Section 206AA of the Income Tax Act

This query is : Resolved

Paul Truman (Querist)
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04 March 2010 Re : Compliance to section 206AA of the IT Act

I have the following queries concerning the obligation of the Foreign Non resident companies we seal with:-

1) On obtaining PAN, will it become mandatory for the Non Resident Companies to file return of income in India every year?

2) Once PAN is obtained, will it automatically mean they have to comply to provisions of section 44AB and shall be liable to get Tax Audit done, considering their income always exceeds one million ?

3) The provision is introduced without amending Section139 of the Income Tax Act.

4) The provision has the effect of Indian Laws having extra territorial jurisdiction on foreign companies and Non residents wherein they are obligated to comply to the laws of India.

5) The provision overrides tax treaties.

6) Is somebody challenging the validity of the provision?

Venkat Rao Marella

Venkat Rao Marella (Expert)
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28 July 2010 1. No. not required. unless they have some income which is chargeble to tax in India.
2. Sec 44A does not has any thing to do with having / not having PAN.
3. Sec 206 AA is inserted for a seperate purpose. This section implies that even though the person is not notified / covere U/ 139 / 139(A), he / she should get PAN is they have any inome/sum/amount chargeble to tax as per Chapter XVII-B provisions.
4. Since they are having precence in India/ deriving any income from India, no doubt they should comply with the laws as may be notified by the Govt from time to time.
5. The provisions override the tax treaty.
Reason::In the absence of any specific provision in the tax treaty, the provision of Income Tax Act will prevail. Since the tax treaty does not have any similar provisions in the lines of Sec 206 AA, it appears that the provisions of Sec 206 AA will prevail over Sec 90(2). This implies that nonresident will not be able to avail treaty benefits in the absence of PAN.
6. not known as of now.

Thanks,
Venkat.