2014 (9) TMI 433 - HC - Income Tax

Re-computation of interest payable u/s 201(1A) - Whether the Tribunal was correct in law in directing the AO to recompute the interest payable by the assessee u/s 201(1A) after taking into consideration the advance tax and self-assessment tax paid by the employees concern Held that - Following the decision in Commissioner of Income Tax Versus M/s. Babcock Overseas Project 2014 (9) TMI 320 - DELHI HIGH COURT - the foreign employees of the respondent/assessee had paid tax in India either by way of advance tax or self assessment tax - the AO had himself not levied interest commencing from the period of deductibility of tax till the end of the Financial Year - levy of interest u/s 201(1A) is neither treated as penalty nor has the said provision been included in Section 273B to make reasonableness of the cause for the failure to deduct a relevant consideration - Section 201(1A) makes the payment of simple interest mandatory - The payment of interest under that provision is not penal - There is no question of waiver of such interest on the basis that the default was not intentional or on any other basis. If the employees (i.e. payee) had paid taxes as per the individual return/assessment, no amount as tax would be payable to that extent and the liability for interest would be only for the period commencing from the date of such tax was deductible to the date on which tax was actually paid. - Decided against revenue.

Summary

Issues:
1. Interpretation of Section 201(1A) of the Income Tax Act, 1961 regarding the recomputation of interest payable by the assessee.
2. Applicability of Section 192 on a non-resident company for salaries paid to foreign technicians.
3. Whether interest under Section 201(1A) can be levied when tax demand has been deleted.

Analysis:
1. The High Court addressed the issue of recomputing interest under Section 201(1A) of the Income Tax Act, 1961. The respondent-assessee, a non-resident company, engaged foreign technicians for a project in India. The Tribunal directed the Assessing Officer to recompute interest, considering advance tax and self-assessment tax paid by the employees. The Court upheld the Tribunal's decision, stating that interest cannot be levied beyond the dates when tax was paid, in line with previous judgments.

2. The Court examined the applicability of Section 192 to the respondent-assessee for salaries paid to foreign technicians. The respondent argued that as non-residents, they were not liable to deduct tax at the source. However, the Tribunal disagreed and upheld the levy of interest under Sections 201(1) and 201(1A). The Court supported the Tribunal's decision, emphasizing that the foreign employees had paid taxes in India, and interest should only be calculated from the period when tax was deductible to the actual payment date.

3. Regarding the issue of levying interest under Section 201(1A) when the tax demand was deleted, the Court referenced previous judgments to support its decision. It highlighted that interest under this provision is mandatory and not penal, emphasizing that interest payment is required irrespective of the reason for the default. The Court upheld the Tribunal's direction to recompute interest only up to the date of actual payment by the employees, considering advance tax and self-assessment tax, and ruled in favor of the respondent-assessee, dismissing the appeal by the Revenue.

In conclusion, the High Court's judgment clarified the interpretation of relevant sections of the Income Tax Act, emphasizing the importance of considering tax payments made by employees in determining the levy of interest. The decision provided a comprehensive analysis of the issues raised by the appellant Revenue and upheld the Tribunal's directions in favor of the respondent-assessee.