2008 (1) TMI 651 - AT - Income Tax

Summary

Issues Involved:
1. Chargeability of interest under sections 234B and 234C.
2. Power of Assessing Officer to charge interest under sections 234B and 234C while processing the return under section 143(1)(a).
3. Liability of the employer to deduct tax at source on perquisites and the consequent liability of the employee to pay advance tax.

Issue-wise Detailed Analysis:

1. Chargeability of Interest under Sections 234B and 234C:
The primary issue in this appeal is whether the interest under sections 234B and 234C is chargeable from the assessee. The revenue argued that the charging of interest under these sections is mandatory, as upheld by the Supreme Court in CIT v. A.H.M. Ghaswala. However, the assessee contended that the interest should not be charged because the employer failed to deduct tax at source on the perquisites, which is the employer's statutory obligation under section 192.

2. Power of Assessing Officer to Charge Interest under Sections 234B and 234C while Processing the Return under Section 143(1)(a):
The assessee argued that the Assessing Officer was not justified in making adjustments regarding the charging of interest under sections 234B and 234C while processing the return under section 143(1)(a). The CIT (Appeals) agreed with this contention, noting that the Assessing Officer cannot adopt double standards by treating the issue as debatable for rejecting the rectification application under section 154 and simultaneously justifying the charging of interest under section 143(1)(a). The CIT (Appeals) emphasized that the levy of interest should not be considered a prima facie adjustment and should have been addressed through a notice under section 143(2) for a regular assessment.

3. Liability of the Employer to Deduct Tax at Source on Perquisites and the Consequent Liability of the Employee to Pay Advance Tax:
The assessee's primary defense was that the employer, M/s. Zee Telefilms Ltd., was statutorily obligated to deduct tax at source on the perquisites. The failure of the employer to deduct the tax should not result in the assessee being liable to pay interest under sections 234B and 234C. The CIT (Appeals) supported this view, noting that the liability to deduct tax at source is absolute and falls on the employer. The CIT (Appeals) cited the decision in the case of Motorola Inc. v. Dy. CIT, where it was held that if the tax is deductible at source by the payer, the assessee cannot be held liable for interest under section 234B for non-payment of advance tax.

Conclusion:
The CIT (Appeals) concluded that the Assessing Officer was not justified in charging interest under sections 234B and 234C while processing the return under section 143(1)(a). The CIT (Appeals) emphasized that the liability to deduct tax at source on the perquisites was on the employer, and the failure of the employer to do so should not result in the assessee being liable for interest. The CIT (Appeals) upheld the assessee's contention and deleted the interest charged under sections 234B and 234C. The revenue's appeal was dismissed, and the order of the CIT (Appeals) was upheld.