Director Of Income Tax international Taxation-ii New Delhi vs. M/s Gil Mauritius Holding Ltd

Facts

The Revenue appealed against an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2006-07. The assessee, GIL Mauritius Holding Ltd., a Mauritian company, claimed NIL income and benefits under the India-Mauritius Double Taxation Avoidance Agreement, stating its services related to mineral oil prospecting in India were not taxable in India due to the absence of a Permanent Establishment. The Assessing Officer rejected this, levied tax on estimated profits of 25% of Rs. 50,01,62,027/-, amounting to Rs. 12,50,40,507/-, and also imposed interest under Section 234B of Rs. 1,72,56,327/-. The CIT(A) upheld the tax levy but deleted the Section 234B interest, following a High Court Full Bench decision. The Revenue appealed to the ITAT against the deletion of interest.

Held

The High Court held that the Tribunal erred in dismissing the Revenue's appeal and following the decision in Director of Income-Tax v. Maersk Co. Ltd. (334 ITR 79). The Court clarified that the Maersk judgment, which dealt with interest on non-deduction of tax at source on salaries, was not applicable to the present case, which concerned interest under Section 234B for failure to pay advance tax. However, the Court found considerable force in the assessee's submission that their appeal (ITA No. 2354/Del/2012) had been allowed by the Tribunal on 22.10.2018, setting aside the tax levy itself by holding no Permanent Establishment existed. Therefore, if the tax liability was set aside, the question of interest for non-payment of advance tax would not arise. The Court noted that the Revenue had appealed the Tribunal's order in ITA No. 2354/Del/2012. Consequently, the Court disposed of the present appeal, making it clear that the assessee's liability to pay interest under Section 234B would be subject to the outcome of the Revenue's pending appeal (Income Tax Appeal No. 7 of 2019).

Key Issues

1. Whether the Tribunal erred in dismissing the Revenue's appeal and holding that the interest under Section 234B was not leviable, by following the High Court's Full Bench decision in Director of Income-Tax v. Maersk Co. Ltd. (334 ITR 79) concerning interest on non-deduction of tax at source, when the present case pertains to interest for non-payment of advance tax under Sections 208 and 210 of the Income Tax Act. Assessee's Contention: The assessee argued that their appeal against the tax levy (ITA No. 2354/Del/2012) was allowed by the Tribunal on 22.10.2018, setting aside the orders of the Assessing Officer and CIT(A) by holding that the assessee did not have a Permanent Establishment in India. Consequently, since the very levy of tax was set aside, the question of paying interest for non-payment of advance tax did not arise. Revenue's Contention: The Revenue contended that the Tribunal erred in applying the Maersk Co. Ltd. judgment to the facts of the present case, as Maersk dealt with interest on non-deduction of tax at source, whereas this case involved interest for non-payment of advance tax.