The Ahmedabad Bench of the Income-tax Appellate Tribunal in the case of: Uniphos Environtronic (P.) Ltd. v. DCIT [2017] 79, held that where the tax has been deducted on the basis of the beneficial provisions of the tax treaties, the provisions of Section 206AA of the Income-tax Act, 1961 (the Act) cannot be invoked.
In that case, the court has been observed that the taxpayer had deducted the tax at source at the rates prescribed in respective tax treaties between India and Germany at the prescribed rate of 10%. Where the tax has been deducted on the strength of the beneficial provisions of the tax treaties, in that case, the provisions of Section 206AA of the Act cannot be invoked because Section 90(2) of the Act provides that the provisions of the Act shall apply to the extent they are more beneficial to the taxpayer. Therefore, the taxpayer is eligible to avail a beneficial rate of tax provided under the tax treaty.
Recently, the Hyderabad Special Bench Tribunal in the case of: Nagarjuna Fertlizers and Chemicals Limited v. ACIT (ITA No. 1187/H/2014 AY:2011-2012) held that the provisions of Section 206AA of the Act will not have an overriding effect on the provisions of the tax treaty to the extent they are beneficial to the taxpayer by virtue of Section 90(2) of the Act. Likewise, the Tribunal in the present case has held that “where the tax has been deducted on the basis of the beneficial provisions of the tax treaties, the provisions of Section 206AA of the Act cannot be invoked”.
