INCOME TAX OFFICER, CHENNAI vs. ROHITKUMAR NEMCHAND PIPARIA, CHENNAI

As is evident, the sole issue that arises for our consideration is computation of interest u/s 234B. The provisions of Sec.234B obligate an assessee to pay advance tax in installments in prescribe manner. The default in the same would attract interest of 1% for every month or part of every month on the outstanding advance tax installments. Though the Ld. AO levied the same in the assessment order, Ld. CIT(A) deleted the same and hence, the grievance of the revenue. 1.3 The Ld. CIT-DR supported the levy of interest and submitted that the same was mandatory in nature whereas Ld. AR advanced arguments by citing various judicial pronouncements. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. The assessee being non-resident individual filed his return of income for this year on 05-02-2009 declaring income of Rs.3.10 Lacs which was subjected to scrutiny assessment. Assessment Proceedings 2.1 An assessment was framed against the assessee u/s 143(3) r.w.s. 147 on 25-02-2016 wherein the issue of chargeability of Short-Term Capital Gains (STCG) on sales of shares of an entity by the name M/s Rajesh Exports Ltd. was identified. The case was reopened pursuant to receipt of information from investigation wing that the assessee entered into high value share transactions for Rs.155 Crores but the income was not reported in the Income Tax return. The assessee filed various replies and submissions during the course of assessment proceedings. 2.2 In the assessment order dated 25-02-2016, STCG was brought to tax raising tax demand of Rs.479.08 Lacs which was reduced to Rs.283.75 Lacs in rectification order passed u/s 154 on 31-03-2016. The matter reached up-to Tribunal wherein the matter was restored back to the file of Ld. AO for re-computation of capital gains since there was error in the computation of STCG. Pursuant to the same, another assessment order was passed on 31-12-2018.

2.3 In the latest assessment order passed u/s 143(3) r.w.s. 254, the income of the assessee has been determined as under: - Short Term Capital Gain on Shares Sales Rs.229,96,19,403/- Less: Purchases Rs.189,63,15,388/- Rs.40,33,04,015/- Income from other sources Rs. 3,80,226/- Rs.40,36,84,241/- Less: Deduction u/s 80C Rs. 70,000/- Assessed Total Income Rs.40,36,14,241/- The above computation is not in dispute. The subject matter of appeal is computation of interest u/s 234B. 2.4 The assessee pleaded that responsibility to deduct tax at source on the stated transactions lie with remitter of income from India. Since remitter bank was responsible to deduct TDS, there was no need for him to pay advance tax in respect of such income. However, Ld. AO held that the assessee’s claim that it is the duty of the bank to deduct tax before making payment and that he should not be penalized for the default of the banker to deduct TDS is not tenable. The tax liability has to be paid by the person who is liable to pay taxes and TDS is one of the means of discharging the tax liability. The default on the part of the deductor would not absolve the taxpayer from paying due taxes. The other ways of discharging the liability were by way of advance tax and self-assessment tax. The failure to do so would attract interest u/s 234B and 234C which is mandatory in nature as held by Hon’ble Supreme Court in the case of Anjum B. Ghaswala (252 ITR 1). Finally, Ld. AO charged interest u/s 234B & 234C while raising tax demand against the assessee. The demand aggregated to Rs.566.53 Lacs including interest u/s 234A, 234B and 234C.

Appellate Proceedings 3.1 During appellate proceedings, the assessee assailed charging of interest u/s 234B and 234C and stated that such interest is payable only if there was default in paying 'Advance Tax'. The definition and scope of 'Advance Tax' includes clause (d) of sub-section (1) of Sec. 209 of the Income Tax Act, 1961 which provide that such advance tax is to be reduced by 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 deduction admissible under this Act) which has been taken into account in computing the current income or, as the case may be, the total income aforesaid; and the amount of income tax as so reduced shall be the advance tax payable; Provided that for computing liability for advance tax, income-tax calculated under clause under clause (a) or clause (b) or clause (c) shall not, in each case, be reduced by the aforesaid 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, if the person responsible for deducting tax has paid or credited such income without deduction of tax or it has been received or debited by the person responsible for collecting tax without collection of such tax. 3.2 On the basis of the same, the assessee contended that the amount deductible at source should be reduced from the total tax due in order to arrive at the amount of advance tax payable. In the present case, the TDS deductible for Rs.456.94 Lacs should accordingly be reduced. Reference was made to the decision of Hon’ble Supreme Court in the case of lan Peter Morris Vs. ACIT holding that interest for default in payment of advance tax would have no application since the TDS is liable to be paid by the payer failing which he is liable to pay simple interest thereon. The case law of Hon’ble High Court of Madras in the case of Madras Fertilizers Ltd. (149 ITR 703) as well as other judicial decisions were was also cited in support of the same. 3.3 It was also submitted by the assessee that the case was reopened on the ground that the assessee carried out share transactions amounting to Rs.155.20 Crores during the year but it did not report the same in the Income Tax Return. It was explained that the assessee had purchased and sold shares of M/s Rajesh Exports Ltd. through Ventura Securities Ltd., Mumbai utilizing the funds lying in the assessee’s equity portfolio investment account (NRE Account) which was managed by the Mumbai branch of Abu Dhabi Commercial Bank Ltd. (Bank). During this year, the assessee earned profit on sale of shares which were both in the nature of Short-Term and Long-Term Capital Gains. As per extant laws, the amount of Long-Term Capital gains was exempt from tax whereas Short-Term Capital Gains was taxable at rate in force during such year. Since the assessee did not report the transaction of purchase and sale of shares during the year, the case of the appellant was reopened and the said transactions were assessed to tax by the AO. The assessment was framed on 25-02-2016 wherein Ld. AO computed STCG of Rs.52.10 Crores and raised tax demand of Rs.4.79 Crores. Since there were discrepancies in the working, the assessee filed rectification u/s 154 wherein the total income was revised to Rs.43.07 Crores and tax demand was reduced to Rs.2.28 Crores. Still aggrieved, the assessee further appeal which reached up-to the level of Tribunal and the computation of capital gains was set aside to the file of Ld. AO. Pursuant to the same, another order was passed assessing total income of Rs.40.36 Crores and revising the tax demand to Rs.1.45 Crores against the assessee which include interest u/s 234B for Rs.98.54 Lacs. The provisions of Sec. 195, inter-alia, cast an obligation on any person responsible for paying to non-resident any other sum chargeable to tax to deduct tax at source at the time of credit or payment thereof. Therefore, the responsibility to deduct tax at Source would lie on Abu Dhabi Commercial Bank Ltd. The Bank inadvertently deducted TDS of Rs.353.59 Lacs instead of Rs.456.94 Lacs. The assessee was under a bona-fide belief that since the transaction was subjected to tax by the bank, it would not have any further obligation towards payment of tax amount. To support the same, the assessee referred to the decision of Hon’ble Supreme Court in the case of Mitsubishi Corporation Ltd. (438 ITR 174) as well as the decision of Hon’ble Bombay High Court in the case of NGC Network Asia LLC (313 ITR 187). 3.4 Considering the submissions of the assessee, Ld. CIT(A) concurred that the tax deductible by the bank was to be reduced while computing interest u/s 234B and accordingly, interest u/s 234B was deleted whereas levy of interest u/s 234C was upheld. The levy of interest u/s 234C has been accepted by the assessee. Aggrieved, the revenue is in further appeal before us. Our findings and Adjudication 4. From the facts, it emerges that the assessee is a non-resident. During the year, the assessee has sold shares of an entity which gave rise to Long-Term Capital Gains as well as Short-Term Capital gains (STCG) in the hands of the assessee. The gains were not reflected by the assessee in its return of income. Therefore, the case was reopened on receipt of such information from investigation wing and an assessment was framed against the assessee on 25-02-2016 wherein STCG was brought to tax and the same was computed at Rs.52.10 Crores raising tax demand of Rs.479.08 Lacs. However, the computation was erroneous and accordingly, the order was rectified u/s 154 and the STCG were recomputed and corresponding tax demand was reduced to Rs.283.75 Lacs in rectification order passed u/s 154 on 31-03-2016. The matter reached up-to Tribunal wherein the matter was restored back to the file of Ld. AO for re-computation of capital gains since there was error in the computation of STCG. Pursuant to the same, another assessment order was passed on 31-12-2018 wherein STCG has been re-computed at Rs.40.33 Crores and finally, tax demand of Rs.1.45 Crores against the assessee which include interest u/s 234. It could very well be seen that the impugned transaction resulted into Long-Term Capital Gains as well as Short Term Capital Gains in the hands of the assessee. It could also be seen that initially the assessee has not computed gains on this transaction and never offered the same in the return of income. The same is ostensibly on the assumption that whatever tax was deducted at source by the bank was final tax liability for the assessee. However, it is quite discernible that computation of gains has undergone change thrice. Initially, the gains were computed by Ld. AO in the assessment order which got rectified u/s 154. The same has again undergone change pursuant to the directions of Tribunal setting aside the computation of STCG to the file of Ld. AO. In our opinion, there was no mechanism with the bank to compute the final tax liability of the assessee with respect to such transactions nor was it the obligation of the bank to compute the tax liability of the assessee. The bank was merely obligated to deduct tax at source at prescribed rates and do nothing more. Nothing has been shown to us that any default has been made by the bank in deducting TDS against the assessee that was required to be deducted under law. The obligation to compute final tax liability, in our considered opinion, squarely was on the assessee and consequences of any default in the same would have to be borne by the assessee only. As rightly held by Ld. AO, the tax liability has to be paid by the person who is liable to pay taxes and TDS is only one of the means of discharging the tax liability. The default on the part of the deductor would not absolve the payer from paying due taxes. The other ways of discharging the liability were by way of advance tax and self- assessment tax. The failure to do so would attract interest u/s 234B and 234C which is mandatory in nature as held by Hon’ble Supreme Court in the case of Anjum B. Ghaswala (252 ITR 1). The interest compensatory in nature and the same is levied since the revenue was deprived-off of its legitimate dues. The argument that it was wholly the obligation of the remitter bank to deduct due taxes arising out of these transactions is clearly fallacious for the reason that nothing has been shown that the bank has defaulted in deducting due TDS that was required under the law. Secondly, the obligation to compute quantum of advance tax as well as final tax liability was on assessee only considering the provisions of Sec.209(1). The assessee merely presumed that whatever was the TDS, the same constituted final tax liability of the assessee. The same is erroneous presumption. It could be noted that the case was specifically reopened to bring to tax capital gains arising out of the impugned transactions. Even in response thereof, the assessee continued to have the said belief and still did not offer any gains to tax. Under these circumstances, the argument of bona-fide belief or presumption could not be accepted. Ignorance of law is no excuse. When the revenue is deprived of its legitimate dues on time, it is certainly entitled for compensatory interest. The Hon’ble Supreme Court in the case of Anjum B. Ghaswala (252 ITR 1) has held that levy of interest is mandatory in nature and the same cannot be waived-off.