tax deposited under section 195
of the Act, then it has to be refunded with interest under section 244A of the
Act, from the date of payment of such tax.’
6. Consequences
of non/short deduction/ reporting failures
6.1 The consequences of non-deduction, short
deduction as well as failure to report transactions have been summarised in the
Chart 1.
6.2 Disallowance
u/s. 40(a)(i) or section 58(1)(a)(ii)
A question often arises as to if
tax is deducted u/s. 195 though at incorrect rate, whether the disallowance
u/s. 40(a)(i) or section 58(1)(a)(ii) can be made.
In the following cases a favorable
view has been taken and it has been held that there should be no disallowance
if tax is deducted though at incorrect rate:
– Apollo Tyres
Ltd. vs. DCIT 35 taxmann.com 593 (Cochin)
– UE Trade
Corpn. (India) Ltd. vs. DCIT 28 taxmann.com 77 (Del)
– ITO vs.
Premier Medical Supplies & Stores 25 taxmann.com 171 (Kol)
– DCIT vs.
Chandabhoy & Jassobhoy 17 taxmann.com 158 (Mum)
– CIT vs. S.
K. Tekriwal [2014] 46 taxmann.com 444 (Calcutta).
However, in the case of CIT vs.
Beekaylon Synthetics Ltd. ITA No. 6506/M/08 (Mum) it has been held that in
such case there would be proportionate disallowance.
6.3 An issue arises for consideration is that
if the Indian company has not deducted tax at source u/s. 195, can the
Department proceed to recover the tax from both the Indian party as well as
foreign party?
In this regard, explanation to
section 191 provides as follows:
“Explanation.—For the removal of
doubts, it is hereby declared that if any person including the principal
officer of a company,—
(a) who
is required to deduct any sum in accordance with the provisions of this Act; or
(b) referred
to in sub-section (1A) of section 192, being an employer,
does not deduct, or after so
deducting fails to pay, or does not pay, the whole or any part of the tax, as
required by or under this Act, and where the assessee has also failed to pay
such tax directly, then, such person shall, without prejudice to any other
consequences which he may incur, be deemed to be an assessee in default within
the meaning of sub-section (1) of section 201, in respect of such tax.
Section 205 provides as follows:
“Bar against direct demand on
assessee.
205. Where tax is deductible
at the source under the foregoing provisions of this Chapter, the assessee
shall not be called upon to pay the tax himself to the extent to which tax
has been deducted from that income.”
A conjoint reading of the
Explanation to section 191 read with section 205 suggest that the department
cannot proceed to recover the tax from both the Indian party as well as foreign
party.
7. Tax
Residency Certificate and Implications of 206AA
7.1 Tax Residency
Certificate – Section 90(4)
– Finance Act,
2012 has introduced sub-section (4) to section 90 w.e.f. 1-4-2013 to provide
that a non-resident will not be entitled to claim benefits under the Treaty
unless he obtains a tax residency certificate from the Government of his
residence country/territory certifying that he is a tax resident of that
country.
– The
requirement applies to all Non-residents, whether Individuals, Companies, LLPs
etc., irrespective of the quantum of relief to be obtained.
– Furnishing
TRC is a mandatory requirement.
– Rule 21AB(1) mandates submission of following information
in Form 10F:
i. Status (individual, company, etc) of the
assessee;
ii. Nationality or country or specified territory
of incorporation or registration;
iii. Assessee’s tax identification number in the
country or specified territory of residence and in case there is no such
number, then, a unique number on the basis of which the person is identified by
the Government of the country or the specified territory of which the assessee
claims to be a resident;
iv. Period for which the residential status, as
mentioned in the certificate referred to in sub-section (4) of section 90 or
sub-section (4) of section 90A, is applicable; and
v. Address of the assessee in the country or
specified territory outside India, during the period for which the certificate,
as mentioned in (iv) above, is applicable.
– Declaration
not required, if TRC contains above particulars.
7.2 Skaps Industries India
(P.) Ltd. vs. ITO [2018] 94 taxmann.com 448 (Ahmedabad – Trib.)
This is an important decision in
the context of mandatory requirement of TRC u/s. 90(4). The ITAT after very
extensive discussion, held and observed as follows:
(i) The
ITAT states that as per the provisions of section 90(2) of the Act, the
provisions of the Act shall apply only to the extent they are more beneficial
to that the assessee and the same was often referred to as “treaty override”
.
(ii) The ITAT also observed that the provisions of section 90(4) do
not start with a non-obstante clause vis-à-vis section 90(2) of the Act. In the
absence of such non-obstante clause, the ITAT has held that section 90(4)
cannot be construed as limitation to the tax treaty superiority as stipulated
in section 90(2) of the Act. Accordingly, the Tribunal has held that even in
absence of a valid TRC, provisions of section 90(4) could not be invoked to
deny tax treaty benefits.
(iii) The Tribunal has, nevertheless, emphasised that though the
requirement to furnish TRC is not mandatory, the US Co. had to establish that
it was a USA tax resident. The onus was on the assessee to give sufficient
and reasonable evidence to satisfy the requirements of Article 4(1) of the tax
treaty, particularly when the same was called into question.
(iv) This decision lays down a very important proposition that that
the tax treaty benefits cannot be denied merely on the basis of
non-availability of TRC. Further it also lays down that, when a non-resident
assessee has substantiated its residential status by way of sufficient and
reasonable documentary evidence, the requirement of furnishing TRC would be
persuasive and not mandatory.
8. Section
206AA Requirement to furnish PAN
8.1 Section 206AA provides as follows:
“206AA (1) Notwithstanding
anything contained in any other provisions of this Act, any person
entitled to receive any sum or income or amount, on which tax is deductible
under Chapter XVIIB (hereafter referred to as deductee) shall furnish his
Permanent Account Number to the person responsible for deducting such tax
(hereafter referred to as deductor), failing which tax shall be deducted at the
higher of the following rates, namely:-
i. at the rate specified in the relevant provision
of this Act; or
ii. at the rate or rates in force; or
iii. at the rate of twenty per cent. ……….”
8.2 Section 206AA is very significant in the
context of TDS from payments to non-residents. It is pertinent to note that if
no tax deductible at source in view of the applicable provisions of the Act or
DTAA, provisions of section 206AA would not apply. There are various issues and
aspect relating to section 206AA are dealt with below.
8.3 Whether DTAA prevails over section 206AA
A very important question arises as
to whether section 206AA override provisions of section 90(2) and in cases of
payments made to non-residents, assessee can correctly apply rate of tax
prescribed under DTAAs and not as per section 206AA because provisions of DTAAs
are more beneficial.
Various benches of ITAT and Delhi
High Court have held that section 206AA does not override section 90(2) of the
Act and accordingly held that lower TDS as per favourable DTAA provisions is
applicable and not higher rate
u/s. 206AA. Some of the favourable decisions are as follows:
– DDIT vs. Serum
Institute of India Ltd. [2015] 68 SOT 254 (Pune)
– DCIT vs. Infosys BPO
Ltd. [2015] 154 ITD 816 (Bang.)
– Emmsons International
Ltd. vs. DCIT [2018] 93 taxmann.com 487 (Delhi – Trib.)
– Danisco India (P.) Ltd.
vs. UoI [2018] 90 taxmann.com 295 (Delhi)
– Nagarjuna Fertilizers
& Chemicals Ltd. vs. ACIT [2017] 78
taxmann.com 264 (Hyderabad-Trib.) (SB)
It is
pertinent to note that Article 51(c) of the Constitution states as follows:
“State shall endeavor to foster respect for international law and treaty
obligations in the dealings of organised peoples with one another; and
encourage settlement of international disputes by arbitration.”
The above decisions are in line
with the aforementioned constitutional mandate and spirit. Thus, in case
provisions of a DTAA is applicable, TDS would be at a lower rate as per the
DTAA even if non-resident deductee fails to furnish PAN.
8.4 Applicability of
surcharge or education cess on maximum rate of 20% as per section 206AA
It is pertinent to note that the
relevant clauses of the Finance Acts do not include section 206AA in their
ambit for the purpose of levy of surcharge or education cess.
The ITAT in the case of Computer
Sciences Corporation India (P.) Ltd. vs. ITO (IT) [2017] 77 taxmann.com 306
(Delhi-Trib.) after considering various aspects, held that there no
surcharge and education cess would be leviable on the rate of 20% prescribed
u/s. 206(1)(iii).
8.5 Whether it is
applicable to those who are exempt from obtaining PAN?
a) Section 139A(8)(d) provides
that the Board may make rules providing for class or classes of persons to whom
the provisions of section 139A shall not apply. Rule 114C (1) (c) (prior to its
substitution wef 1-1-2016) provided that the provisions of section 139A regarding
allotment PAN shall not apply to the non-residents referred to in section
2(30). Section 272B provides for a penalty for failure to comply with the
provisions of section 139A of Rs. 10,000/-.
b) In the case of Smt. A. Kowsalya Bai vs UoI
22 Taxmann.com 157 (Kar), the Karnataka High Court held that the assessees
having income below the taxable limit were not required to obtain Permanent
Account Numbers as per section 139A of the Act and still the provisions of
section 206AA were invoked to deduct tax at higher rate from the amount of
interest income paid to them as a result of their failure to furnish the
Permanent Account Numbers to the payers/deductors. Taking note of this
contradiction between the provisions of sections 139A and 206AA, Hon’ble
Karnataka High Court read down the overriding provisions of section 206AA and
made them inapplicable to the persons, who were not even required to obtain the
Permanent Account Numbers by virtue of section 139A.
c) In this regard, the Special bench of the
ITAT in the case of Nagarjuna Fertilizers & Chemicals Ltd. vs ACIT
[2017] 78 taxmann.com 264 (Hyderabad-Trib.) (SB) held that
“26. Although
the facts involved in the present case are slightly different, inasmuch as, the
non-resident payees in the present case were having taxable income in India,
the facts remain to be seen is that they were not obliged to obtain the
Permanent Account Numbers in view of section 139A(8) read with Rule 114C. There
is thus a clear contradiction between section 206AA and section 139A(8) read
with Rule 114C, as was prevailed in the case of Smt. A. Kowsalya Bai (supra)
and by applying the analogy of the said decision, we find merit in the
contention raised on behalf of the assessee that the provisions of section
206AA are required to be read down so as to make it inapplicable in the cases
of concerned non-residents payees who were not under an obligation to obtain
the Permanent Account Numbers.”
d) It is pertinent to note that Rule 114B and
114C have been substituted wef 1-1-16 and the rule relating to non-application
of provisions of section 139A regarding allotment PAN to the non-residents
referred to in section 2(30), is no more there except as provided in clause
(ii) of 3rd proviso to substituted rule 114B(1).
8.6 Whether TDS deducted at higher rate on
account of section 206AA can be claimed as a refund by filing a return u/s. 139
by the non-resident?
Yes. A non-resident can claim
refund of TDS deducted at higher rate on account of section 206AA by filing
appropriate return of income after obtaining PAN.
8.7 Section 195A vis-à-vis
Section 206AA
a)
A very significant question arises in the context of application of
section 195A read with section 206AA, whether section 195A will apply in cases
where section 206AA is made applicable
There are different views possible
in this regard which are as follows:
i. View 1 – No grossing up required.
Neither
section 195A makes reference to section 206AA, nor section 206AA provides for
grossing up.
ii. View 2 – Grossing up required only
vis-à-vis clause (ii) of section 206AA(1), since section 195A refers to
grossing up is required where TDS is at the rates in force.
iii. View 3 – Grossing up is required in all
the three clauses (i) to (iii) of section 206AA(1).
In our view,
View 2 seems to be a better view.
b) Manner of grossing up
In cases
where rate in force is 10%* – Whether grossing up should be on 10% being rate
in force or on 20%?
The
different possible scenarios could be as under:
|
Particulars
|
Option 1
|
Option 2
|
Option 3
|
Option 4
|
|
Net of Tax Payment to non- resident
|
100
|
100
|
100
|
100
|
|
(+) Grossing up
|
11.11
|
11.11
|
21.11
|
25
|
|
Total
|
111.11
|
111.11
|
121.11
|
125
|
|
(-) TDS
|
11.11
|
22.22
|
21.11
|
25
|
|
Payment to be made to the non-resident
|
100
|
88.89
|
100
|
100
|
* Assuming a treaty rate of 10%
In Bosch Ltd. vs. ITO IT
[2012] 28 taxmann.com 228 (Bang) it was held that higher rate of
deduction at 20% under section 206AA is not applicable for tax grossing-up u/s.
195A, if TDS is borne by the Indian payer.
Higher TDS rate u/s. 206AA is
applicable only where non-resident recipient has income chargeable to
tax in India and does not furnish PAN.
In this regard, the ITAT observed
as follows:
“22. As regards
the grossing up u/s 195A of the Income-tax Act is concerned, we find that the
provision reads
as under:
“In a case other than that
referred to in subsection (1A) of sec. 192, where under an agreement] or other
arrangement, the tax chargeable on any income referred to in the foregoing
provisions of this Chapter is to be borne by the person by whom the income is
payable, then, for the purposes of deduction of tax under those provisions such
income shall be increased to such amount as would, after deduction of tax
thereon at the rates in force for the financial year in which such income is
payable, be equal to the net amount payable under such agreement or
arrangement.
23. Thus, it
can be seen that the income shall be increased to such amount as would after
deduction of tax thereto at the rate in force for the financial year in which
such income is payable, be equal to the net amount payable under such agreement
or arrangement. A literal reading of sec. implies that the income should be
increased at the rates in force for the financial years and not the rates at
which the tax is to be withheld by the assessee. The Hon’ble Apex Court in the
case of GE India Technology Center (P.) Ltd. (cited Supra) has held that
the meaning and effect has to be given to the expression used in the section
and while interpreting a section, one has to give weightage to every word used
in that section. In view of the same, we are of the opinion that the
grossing up of the amount is to be done at the rates in force for the financial
year in which such income is payable and not at 20% as specified u/s 206AA of
the Act.”
8.8 Section 206AA and Rule
37BC
a) As per section 206AA(7), the section shall
not apply to a non-resident/foreign company, in respect of:
– payment of
interest on long-term bonds referred to in section 194LC
– any other
payment subject to such conditions as may be prescribed.
b) Rule 37BC inserted wef 24-6-2016
Rule 37BC provides that section
206AA shall not apply on the following payments to non-resident deductees who
do not have PAN in India, subject to deductee furnishing the specified details
and documents to the deductor:
– Interest;
– Royalty;
– Fees
for Technical Services; and
– Payment
on transfer of any capital asset.
c) In respect of the above, the deductee shall
be required to furnish the following to the deductor:
– Name, e-mail
id, contact number
– Address in
the country outside India of which the deductee is a resident
– A certificate of his being resident from the Government of that country
if the law provides for issuance of such certificate
– Tax
Identification Number of the deductee/ a unique number on the basis of which
the deductee is identified by the Government.
d)
The interplay between provisions of a DTAA, section 206AA and section
90(4), in connection with TDS under section 195, is explained in the diagram
below.
9. Conclusion
In this part we have dealt with
some of the important procedural and other aspects relating to the TDS from
payments to non-residents. In the third and concluding part, we will deal with
some remaining aspects relating to TDS from payments to non-residents.
