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2022 (8) TMI 387 - HC - Income TaxWaiver of interest under Section 234B and 234C - Non deduction of TDS by the payer - whether interest is to be paid u/s 234B when no advance tax is payable by the assessee and when the deductor/ the employer abroad, had not deducted tax at source, but has subsequently paid the tax with interest and whether the assessee/payee can be charged with interest? - HELD THAT - The view of the Bombay High Court in NGC Network Asia 2009 (1) TMI 174 - BOMBAY HIGH COURT and the Uttaranchal High Court in Sedco Forex International Drilling Co.Ltd 2003 (10) TMI 40 - UTTARANCHAL HIGH COURT has been upheld by the Hon ble Apex Court in Mitsubishi Corporation 2021 (9) TMI 875 - SUPREME COURT held that find no force in the contention of the Revenue that Section 234B should be read in isolation without reference to the other provisions of Chapter XVII. The liability for payment of interest as provided in Section 234B is for default in payment of advance tax. While the definition of assessed tax under Section 234B pertains to tax deducted or collected at source, the pre-conditions of Section 234B, viz. liability to pay advance tax and non- payment or short payment of such tax, have to be satisfied, after which interest can be levied taking into account the assessed tax. Therefore, Section 209 of the Act which relates to the computation of advance tax payable by the assessee cannot be ignored while construing the contents of Section 234B. As we have already held that prior to the financial year 2012-13, the amount of income-tax which is deductible or collectible at source can be reduced by the assessee while calculating advance tax, the Respondent cannot be held to have defaulted in payment of its advance tax liability. There is no doubt that the position has changed since the financial year 2012-13, in view of the proviso to Section 209 (1) (d), pursuant to which if the assessee receives any amount, including the tax deductible at source on such amount, the assessee cannot reduce such tax while computing its advance tax liability. After dismissing the appeal filed by the revenue, the appeals of the Assessees on the same issue were allowed referring to the above judgment. Therefore, this is no longer res integra and the claim of the assessees thus stands vindicated. Scope of Notification in F.NO400/234/95-IT(B) dated 23-5-1996 issued under Section 119 wherein the Chief Commissioner and the Director General of Income Tax may reduce or waive the interest charged under Section 234A or Section 234B or Section 234C of the Act in the classes of cases or classes of Income specified in paragraph 2 of the order for the period and to the extent the Chief Commissioner of Income tax/Director General of Income Tax deems fit - HELD THAT - The law as applicable on the date of the application must be applied. In the present case, the appellant had the right to apply for waiver as per the notification dated 23-05-1996 by invoking clause 2 (e) which empowered an assessee to apply for waiver, when the return could not be filed for unavoidable reasons , when the application was filed in 2003. Once the applicant was found eligible to apply on the date of application, his application cannot be thrown out as not maintainable because of a subsequent notification. It is one thing to say that the relief is discretionary and another to state that the application is not maintainable. The subsequent notification will not affect the consideration of the applications pending on merit. Such an interpretation would not be against the law laid down by the Apex Court, but would also be arbitrary. Therefore, the contention of the revenue on this ground is rejected. Insofar as the merit is concerned, we have already seen that the legal issue as to chargeability till the financial year 2012-13 has been decided in favour of the assessee in Mitsubishi case (supra). Therefore, we find no ground to interfere with the findings of the Learned Judge by relying upon the Judgment in Chennai Port Trust case, to exclude the period till the decision was taken by AAR.
Issues Involved:
1. Whether interest is to be paid under Section 234B and 234C of the Income Tax Act when no advance tax is payable by the assessee and the tax deductor/employer abroad has not deducted tax at source. 2. Whether the waiver application for interest under Section 234B and 234C is maintainable under the notification in force at the time of application. 3. Applicability of subsequent notifications to pending applications for waiver of interest. Issue-wise Detailed Analysis: 1. Interest under Section 234B and 234C: The primary issue in both appeals was whether the assessees were liable to pay interest under Section 234B and 234C of the Income Tax Act when no advance tax was payable, and the tax deductor/employer abroad had not deducted tax at source. The court considered various judgments, including: - Hindustan Coca Cola Beverage (P) Ltd v. Commissioner of Income Tax: It was held that no interest is chargeable under Section 234B when the payer has failed to deduct tax at source. - Director of Income Tax v. Jacabs Civil Incorporated: The Delhi High Court held that interest under Section 234B is not applicable when the entire tax is to be deducted at source by the payer. - Director of Income Tax, New Delhi v. Mitsubishi Corporation: The Supreme Court upheld the view that no interest under Section 234B is chargeable when the payer has not deducted tax at source. The court concluded that the liability for interest under Section 234B arises only when there is a default in payment of advance tax, and since the assessees were non-residents with tax deductible at source, they were not liable for interest under Section 234B. 2. Waiver Application under Section 234B and 234C: The second issue was whether the waiver application for interest under Section 234B and 234C was maintainable under the notification in force at the time of application. The court analyzed the notifications issued under Section 119 of the Income Tax Act: - Notification dated 23-05-1996: Allowed waiver of interest under Sections 234A, 234B, and 234C in cases of unavoidable circumstances. - Notification dated 26-06-2006: Superseded the earlier notification and restricted the waiver of interest under Section 234B and 234C, making the reason of "unavoidable circumstances" applicable only to Section 234A. The court held that the right to apply for waiver under the 1996 notification was a vested right and could not be undone by the subsequent 2006 notification. The court relied on Section 6 of the General Clauses Act, 1897, which protects substantive rights accrued under the repealed statute unless a different intention appears. 3. Applicability of Subsequent Notifications: The court examined whether the subsequent notification dated 26-06-2006 could affect the pending applications for waiver of interest. It was concluded that the subsequent notification could not apply retrospectively to pending applications. The court cited: - CIT v. Vatika Township (P) Ltd.: Held that amendments affecting substantive rights are presumed to be prospective unless explicitly stated otherwise. - Neena Aneja v. Jai Prakash Associates Ltd.: Affirmed that pending proceedings should continue under the law in force at the time of their initiation unless a clear intention to the contrary is expressed. The court ruled that the application for waiver of interest filed in 2003 under the 1996 notification was maintainable and should be considered on its merits based on the law at the time of application. Conclusion: The court dismissed both appeals, holding that: - No interest under Section 234B and 234C is chargeable when the payer has not deducted tax at source. - The waiver application filed under the 1996 notification was maintainable, and the subsequent 2006 notification could not retrospectively affect pending applications. The court emphasized that the revenue could pursue any other amounts due from the assessees or the deductor if permitted by law.
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