DTAA vs 206AA of Income Tax

Double Tax Avoidance Agreement (tax treaty) vs. section 206AA

As per section 90(2) of the Act, the taxpayer can opt for the provision of the relevant tax treaty over the provisions of the Act to the extent the same are more beneficial to that taxpayer. In this regard the relevant paragraphs of Circular 333 issued by Central Board of Direct Taxes (CBDT) on 2 April 1982 dealing with this issue can be discussed. The same reads as under;

“Where a double taxation avoidance agreement provides for a particular mode of computation of income, the same should be followed, irrespective, of the provisions in the Income-tax Act. Where there is no specific provision in the agreement, it is the basic law, i.e., the Income-tax Act, that will govern the taxation of income”

The same view has also been upheld by various judicial authorities including the Supreme Court. Hence based on the above discussion a view which may emerge is, that section 206AA will not have overriding effect over the provisions of the tax treaty.

However, the above view may not be tenable on the following grounds;

section 206AA is ‘ notwithstanding anything contained in any other provisions of this Act ' and hence the same will override provisions of section 90(2),

Section 90(2) is in relation to any relief of tax, whereas section 206AA stipulates for higher withholding of tax on non furnishing of PAN. It does not in any way alter the final tax liability or computation of the non-resident because the nonresident always has an option to file his/her/it's return and claim the refund of excess taxes withheld,

Further, as mentioned in CBDT Circular 333, in the absence of any specific provision in the tax treaty the provision of Income Tax Act will prevail. Since tax treaty does not contain any provisions in the nature of section 206AA, implications of section 206AA are out of the scope of the tax treaty.

Based on the above discussion, it appears that provisions of section 206AA will prevail over the section 90(2) and hence nonresident will not be able to avail the treaty benefits in absence of PAN.

Conclusion:-

Since Contrary, But Keeping all Views in Mind,

Section 206AA will Prevails Over DTTA.