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Income Tax Appellate Tribunal, DELHI BENCH: ‘C’ NEW DELHI
Before: MS SUCHITRA KAMBLE & SHRI PRASHANT MAHARISHI
This appeal is filed by the assessee against the order dated 13.01.2015 passed by CIT(A)-42, New Delhi for assessment year 2011-12.
The grounds of appeal are as under :
“1. That the Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the action of the assessing officer in levying interest of Rs.26,94,811 under section 234B while passing impugned assessment order dated 13.01.2015 under section 143(3) read with section 144C of the Income-tax Act, 1961 (‘the Act’).
1.1 That the Commissioner of Income Tax (Appeals) erred on facts and in law in not appreciating that interest under section 234B could not have been levied because the appellant, being a non-resident, was not liable to pay advance tax under the provisions of the Act inasmuch income earned by the appellant was liable for deduction of tax at source by the resident payer. The appellant craves leave to add, amend or vary the above grounds of appeal on or before the date of hearing.”
3. The assessee is a non-resident company incorporated under the laws of Republic of Panama and is engaged in business of exploration and development of oil fields. The return of income was electronically filed declaring income of Rs.21,98,88,472/-. The assessment was completed on 18.07.2013 and the Assessing Officer made disallowance in respect of community development expenses and levied interest u/s 234B, thereby assessing the total income at Rs. 22,19,80,674/-.
Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
The Ld. AR submitted that during the year under consideration, it filed its return of income at Rs. 21,98,88,472/-. The tax liability thereupon was Rs.9,28,58,902 which was paid by way of TDS of Rs. 3,18,76,768 and self assessment tax of Rs. 6,09,82,134. No interest was paid in the return of income. The Assessing Officer, however, passing the assessment order levied interest u/s 234B amounting to Rs. 26,94,811. The Ld. AR submitted that it is an undisputed fact that the assessee is a foreign company and the entire revenue/income of the assessee came from Indian Oil Corporation (AOD, Digboi), as has been mentioned in the assessment order. Thus, it was the obligation and the statutory duty of Indian Oil Corporation to deduct the tax at source u/s 195 before making remittance to the assessee. The assessee had obtained lower tax deduction certificate u/s 197 of the Act from the jurisdictional Assessing Officer at the TDS rate of 5% after following the due procedure, vide order dated 30.06.2010. For this reason the assessee was not obligated to pay advance tax and consequentially the liability u/s 234B of the Act could not be fastened upon the assessee. The Ld. AR relied upon the decisions of the Hon’ble Delhi High Court in case of DIT vs. Jacabs Civil Incorporated 330 ITR 578 (Del.) as well as the DIT (Intl. Tax.) vs. GE Packaged Power Inc. 373 ITR 65 (Del.).
The Ld. DR relied upon the Assessment Order and the order of the CIT(A).
We have heard both the parties and perused all there relevant material available on record. In the present case, it is an undisputed fact that the assessee is a foreign company and the entire revenue/income of the assessee came from Indian Oil Corporation (AOD, Digboi). The Hon’ble Delhi High Court in case of GE Packaged Power Inc. (supra) has considered the case law that of Alcatel Lucent USA Inc. [2014] 2 ITR-OL 276 (Del.) which was referred by the CIT(A) in his order. The question arises here is whether interest should be levied on the assessee under Section 234B on the ground of non-payment of advance tax. The Revenue is relying upon the decision of Alcatel Lucent USA Inc. (supra). As per the scheme of Section 234B, firstly, the obligation imposed upon a payer of a sum to foreign company, requiring a deduction of tax at source under Section 195 and secondly, an obligation is directly imposed upon the assessee, by requiring it to compute its advance tax liability as stipulated under Section 209 of the Act. However, a foreign company assessee that receives remittances that are attributable as business profits to a PE in India, is permitted a tax credit while computing its advance tax liability under Section 209, since a tax is deductible at source under Section 195. As per the provisions of the Act, the assessee was entitled to, in its computation of its advance tax liability, take a tax credit of that amount which was deductible or collectible, regardless of whether amount was actually deducted or collected.
The actual deduction takes place at a later point in time i.e. at the point at which the payment is actually made to the assessee. The Hon’ble Delhi High Court in case of GE Packaged Power Inc. (supra) held as under:
“21. A Court's task is to unravel the legislative intent, if it is not discernable. Where, however, the provisions are clear, the Court's duty is to administer the law in its terms. It is bound to adhere to its precedents; yet its devotion to ITA 352/2014 and connected matters Page 30 a previous holding cannot blind it to the clear terms of the statute, wherever found. If Alcatel Lucent (supra) is correct and is to be applied in all situations, there would be dissimilar and asymmetrical results entirely dependent on the facts presented in each case. It is unclear what would be the outcome where the payee is, in fact, under the bona fide belief that it does not have a PE, or how the payer is to discern that a payee's assertion is intended to defeat the law. This Court therefore, notes that this precise question was addressed in Samsung Electronics (supra) by the Supreme Court, while remitting the matter for reconsideration by the High Court. The Court perceptively held that:
"Hence, apart from Section 9(1), Sections 4, 5, 9, 90, 91 as well as the provisions of DTAA are also relevant, while applying tax deduction at source provisions. Reference to ITO (TDS) under Section 195(2) or 195(3) either by the non-resident or by the resident payer is to avoid any future hassles for both resident as well as non resident. In our view, Sections 195(2) and 195(3) are safeguards. The said provisions are of practical importance. This reasoning of ours is based on the decision of this Court in Transmission Corporation (supra) in which this safeguard. From this it follows that where a person responsible for deduction is fairly certain then he can make his own determination as to whether the tax was deductible at source and, if so, what should be the amount thereof."
This Court, therefore, holds that Jacabs (supra) applies in such situations; Alcatel Lucent (supra) can be explained as a decision turning upon its facts; its seemingly wide observations, limited to the circumstances of the case. This Court, therefore, holds that the view taken by ITAT was correct; the primary liability of deducting tax (for the period concerned, since the law has undergone a change after the Finance Act, 2012) is that of ITA 352/2014 and connected matters Page 31 the payer. The payer will be an assessee in default, on failure to discharge the obligation to deduct tax, under Section 201 of the Act.
For the above reasons, this Court finds that no interest is leviable on the respondent assessees under Section 234B, even though they filed returns declaring NIL income at the stage of reassessment. The payers were obliged to determine whether the assessees were liable to tax under Section 195(1), and to what extent, by taking recourse to the mechanism provided in Section 195(2) of the Act. The failure of the payers to do so does not leave the Revenue without remedy; the payer may be regarded an assessee-in-default under Section 201, and the consequences delineated in that provision will visit the payer. The appeal of the Revenue is accordingly dismissed without any order as to costs.”
Thus, in the present case, the ratio applies as the Assessment Year involved is 2011-12 which is prior to the amendment. Therefore, no interest is leviable on the assessee under Section 234B, despite filing the returns declaring Nil income. Hence, the CIT (A) as well as the Assessing Officer were not right in levying the interest under Section 234B. The appeal of the assessee is allowed.
In result, appeal of the assessee is allowed.
Order pronounced in the Open Court on 11th October, 2019.