INTRODUCTION1

At the outset, it is important to mention that the tax may be levied/deducted on the sums, amounts, payments, incomes which are taxable in India.

This article deals with the provisions of Income Tax Act, 1961 dealing with the requirement of allotment of Permanent Account Number to the Non-Residents. According to the provisions of Section 206AA of the Income Tax Act, 1961, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVII2 shall furnish his Permanent Account Number to the person responsible for deducting such tax. Section 206AA was introduced by Finance (No. 2) Act, 2009 and was inserted in Income Tax Act which came into effect from 1.4.2010. The provisions of 206AA and other provisions of the Income Tax Act 1961 related to the requirement of allotment of Permanent Account Number are dealt hereinafter.

PERMANENT ACCOUNT NUMBER

Section 139A of IT Act reads as follows:

Section 139A: Permanent account number:

  1. Every person,—
    1. if his total income or the total income of any other person in respect of which he is assessable under this Act during any previous year exceeded the maximum amount which is not chargeable to income-tax; or
    2. carrying on any business or profession whose total sales, turnover or gross receipts are or is likely to exceed five lakh rupees in any previous year; or
    3. who is required to furnish a return of income under sub-section (4A) of section 139; or
    4. being an employer, who is required to furnish a return of fringe benefits under section 115WD, and who has not been allotted a permanent account number shall, within such time, as may be prescribed, apply to the Assessing Officer for the allotment of a permanent account number.

(1A) Notwithstanding anything contained in sub-section (1), the Central Government may, by notification in the Official Gazette, specify, any class or classes of persons by whom tax is payable under this Act or any tax or duty is payable under any other law for the time being in force including importers and exporters whether any tax is payable by them or not and such persons shall, within such time as mentioned in that notification, apply to the Assessing Officer for the allotment of a permanent account number.

(1B) Notwithstanding anything contained in sub-section (1), the Central Government may, for the purpose of collecting any information which may be useful for or relevant to the purposes of this Act, by notification in the Official Gazette, specify, any class or classes of persons who shall apply to the Assessing Officer for the allotment of the permanent account number and such persons shall, within such time as mentioned in that notification, apply to the Assessing Officer for the allotment of a permanent account number.

(2) The Assessing Officer, having regard to the nature of the transactions as may be prescribed, may also allot a permanent account number, to any other person (whether any tax is payable by him or not), in the manner and in accordance with the procedure as may be prescribed.

(3) Any person, not falling under sub-section (1) or subsection (2), may apply to the Assessing Officer for the allotment of a permanent account number and, thereupon, the Assessing Officer shall allot a permanent account number to such person forthwith.

(4) For the purpose of allotment of permanent account numbers under the new series, the Board may, by notification in the Official Gazette, specify the date from which the persons referred to in sub-sections (1) and (2) and other persons who have been allotted permanent account numbers and residing in a place to be specified in such notification, shall, within such time as may be specified, apply to the Assessing Officer for the allotment of a permanent account number under the new series and upon allotment of such permanent account number to a person, the permanent account number, if any, allotted to him earlier shall cease to have effect : Provided that the persons to whom permanent account number under the new series has already been allotted shall not apply for such number again.

(5) Every person shall—

(a) quote such number in all his returns to, or correspondence with, any income-tax authority;

(b) quote such number in all challans for the payment of any sum due under this Act;

(c) quote such number in all documents pertaining to such transactions as may be prescribed by the Board in the interests of the revenue, and entered into by him: Provided that the Board may prescribe different dates for different transactions or class of transactions or for different class of persons: Provided further that a person shall quote General Index Register Number till such time Permanent Account Number is allotted to such person;

(d) intimate the Assessing Officer any change in his address or in the name and nature of his business on the basis of which the permanent account number was allotted to him.

(5A) Every person receiving any sum or income or amount from which tax has been deducted under the provisions of Chapter XVIIB, shall intimate his permanent account number to the person responsible for deducting such tax under that Chapter : Provided that a person referred to in this sub-section shall intimate the General Index Register Number till such time permanent account number is allotted to such person.

(5B) Where any sum or income or amount has been paid after deducting tax under Chapter XVIIB, every person deducting tax under that Chapter shall quote the permanent account number of the person to whom such sum or income or amount has been paid by him—

(i) in the statement furnished in accordance with the provisions of sub-section (2C) of section 192;

(ii) in all certificates furnished in accordance with the provisions of section 203; (iii) in all returns prepared and delivered or caused to be delivered in accordance with the provisions of section 206 to any income-tax authority;

(iv) in all statements prepared and delivered or caused to be delivered in accordance with the provisions of sub-section (3) of section 200: Provided that the Central Government may, by notification88 in the Official Gazette, specify different dates from which the provisions of this sub-section shall apply in respect of any class or classes of persons: Provided further that nothing contained in subsections (5A) and (5B) shall apply in case of a person whose total income is not chargeable to income-tax or who is not required to obtain permanent account number under any provision of this Act if such person furnishes to the person responsible for deducting tax, a declaration referred to in section 197A in the form and manner prescribed there under to the effect that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil.

(5C) Every buyer or licensee or lessee referred to in section 206C shall intimate his permanent account number to the person responsible for collecting tax referred to in that section.

(5D) Every person collecting tax in accordance with the provisions of section 206C shall quote the permanent account number of every buyer or licensee or lessee referred to in that section—

(i) in all certificates furnished in accordance with the provisions of sub-section (5) of section 206C;

(ii) in all returns prepared and delivered or caused to be delivered in accordance with the provisions of sub-section (5A) or sub-section (5B) of section 206C to an income-tax authority;

(iii) in all statements prepared and delivered or caused to be delivered in accordance with the provisions of sub-section (3) of section 206C.

(6) Every person receiving any document relating to a transaction prescribed under clause (c) of sub-section (5) shall ensure that the Permanent Account Number or the General Index Register Number has been duly quoted in the document.

(7) No person who has already been allotted a permanent account number under the new series shall apply, obtain or possess another permanent account number. Explanation.—For the removal of doubts, it is hereby declared that any person, who has been allotted a permanent account number under any clause other than clause (iv) of sub-section (1), shall not be required to obtain another permanent account number and the permanent account number already allotted to him shall be deemed to be the permanent account number in relation to fringe benefit tax.

(8) The Board may make rules providing for—

(a) the form and the manner in which an application may be made for the allotment of a permanent account number and the particulars which such application shall contain;

(b) the categories of transactions in relation to which Permanent Account Numbers or the General Index Register Number shall be quoted by every person in the documents pertaining to such transactions;

(c) the categories of documents pertaining to business or profession in which such numbers shall be quoted by every person;

(d) class or classes of persons to whom the provisions of this section shall not apply;

(e) the form and the manner in which the person who has not been allotted a Permanent Account Number or who does not have General Index Register Number shall make his declaration;

(f) the manner in which the Permanent Account Number or the General Index Register Number shall be quoted in respect of the categories of transactions referred to in clause (c);

(g) the time and the manner in which the transactions referred to in clause (c) shall be intimated to the prescribed authority.

Therefore, as mentioned under the Section itself, any person whose income is taxable under the provisions of the Income Tax Act, 1961 shall be required to obtain a PAN. Further, the section provides the persons as to whom the PAN may be allotted by the Assessing Officer.

Also, the Board constituted under the provisions of the Income Tax Act, 1961 is empowered to make rules as to the provisions of PAN and excluding a certain class/ person from the applicability of the provisions of PAN,

INCOME TAX RULES

Rule 114 C of the Income Tax Rules provide for class or classes to whom provisions of section 139A shall not apply which includes the non-residents as referred in clause (30) of section 2.

Section 2 (30) “non-resident” means a person who is not a “resident”, and for the purposes of sections 92, 93 64 and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of section 63 ;

Also, Rule 114C of the Income Tax Rules reads as follows:

Rule 114C: Class or classes of persons to whom provisions of section 139A shall not apply:

  1. The provisions of section 139A shall not apply to following class or classes of persons, namely:—
    1. the persons who have agricultural income and are not in receipt of any other income chargeable to income-tax :
    2. the non-residents referred to in clause (30) of section 2;
    3. Central Government, State Governments and Consular Offices in transactions where they are the payers.

Provided that such persons shall make declaration in Form No. 61 in respect of transactions referred to in rule 114B;

  1. Every person including,—
    1. a registering officer appointed under the Registration Act, 1908 (16 of 1908);
    2. a registering authority referred to in clause (b) of rule 114B;
    3. any manager or officer of a banking company referred to in clause (c) or clause (i) or clause (j) or clause (l) of rule 114B;
    4. post master;
    5. stock broker, sub-broker, share transfer agent, banker to an issue, trustee of a trust deed, registrar to issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediaries registered under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);
    6. any authority or company receiving application for installation of a telephone by it;
    7. any person raising bills referred to in clause (h) or clause (k) of rule 114B;
    8. any person who purchases or sells the immovable property or motor vehicle; (i) the principal officer of a company referred to in clause (l) or clause (n) or clause (o) of rule 114B;
    9. the principal officer of an institution referred to in clause (l) or clause (o) of rule 114B;
    10. any trustee or any other person duly authorised by the trustee of a Mutual Fund referred to in clause (m) of rule 114B;
    11. an officer of the Reserve Bank of India, constituted under section 3 of the Reserve Bank of India Act, 1934 (2 of 1934);

Who has received any document relating to a transaction specified in rule 114B shall ensure after verification that permanent account number has been duly and correctly quoted therein.

A clear observance of Rule 114 C explains that the provisions of Section 139A of the Income Tax Act, 1961 shall not apply to the certain class of persons.

Till now, it would be safe to conclude that the provisions of PAN may not be applicable on the Non-Residents as they are exempted under the provisions of Rule 114C. However, the provisions of Section 206AA of the Income Tax Act, 1961 are required to be examined.

Section 206AA: Requirement to furnish Permanent Account Number

As mentioned earlier, Section 206AA was introduced by Finance (No. 2) Act, 2009 and was inserted in Income Tax Act which came into effect from 1.4.2010. Section 206AA of the Income Tax Act, 1961 reads as under:

Section 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:—
    1. at the rate specified in the relevant provision of this Act; or
    2. at the rate or rates in force; or
    3. 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 subsection (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.

According to the provisions of Section 206AA of the Income Tax Act, 1961, it can be said that it would be clear that the provisions of PAN shall apply in cases where any person is entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVII of the Income Tax Act, 1961. Where the sum or income or amount does not fall under Chapter XVII the provisions of section 206AA may not apply.

NOW, IT IS REQUIRED THAT WE EXAMINE ‘DOES THE PROVISIONS OF SECTION 206AA OVERRIDES THE PROVISION OF RULE 114C OF IT ACT’?

In the case of:

Bosch Ltd. Vs. Income-tax Officer, International Taxation, Bangalore, 2012 it was concluded that Section 206AA overrides all other provisions of the Act as it starts with the non-absante clause “notwithstanding anything contained in the other provisions of the Act…” As regards the non-requirement of the Non-residents to apply for and obtain a PAN, held that the press release of the CBDT dated 20.01.2010 clarifies that the requirement of obtaining PAN No. will apply to all nonresidents in respect of payments/remittances liable to TDS.

The brief facts of the case are that the assessee is a manufacturing company with both imported and indigenous plant and machinery. For preventive maintenance & repairs, annual maintenance contracts were entrusted to foreign suppliers of machinery and equipment. Likewise, repair contracts are also entrusted to the foreign suppliers who are residents of Germany. All these payments to non-residents which are chargeable to tax in India are subject to deduction of tax at source (TDS) u/s 195 of the Indian Income-tax Act. However, according to the assessee, the payments represented business receipts and as none of the nonresidents have PE in India and the payments are not chargeable to tax in India. However, out of abundant caution, the assessee deducted the tax before making the payments to the foreign entities as per the provisions of sec. 195 read with section 206AA and paid it to the Govt. account. However, denying its liability to deduct tax at source, the assessee has filed appeals before the CIT (A) u/s 248 of the I.T Act.

It was submitted before the CIT (A) that –

  1. The sum received by the non-residents is their business profit arising in Germany and is not liable to be taxed in India as they have no PE in India; and
  2. The amounts paid by the assessee is not ‘Fees for Technical Services’ (FTS) as per Article 12(4) of the DTAA between India and Germany or u/s 9(1)(vii) of the IT Act4.

CONCLUSION

In the light of above discussion it may be safely concluded that the provisions of section 206AA overrides the provisions of Rule 114C of the Income Tax 4 http://taxguru.in/income-tax-case-laws/grossing-upabsence- pan-rates-force-20.html Act, 1961. It would mean that the non-residents are required to obtain PAN in order to file return of income in India. The findings of the judgment may be used in cases where non-residents are required to file return. Here it would be important to mention that the return may be filed for the taxable income only. Also, the provisions of Section 206AA of the Income Tax Act, 1961 would apply to the transactions entered after 01 April 2012.