Thursday, 18 October 2018

NO PAN -Applicability of Section 206AA of Income Tax Act- Whether further Surcharge and EC applied

As you are ware that income tax is required to be deducted at source under provisions outline in chapter XVII of Income tax Act ,1961 . More precisely part "B" deals with various situation where in tax is deducted at source at specified rate . However in case of recipient of income is not in a position to provide his Permanent Account Number (PAN) , Tax will be deducted at source by referring provision as laid down under section 206AA of Income Tax Act . The section is read as :

After section 206A of the Income-tax Act, the following sec­tion shall be inserted with effect from the 1st day of April, 2010, namely:—
"206AA. Requirement to furnish Permanent Account Number.—(1) Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereaf­ter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:—
          (i )  at the rate specified in the relevant provision of this Act; or
         (ii )  at the rate or rates in force; or
        (iii )  at the rate of twenty per cent.
(2) No declaration under sub-section (1) or sub-section (1A) or sub-section (1C) of section 197A shall be valid unless the person furnishes his Permanent Account Number in such declaration.
(3) In case any declaration becomes invalid under sub-section (2), the deductor shall deduct the tax at source in accordance with the provisions of sub-section (1).
(4) No certificate under section 197 shall be granted unless the application made under that section contains the Permanent Ac­count Number of the applicant.
(5) The deductee shall furnish his Permanent Account Number to the deductor and both shall indicate the same in all the corre­spondence, bills, vouchers and other documents which are sent to each other.
(6) Where the Permanent Account Number provided to the deductor is invalid or does not belong to the deductee, it shall be deemed that the deductee has not furnished his Permanent Account Number to the deductor and the provisions of sub-section (1) shall apply accordingly."    
  The responsibility of deduction of tax at source is fastened on     payer (Deductor) . Payer should examined highest rate         
  amongst  (i )  at the rate specified in the relevant provision of     this Act; or (ii )  at the rate or rates in force; or  (iii )  at the 
  rate of twenty per cent.
        Therefore deductor should first find out nature of Income as may be received by recipient . Thereafter he checks whether any specific rate of tax  leviable as a special rate e.g. section 115BBA for Non resident sportman /entertainer etc.@ 20%  ,115BBF Royalty income based on Patent @10%. Thereafter he checks rate in force as prescribed under section 2(37A) of I T Act . To verify rate in force one needs to go to Schedule -1 to find out regular tax rate and TDS both . On completion of this exercise deductor needs to apply 20% in comparative table . 
                       After completing exercise , the moot question arises that whether this rate is further increased by Surcharge and Education cess . It was held in case of Computer Sciences Corporation India (p) Ltd Vs ITO [2017] 77 306 (Del) that no further surcharge or EC will be added while computing tax liability . It was further observed by tribunal that whenever legislature intended to levy any additional tax over and above head rate , specific provisions are embedded in sections . It was further illustrated and referred section 2(29C) -Maximum Marginal Rate , Section 115JB MAT etc. 

                   Thus it is clear that when recipient is not PAN holder and when section 206AA is applied , only tax rate arrived under above referred process will hold valid for chargeability of tax and no further surcharge or EC be added.   

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