2018 (1) TMI 812 - HC - Income Tax

Waiver of interest levied under Sections 234B and 234C - Held that - In the case of DIT (International Taxation) NGC Network Asia (2009 (1) TMI 174 - BOMBAY HIGH COURT) with the view taken by the Uttaranchal HighCourt in the case of CIT Anr. vs. Sedco Forex International Drilling Co. Ltd. Ots (2003 (10) TMI 40 - UTTARANCHAL High Court ) and held that when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the payee/assessee. Thus the assessee therein was not liable for payment of interest under Section 234B of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Challenge to rejection of waiver of interest under Sections 234B and 234C of the Income Tax Act, 1961.
2. Determination of tax liability and applicability of interest for non-resident companies.
3. Interpretation and application of Advance Ruling Authority (AAR) decisions.
4. Examination of the conduct of the assessee and the role of the Chennai Port Trust in tax deduction.
5. Relevance of previous judicial decisions and their applicability to the present case.

Issue-wise Detailed Analysis:

1. Challenge to rejection of waiver of interest under Sections 234B and 234C of the Income Tax Act, 1961:
The petitioner, a non-resident company, challenged the order of the Chief Commissioner of Income Tax-I rejecting their application for waiver of interest levied under Sections 234B and 234C. The petitioner argued that they could not pay tax until the case was decided by the Advance Ruling Authority (AAR) and that their book results showed a loss, negating the need for advance tax payment.

2. Determination of tax liability and applicability of interest for non-resident companies:
The respondent rejected the waiver application, stating that the petitioner failed to pay at least 90% of the advance tax. The Chennai Port Trust had informed the petitioner that the tax deduction liability was only 2.2% of the contract payments. The respondent emphasized that the petitioner commenced operations in 1997 and applied for AAR in 1999, attributing the delay in tax payment to the AAR ruling received in 2000. The clear liability to pay advance tax on contract receipts under Section 44BBB could not be postponed by filing an application before the AAR.

3. Interpretation and application of Advance Ruling Authority (AAR) decisions:
The petitioner contended that the liability to pay tax was only due to the AAR's decision, and they could not pay any tax before this decision. The court referred to previous decisions, including the Chennai Port Trust case and the petitioner’s sister concern, where similar issues regarding interest under Sections 234B and 234C were decided in favor of the assessee.

4. Examination of the conduct of the assessee and the role of the Chennai Port Trust in tax deduction:
The respondent and the learned Senior Standing Counsel argued that the petitioner insisted on the Chennai Port Trust to deduct 7% as tax at source, but the Trust restricted it to 2.2%. The petitioner should have paid advance tax despite moving the AAR. The court noted that the Division Bench in the Chennai Port Trust case held that the Trust could not be declared as an assessee in default under Section 192 read with Section 201 to attract interest under Section 201(1A).

5. Relevance of previous judicial decisions and their applicability to the present case:
The court referred to the decision in the case of DIT (International Taxation) vs. NGC Network Asia and other similar cases where it was held that when a duty is cast on the payer to pay tax at source, no interest can be imposed on the payee/assessee. The court also referred to the decision in John Baptist Lasrado vs. Income Tax Settlement Commission, where it was held that the assessee was not liable for payment of interest under Section 234B.

Conclusion:
The court allowed the writ petition, setting aside the impugned order and holding that the petitioner is not liable to pay interest under Sections 234B and 234C of the Act. The court emphasized that the decisions in previous cases, including the Chennai Port Trust case, covered the present case and highlighted the conflict and confusion that persisted until the AAR passed its order. The court concluded that the petitioner’s case was valid, and the interest levied was not sustainable. Consequently, the connected Miscellaneous Petition was closed.