The Gujarat High Court has held the Permanent Account Number (PAN) is not mandatory for lower Tax Deducted At Source (TDS) under Double Tax Avoidance Agreement (DTAA).
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GUJARAT: In a landmark ruling, the Gujarat High Court has held that the Permanent Account Number (PAN) is not mandatory for availing lower Tax Deducted at Source (TDS) rates under a Double Taxation Avoidance Agreement (DTAA).
The Court clarified that where a DTAA exists between India and another country, and its provisions are more beneficial to the assesse, they will override domestic provisions like Section 206AA of the Income Tax Act, which prescribes a higher TDS rate of 20% in the absence of PAN.
This judgment reaffirms the primacy of treaty benefits and offers relief to taxpayers engaged in international transactions.
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Background and Facts of the Case
The present group of appeals (R/Tax Appeal Nos. 514 to 523 of 2024) before the Gujarat High Court arises under Section 260AA of the Income Tax Act, 1961, where the Revenue challenged the decisions of the CIT(A) and ITAT in favor of the assessee, M/s Adani Wilmar Ltd..
Adani Wilmar made payments to non-resident entities for royalty and technical services. These recipients did not furnish a Permanent Account Number (PAN).
The assessee deducted tax at source (TDS) as per the applicable Double Taxation Avoidance Agreements (DTAAs) between India and the relevant foreign countries, not at the higher 20% rate required under Section 206AA in case of missing PAN.
The Income Tax Department argued that in the absence of PAN, Section 206AA applies, requiring deduction of TDS at 20%, irrespective of DTAA rates.
Both the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) held that the assessee was entitled to apply lower DTAA rates as per Section 90(2), which overrides Section 206AA when DTAA provisions are more beneficial.
Issues Before the Court
Whether Section 206AA overrides Section 90(2) of the Income Tax Act?
Whether the ITAT ignored the legislative intent behind Section 206AA and relevant CBDT guidance?
Whether non-residents are mandatorily required to obtain PAN to avoid TDS at 20% under Section 206AA?
What Court has Held?
The Gujarat High Court relied on a strong line of binding and persuasive precedents from the Supreme Court, Delhi, Bombay, and Karnataka High Courts, and held that,
Section 206AA of the Income Tax Act does not override Section 90(2) or the beneficial provisions of a Double Taxation Avoidance Agreement (DTAA). Therefore, non-residents who do not furnish PAN are still entitled to claim lower TDS rates under the DTAA.
The Court emphasized that Section 90(2) clearly provides that if the provisions of a treaty (DTAA) are more beneficial to the assessee, those provisions shall apply. Section 206AA, being procedural in nature, cannot override these substantive treaty rights.
Accordingly, the Court upheld the decisions of the CIT(A) and ITAT, which had allowed Adani Wilmar to deduct TDS at lower DTAA rates, despite the absence of PAN.
Judicial Reasoning and Observations
1. Importance of Section 90(2) and DTAA Benefits
The Court reaffirmed that Section 90(2) of the Income Tax Act gives overriding effect to Double Taxation Avoidance Agreements (DTAAs), when their provisions are more beneficial to the assessee. Hence, even if a non-resident does not furnish a PAN, the lower TDS rate under the DTAA must prevail.
2. Section 206AA is Procedural, Not a Charging Provision
The Court held that Section 206AA is a procedural provision for tax deduction, not a charging section. Therefore, it cannot override Section 90(2) or the beneficial provisions of a treaty.
3. Reliance on Supreme Court and High Court Precedents
The Gujarat High Court relied on well established ruling by the Supreme Court and different High Courts,
- In the case Azadi Bachao Andolan v. Union of India [(2003) 263 ITR 706], the Supreme Court held that DTAA prevails over domestic law if more beneficial.
- In the case GE India Technology Centre Pvt. Ltd. v. CIT [(2010) 327 ITR 456], the Supreme Court held that DTAA to be considered while applying TDS provisions.
- In the case Danisco India Pvt. Ltd. v. UOI [(2018) 404 ITR 539], the Delhi High Court held that Section 206AA must be read down in cases involving DTAA.
- In the case Commissioner of Income Tax (International Taxation) Pune v. Serum Institute of India Ltd., the Bombay High Court and in the case Commissioner of Income Tax, International Taxation v. Wipro Ltd., the Karnataka High Court, held the similar decisions supporting DTAA over Section 206AA.
The Court dismissed all the appeals filed by the Revenue and ruled in favour of the assessee, concluding that Section 206AA does not override Section 90(2) of the Income Tax Act. Where a DTAA provides a lower TDS rate, it will apply even if the non-resident does not have a PAN.
Case Title: Commissioner Of Income Tax (International Taxation And Transfer Pricing) Versus M/S Adani Wilmar Ltd.
Case No.: 10/06/2025 Date: R/Tax Appeal No. 514 Of 2024
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