|A Ltd. appoints a commission agent in UK for getting export orders for garments. The commission agent does not have any office in India and has produced a tax residency certificate. The commission agent does not have a PAN. Whether by virtue of section 206AA tax has to be deducted even though under the Double Taxation Avoidance Agreement the business profits are not taxable in the absence of a permanent establishment in India.
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|1, CA. H. N. Motiwalla
|Return of income PAN is not required when Income is not chargeable
The Supreme Court in GE India Technology Centre Pvt. Ltd. [327 ITR 456] has held as under:
“The most important expression in section 195(1) of the Income-tax Act, 1961 dealing with deduction of tax at source consists of the words “chargeable under the provisions of the Act”. A person paying interest on any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the Act. Section 195 contemplates not merely amounts, the whole of which are pure income payments; it also covers composite payments which have an element of income imbedded or incorporated in them. The obligation to deduct tax at source is, however, limited to appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the non-resident. It is for this reason that the CBDT has clarified in Circular No. 728 dated October 31,1995, that the tax deductor can take into consideration the effect of the DTAA in respect of payments of royalties and technical fees while deducting tax at source.
The expression “chargeable under the provisions of the Act” in section 195(1) shows that the remittance has got to be a trading receipt, the whole or part of which is liable to tax in India. If tax is not so assessable, there is no question of tax at source being deducted”.
Thus, it is clear that if income is not chargeable to tax in India in the hands of payee, then, no tax is required to be deducted. Therefore, payee need not obtain PAN under section 206AA of the Act.
The aforesaid view gets support from the judgment of Karnataka High Court in Smt. A. Kowsalya Bai & Others [346 ITR 156]. Wherein, it has been held that it is not necessary for such persons whose income is below the taxable limit to obtain permanent account number. Section 139A and section 206AA are made inapplicable to such persons.