TDS on Technical Know-how

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Priyank (Querist)
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13 January 2011 A Pvt. Ltd. Co. is making payment to German Co. as a lumpsum royalty for Technical Know How.
According to German DTAA, tax is to we withheld @ 10%.
But according to Section 206AA we need to deduct tax @ 20%.

1. Will Section 206AA override German DTAA? Do we need to add EC & SHEC to the same?
2. If the German Co. applies for PAN, then will it need to comply with Return filing & Auditing provisions? Total payment to be made is 125,000 EUROS.

Please put your arguments supporting your views. Reply urgently.

Thanks in advance

CA. Anuj Gupta

CA. Anuj Gupta (Expert)
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15 January 2011 1.Sec.206AA shall override the German DTAA and the rate shall be 20% if the foreign company doesn't have PAN.No EC & SC shall not be required to added to the same.
2.Yes , no where in Income Tax Act any exemption has been provided for exempting foreign companies from return filing and auditing provisions.

Priyank

Priyank (Querist)
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18 January 2011 Dear sir,

Thanks for your reply.

I have further queries on same issue.

1. Is it possible to plead non-applicability of Section 9(1)(vi), 44AB & 139; based on Article 24 of German DTAA. Relevant extract of which is reproduced below.

"Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances and under the same conditions are or may be subjected."

2. What is the proper course of action, Indian compnay can take? German compnay is not agreeable to withholding tax @ 20% neither it is ready to Audit its accounts.

Awaiting your valuable feedback.

CA. Anuj Gupta

CA. Anuj Gupta (Expert)
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18 January 2011 1. Article 24 no way debars or stops indian Govt. to charge tax under Sec 9(1)(vi).Also how teh provisions of sec 44AB and sec 139 are more burdensome than what are applicable to Indian residents.
2. Indian Company just needs to deduct TDS @ 20% and pay the balance to the German Co.TDS deduction is mandatory and also its for the german Co. to comply with requirements of section 44AB and sec. 139and Indian Co. need not worry for the same.

Anuj
9810106211

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Priyank

Priyank (Querist)
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19 January 2011 Thanks for your prompt reply.

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