DTAA provisions, if beneficial to tax payer will override some sections of Income Tax Act: Tax Tribunal

MUMBAI: In what could shape future taxation disputes, the Special Bench of the Hyderabad Tribunal in the case of Nagarjuna Fertilizers and Chemicals Limited has held that the provisions of the Double Taxation Avoidance Agreement ( DTAA), to the extent they are beneficial to the taxpayer, will override some of the sections of the Income-tax Act, 1961.

According a tax note by Deloitte, Nagarjuna Fertilizers and Chemicals Limited (‘the taxpayer’), a Public Limited Company, had made certain payments for technical services to non-residents in 2011-12 and 2012-13.

Some payments were made to non-residents in jurisdictions with which India did not have any Double Taxation Avoidance Agreement (DTAA). In such cases, the taxpayer deducted 20 per cent tax at source as the non-residents did not furnish Permanent Account Number ( PAN).

The income tax department had challenged this because the non-residents did not submit PAN card details. And there was no tax rate prescribed for such jurisdictions.

The Tribunal rejected the argument of the tax department that DTAA does not provide rates for deduction of tax at source and hence the rates under the Income Tax Act need to be considered for deduction of tax at source.