As you are ware that income tax is required to be deducted at source under provisions outline in chapter XVII of Income tax Act ,1961 . More precisely part “B” deals with various situation where in tax is deducted at source at specified rate . However in case of recipient of income is not in a position to provide his Permanent Account Number (PAN) , Tax will be deducted at source by referring provision as laid down under section 206AA of Income Tax Act . The section is read as :
After section 206A of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2010, namely:—
The responsibility of deduction of tax at source is fastened on payer (Deductor) . Payer should examined highest rate amongst (i ) at the rate specified in the relevant provision of this Act; or (ii ) at the rate or rates in force; or (iii ) at the rate of twenty per cent.
Therefore deductor should first find out nature of Income as may be received by recipient . Thereafter he checks whether any specific rate of tax leviable as a special rate e.g. section 115BBA for Non resident sportman /entertainer etc.@ 20% ,115BBF Royalty income based on Patent @10%. Thereafter he checks rate in force as prescribed under section 2(37A) of I T Act . To verify rate in force one needs to go to Schedule -1 to find out regular tax rate and TDS both . On completion of this exercise deductor needs to apply 20% in comparative table .
After completing exercise , the moot question arises that whether this rate is further increased by Surcharge and Education cess . It was held in case of Computer Sciences Corporation India (p) Ltd Vs ITO [2017] 77 Taxamann.com 306 (Del) that no further surcharge or EC will be added while computing tax liability . It was further observed by tribunal that whenever legislature intended to levy any additional tax over and above head rate , specific provisions are embedded in sections . It was further illustrated and referred section 2(29C) -Maximum Marginal Rate , Section 115JB MAT etc.
Thus it is clear that when recipient is not PAN holder and when section 206AA is applied , only tax rate arrived under above referred process will hold valid for chargeability of tax and no further surcharge or EC be added.