In a recent ruling of Karnataka High Court, it has been upheld that the rate of withholding tax in the income tax act provisions must be read along with Double Taxation Avoidance Agreement (DTAA). The provisions of Section 206AA of the Income Tax Act, 1961 (Act) cannot override the provisions of respective DTAA. The Hon’ble High Court while delivering the judgement relied on the ruling in case of Danisco India Private Limited issued by the Delhi High Court, where in it was held Section 206AA of the Act cannot override the charging sections ie. Section 4 & Section 5 of the Act. Section 90(2) of the Act provides that DTAA will override the provisions of the Act, where it is beneficial to the taxpayer, thus, it will override the charging Section 4 & Section 5 of the Act. Thus, it was held that where tax has been deducted as per beneficial provisions of the DTAA, the provisions of Section 206AA of the Act shall not apply.
Accordingly, upholding the Bangalore tribunal’s judgement in assessee’s case and relying on Danisco’s
decision of Delhi High Court, it was held that withholding tax rate governed by the relevant article of DTAA will not be overridden by the provisions of Section 206AA of the Act.
Case Law – Commissioner of Income Tax vs. Wipro Ltd (ITA No. 181, 182,183 & 184 of 2019, High
Court of Delhi)
SW Point of View:
Rate of tax shall be governed by the relevant article of DTAA even where there is no PAN of the recipient and provisions of Section 206AA of the Income Tax Act shall not apply.