2020 (9) TMI 873 - HC - Income Tax

Liability to pay interest u/s 234B - non payment of tax in respect of Assessment Year 2005-06 and 2006-07 - payer had approached the department claiming that payments to be made to the assessee are not chargeable to tax in India and to determine the chargeability and after determination of the tax liability by the department, the deductor has deducted the tax at source and has remitted the balance to the assessee - HELD THAT - Section 195(1) of the Act provides for deduction of Tax at Source by any person responsible for paying to a foreign company any other sum chargeable under the provisions of the Act at the time of credit of such income to the account of the payee. It is axiomatic that assessee was entitled to, in its computation of its advance tax liability to take a tax credit of the amount, which was deductible or collectible irrespective of fact whether the amount was actually deducted or collected. Under the aforesaid provision, the assessee was entitled to tax credit of an amount that was deductible even if it was not actually deducted. Therefore, in order to remove the anomaly in law, the parliament inserted a proviso to Section 209(1) by Finance Act, 2012 with effect from 01.04.2012. In the light of legal position as it existed for the relevant Assessment Years prior to insertion of proviso to Section 209(1) of the Act, it is clear that if payer who was required to make payments to non resident had defaulted in deducting the tax at source from such payments, the non resident is not absolved from payment of taxes thereupon and non resident is liable to pay tax and the question of payment of advance tax would not arise. Therefore, it would not be permissible for the revenue to charge any interest under Section 243B of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 234B of the Income Tax Act regarding liability of non-resident assessee for advance tax and interest.
2. Applicability of Section 209(1)(d) of the Act in determining advance tax liability.
3. Whether interest under Section 234B is chargeable on non-resident assessee for non-payment of tax.

Issue 1: Interpretation of Section 234B:
The High Court considered whether a non-resident assessee is liable to pay advance tax and interest under Section 234B of the Income Tax Act. The court analyzed the definition of 'assessee' and 'person,' emphasizing that the word 'person' includes both domestic and foreign companies. The revenue argued that provisions of Sections 234A, 234B, and 234C are mandatory and compensatory, citing relevant case law. However, the court noted that the Supreme Court's decision in another case did not apply to the current scenario, and the Tribunal's decision was supported by judgments of other High Courts.

Issue 2: Applicability of Section 209(1)(d):
The court examined Section 209(1)(d) of the Act to determine the advance tax liability. It highlighted that the assessee could take a tax credit for amounts deductible or collectible, even if not actually deducted. The court noted that a proviso inserted in 2012 aimed to address anomalies in the law. The court emphasized that the liability for advance tax should not be reduced by the amount deductible if the payer had paid or credited the income without deduction of tax.

Issue 3: Liability for Interest under Section 234B:
The court deliberated on whether a non-resident assessee is liable to pay interest under Section 234B for non-payment of tax. It clarified that if a payer failed to deduct tax at source, the non-resident remains liable to pay taxes, and the question of advance tax payment does not arise. The court referenced the legal position before the insertion of the proviso to Section 209(1) to support its conclusion. Additionally, the court differentiated the facts of the case from the Supreme Court's decision in another matter related to Section 40(a)(ia) of the Act.

In conclusion, the High Court ruled against the revenue and in favor of the assessee on the substantial questions of law. The court dismissed the appeals, finding no merit in the revenue's arguments.