DIRECTOR OF INCOME TAX, NEW DELHI vs. M/S MITSUBISHI CORPORATION

CIVIL APPEAL No. 1262/2016Supreme Court[2021] 7 S.C.R. 75017 September 2021Bench: 2 JudgesAuthor: L. NAGESWARA RAO, ANIRUDDHA BOSE SUPREME COURT REPORTS18 pages
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What were the facts?

The assessee, M/s Mitsubishi Corporation, a non-resident Japanese company with Indian operations, was issued a notice under Section 143(2) for assessment years 1998-99 to 2004-05. The assessment order held a portion of its income taxable in India. The assessee appealed only the levy of interest under Section 234B. The CIT dismissed the appeals, but the ITAT allowed them, holding the assessee not liable for Section 234B interest when tax was deductible at source. The High Court upheld the ITAT's decision. The Revenue appealed to the Supreme Court. The Supreme Court also considered appeals concerning Alcatel Lucent USA, Inc. and Alcatel Lucent World Services Inc. for assessment years 2004-05 to 2008-09, where the ITAT had also ruled in favour of the assessees regarding Section 234B interest, but the Delhi High Court had reversed this decision.

What did the Supreme Court hold?

The Supreme Court held that Section 234B cannot be read in isolation and must be construed in conjunction with Section 209 of the Income Tax Act, 1961. The Court reasoned that the liability for interest under Section 234B arises from a default in paying advance tax. While the definition of 'assessed tax' in Section 234B refers to tax deducted or collected at source, the preconditions for levying interest, namely, the liability to pay advance tax and its non-payment or short payment, must be satisfied. Therefore, Section 209, which governs the computation of advance tax, is crucial for interpreting Section 234B. The Court noted that the proviso to Section 209(1)(d), inserted by the Finance Act, 2012, clarified that an assessee receiving income without deduction of tax is liable to pay advance tax. However, for assessment years prior to FY 2012-13, the intended effect of Section 209(1)(d) was to allow the assessee to reduce the amount of income-tax deductible or collectible at source when calculating its advance tax liability. Consequently, the Respondent (Mitsubishi Corporation) could not be held to have defaulted in its advance tax liability. The Court upheld the view of the High Court and ITAT in this regard, stating that the Revenue is not remediless and can proceed against the payer who defaulted in deducting tax at source. The appeals filed by the Revenue were dismissed. The Court also noted that the position changed from FY 2012-13 onwards due to the proviso to Section 209(1)(d). The appeals concerning Alcatel Lucent were allowed, overturning the High Court's decision, based on the reasoning in the Mitsubishi Corporation case.

What were the issues?

1. Whether Section 234B of the Income Tax Act, 1961, concerning interest for default in payment of advance tax, can be read in isolation, or must be construed in conjunction with Section 209 of the Act, which deals with the computation of advance tax payable by an assessee? Assessee's contention: Section 234B cannot be read in isolation and must be considered in light of Section 209 of the Act, particularly the proviso to Section 209(1)(d) as inserted by the Finance Act, 2012. For assessment years prior to FY 2012-13, the assessee is entitled to reduce the amount of income-tax deductible or collectible at source when computing its advance tax liability. Revenue's contention: Section 234B should be read in isolation, irrespective of other provisions like Section 209. The assessee is liable for interest under Section 234B if advance tax is not paid or is short paid, regardless of whether tax was deductible at source.

Which sections of the Income-tax Act were involved?

Section 143(2),Section 234B,Section 209,Section 209(1)(d),Section 190,Section 201,Section 234A,Section 234C,Section 195,Section 200,Section 208,Section 210,Section 260A

AI-generated summary — verify with the full judgment below

A B C D E F G H 750 SUPREME COURT REPORTS [2021] 7 S.C.R. DIRECTOR OF INCOME TAX, NEW DELHI v. M/s MITSUBISHI CORPORATION (Civil Appeal No. 1262 of 2016) SEPTEMBER 17, 2021 [L. NAGESWARA RAO AND ANIRUDDHA BOSE, JJ.] Income Tax Act, 1961 – ss.190, 201, 209 and 234B – Proviso to s.209(1)(d), inserted by the Finance Act, 2012 – Interpretation of s.209 (1)(d) – The Respondent- Assessee is a non-resident company incorporated in Japan, with operations in India – Notice was issued to the Respondent-Assessee u/s. 143 (2) of the Act on 12.10.2006 – An assessment order was passed for the years 1998- 99 to 2004-05 holding that a portion of the Assessee’s income was attributable to its activities in India and was therefore liable to be taxed in India, under Articles 4, 5 and 6 of the Double Taxation Avoidance Agreement between India and Japan, read with the provisions of the Act – The Respondent- Assessee filed appeals before the Commissioner of Income-Tax (Appeals) (CIT) only with respect to levy of interest u/s. 234B of the Act – CIT dismissed the appeals – Respondent filed appeal before Income Tax Appellate Tribunal (ITAT) – While allowing the appeal, the ITAT hel

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