Protection of DTAA can’t be denied Merely on Ground of Non-Furnishing of Tax Residency Certificate: ITAT [Read Order]

The Ahmedabad bench of the ITAT recently held that an eligible assessee cannot be declined the protection of Treaty under Section 90(2) of the Income Tax Act, 1961 merely on the ground that said assessee has not been able to furnish a Tax Residency Certificate in prescribed Form.

The assessee tax-deductor has made certain payments to a US based entity by the name of Teems Electric Inc., in respect of the services rendered by TEI’s personnel for installation and commissioning of certain equipment purchased by the assessee. while completing the proceedings, the Assessing Officer held that the payments are in the nature of “payment for electrical labour and mechanical labour by the assessee, to Teems Electric Co Inc USA, is for services of engineers in India and is covered by the definition of fees for technical services under Section 9(1)(vii) of the Income Tax Act, and the assessee was liable for withholding of tax”.

The Tribunal observed that whether Section 90(4) is a legally valid limitation on Section 90(2) or not, a TRC can be obtained by the US entity, as the public information on US IRS website indicates, for a modest user fee of US $ 85 and a statutory form being filed by the US entity. “In our humble understanding, whatever its worth, TRC is certainly a far easier mode of discharging the onus about establishing residential status, under a tax treaty, of a foreign enterprise. Yet, we have a litigation including this facet as well.”

After considering the facts of the case in deep, the bench added that “In all fairness, however, we must also remain alive to the fact that at no stage was the assessee asked to submit evidences in support of his residential status so as to satisfy the conditions laid down under article 4(1). The Assessing Officer did not deal with this aspect of the matter at all, and simply proceeded to apply law on the assumption that the US entity was entitled to the benefits of the Indo US tax treaty, and while learned CIT(A) was indeed conscientious to take note of this legal requirement, she only asked the assessee to produce a tax residency certificate under section 90(4) which, as we have held earlier in this order, does not dilute the superiority of the treaty law over the domestic law.”