2006 (11) TMI 234 - AT - Income Tax

Summary

Issues Involved:
1. Levy of interest u/s 234A.
2. Levy of interest u/s 234B.

Summary:

1. Levy of Interest u/s 234A:
The primary issue was whether interest u/s 234A is chargeable when the return of income is not furnished before the due date. The CIT(A) deleted the interest charged by the Assessing Officer, reasoning that in the case of a non-resident assessee, all sums chargeable to tax are liable to deduction of tax at source u/s 195. The Tribunal, however, held that interest u/s 234A is mandatory and arises on account of failure to file the return within the prescribed time. The Tribunal emphasized that section 234A refers to "tax deducted" and not "tax deductible." Therefore, interest u/s 234A is chargeable if there is a delay in filing the return of income, irrespective of whether the tax was deductible at source. The Tribunal directed the Assessing Officer to recalculate the interest chargeable u/s 234A based on the correct tax after giving effect to the Tribunal's order in the quantum appeal.

2. Levy of Interest u/s 234B:
The second issue was whether interest u/s 234B is chargeable when the income of the assessee is such on which tax is deductible at source. The CIT(A) deleted the interest charged by the Assessing Officer, following the decisions that interest u/s 234B is not chargeable in cases where tax is deductible at source u/s 195. The Tribunal upheld this view, referencing the ITAT Special Bench decision in the case of Motorola Inc., which held that no interest u/s 234B is chargeable if the entire income is subjected to tax deductible at source. The Tribunal concluded that the liability for payment of advance tax arises u/s 208, and the advance tax payable must be computed u/s 209, which stipulates that income-tax shall be reduced by the amount of income-tax deductible at source. Consequently, the Tribunal directed the Assessing Officer to delete the interest levied u/s 234B.

Conclusion:
The appeals were allowed in part, with directions to the Assessing Officer to recalculate the interest u/s 234A and delete the interest u/s 234B.