MR. PATRICK VIELLARD,NEW DELHI vs. DDIT, NEW DELHI

The facts in brief are that the assessee is a non resident foreign national of France who was deriving salary in India in terms of his employment in India. The salary was subjected to TDS in India. Accordingly, assessee has filed his return of income at Rs. 49,02,787/- which was duly processed u/s 143(1). Later on, scrutiny proceedings were initiated vide notice issued u/s 143(2) and during the course of such proceedings AO observed that assessee has failed to disclose reimbursement of rent by the employer during the year amounting to Rs. 26,10,000/- and also failed to disclose interest income of Rs. 35,484/-. Both the amount was thus added to the income of the assessee and assessment was completed at Rs. 75,48,270/-. However in the assessment order there was no direction for charging of interest u/s 234B or 234C.

In the first appeal before CIT (A), against the not only against the assessment order for A.Y.2009-10, but also against similar addition made in A.Y.2010-11, it was contended that for the assessment year 2009-10, assessee himself had represented the case. However, during the course of assessment proceedings for the A.Y. 2010-11 he has left India permanently after completing his assignment in India and returned back to France. It was further submitted that AO has added the perquisite of house rent without taking in to account the actual allowance and the rent paid in excess of 10% of the salary or 50% of the salary as per the provisions of section 10 (13A) read with rule 2A which prescribed the limits for the purpose of house rent allowance. Statement showing taxable value of perquisite value of two year was also filed. The assessee also filed the calculation of the allowance which has been dealt and incorporated at page 6 to 8 of the appellate order. Ld. CIT(A) held that perquisite value of accommodation in India as calculated in accordance with 10(13A) r.w. rule 2A would get substantially reduce and accordingly, the addition of Rs. 26,10,000/- was scaled down to Rs. 4,90,278/-.

However with regard to addition on account of interest made by the AO was confirmed. Before us the quantum of addition sustained has not been challenged.

After hearing both the parties and on perusal of the impugned order, we find that only issue raised before us is levy of interest u/s 234B and 234C. One of the main contentions of the Ld. Counsel before us was that assessee being a foreign national and his entire salary and perquisite were subjected to TDS and hence he had filed the return of income. Even the disallowance of HRA made by the AO was against the provision of law and rules, which is evident from the fact that the Ld. CIT (A) has already scaled down the addition. The interest in case of assessee could not have been charged as there was no direction by the AO or Ld. CIT (A) for charging of such interest. On the other hand, Ld. DR on behalf of the revenue submitted that levy of interest u/s 234B and 234C is mandatory even if AO has not given any direction for charging of such interest.

First of all it is noticed that AO has made the addition of reimbursement of rent without verifying the facts, as to how much assessee was paying the rent and how much perquisite could have been taxed. The actual working of perquisite value of HRA as per the relevant provisions works out in the following manner:-

Thus, the entire basis for making the addition by the AO itself was erroneous. Whence assessee is a foreign national and a non resident whose salary income is subjected to TDS by the employer in India, then he was not liable to pay any advance tax in terms of section 209; and therefore, interest u/s 234B and 234C could not be charged. Similarly for the interest income earned by the non resident, the same was not liable for TDS unless it is held that same is chargeable under the Act. The provision of section 195 which provides for deduction of tax at source in case of non-resident by a person responsible for paying to such non resident carves out exception for income chargeable under the head “salaries”. Thus, the interest charged u/s 234B and 235C in the case of the present assessee is hereby deleted.

In the result appeal of the assessee is allowed.