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Director Of Income-Tax (International Taxation) v. Ngc Network Asia Lic
Factual and Procedural Background
The Revenue filed an appeal challenging the Tribunal's decision which upheld the assessee's contention that no interest under section 234B of the Income-tax Act could be charged when the assessee was not liable to pay advance tax. The Tribunal had found that although the assessee was assessable for income, it was not liable to pay advance tax because tax was deductible at source by the payer, M/s. NTIL, albeit not actually deducted. The Revenue argued that the assessee should be liable to pay advance tax on amounts not deducted by the payer under section 195 of the Act.
Legal Issues Presented
- Whether the Tribunal was correct in law in holding that when the assessee is not liable to pay advance tax, no interest under section 234B can be charged.
- Whether failure of the payer to deduct tax at source imposes liability on the assessee to pay advance tax and interest thereon.
Arguments of the Parties
Revenue's Arguments
- The assessee is liable to pay advance tax on amounts not deducted at source by the payer under section 195.
- Failure of the payer to deduct advance tax does not relieve the assessee of the obligation to pay advance tax and interest.
Assessee's Arguments
- The assessee is not liable to pay advance tax because tax is deductible at source by the payer.
- Reliance on the decision in Motorola Inc. v. Deputy CIT where it was held that no interest under section 234B can be charged if the assessee is not liable to pay advance tax.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Motorola Inc. v. Deputy CIT, [2005] 95 ITD 269 (Cal) | No interest under section 234B can be charged if assessee is not liable to pay advance tax. | The Tribunal relied on this decision to uphold the assessee's contention. |
| CIT v. Daimler Benz A.G, [1977] 108 ITR 961 | Non-resident assessee not liable to pay advance tax where tax is deductible at source. | The Full Bench held that assessee would not be liable to pay interest on advance tax not deducted. |
| CIT v. Sedco Forex International Drilling Co. Ltd., [2003] 264 ITR 320 (Uttaranchal) | Interest under section 234B cannot be levied on tax not liable to be deducted at source. | The court agreed with this view and applied it in a subsequent appeal dismissing the Revenue's claim. |
| Director of Income-tax (International Taxation) v. Morgan Corporation Guarantee International Finance Corporation, Income-tax Appeal (L) No. 1796 of 2007 | Application of Sedco Forex ratio regarding non-liability for interest where tax not deducted at source. | The court applied the Sedco Forex principle in dismissing the Revenue's appeal. |
| CIT v. Madras Fertilisers Ltd., [1984] 149 ITR 703 | Amount of tax deductible at source must be considered to determine liability for interest under section 215. | The Madras High Court held levy of interest on assessee was not justified where tax was deductible at source but not deducted. |
Court's Reasoning and Analysis
The court examined the legal framework under the Income-tax Act and relevant precedents. It noted that when the payer is under a statutory obligation to deduct tax at source, the liability to pay advance tax does not shift to the assessee simply because the payer failed to deduct the tax. The court relied on the Full Bench decision in CIT v. Daimler Benz A.G and the Uttaranchal High Court's judgment in CIT v. Sedco Forex International Drilling Co. Ltd., which held that interest under section 234B cannot be imposed on the assessee if the tax was deductible at source but not deducted by the payer. The court also referenced the Madras High Court’s ruling in CIT v. Madras Fertilisers Ltd. supporting the principle that the amount of tax deductible at source is relevant in determining interest liability. Based on these precedents and the facts that the assessee was not liable to pay advance tax due to the payer’s obligation to deduct tax, the court found no basis to impose interest under section 234B on the assessee.
Holding and Implications
The appeal by the Revenue is dismissed.
The direct effect of this decision is that the assessee is not liable to pay interest under section 234B where tax is deductible at source by the payer, even if the payer fails to deduct such tax. The court did not establish any new precedent but reaffirmed existing principles limiting the scope of interest liability under the Income-tax Act in cases involving tax deduction at source obligations.
1. The Revenue has come in appeal on the following question:
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the assessee's contention that when the assessee is not liable to pay advance tax, there is no question of charging interest under section 234B of the Act by relying upon the decision in the case of Motorola Inc. rendered by the hon'ble Special Bench of the Income-tax Appellate Tribunal, ‘A’ Bench, Delhi, reported in Motorola Inc. v. Deputy CIT, [2005] 95 ITD 269 (Cal).”
2. Our attention is invited to the following findings recorded by the Tribunal in its order dated December 12, 2007:
“Thus, in the given case, though the assessee is assessable in respect of the income (though of course and it would not be if its quantum appeal is successful), it is not liable to pay advance tax, since tax is deductible by the payer M/s. NTIL, though not actually deducted by it.”
3. The submission on behalf of the Revenue is that, on failure of the payer to deduct the advance tax, it is the liability of the assessee to pay the advance tax even on the amount which had not been deducted under section 195 of the Income-tax Act.
4. Our attention also has been invited to the observations of the Full Bench of this court under the Indian Income-tax Act, 1922, in the case of CIT v. Daimler Benz A.G, [1977] 108 ITR 961. One of the issues considered was the consequence of failure to pay advance tax by the assessee. The Full Bench held that the assessee was of the opinion that it was under no obligation to pay advance tax under section 18A inasmuch as being a non-resident company its income fell under section 18 of the Act, that is to say an income in respect of which the tax payable was liable to be deducted at source at the time of payment.
5. The learned Full Bench of this court took the view considering the discussion that the assessee would not be liable to pay the interest on the advance tax not so deducted.
6. Under the provisions of the present Act, the issue had come for con-sideration in the case of CIT v. Sedco Forex International Drilling Co. Ltd. reported in [2003] 264 ITR 320 (Uttaranchal). One of the questions was, as to whether interest could be levied on the assessee under section 234B of the Act in respect of tax which was not liable to be deducted at source. A learned Bench of the Uttaranchal High Court, after considering the pro-visions, held as under (page 328):
“Secondly, although section 191 of the Act is not overridden by sections 192, 208 and 209(1)(a)(d) of the Act, the scheme of sections 208 and 209 of the Act indicates that in order to compute advance tax the assessee has to, inter alia, estimate his current income and cal-culate the tax on such income by applying the rates in force. That under section 209(1)(d) the income-tax calculated is to be reduced by the amount of tax which would be deductible at source or collectible at source, which in this case has not been done by the employer company according to the law prevailing for which the assessee cannot be faulted.”
7. Relying on the judgment in Sedco Forex International Drilling Co. Ltd., [2003] 264 ITR 320 (Uttaranchal), a learned Bench of this court was pleased to pass an order dated July 16, 2008 in Income-tax Appeal (L) No. 1796 of 2007 in the case of the Director of Income-tax (International Taxation) v. Morgan Corporation Guarantee International Finance Corporation, by applying the ratio of that judgment.
8. Our attention is also invited to the judgment of the Madras High Court, in the case of CIT v. Madras Fertilisers Ltd. reported in [1984] 149 ITR 703, where the Madras High Court took the view that the amount of tax deduct-ible at source is to be taken into consideration to determine the liability to pay the interest under section 215. In that case, the assessee had not paid advance tax on the interest income. The payer of interest had not deducted the tax. The learned Bench of the Madras High Court was of the view that levy of interest under section 215 on the assessee was not justified.
9. We are in respectful agreement with the view taken in the case of CIT v. Sedco Forex International Drilling Co. Ltd., [2003] 264 ITR 320, by the Uttaranchal High Court. We are clearly of the opinion that when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the payee-assessee.
10. Considering the submissions of both parties and the provisions of law, consequently the appeal is dismissed.
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