28 July 2010
In my view, DTAA shall have the overriding effect over Sec 206AA. As such, if DTAA provides for a lower or NIL rate for with holding tax, Sec 206AA cannot require the payer to deduct tax at 20% only because the payee doesnot have a PAN.
This matter will be an issue of constant debate & litigation unless CBDT issues some Circular or Notification to clarify the matter. However, it appears CBDT too doesnot have any valid ground to justify applicability of Sec 206AA to residents of countries having DTAA with India. To justify Sec 206AA, all existing DTAA's need to be re-written.
Please Note : Whatever expressed above, is my personal view. Other Experts can have different views.