2012 (10) TMI 840 - AT - Income Tax

Interest on short payment of advance tax failure on the part of payer to deduct TDS u/s 195(2) - Had the payer made the deduction of tax at the appropriate rate, the net tax payable by the assessee would have been Nil - Held that - Following the decision in case of Jacabs Civil Incorporated / Mitsubishi Corporation (2010 (8) TMI 37 - DELHI HIGH COURT) that once it is found that the liability was that of the payer and the said payer has defaulted in deducting the tax at source, the Department is not remedy-less and, therefore, can take action against the payer u/s 201 and compute the amount accordingly. No doubt, if the person (payer) who had to make payments to the non-resident had defaulted in deducting the tax at source from such payments, the non-resident is not absolved from payment of taxes thereupon. However, in such a case, the non-resident it liable to pay tax and the question of payment of advance tax would not arise. This would be clear from the reading of Sec 191 along with Sec. 209 (1) (d). Therefore, it would not be permissible for the revenue to charge any interest u/s 234 B. In favour of assessee

Summary

Issues:
Questioning of first appellate order regarding interest u/s 234 B on short payment of advance tax by the assessee.

Analysis:
1. The revenue challenged the first appellate order, arguing that the Ld. CIT (A) erred in holding that interest u/s 234 B is not chargeable on the short payment of advance tax by the assessee. The assessee, a company registered in the United States and part of the Alcatel Lucent (ALU) Group, supplied telecom equipment to various Indian companies. A survey under section 133 A revealed that various Alcatel Lucent Overseas entities, including the assessee, had a permanent establishment in India. The Assessing Officer (AO) determined the net income chargeable to tax attributable to the PE in India and levied interests u/s 234 A, 234 B, and 234 C.

2. Before the Ld. CIT (A), the assessee contested the levy of interest u/s 234 B by the AO. The Ld. CIT (A) deleted the interest levied u/s 234 B, citing a decision of the Hon'ble Jurisdictional High Court of Delhi. The revenue, represented by the Ld. DR, argued that the AO had rightfully levied interest u/s 234 B due to the short payment of advance tax by the assessee. The Ld. AR for the assessee justified the first appellate order, referring to relevant provisions and court decisions supporting the deletion of interest u/s 234 B.

3. The Tribunal considered the submissions, provisions of Section 209(1)(d) of the Act, and relevant court decisions. It was noted that the liability to pay interest u/s 234 B arises only if advance tax is payable after adjusting for tax deductible at sources. The assessee's obligation to pay advance tax is governed by Sections 208, 209, and 210. The Tribunal found that the assessee had no liability to pay advance tax as the tax on the entire income was required to be deducted at source by payers under Section 195(2). Referring to the decision of the Hon'ble High Court of Delhi, the Tribunal held that the assessee cannot be held liable for interest u/s 234 B due to the payer's default in deducting tax at source.

4. The Tribunal affirmed the first appellate order, stating that the issue raised was covered by the decision of the Hon'ble Jurisdictional High Court. The interest charged u/s 234 B was deleted by the Ld. CIT (A) in line with the court decision. Consequently, the appeal was dismissed, upholding the deletion of interest u/s 234 B by the first appellate authority.