DDIT (IT) 3(1), MUMBAI vs. INTERNATIONAL GLOBAL NETWORKS BV, MUMBAI

O R D E R PER RAJESH KUMAR, AM : These are four appeals filed by the revenue against the common order dated 26.3.2014 passed by the ld.CIT(A)-10, Mumbai for the assessment years 1998-99 to 2000-2001 challenging the relief given by the ld.CIT(A) to the assessee on the charging of interest u/s 234B and 234C of the Income Tax Act, 1961. Since issue involved in these cases is common and therefore, these appeals are heard together and are being disposed of by this consolidated order for the sake of convenience.

3. The ld.CIT(A) after considering the submissions of the ld.AR which is incorporated in para no.41 of the appellate order decided the issue in favour of the assessee by holding that the issue of levy of interest u/s 234B and 234C in the case of foreign companies is covered in favour of the appellant-assessee by the decision of the Hon’ble Jurisdictional High Court rendered in the case of Director of Income-Tax (International Taxation ) V/s NCG Networks Asia LLC (2009) 313 ITR 187 (Bom) and accordingly, directed the AO to follow the decision of Hon’ble Jurisdictional High Court (supra).

4. The ld. DR submitted before us that the findings of the ld. CIT(A) that the provisions of section 234B and 234C were not applicable to the assessee was wrong and also the ld. CIT(A) had wrongly held that the case was covered by the decision of the Hon’ble High Court in the case of NCG Networks Asia LLC (supra), whereas as a matter of fact, the issue was not covered in favour of the assessee. In support of his contention, the ld. DR relied upon the decision of the Hon’ble Delhi High Court rendered in the case of Director of Income-Tax (International Taxation) V/s Alcatel Lucent USA, Inc (2014) 45 taxmann.com 422 (Delhi).

5. Per contra, the ld. AR submitted before us that the issue is fully covered in favour of the assessee by the decision of the Jurisdictional High Court in the case of NCG Networks Asia LLC (supra), High Court of Delhi Packaged Power INC (2015) 373ITR0065 (Delhi) and tribunal decision in the case of Satellite Television Asian Region Ltd Vs Deputy Director of Income Tax(IT) -2(1) Mumbai (2016) 66 taxmann.com 247(Mumbai-Trib). The ld.CIT(A) passed the decision after following the ratio laid down by the jurisdictional High Courts as stated above. The ld. AR submitted that since the assessee was non-resident and was not supposed to pay any advance tax under the provisions of section 208 and 209 of the Act and therefore, when the assessee was not liable to pay any advance tax and there was no deferment or default in the payment of advance tax, consequently, the provisions of section 234B and 234C could not be invoked on the assessee. Finally, the ld.AR submitted before us that the order of ld.CIT(A) be upheld in view of the above facts and legal position as submitted above. We have considered the rival submissions and perused the material 6. placed before us. We find that the assessee is a non-resident company and was not liable to pay advance tax in terms of sections 208 and 209 of the Income Tax Act, 1961 and consequently the provisions of charging sections 234B and 234C could not be applied to the case of the assessee when the assessee denies the PE in India. We find that the present case of the assessee is fully covered by the decision of the Jurisdictional High Court in the case of NGC Networks Asia LLC (supra) wherein the hon’ble Jurisdictional High Court has held as under : “Held : dismissing the appeal, that when a duty was cast on the payer to deduct the tax at source, on failure of the payer to do so, no interest could be imposed on the assessee”

A perusal of the decision of the Hon’ble Delhi High Court in the case of DIT(IT) V/s Alcatel Lucent USA, Inc. (supra), relied upon by the ld.DR, and more specifically paragraph 26 of the said judgment would reveal that the Hon’ble High Court decided the issue of chargeability of interest on equitable ground considering the fact that the assessee itself accepted its tax liability as a PE. Whereas in the appeal before us, the assessee never accepted its tax liability as a PE. In a later decision in case of Director of Income Tax (IT) V/s GE Packaged Power INC, the Hon’ble Delhi High Court after analyzing its decision in case of DIT(IT) V/s Alcatel Lucent USA, Inc. (supra) held as under: “19. Alcatel Lucent USA Inc (supra), in any event, can be distinguished on the ground that the Court was persuaded to confirm the levy of interest under Section 234B, only on account of the equities that needed to be balanced in those peculiar facts, in favour of taxability. This is evident from the following words of the Court: "26. It further seems to us inequitable that the assessee, who accepted the tax liability after initially denying it, should be permitted to shift the responsibility to the Indian payers for not deducting the tax at source from the remittances, after leading them to believe that no tax was deductible. The assessee must take responsibility for its volte face. Once liability to tax is accepted, all consequences follow; they cannot be avoided. After having accepted the liability to tax at the first appellate stage, it is unfair on the part of the payers. The argument advanced by the learned counsel for the assessee that the Indian payers failed to deduct tax at their own risk seems to us to be only an argument of convenience or despair. As we have pointed out earlier, it is difficult to imagine that the Indian telecom equipment dealers of the assessee would have failed to deduct tax at source except on being prompted by the assessee. It may be true that the general rule is that equity has no place in the interpretation of tax laws. But we are of the view that when the facts of a particular case justify it, it is open to the court to invoke the principles of equity even in the interpretation of tax laws. Tax laws and equity need not be sworn enemies at all times. The rule of strict interpretation may be relaxed where mischief can result because of the inconsistent or contradictory stands taken by the assessee or even the revenue. Moreover, interest is, inter alia, compensation for the use of the money. The assessee has had the use of the money, which would otherwise have been paid as advance tax, until it accepted the assessments at the first appellate stage. Where the revenue has been deprived of the use of the monies and thereby put to loss for no fault on its part and where the loss arose as a result of vacillating stands taken by the assessee, it is not expected of the assessee to shift the responsibility to the Indian payers. We are not to be understood as passing a value-judgment on the assessee's conduct. We are only saying that the assessee should take responsibility for its actions." [Emphasis added] This Court finds that no need is made out in these facts to balance any equities in these facts, as the assessee has not vacillated in its stand as to the existence of a PE in India or otherwise. In any event, as observed earlier, the position of law itself requires that the tax be deducted at source, whatever may be the assessee's stance, failing which the payer is treated as an assessee-in-default under Section 201, and the payee is required to discharge its liability to pay the tax that was not deducted under Section 191.” The Mumbai Bench of the Tribunal in the case of Satellite Television Asian Region Ltd(supra) keeping in view the ratio laid down in the case of Alcatel Lucent USA Inc (supra) has held as under : “29 Lastly, regarding levy of interest under section 234B, we find that this issue stands covered in favour of the assessee by the decision of Hon'ble Delhi High Court in the case of NGC Network Asia LLC (supra). As regards reliance placed by Ld. CIT DR of the Delhi High Court decision in the case of Alcatel Lucent USA, Inc. (supra) it is seen that Hon'ble Delhi High Court has distinguished the ruling of Alcatel and held that the view taken in Alcatel Lucent USA, Inc. (supra) would not be applied to this case because if the payer deducts tax at source only when the assessee admits tax liability, then deductions would not be made in cases where the assessee either falsely or under a bona fide mistake denies tax liability. The High Court further held that the primary liability of deducting tax was that of the payer. The payer would be an assessee in default, on failure to discharge the obligation to deduct tax, under Section 201 of the Act and no interest was leviable on the respondent assessees under Section 234B, even though they filed returns declaring NIL income at the stage of reassessment.”

Thus, as could be seen from the ratio laid down in the decision referred to above, while the decision in the case of Alcatel Lucent USA, Inc. (supra) is factually distinguishable, the decision of the Hon’ble Bombay High Court in the case of NGC Network Asia LLC (supra) and the decision of the Hon’ble Delhi High Court in the case of GE Packaged Power INC(supra) as well as the decision of Mumbai Bench of the Tribunal referred to above squarely applies to the facts of the present appeal. Therefore, following the ratio laid down in these decisions, we uphold the order of the ld.CIT(A) by dismissing the appeal of the revenue.

Order pronounced in the open court on 26th April, 2016 . आदेश की घोषणा खुरे न्मामारम भें ददनांकः 26th April, 2016 को की गई । sd (SAKTIJIT DEY) ( RAJESH KUMAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated 26/04/2016 व.नन.स./ SRL , Sr. PS