2001 (11) TMI 227 - AT - Income Tax

Summary

Issues:
Levy of interest under section 201(1A) - Justification

Analysis:
The appeals involved the issue of whether the levy of interest under section 201(1A) was justified. The assessee, a non-resident company with a project office in India, engaged foreign technicians paid in foreign currency by its UK office. The Ministry of Mines approved their contracts under section 10(6), but the assessee did not deduct tax at source under section 192. The Income-tax authority created a tax demand under section 201(1) and levied interest under section 201(1A). The CIT(A) deleted the tax demand but confirmed the interest. The Tribunal upheld the deletion of the tax demand but considered the interest issue.

The first contention raised was that section 192 was not applicable as the employees and employer were non-residents, and payments were made outside India. However, it was held that section 192 applied if the services were rendered in India, as per section 9(1)(ii) and its Explanation. The place of service was deemed relevant, not the residence of the parties involved.

The next contention was the assessee's belief that section 192 did not apply, citing legal opinions and judgments. However, the Tribunal found that relevant judgments postdated the financial years in question, and no bona fide belief existed before those judgments. The concept of reasonable cause in levying interest under section 201(1A) was discussed but deemed unnecessary due to the lack of a genuine belief by the assessee.

The final contention was whether interest could be levied despite the tax demand being deleted. The Tribunal clarified that sections 201(1) and 201(1A) were independent, and interest was compensatory for delayed tax payment, not dependent on the tax demand's existence. The mandatory nature of interest under section 201(1A) was emphasized, supported by legal precedents. The Tribunal directed the re-computation of interest from the relevant financial year's end to the date of actual tax payment by the employees, excluding the period covered by advance tax payments.

In conclusion, the Tribunal confirmed the levy of interest in principle but modified the orders to recompute interest based on the actual payment dates by the employees, excluding the period covered by advance tax payments. The appeals were partly allowed.