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Non-residents are not liable to pay interest u/s 234B. S. 234D applies from AY 2004-05 and is not retrospective
The assessee, a foreign company, filed a return declaring income of Rs.96 lakhs. Pursuant to the assessment, the AO levied interest u/s 234B on the ground that the assessee had not paid adequate advance-tax. The AO rejected the submission of the assessee that as the payer was liable to deduct tax at source, the assessee was not liable to pay advance tax. The AO also levied interest u/s 234D despite the assessee’s claim that s. 234D only applied from AY 2004-05 and not for earlier years. The assessee’s appeal was allowed by the CIT (A) and the Tribunal. On appeal by the department, HELD dismissing the appeal:
(i) U/s 209(1)(d), the tax “deductible or collectible at source” has to be reduced from the advance-tax payable. S. 195 puts an obligation on the payer to deduct tax at source. Therefore, the entire tax is to be deducted at source which is payable on such payments made by the payee to the non-resident. The non-resident recipient is not liable to pay advance-tax. Though in Anjum Ghaswala 252 ITR 1 it was held that s. 234B is mandatory, the present is a case where s. 234B does not apply at all. Accordingly, it is not permissible for the Revenue to charge interest u/s 234B. Sedco Forex International Drilling Co. Ltd 264 ITR 320 NGC Network Asia 313 ITR 187 (Bom) followed;
(ii) S. 234D inserted by the FA 2003 w.e.f. 1.6.2003 is in the nature of a substantive provision and applies only for the AY 2004-05 and onwards and is not retrospective. A provision by which an authority is empowered to levy and collect interest, even if construed as forming part of the machinery provisions, is substantive law for the simple reason that in the absence of contract or usage interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of the amount. ITO vs. Ekta Promoters 305 ITR 1 (SB) (Del) approved)
Related Judgements
- DIT vs. NGC Network Asia LLC (Bombay High Court)
A non-resident whose income is liable to deduction of tax at source under s. 195 is not liable to pay advance tax u/s 209 (1)(d). Consequently, there can be no liability on such assessee u/s 234B for shortfall in advance tax.
- CIT vs. Bajaj Hindustan (Bombay High Court)
In answer to the question raised by the department as whether interest u/s 234D can be charged in respect of refunds granted prior to 1.6.2003 it was held that as s. 234D came on the statute w.e.f. 1.6.2003, it did not have retrospective effect
- The Prudential Assurance Company vs. DIT (Bombay High Court)
S. 245S stipulates that an advance ruling is binding on the applicant, the CIT and the authorities subordinate to him in relation to which it was sought. S. 245S(2) postulates that the ruling shall cease to be binding if there is a change in law or facts on the…
October 12th, 2010 at 11:57 pm
sir,
the Kerala High court in 323 ITR 584/231 CTR 541/37 DTR 256 holds that from 01.06.2003 interest is levaible even in respect of A.Ys prior to 2004-05.
October 14th, 2010 at 2:05 pm
” Note: On s. 234D the same view has been taken by the Bombay High Court in CIT vs. Bajaj Hindustan”
Comments (subject to/pending a close study and clinical review):
1. On a quick reading of the two successive HC (Delhi and Bombay) decisions, one is not at all clear whether the point of issue and / or the view of the HC is one and “THE SAME”.
To highlight the doubt in one’s mind:
Ref. DIT vs. Jacabs Civil Incorporated (Delhi)
“13.We are, therefore, of the opinion that the tribunal was right in deleting the interest under section 234D of the act for the period prior to the assessment year 2004-05. As a result, these appeals of the department are dismissed.”
Ref. CIT vs. Bajaj Hindustan (Bombay)
Question:
“D) Whether in the facts and circumstances of the case
and in law the ITAT was right in holding that the
interest u/s.234D cannot be charged in respect of
refunds granted prior to 1/6/2003 ?”
COURT’S VIEW:
“5. So far as the last question is concerned,
it is seen that the subject provision came on Statute
book w.e.f. 1/6/2003. If that be so, the said
provision does not have retrospective effect. In this
view of the matter, we do not see appeal giving rise
to any substantial question of law. “
In one’s perception, the ratio of the 2 decisions do not, prima facie, seem to be on identical lines- hence, call for an in-depth reading and understanding>
2. The Kerala high court’s judgment referred to @ baskar g, it is stated, has taken a contrary view. For knowing whether that is precisely on the same issue wrt Section 234 D, then it may be worthwhile to read it through, for a proper appreciation of the grounds of that decision.
vswaminathan