2009 (3) TMI 644 - AT - Income Tax

Summary

Issues involved: Whether the levy of interest under section 234B of the Income-tax Act was justified.

Summary:
The case involved three appeals by the assessee questioning the levy of interest under section 234B of the Act. The assessments were framed by the Assistant Director of Income-tax, International Taxation, and interest was levied along with tax. The assessee followed the Mutual Agreed Procedure (MAP) under the Double Taxation Avoidance Agreement between the USA and India. The Competent Authorities of both countries reached an agreement on the deemed net profit to be taxed. The assessee contended that no advance-tax was payable as the income was subject to deduction of tax at source u/s 195. The assessee relied on various court decisions to support the argument that interest under section 234B was not justified in cases where tax was deductible at source. The Department argued that interest was mandatory as per the Income-tax Act and cited relevant legal precedents. The Tribunal analyzed the provisions of section 209 for computation of advance-tax and section 195 mandating tax deduction at source. It concluded that since the tax payable in advance was nil due to tax deductible at source being the same as the current income tax, there was no default warranting interest under section 234B. The Tribunal allowed all three appeals in favor of the assessee.

This judgment highlights the importance of understanding the provisions of tax deduction at source and advance-tax computation in determining the levy of interest under section 234B of the Income-tax Act.