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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 14TH DAY OF SEPTEMBER 2020
PRESENT
THE HON’BLE MR. JUSTICE ALOK ARADHE
AND
THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD
I.T.A. NO.171 OF 2011 C/W I.T.A. NO.34 OF 2012
I.T.A. NO.171 OF 2011 BETWEEN:
THE DIRECTOR OF INCOME TAX
INTERNATIONAL TAXATION
RASHTROTHANA BHAVAN
NRUPATHUNGA ROAD, BANGALORE.
THE DY. DIRECTOR OF INCOME TAX
INTERNATIONAL TAXATION
CIRCLE-II(I), RASHTROTHANA BHAVAN
NRUPATHUNGA ROAD, BANGALORE.
... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,)
AND:
M/S. TEXAS INSTRUMENTS INCORPORATED C/O. BMR & ASSOCIATES 2/1, EMBASSY ICON ANNEXE INFANTRY ROAD, BANGALORE-560001. ... RESPONDENT (BY SRI. T. SURYANARAYANA, ADV.) - - -
THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 28.10.2010 PASSED IN ITA NO.785/BANG/2010 FOR THE ASSESSMENT YEAR 2005-06, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (I) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN ITA NO.785/BANG/2010 DATED 28-10-2010 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-II(I), BANGALORE IN THE INTEREST OF JUSTICE AND EQUITY.
I.T.A. NO.34 OF 2012 BETWEEN:
THE DIRECTOR OF INCOME TAX
INTERNATIONAL TAXATION
RASHTROTHANA BHAVAN
NRUPATHUNGA ROAD, BANGALORE.
THE DY. DIRECTOR OF INCOME TAX
INTERNATIONAL TAXATION
CIRCLE-II(I), RASHTROTHANA BHAVAN
NRUPATHUNGA ROAD, BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,)
AND:
M/S. TEXAS INSTRUMENTS INCORPORATED C/O. BMR & ASSOCIATES EMBASSY ICON ANNEXE 2/1 INFANTRY ROAD, BANGALORE-560001. ... RESPONDENT (BY SRI. T. SURYANARAYANA, ADV.) - - -
THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 29.09.2011 PASSED IN ITA NO.1418/BANG/2010 FOR THE ASSESSMENT YEAR 2006-07, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO:
(I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (I) ALLOW THE APPEAL AND SET ASIDE THE ORDER DATED 29.09.2011 PASSED BY THE ITAT, BANGALORE IN ITA NO.1418/BANG/2010 AND CONFIRM THE ORDER PASSED BY THE DEPUTY DIRECTOR OF INCOME TAX OFFICER, INTERNATIONAL TAXATION, CIRCLE-11(1), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY.
THESE ITAs COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:
COMMON JUDGMENT
These appeals under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) have been filed by the revenue. The subject matter of I.T.A.No.171/2011 pertains to the Assessment year 2005-06, whereas, subject matter of I.T.A.No.34/2012 relates to Assessment Year 2006-07. I.TA.No.171/2011 was admitted by a bench of this Court vide order dated 05.01.2012 on the following substantial questions of law: (i) Whether the Tribunal was correct in holding that the assessee being anon resident is not liable to pay advance tax and consequently non interest under Section 234b of the Act is leviable as only TDS can
be deducted by ignoring the judgment of the Apex Court in CIT VS.L ANJUM MH GHASWALA (2001) 252 ITR 1 (SC) where it was held that Section 234B of the Act is mandatory?
(ii) Whether the Tribunal was correct in reading down Section 234B of the Act by holding that the same is applicable to Indian residents and not to non residents when the validity has been upheld by this Hon’ble court by holding that the provisions is only compensatory in nature for depriving the revenue in payment of advance tax?
I.T.A.No.34/2012 was admitted by a bench of this court, vide order dated 05.07.2012 on the following substantial questions of law: (i) Whether the Tribunal was correct in holding that the assessee being a non resident is not liable to pay advance tax and consequently no interest under Section 234B of the Act is leviable as only TDS can be deducted by ignoring the judgment of the Apex Court in CIT VS. ANJUM MH GHASWALA
(2001) 252 ITR 1 (SC) where it was held that Section 234B of the Act is mandatory?
(ii) Whether the Tribunal was correct in reading down Section 234B of the Act by holding that the same is applicable to Indian residents and not to non residents when the validity has been upheld by this Hon’ble Court by holding that the provisions is only compensatory in nature for depriving the revenue in payment of advance tax?
On account of commonality of the substantial questions of law involved in this appeal, they were heard analogously and are being decided by this common judgment.
For the facility of reference facts from I.T.A.No.171/2011 are being referred to. The assessee is a foreign company engaged in manufacture of semi conductor components. For the Assessment Year 2005- 06, the assessee received a sum of Rs.85,93,50,360/- towards EDA charges from M/s Texas Instruments
(India) Private Limited, which were accrued in India under Section 916 of the Act. The assessee filed the return of income on 30.10.2005 and declared taxable income of Rs.95,19,50,282/-. The return was processed under Section 143(1) and was taken up for scrutiny and notice under Section 143(2) of the Act was issued. The Assessing Officer by an order dated 29.12.2008 computed the taxable income at Rs.30,11,00,040/- and tax at 15% was levied at Rs.4,51,65,006/-. The TDS amount of Rs.14,27,92,521/- was deducted and in respect of short fall in payment of advance tax, the Assessing Officer levied a sum of Rs.1,38,98,565/- as interest under Section 234B of the Act. Thereafter, an order of rectification was passed under Section 154 of the Act on 12.05.2009 as there was a mistake regarding the returned income and computation of TDS and consequential interest.
The assessee thereupon approached the Commissioner of Income Tax (Appeals), who by an order dated 30.03.2010 inter alia held that
computation of interest under Section 234B is required to be re computed and the matter was remitted. The assessee thereupon filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). The Tribunal by an order dated 28.12.2010 inter alia held that the assessee is not liable for payment of advance tax and interest under Section 234B of the Act. In the result, the appeals preferred by the assessee were allowed. In the aforesaid factual background, these appeals have been filed.
Learned counsel for the revenue has invited the attention of this court to the definition of the expression ‘assessee’ as well as ‘person’ and has submitted that the expression ‘person’ includes a company and there is no distinction between domestic company or foreign company with reference to the decision of the Supreme Court in ‘PALAM GAS SERVICE VS. COMMISSIONER OF INCOME-TAX’,
(2017) 394 ITR 300 (SC), wherein the Supreme
Court dealt with the provisions of Section 40(a)(ia) of the Act, it is argued that the word ‘payable’ was read in the aforesaid decision by the Supreme Court as ‘paid’ and on same analogy the expression ‘deductible’ used in Section 209(1) of the Act needs to be read as ‘deducted’. It is also pointed out that entire object of Section 209(1)(d) of the Act is to ensure that there are no double deductions and the Tribunal erred in holding that the assessee being a non resident, the provisions of Section 234B of the Act are not attracted. It is also submitted that provisions of Section 234A, 234B and 234C of the Act are mandatory and compensatory. In this connection, reliance has been placed decision of the Supreme Court in ‘COMMISSIONER OF INCOME-TAX VS. ANJUM M.H.GHASWALA’, (2001) 119 TAXMAN 352 (SC). It is also urged that the finding recorded by the Tribunal is contrary to law laid down by Supreme Court in PALAM GAS SERVICE supra.
On the other hand, learned counsel for the assesses submitted that the proposition laid down in by the Supreme Court in PALAM GAS SERVICE supra does not apply to Section 209 of the Act and the word ‘deductible’ cannot be read as ‘deducted’. It is also pointed out that there is no charge of levy for interest and therefore, the proviso to Section 209(1)(d) was inserted with effect from 01.04.2012, which is prospective in nature. It is further submitted that the Tribunal has rightly relied on the decisions rendered by Bombay and Uttarakhand High Courts. It is also submitted that issue involved in these appeals is extensively dealt with by Delhi High Court in ‘DIRECTOR OF INCOME-TAX, INTERNATIONAL TAXATION VS. GE PACKAGED POWER INC.’, (2015) 56 TAXMANN.COM 190 (DELHI) and therefore, the substantial questions of law involved in these appeals deserves to be answered in favour of the assessee.
We have considered the submissions made by learned counsel for the parties and have perused the record. The singular issue, which arises for consideration in these appeals, is that whether assessee is liable to pay interest under Section 234B of the Act on the ground of non payment of tax in respect of Assessment Year 2005-06 and 2006-07. Section 195(1) of the Act provides for deduction of Tax at Source by any person responsible for paying to a foreign company any other sum chargeable under the provisions of the Act at the time of credit of such income to the account of the payee. Section 209(1)(d) of the Act as it read prior to Finance Act, 2012 is reproduced below for the facility of reference: 209. Compensation of advance tax:
(1) The amount of advance tax payable by an assessee in the financial year shall, subject to the provisions of sub-Sections (2) and (3), be computed as follows, namely:-
(a) xxxxx
(b) xxxxx
(c) xxxxx (d) the income-tax calculated under clause(a) or clause (b) or clause (c) shall, in each case, be reduced by the 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 deductions 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.
From perusal of aforesaid provision, it is axiomatic that assessee was entitled to, in its computation of its advance tax liability to take a tax credit of the amount, which was deductible or collectible irrespective of fact whether the amount was actually deducted or collected. Under the aforesaid provision, the assessee was entitled to tax credit of an amount that was deductible even if it was not actually deducted.
Therefore, in order to remove the anomaly in law, the parliament inserted a proviso to Section 209(1) by Finance Act, 2012 with effect from 01.04.2012, which reads as under: ‘Provided that for computing liability for advance tax, income-tax calculated 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 person, 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.’
In the instant case, the payer had approached the department claiming that payments to be made to the assessee are not chargeable to tax in India and to determine the chargeability and after determination of the tax liability by the department, the
deductor has deducted the tax at source and has remitted the balance to the assessee. In the light of legal position as it existed for the relevant Assessment Years prior to insertion of proviso to Section 209(1) of the Act, it is clear that if payer who was required to make payments to non resident had defaulted in deducting the tax at source from such payments, the non resident is not absolved from payment of taxes thereupon and non resident is liable to pay tax and the question of payment of advance tax would not arise. Therefore, it would not be permissible for the revenue to charge any interest under Section 243B of the Act.
The Supreme Court in PALAM GAS SERVICE supra was dealing with Section 40(a)(ia) of the Act and was dealing with the question as to whether the provisions of Section 40(a)(ia) of the Act would be attracted when the amount was not payable to a contractor or sub contractor but had been actually paid. In the aforesaid context, the Supreme Court held that
the word ‘payable’ used in Section 40(a)(ia) of the Act would include the word ‘paid’. The aforesaid decision has no application to the obtaining factual matrix of the case. In view of preceding analysis, the substantial questions of law are answered against the revenue and in favour of the assessee.
In the result, we do not find any merit in these appeals. The same fail and are hereby dismissed.
Sd/- JUDGE
Sd/- JUDGE ss