Countries enters into Double Tax Avoidance Agreement (DTAA)  so that same income is not taxed twice in both countries.  Tax rates provided under DTAA are also required to be considered, in order to decide rate of withholding taxes on sums paid to non-residents.
On the other hand, Â Section 206AA of the Income Tax Act says higher withholding of tax if PAN of the recipient is not available, which shall be at 20 per cent , unless the rate for withholding of tax under the relevant provision is higher than 20 per cent.
The assessee has the option to be governed either by provisions of said DTAA or by provisions of the Act, whichever is beneficial to him.
Now the question is , can provisions of Section 206AA override the provisions of the treaty entered into bilaterally between two countries ?  Â
Now, take a note of this –  If a non-resident does not obtain a PAN, the Assessing Officer insists on withholding of taxes at 20% even when lesser rate of tax is prescribed in DTAA under  section 206AA , which is unjustified in view of Section 90(2) of the Act, which provides that a taxpayer can opt to apply provisions of the Act or the DTAA, whichever is more beneficial to him.
Double Tax Avoidance Agreement when entered into for Avoidance of Double Taxation, such an arrangement or agreement will necessarily prevail over the provisions of the statute.
Any amendment carried out to the provisions of the Act shall no doubt have the effect of altering the provisions of the Act but should not be automatically altering the analogous provision of the Treaty.
Thus, it may be inferred that the provisions of Section 206AA cannot be allowed to override the provisions of the treaty entered into bilaterally between two countries.
To Conclude  – A clarification is needed in Section 206AA on the scope of the provisions and whether it can override the provisions of the Treaty entered into between two sovereign countries?
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