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Facts
The Revenue appealed against an order deleting interest charged under Section 234B. The Assessing Officer (AO) had levied interest, but the CIT(A) deleted it relying on Supreme Court judgments. The assessee, a non-resident, had income from circuit/advertising rights of Formula One Indian Grand Prix, where tax was deductible at source under Section 195. The AO issued a rectification order under Section 154 to levy interest under Section 234B for non-payment of advance tax.
Held
The Tribunal held that for assessment years prior to AY 2013-14, interest under Section 234B is not applicable if the income was subject to tax deductible at source. This is because Section 209(1)(d) allows reducing the advance tax liability by the amount deductible at source. The Supreme Court in Mitsubishi Corporation's case has settled this issue. Therefore, the AO's rectification order was not sustainable.
Key Issues
Whether interest under Section 234B is leviable on a non-resident assessee for failure to pay advance tax when the income is subject to tax deduction at source under Section 195, for assessment years prior to 2013-14.
Sections Cited
234B, 147, 148, 234A, 209, 195, 154, 208, 210, 207
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH: ‘B’: NEW DELHI
Before: SHRI SHAMIM YAHYA & SHRI SUDHIR PAREEK
The instant appeal has been preferred by the Revenue against the order of Ld. Commissioner of Income Tax (Appeal), CIT(A), Noida, [in short (Ld. CIT(A)] dated 16.08.2024 for Assessment Year 2012-13.
1.1. The Revenue has raised the following grounds of appeal: “
1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the interest charged u/s 234B of the Income Tax Act, 1961 without taking into consideration the ITA No.- 5092/Del/2024 Formula One Marke�ng II Limited fact that the asssessee was in default for payment of advance tax even after being aware of the fact that no TDS was deducted on the income received by it.
2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the interest charged us 2348 of the Act by relying upon Hon'ble Supreme Court's decision in case of Mitsubishi Corporation ignoring that the facts of the present case are not identical to that of the relied upon case. Here, the assessee is in default in tiling its ROl within stipulated time.
3. The Appellant craves leave to add, amend, alter vary and / or withdraw any or all the above grounds of Appeal.”
Heard rival submissions and carefully scanned the material available on record.
In the course of hearing, the Ld. DR submitted that the Ld. CIT(A) erroneously deleted the interest charged u/s 234B of the Income Tax Act, 1961 (“the Act”, for short), without taking into consideration the fact that the assessee / respondent was in default for payment of advance tax even after being aware of the fact that no TDS was deducted on the income received by it and also erroneously relied upon the judgement of Hon’ble Supreme Court in the case of Mitsubishi Corporation [2021] 130 taxmann.com 276(SC), by ignoring that the facts of the present case are not identical to that of the relied upon case.
ITA No.- 5092/Del/2024 Formula One Marke�ng II Limited 4. The Ld. Counsel submitted that the Formula One Marketing II Limited (earlier Beta Prema 2 Limited) ('Assessee') is a company incorporated and a tax resident of the United Kingdom ('UK') for the purpose of the Double Taxation Avoidance Agreement between India and UK ('DTAA') and the Assessee had a right to exploit the circuit/advertising rights of the Formula One Indian Grand Prix ('Event') which was hosted and staged in India by Jaypee Sports International Limited ('JSIL' or the 'Promoter'), an Indian company.
4.1 For the year under consideration, the Assessing Officer ('Learned AO') issued a notice under Section 148 of the Act to Assessee on 6 December 2017. In response to the notice, Assessee filed a 'Nil' return of income under Section 148 of the Act on 5 January 2018. The Learned AO passed the draft assessment order on 27 February 2018 and computed taxable income and tax liability (including interest), and the Assessee accepted the draft assessment order and accordingly, the Learned AO passed the final assessment order on 21 March 2018. Further, while computing the final tax liability for the year under consideration, the Learned AO applied interest under Section 234A of the Act for delay in filing the return ITA No.- 5092/Del/2024 Formula One Marke�ng II Limited of income and categorically did not apply interest under Section 234B of the Act.
4.2 Further, the Learned AO issued a notice dated 19 October 2019 under Section 154 of the Act proposing to, inter alia, levy interest under Section 234B of the Act since the assessee had failed to pay advance tax as provided under Section 209 of the Act.
4.3 In response to the above notice, the Assessee filed a detailed response on 4 November 2019, explaining that (a) rectification under Section 154 of the Act is bad in law as there is no error apparent from record and (b) interest under Section 234B of the Act is not leviable since the entire income of the Assessee was deductible at source under Section 195 of the Act. In this regard, the assessee relied on the Judgments of Uttarakhand High Court in case of CIT vs Tide Water Marine Intl Inc (309 ITR 85) and Bombay High Court in case of DIT vs. NGC Network Asia LLC (313 ITR 187) and Delhi High Court in case of DIT vs. Mitsubishi Corporation (330 ITR 578).
ITA No.- 5092/Del/2024 Formula One Marke�ng II Limited 4.4 However, the Learned AO disregarding the binding judgments of High Courts referred above, passed the rectification order dated 15 November 2019 under Section 154 of the Act ('Rectification order'), inter alia, levying interest under Section 234B of the Act for failure to pay advance tax on the income assessed to tax.
4.5 Further, the law is settled by the judgment of the Hon'ble Supreme Court in the case of Mitsubishi Corporation (supra), which has decided upon this issue and accordingly, levy of interest under Section 234B of the Act is to be deleted and the order passed by the Assessing Officer under Section 154 of the Act is not sustainable.
The Ld. CIT(A) observed in impugned order that it is a settled law by virtue of the Hon’ble Supreme Court Judgment that interest u/s 234B is not applicable to the assessee and accordingly the interest levied by the AO u/s 234B is incorrect. Relevant extract of the impugned order is reproduced as under:
“ 5.3.5 The non-applicability of interest u/s 234B of the Act has now been settled by the Hon'ble Supreme Court in the case of Mitsubishi Corporation (130 taxmann.com 276) on 17.09.2021 wherein, it has been held that interest u/s 234B is not applicable in the hands of the recipient of income (as relevant for years prior to AY 2013-14), if the taxes were considered as deductible at source and hence such income should be reduced while computing the advance tax liability. An extract from the SC ruling is reproduced as under: 5 ITA No.- 5092/Del/2024 Formula One Marke�ng II Limited "13. The main point argued on behalf of the Revenue relates to the interpretation of section 209(1)(d) of the Act, with stress on the words "deductible or collectible at source". The contention of the Revenue is based on the fact that an assessee, who has received any payment without the payer deducting tax on such payment, cannot be permitted to escape liability in payment of advance tax and consequent interest for such non-payment under sections 191 and 234B of the Act. It was contended that as all the Assesses in the matters before us were fully aware of the receipt of amounts without deduction of taxes at source, they should not be allowed to then rely on section 201 of the Act to reduce their advance tax liability. In this connection, it was submitted by the Revenue that the expression "would be deductible or collectible" would not include amounts, which had not been deducted at the time of payment and, in fact, were paid to the assessee by the payer. …… 20. We do not find force in the contention of the Revenue that section 2348 should be read in isolation without reference to the other provisions of Chapter XVII. The liability for payment of interest as provided in section 2348 is for default in payment of advance tax. While the definition of "assessed tax" under section 234B pertains to tax deducted or collected at source, the pre- conditions of Section 2348, viz. liability to pay advance tax and non-payment or short payment of such tax, have to be satisfied. after which interest can be levied taking into account the assessed tax. Therefore, section 209 of the Act which relates to the computation of advance tax payable by the assessee cannot be ignored while construing the contents of section 234B. As we have already held that prior to the financial year 2012-13, the amount of income-tax which is deductible or collectible at source can be reduced by the assessee while calculating advance tax, the Respondent cannot be held to have defaulted in payment of its advance tax liability."
5.3.6 It is now a settled law by virtue of the Hon'ble Supreme Court judgement that interest u/s 234B is not applicable to the Appellant. Accordingly, the interest levied by the AO u/s 234B in the impugned Rectification Order, is incorrect and consequently. the entire demand of Rs. 11,33,80,754/- is liable to be deleted.” 6 ITA No.- 5092/Del/2024 Formula One Marke�ng II Limited
The Ld. AR further submitted that interest under Section 234B of the Act is not leviable on the income on which tax is deductible under the provisions of the Act.
6.1 The provisions of Section 234B of the Act provide that where an assessee is liable to pay advance tax under Section 208 of the Act for a financial year, and has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of Section 210 of the Act is less than 90% of the assessed tax, the assessee would be liable to pay simple interest for the shortfall in payment of the advance tax. The provision of Section 234B(1) of the Act reproduced below:
234B. (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest...
(Emphasis supplied...
6.2 He further submitted that the obligation to pay advance tax is imposed on an assessee under Section 207 and 208 of the Act. The provisions of Section 209 and 210 of the Act specify the ITA No.- 5092/Del/2024 Formula One Marke�ng II Limited computation mechanism and payment milestones of advance tax respectively. For the purpose of present appeal, the provisions of Section 209 of the Act are relevant to be considered, which provide that in order to compute advance tax, the assessee has to, inter- alia, estimate his current income and calculate the tax on such income by applying the rates in force. Further, clause (d) of sub- section (1) of Section 209 provides that the income-tax calculated is to be reduced by the amount of tax which would be deductible at source under the provisions of the Act during the said financial year. The provision of Section 209(1) of the Act, is reproduced as under:
209. The amount of advance tax payable by an assessee in the financial year shall, subject to the provisions of sub-sections (2) and (3), be computed as follows, namely:- (a) where the calculation is made by the assessee for the purposes of payment of advance tax under sub-section (1) or sub-section (2) or sub-section (5) or sub-section (6) of section 210, he shall first estimate his current income and income-tax thereon shall be calculated at the rates in force in the financial year; (b)…………. (c)…………. (d) the income-tax calculated under clause (a) or clause (b) or clause (c) shall, in each case, be reduced by the amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income (as computed before allowing any deductions admissible under this Act) which has been taken into account in computing the current income or, as the ITA No.- 5092/Del/2024 Formula One Marke�ng II Limited case may be, the total income aforesaid; and the amount of income- tax as so reduced shall be the advance tax payable.
(Emphasis supplied) 6.3 As can be seen from the above, the provisions of Section 209(1)(d) specifically provide that the income on which tax is deductible under the provisions of Act is required to be reduced for the purpose of computing liability to pay advance tax.
6.4 Moreover, he submitted that the Assessee is a non-resident under the provisions of the Act and therefore, its entire income is subject to tax deduction at source under Section 195 of the Act. Therefore, in view of the provisions of Section 209(1)(d) of the Act, there was no liability on the Assessee to pay advance tax. Consequently, there was no default on the part of the Assessee and hence, no interest under Section 234B of the Act was leviable on the income assessed by the Learned AΟ.
6.5 In this regard, reliance is also placed on the judgment of the Hon'ble Supreme Court in the case of DIT vs. Mitsubishi Corporation [2021] (438 ITR 174) wherein identical issue arose before the Supreme Court as to whether a non-resident assessee is liable to pay interest under Section 234B of the Act when its income is subject to ITA No.- 5092/Del/2024 Formula One Marke�ng II Limited tax deduction at source under Section 195 of the Act. The Supreme Court relying on the provisions of Section 209(1)(d) of the Act decided the issue in favour of the assessee and rejected the contention of the Revenue that interest under Section 234B of the Act is leviable on a non-resident assessee for failure to pay advance tax. The relevant portion of the judgment is extracted as under:
"19. The dispute relating to the interpretation of the words "would be deductible or collectible in Section 209(1)(d) of the Act can be resolved by referring to the proviso to section 209(1)(d). which was inserted by the Finance Act, 2012. The proviso makes it clear that the assessee cannot reduce the amounts of income-tax paid to it by the payer without deduction, while computing liability for advance tax. The memorandum explaining the provisions of the Finance Bill, 2012 provides necessary context that the amendment was warranted due to the judgments of courts, interpreting section 209(1)(d) of the Act to permit computation of advance tax by the assessee by reducing the amount of income-tax which is deductible or collectible during the financial year. If the construction of the words would be deductible or collectible" as placed by the Revenue is accepted, the amendment made to section 209(1)(d) by insertion of the proviso would be meaningless and an exercise in futility. To give the intended effect to the proviso, section 209(1)(d) of the Act has to be understood to entitle the assessee, for all assessments prior to the financial year 2012-13, to reduce the amount of income-tax which would be deductible or collectible, in computation of its advance tax liability, notwithstanding the fact that the assessee has received the full amount without deduction.
We do not find force in the contention of the Revenue that section 234B should be read in isolation without reference to the other provisions of Chapter XVII. The liability for payment of interest as provided in section 234B is for default in payment of advance tax. While the definition of "assessed tax" under section 234B pertains to tax deducted or collected at source, the pre-conditions of Section 234B, viz, liability to pay advance tax and non-payment or short payment of such tax, have to be satisfied, after which interest can be levied taking into account the assessed tax. Therefore, section 209 of the Act which 10 ITA No.- 5092/Del/2024 Formula One Marke�ng II Limited relates to the 234B. As we have already held that prior to the financial year 2012-13, the amount of income-tax which is deductible or collectible at source can be reduced by the assessee while calculating advance tax, the Respondent cannot be held to have defaulted in payment of its advance tax liability. We uphold the view adopted in the impugned judgement of the Delhi High Court in Civil Appeal No. 1262 of 2016 as well as by the Madras High Court in the Madras Fertilizers Ltd. case (supra), that the Revenue is not remediless and there are provisions in the Act enabling the Revenue to proceed against the payer who has defaulted in deducting tax at source. There is no doubt that the position has changed since the financial year 2012-13, in view of the proviso to section 209(1)(d), pursuant to which if the assessee receives any amount, including the tax deductible at source on such amount, the assessee cannot reduce such tax while computing its advance tax liability."
6.6 While arriving at the aforesaid conclusion, the Supreme Court also clarified that the proviso inserted by Financial Act, 2012 which now provides that an assessee is required to pay advance tax under Section 208 of the Act even if the income is subject to tax deduction at source, is applicable prospectively from the A.Y. 2013-14 (F.Y. 2012-13) and the years prior to the same are not affected by the amendment. The Assessee submits that the appeal pertains to A.Y. 2012-13 (F.Y. 2011-12) and therefore, the judgment of Supreme Court is squarely applicable to the present case.
During the course of the hearing, the Learned AR submitted the judgment relied upon by the Ld. DR the judgment in the case of CIT vs. Sun Engineering Works P Ltd. [1992] (198 ITR 297), is not ITA No.- 5092/Del/2024 Formula One Marke�ng II Limited applicable to the present case. As it this Judgment does not deal with the provisions of Section 234B of the Act and deals with the scope of reassessment proceedings under Section 147 of the Act. The question before the Supreme Court was whether an assessee is entitled to seek a review of claims which have already been decided by the Assessing Officer in the original assessment proceeding. The Supreme Court after considering the provision of Section 147 of the Act held that the reassessment proceeding is initiated for benefit of the Revenue and an assessee is not allowed to reagitate the issues already decided in the earlier proceeding.
7.1 Likewise, another judgment relied upon in the case of CIT vs Insilco Ltd [2010] (321 ITR 105) not applicable in this case, as per submissions of the Ld. AR as does not deal with interpretation of Section 209 read with Section 234B of the Act. In this case, the Hon'ble Delhi High Court has upheld levy of interest under Section 234B of the Act in a completely different fact pattern wherein the assessee did not pay advance tax as required as per the provisions of the Act on the ground that the interest income received by it on certain deposits was not chargeable to tax under the head 'Income ITA No.- 5092/Del/2024 Formula One Marke�ng II Limited from Other Sources' and claim certain deduction on account of the interest paid. The Revenue rejected the claim of the assessee which was upheld by the Tribunal. Thereafter, the question arose before the High Court whether the interest under Section 234B of Act is leviable on such income which has been held as taxable by authorities and no advance tax has been paid on the same by the assessee on the basis of a bonafide belief. The High Court rejected the argument of the assessee and held that the interest under Section 234B of the Act is leviable even if the default on the part of the assessee is bonafide.
The Ld. Counsel for the assessee submitted that at the time of proposing rectification in October 2019, the issue on levy of interest under Section 234B of the Act in the case of a non-resident, where the income was subject to tax deduction of at source was decided by Bombay High Court in case of DIT vs. NGC Network Asia LLC (313 ITR 187) and Delhi High Court in case of CIT vs. Mitsubishi Corporation (330 ITR 578). In view of the above, the Ld. AO did not have the jurisdiction to rectify the assessment order under Section 154 of the Act.
ITA No.- 5092/Del/2024 Formula One Marke�ng II Limited 8.1 The provisions of Section 154 of the Act apply only when there is a "mistake apparent from record". In the instant case, there were two favourable decisions of Bombay and Delhi High Court therefore, there was no "mistake apparent from record" within the meaning of Section 154 of the Act which was capable of being rectified. Therefore, on this count also the order passed by the Learned AO under Section 154 of the Act is liable to be quashed.
On going discussion, and submissions advanced by both the parties, lead us to draw inference that there is no ground exist to interfere, as the Ld. CIT(A) relied upon the judgment passed by the Hon’ble Supreme Court in the case of Mitsubishi Corporation (supra), which squarely covers the issue and there is no substance in the appeal and the same is liable to be dismissed.
Consequently, appeal of Revenue is dismissed.