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TMI Blog2011 (4) TMI 886X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of that case were that the assessee M/s. Tide Water Marine International Inc. was a non-resident foreign company and was engaged by another non-resident company M/s. Hundai Heavy Industries Co. Ltd. in the business of exploration and production of mineral oils. The employer, M/s. Hundai Heavy Industries Co. Ltd. did not deduct the tax at source from the income of the asses-see. The Assessing Officer, while assessing the tax of the assessee on the income shown in its return, directed that interest would be charged under section 234B of the Act, since advance tax was not paid. The assessee, being aggrieved, filed an appeal which was dismissed and thereafter filed a second appeal before the Income-tax Appellate Tribunal, who allowed the appeal holding that the interest was not payable by the assessee under section 234B of the Act as the assessee himself was not liable to deduct the tax at source in order to pay advance tax under section 208 of the Act. The Income-tax Department, being aggrieved by the order of the Tribunal, filed an appeal under section 260A of the Income-tax Act before the High Court. The High Court dismissed the appeal and affirmed the order of the Tribunal holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Tide Water Marine International Inc. reported in [2008] (2) U.D. 84; [2009] 309 ITR 85 (Uttarakhand), where it has been held that for failure on the part of the employer to deduct tax, interest liability under section 234B does not accrue. According to us, if the assessee is liable to be taxed in India, then it is his obligation to pay advance tax and, if he fails to pay advance tax, he is liable to pay interest thereon under section 234B of the Act. 4. Our such view, being contrary to what has been expressed by this court in CIT v. Tide Water Marine International Inc. [2009] 309 ITR 85 (Uttarakhand), we feel that the matters should be referred to a Larger Bench and, accordingly, we move the hon'ble Chief Justice for constitution thereof." 4. In the light of the aforesaid decision, the matter has now come up before this Full Bench. 5. All the aforesaid appeals raise the same question of law. For facility and in order to appreciate the controversy involved in these appeals, the facts of Income Tax Appeal No. 26 of 2009 (Director of Income-tax and another v. Maersk Co. Ltd.) are being taken into consideration. 6. M/s. Maersk Co. Ltd. (for short "MCL" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that section 234B of the Act was applicable to income falling under the head "Salaries". The learned counsel submitted that under section 191 of the Act, in case of a failure to deduct tax at source by the employer, the tax had to be paid by the assessee and, in case of a short fall in the payment of advance tax by the assessee, interest was liable to be paid under section 234B of the Act. The learned counsel submitted that even where the employer did not deduct the tax at source under section 192 of the Act, the assessee still incurred the liability to pay interest under section 234B of the Act. The learned counsel further submitted that there was no bar in imposing interest simultaneously on the employer under section 201(1A) or on the assessee under section 234B and that the Department had an option to recover interest either from the employer or from the assessee. The learned counsel further submitted that the provisions of section 234B are mandatory and, therefore, interest under all circumstances was liable to be paid by the assessee. 9. On the other hand, Mr. Porus Kaka, the learned senior counsel for the assessee contended that the advance tax is required to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Chapter. Section 191 of the Act provides that in the case of income in respect of which a provision is not made under this Chapter for deducting income-tax at the time of payment and, in any case, where income-tax has not been deducted in accordance with the provisions of this Chapter, income-tax shall be payable by the assessee directly. 13. The provisions relating to deduction of tax at source are contained in Part B of Chapter XVII from sections 192 to 206B of the Act, whereas the provisions regarding advance payment of tax are contained in Part C of Chapter XVII from sections 207 to 219 of the Act. Section 2(1) of the Act defines advance tax as advance tax payable in accordance with the provisions of Chapter XVII-C. 14. Section 192(1) of the Act provides that any person responsible for paying any income chargeable under the head "Salaries" shall at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the asses-see under this head for that financial year. 15. From the aforesaid, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atute has taken care of the liability for the assessee under section 191 of the Act to pay the tax deductible at source directly if it has not been deducted by the person responsible for making such deduction. The loss of interest on the amount of tax suffered by the Revenue would be compensated by the person responsible for making such deduction, namely, in the present case, by the employer as provided under section 201(1A) of the Act. 19. The provisions relating to advance payment of tax are contained in Part C of Chapter XVII of the Act. Under section 207 of the Act, the tax shall be payable in advance during a financial year in accordance with the provisions of sections 208 to 219 of the Act, in respect of the total income of the assessee which would be chargeable to tax. Under section 208 of the Act, advance tax is payable during the financial year where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this Chapter is Rs. 5,000 or more. The amount of advance tax payable by an assessee in the financial year shall be computed in accordance with the method provided under section 209 of the Act. While computi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en separately dealt with under the Income-tax Act. When a regular assessment is made and the assessee is found liable to pay more tax than the advance tax paid by him including the tax deducted at source, his liability to pay interest would arise under section 220(2) of the Act only after an issuance of a notice under section 156 of the Act. The liability to pay the interest under section 234B of the Act arises only if the assessee who is liable to pay advance tax under section 208 of the Act has failed to pay such tax or where the advance tax paid by the assessee under the provisions of section 210 is less than 90 per cent. of the assessed tax. Advance tax on the salary of an employee is not pay-able under section 208 of the Act by the said assessee inasmuch as the obligation to deduct the tax at source is upon the employer under section 192 of the Act. A statutory duty is imposed upon the employer to deduct the tax at source for paying any income chargeable under the head "Salaries" under section 192 of the Act. The assessee cannot foresee that the tax deductible under a statutory duty imposed upon the employer would not be so deducted. The employee assessee proceeds on an assump ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 395 (Uttaranchal) and another Division Bench of this court relying upon the decision in Sedco Forex International Drilling Co. Ltd. [2003] 264 ITR 320 (Uttaranchal) reiterated and held that the Income-tax Appellate Tribunal was justified in holding that interest under section 234B of the Act could not be charged since the entire income of the assessee was subject to TDS whereas interest was chargeable on the assessed tax as defined by Explanation 1 under section 234B of the Act. 27. In CIT v. Madras Fertilisers Ltd. [1984] 149 ITR 703 (Mad), a Division Bench of the Madras High Court held that whenever there was a possibility of deduction of tax at source, the person who had failed to deduct the tax at source was liable to pay interest and not the assessee as otherwise there would be charging of interest twice on payment of tax in relation to the same income. 28. In CIT v. Ranoli Investment P. Ltd. [1999] 235 ITR 433 (Guj), a Division Bench of the Gujarat High Court also came to the same conclusion, namely, that the liability to pay interest is on the payer for non-deduction of tax under section 215 of the Act and that the assessee was not liable to pay interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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