PAN Not Mandatory for Lower TDS Under DTAA: Gujarat HC Ruling

In a landmark judgment, the Gujarat High Court has ruled that Permanent Account Number (PAN) is not mandatory for non-residents to avail lower Tax Deducted at Source (TDS) rates under the Double Taxation Avoidance Agreement (DTAA). This decision, delivered in favor of Adani Wilmar Ltd, has significant implications for cross-border taxation and international business transactions.

Let’s dive into the full context, legal interpretation, and how this ruling affects both Indian companies and foreign entities.

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Case Background: Adani Wilmar Ltd v. CIT

The dispute arose when Adani Wilmar Ltd made certain payments (royalty and fees for technical services) to non-resident entities that had not furnished PANs. The company applied the DTAA-prescribed lower TDS rates instead of the 20% rate mandated under Section 206AA of the Income Tax Act, 1961 for non-residents without PAN.

The Income Tax Department objected, arguing that Section 206AA overrides DTAA, and the company was liable to deduct TDS at 20%. However, Adani Wilmar contested the demand, relying on Section 90(2) of the Act, which allows application of more beneficial DTAA provisions.

The matter escalated to the Gujarat High Court, where the Department’s appeals against favorable rulings by the CIT (Appeals) and the ITAT were ultimately dismissed.

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Key Legal Provisions Involved

Section	Provision
Section 90(2)	Allows the use of DTAA rates if more beneficial than domestic law
Section 206AA	Imposes 20% TDS if PAN is not furnished by the payee
Section 195	Governs TDS on payments to non-residents

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What the Gujarat High Court Ruled

The Division Bench, comprising Justice Bhargav D. Karia and Justice Pranav Trivedi, made the following important observations:

1. DTAA Provisions Prevail Over Section 206AA
   The Court reaffirmed that DTAAs, being international agreements, override domestic law when beneficial to the taxpayer. This aligns with Section 90(2) of the Act.
2. Section 206AA is Procedural, Not a Charging Provision
   The Court stated that Section 206AA deals only with procedural requirements like PAN submission and cannot override treaty obligations.
3. Support from Precedents
   The decision referenced the Supreme Court’s ruling in Azadi Bachao Andolan, which upheld the binding nature of DTAA benefits.
4. No Higher TDS Without PAN if DTAA Conditions Are Met
   If the foreign payee can furnish Tax Residency Certificate (TRC) and other documentation, lower DTAA TDS rates can be applied even without a PAN.

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Why This Judgment Matters

• Boosts Ease of Doing Business: Non-residents without PAN can now receive payments at treaty rates without facing procedural hurdles.
• Protects Indian Companies: Reduces the risk of disallowances or penal TDS demands when DTAA is applied properly.
• Clarifies Law for Tax Professionals: Reiterates the primacy of DTAA under the Indian legal framework.

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Practical Implications for Businesses

Action Point	Impact
Apply DTAA rate with proper documents	✔ Valid without PAN
Maintain TRC, Form 10F, and No-PE declaration	✔ Required for lower TDS
No mandatory 20% deduction for non-residents	✔ If DTAA applies
Ensure documentation trail is robust	✔ For audit and defense

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FAQs: DTAA, PAN & TDS in India

Q1. Can DTAA benefits be claimed without PAN?
Yes. As per Gujarat HC, if valid DTAA documents like TRC, Form 10F, and declarations are submitted, PAN is not mandatory.

Q2. What happens if I deduct TDS at DTAA rate without PAN?
If documentation is in place, it’s legally valid and not a violation of Section 206AA.

Q3. Is this judgment applicable across India?
While it’s binding in Gujarat, it sets a strong precedent nationally. Other courts have delivered similar rulings.

Q4. Which documents are needed to apply DTAA rate?

• Tax Residency Certificate (TRC)
• Form 10F
• No-PE declaration
• Copy of the DTAA clause, if necessary

Q5. What if there’s a mismatch or incomplete document?
In that case, Section 206AA will apply, and TDS at 20% will be required.

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Conclusion

The Gujarat High Court’s ruling in favor of Adani Wilmar Ltd is a landmark decision that upholds the sanctity of India’s international tax treaties. It brings much-needed clarity to non-resident taxation, ensuring that beneficial treaty rates cannot be denied merely due to the absence of PAN.

For companies making cross-border payments and for non-residents doing business in India, this is a welcome relief—but only if they maintain proper documentation and follow the compliance norms under DTAA.

This judgment strikes the right balance between procedural enforcement and substantive tax justice, aligning Indian tax law with international standards.

📅 Published on: 02 July 2025
✍️ Author: CS Chhavi Goyal