Danisco India Private Limited v. Union of India & Ors

S. RAVINDRA BHAT, J

A. K. CHAWLA, J FEBRUARY 05, 2018 rc

* IN THE HIGH COURT OF DELHI AT NEW DELHI Date of decision : 05.02.2018 + DANISCO INDIA PRIVATE LIMITED ..... Petitioner Through Mr. Sujit Ghosh, Ms. Kanupriya Bhargava and Ms. Mannat Waraich, Advs. versus UNION OF INDIA & ORS. ..... Respondents Through Mr. Prasanta Verma, SCGC with Ms.Shalu Goswami, Adv. for UOI/R1. Mr. Ruchir Bhatia, Sr. Standing Counsel and Mr. Puneet Rai, Jr. Standing Counsel for Income Tax Deptt. Mr. C. Mukund, Ms.Geetika Matta and Mohd. Farib Ahmed, Advs. for RBI/R4 CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE A. K. CHAWLA HON'BLE MR. JUSTICE S. RAVINDRA BHAT (ORAL) % The petitioner is aggrieved of Section 206AA of the Income Tax Act ('the Act') (introduced by Finance Bill No. 2 of 2009) that directs a levy of 20% in the case of outward remittances in the hands of the payer (hereafter referred to as 'the deductor' ) and is applicable to assessees that are non-residents of India. Section 206AA to the extent it is relevant, reads as follows : "206AA. (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. The petitioner complains that the impugned provision cannot be sustained having regard to the peculiar facts of this case. The petitioner is an Indian assessee, who, in the normal course of its business remits payments to M/s DuPont Singapore, a non-resident company, located in Singapore. DuPont is not a tax assessee in India. Tax relationship between the two countries is regulated in terms of Indo-Singapore Double Taxation Avoidance Agreement (DTAA). The relevant provisions of DTAA mandates a cap of 10% upon the recovery of amounts, in respect of tax incidence that occurs in the concerned host country (Article 12). Article 12 of the DTAA reads, as follows : "ROYALTIES AND FEES FOR TECHNICAL SERVICES 7. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 1[2 However, such royalties and fees, for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State," but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent.] 3. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use: (a) any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information ; (b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described in paragraph 4(6) or 4(c) of Article 8. 4. The term "fees for technical services" as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know-how o