2018 (1) TMI 941 - HC - Income Tax

Liability for payment of interest under Section 234B - salary income earned by the petitioner outside India - miscellaneous petition before the Settlement Commission contending that there was a mistake apparent on the face of the record as the petitioner is not liable for payment of interest - Held that - Section 234(A) of the Act provides for payment of interest for defaults in furnishing return of income, Section 234(B) for defaults in payment of advance tax and Section 234 (C) for deferment of advance tax and all the three Sections create liability on the assessee to pay interest for the default committed by him in the circumstances mentioned in the said Section. It was further held that under Section 234(B) which imposes interest is compensatory in nature and not as a penalty. When duty is cast upon the payer to pay the tax at source, on failure, no interest can be imposed on the payee/assessee. Income Tax Settlement Commission proceeds to confirm the demand of interest under Section 234(B) of the Act, which has been held to be not sustainable in the aforementioned decisions. Therefore, the levy of interest is held to be not sustainable and accordingly the question arising for consideration is answered in favour of the petitioner/assessee and against the revenue. Writ Petition is allowed and the impugned order dated 06.07.2009 is set aside and it is held that the petitioner is not liable for payment of interest under Section 234(B) of the Act, in respect of the salary income earned by the petitioner outside India.

Summary

Issues Involved:

1. Liability of the petitioner to pay interest under Section 234B of the Income Tax Act.
2. Whether the petitioner can raise new issues in a miscellaneous petition before the Settlement Commission.
3. Double taxation due to payment of interest under Section 201(1A) by the employer and Section 234B by the petitioner.

Detailed Analysis:

1. Liability of the petitioner to pay interest under Section 234B of the Income Tax Act:

The petitioner, an employee of a multinational company, received part of his salary in India and the remaining outside India. For the salary received in India, tax was deducted at source, but no tax was deducted for the salary received abroad. The petitioner filed his Income Tax Returns for the assessment years 1996-1997 to 2005-2006, disclosing only the income earned in India.

The petitioner approached the Income Tax Settlement Commission, offering the undisclosed income earned abroad. The Settlement Commission accepted the additional income and charged interest under Section 234B on the excess tax assessed over the advance tax paid. The petitioner contended that interest under Section 234B is chargeable only if the assessee is liable to pay advance tax under Section 208. Since the employer did not deduct tax at source, the petitioner argued he was not liable to pay advance tax and hence not liable for interest under Section 234B.

The Court referred to several decisions, including Hindustan Coca Cola Beverage (P) Ltd. vs. Commissioner of Income Tax, and Commissioner of Income Tax vs. Emilio Ruiz Berdejo, which held that if the tax due has been paid by the deductee, no further tax could be collected from the deductor. The Court concluded that the petitioner is not liable for payment of interest under Section 234B for the salary income earned outside India.

2. Whether the petitioner can raise new issues in a miscellaneous petition before the Settlement Commission:

The revenue argued that the petitioner should not be allowed to raise new issues in a miscellaneous petition after the final order by the Settlement Commission. The Tribunal held that the petitioner could raise any issue of law apparent from the facts before the Commission, even if it was omitted earlier. The Court did not examine the maintainability of the petition before the Commission after the final order, as the need did not arise in the facts and circumstances of the case.

3. Double taxation due to payment of interest under Section 201(1A) by the employer and Section 234B by the petitioner:

The petitioner contended that his employer had paid interest under Section 201(1A) for not deducting TDS, and charging interest under Section 234B would result in double taxation. The Commission rejected this argument, stating that interest under Section 234B and Section 201(1A) are for different defaults by different entities and operate in different spheres.

The Court, however, referred to the decision in Hindustan Coca Cola, which held that once the tax has been paid by the deductee, no further tax could be collected from the deductor. Applying this to the present case, the Court held that since the employer had paid the interest under Section 201(1A), the petitioner cannot be charged interest under Section 234B.

Conclusion:

The Court allowed the writ petition, setting aside the impugned order and holding that the petitioner is not liable for payment of interest under Section 234B for the salary income earned outside India. The Assessing Officer may proceed to levy interest on any other income in accordance with the law. No costs were awarded, and the connected miscellaneous petition was closed.