2010 (8) TMI 37 - HC - Income Tax

Interest Short payment of Advance Tax Short deduction of TDS by the person making payment - whether interest u/s 234B is mandatory? AO found that there was short payment of taxes inasmuch as the advance tax was not paid by the assessee on due dates and therefore, the Assessing Officer was of the opinion that the assessee had incurred interest liability under Section 234B of the Act. In view of AO it was for the assessee to show income from all the projects, compute the tax and take credit of taxes paid either prepaid or otherwise by enclosing the proof of such payment along with return of income. The TDS certificates were to be collected by the assessee even where taxes are borne by the payer. Since the assessee had not disclosed any certificates nor shown proof of payment of taxes, the Assessing Officer held that the assessee was liable to pay interest under Section 234B of the Act. Held that held that the assessee was not liable to pay any interest under Section 234B of the Act - judgments of the Uttaranchal and Bombay High Courts in the matters of CIT and Anr. vs. Sedco Forex International Drilling Co. Ltd. 2008 -TMI - 11559 - UTTARANCHAL High Court and DIT (International Taxation) vs. NGC Network Asia LLC 2009 TMI - 33839 - BOMBAY HIGH COURT followed Interest u/s 234D - Tribunal has held that the assessee was not liable to pay the interest under the aforesaid provision which was normally charged from the assessee for the assessment years 2002-03 and 2003-04. Held that - any provision made in a statute for charging or levying interest on delayed payment of tax must be construed as a substantive law and not adjectival law. So construed and applying the normal rule of interpretation of statutes if the Revenue s contention is accepted it leads to conflicts and creates certain anomalies which could never have been intended by the legislature. - therefore, of the opinion that the Tribunal was right in deleting the interest under Section 234D of the Act for the period prior to the assessment year 2004-05. As a result, these appeals of the Department are dismissed.

Issues Involved:
1. Levy of interest under Section 234B of the Income Tax Act, 1961 for short deduction of TDS.
2. Applicability of interest under Section 234D of the Income Tax Act, 1961 for periods prior to the assessment year 2004-05.

Detailed Analysis:

1. Levy of Interest under Section 234B for Short Deduction of TDS:

The primary issue revolves around whether the levy of interest under Section 234B of the Income Tax Act, 1961 for short deduction of TDS is mandatory and automatic. The assessees in this case are non-resident companies. The facts of ITA No. 491/2008 reveal that the assessee, a company incorporated in the USA, executing World Bank-financed projects, did not pay advance tax on due dates, leading the Assessing Officer to impose interest under Section 234B. The assessee contended that it was the statutory duty of the National Highway Authority of India to deduct 100% tax at source, thus negating the need for the assessee to pay advance tax and consequently, interest under Section 234B.

The Assessing Officer rejected this plea, asserting that the assessee was responsible for showing income, computing tax, and taking credit for taxes paid, including TDS. The CIT(A) allowed the assessee's appeal, setting aside the Assessing Officer's order. The ITAT upheld CIT(A)'s decision, dismissing the Revenue's appeal.

The Tribunal referenced judgments from the Uttaranchal High Court and the Bombay High Court, which held that the payer's obligation to deduct tax at source absolved the assessee from interest liability under Section 234B. The Uttaranchal High Court in Commissioner of Income Tax vs. Sedco Forex International Drilling Co. Ltd. reasoned that since the payer failed to deduct tax, the assessee could not be faulted, especially when there were conflicting Tribunal decisions and a bona fide dispute was pending.

The Bombay High Court in Director of Income Tax vs. NGC Network Asia LLC and the Madras High Court in Commissioner of Income Tax vs. Madras Fertilizers Ltd. echoed similar sentiments, emphasizing that where tax is deductible at source, the payer is liable for interest, not the assessee. The High Court noted that the scheme of the Act, particularly Sections 191, 195, 201, 209, and 215, supports this interpretation. The payer's failure to deduct tax should lead to action under Section 201, not interest imposition on the assessee under Section 234B.

2. Applicability of Interest under Section 234D for Periods Prior to Assessment Year 2004-05:

In some appeals related to M/s. Mitsubishi Corporation, the issue of interest under Section 234D was raised. The Tribunal held that Section 234D, which deals with interest on excess refunds, was applicable only from the assessment year 2004-05 onwards. The Tribunal relied on its Special Bench judgment in ITO vs. Ekta Promoters Pvt. Ltd., concluding that interest under Section 234D could not be levied for periods before the assessment year 2004-05.

The High Court agreed with this interpretation, referencing the Supreme Court's judgment in J.K. Synthetics Ltd. vs. Commercial Taxes Officer, which stated that provisions for charging interest are substantive law and cannot have retrospective operation unless explicitly stated by the Legislature. The Court emphasized that statutory provisions for charging interest must be construed as substantive law, and without explicit legislative intent for retrospective application, Section 234D could not apply to periods before the assessment year 2004-05.

Conclusion:

The High Court concluded that the Tribunal correctly held that the assessee was not liable to pay interest under Section 234B, following the judgments of the Uttaranchal and Bombay High Courts. Regarding Section 234D, the Tribunal's decision to delete interest for periods prior to the assessment year 2004-05 was upheld, affirming that such provisions are substantive and not retrospective. Consequently, the appeals of the Department were dismissed.

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