DIT vs. Maersk Co Ltd as agent of Mr. Henning Skov (Utt High Court – Full Bench)

Employee not liable to pay s. 234B interest for failure to pay advance tax on salary

The assessee, a foreign company, entered into a contract with ONGC pursuant to which it supplied technicians. The AO treated the assessee as an agent of the technician – employees and assessed their income under the head “salaries”. Interest u/s 234B was levied on the ground that the employees had not paid advance tax. The CIT (A) & Tribunal upheld the claim of the assessee that the employees were not liable to pay advance tax as the tax was “deductible” at source u/s 192. On appeal by the department, the issue was referred to a Full Bench. HELD by the Full Bench:

U/s 208, an employee is not liable to pay advance tax on salary because u/s 192 there is an obligation on the employer to deduct tax at source. The employee cannot foresee that the tax deductible under a statutory duty imposed upon the employer would not be so deducted. The employee proceeds on the assumption that the deduction of tax at source has statutorily been made or would be made and a certificate to that effect would be issued to him. If the employer fails to deduct tax at source, the employee becomes liable to pay the tax directly. However, the liability to pay interest remains upon the person responsible to deduct tax at source. The department is entitled to proceed against the employer u/s 201(1A). (Sedco Forex 264 ITR 320 (Utt) & other judgements followed).