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2013 (11) TMI 734 - HC - Income TaxInterest u/s 234B - Payer did not deduct TDS on payment to made to non-resident - Assessee contended that no interest under Section 234B can be levied because if the entire income was subject to tax in India the consequence would be that it was the responsibility of the payer to deduct tax and if he has not done so, the remedy of the Income Tax Department lies against him in terms of Section 201 and not against the assessee under Section 234B. Held that - It is open to the assessee to deny its liability to tax in India on whatever grounds it thinks fit and proper. Having denied its tax liability, it seems unfair on the part of the assessee to expect the Indian payers to deduct tax from the remittances. It is also open to the assessee to change its stand at the first appellate stage and submit to the assessment of the income. When it does so, all consequences under the Act follow, including its liability to pay interest under Section 234B since it would not have paid any advance tax - It further seems inequitable that the assessee, who accepted the tax liability after initially denying it, should be permitted to shift the responsibility to the Indian payers for not deducting the tax at source from the remittances, after leading them to believe that no tax was deductible. The assessee must take responsibility for its volte face. Once liability to tax is accepted, all consequences follow; they cannot be avoided. After having accepted the liability to tax at the first appellate stage, it is unfair on the part of the assessee to invoke section 201 and point fingers at the Indian payers - The argument advanced by the learned counsel for the assessee that the Indian payers failed to deduct tax at their own risk seems to be only an argument of convenience or despair - It may be true that the general rule is that equity has no place in the interpretation of tax laws. But, when the facts of a particular case justify it, it is open to the court to invoke the principles of equity even in the interpretation of tax laws. Tax laws and equity need not be sworn enemies at all times. The rule of strict interpretation may be relaxed where mischief can result because of the inconsistent or contradictory stands taken by the assessee or even the revenue Interest u/s 234B payable Decided in favor of Revenue.
Issues Involved:
1. Liability of the assessee to pay interest under Section 234B of the Income Tax Act. 2. Applicability of Section 209(1)(d) in conjunction with Section 195 regarding tax deduction at source. 3. Interpretation of the Double Taxation Avoidance Agreement (DTAA) between India and the USA. 4. The impact of the assessee's initial denial of tax liability in India on subsequent proceedings. 5. The role of equitable considerations in interpreting tax laws. Detailed Analysis: 1. Liability of the Assessee to Pay Interest under Section 234B: The primary issue was whether the assessee was liable to pay interest under Section 234B of the Income Tax Act. The Tribunal held that the assessee was not liable to pay interest under Section 234B, as the tax on the income received by the assessee was required to be deducted at source by the payers under Section 195. The Tribunal relied on the language of Section 209(1)(d), which allows the assessee to take credit for the tax "deductible" at source while computing its advance tax liability. However, the High Court found that the factual position in the present case differed from the case of Jacabs Civil Incorporated, where the assessee had admitted its tax liability from the beginning. In contrast, the assessee in the present case initially denied its tax liability and only accepted it at the first appellate stage. Consequently, the High Court held that the assessee was liable to pay interest under Section 234B. 2. Applicability of Section 209(1)(d) in Conjunction with Section 195: The Tribunal held that the assessee could take credit for the tax "deductible" at source under Section 209(1)(d), even if the tax was not actually deducted. The High Court, however, noted that this legal position could not be applied to the present case due to the assessee's initial denial of tax liability in India. The High Court emphasized that the assessee's change of stance at the first appellate stage did not absolve it from the responsibility of paying interest under Section 234B. 3. Interpretation of the Double Taxation Avoidance Agreement (DTAA): The assessee argued that it was a tax resident of the USA and did not have a permanent establishment (PE) in India, thereby claiming that no portion of its business profits was taxable in India. The High Court noted that the assessee initially denied its tax liability in India based on the DTAA but later accepted the tax liability at the first appellate stage. The High Court found that this change in stance impacted the assessee's liability to pay interest under Section 234B. 4. Impact of the Assessee's Initial Denial of Tax Liability: The High Court observed that the assessee's initial denial of tax liability in India led to a situation where the Indian payers did not deduct tax at source under Section 195. The High Court inferred that the assessee likely represented to the Indian payers not to deduct tax, consistent with its initial stand. The High Court held that this representation or informal communication could be reasonably inferred or presumed, and the Tribunal should have accorded due weightage to this possibility. 5. Role of Equitable Considerations in Interpreting Tax Laws: The High Court emphasized that equitable considerations could be invoked in interpreting tax laws to avoid injustice. The Court noted that the assessee's acceptance of tax liability at the first appellate stage, after initially denying it, created a situation where the revenue was deprived of the use of the monies that would have been paid as advance tax. The High Court held that the assessee should take responsibility for its actions and could not shift the blame to the Indian payers for not deducting tax at source. Conclusion: The High Court concluded that the assessee was liable to pay interest under Section 234B of the Income Tax Act. The Court found that the factual position in the present case differed from the case of Jacabs Civil Incorporated, and the benefit of that decision could not be extended to the assessee. The Court held that the assessee's initial denial of tax liability and subsequent acceptance at the first appellate stage impacted its liability to pay interest under Section 234B. The appeals were allowed, and the substantial question of law was answered in favor of the revenue.
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