|COURT:||Delhi High Court|
|CORAM:||R. K. Gauba J, Ravindra Bhat J|
|CATCH WORDS:||234B interest, advance tax|
|DATE:||January 12, 2015 (Date of pronouncement)|
|DATE:||February 2, 2015 (Date of publication)|
|AY:||2000-01 to 2006-07|
|FILE:||Click here to download the file in pdf format|
|S. 234B: View in Alcatel Lucent that assessee must pay interest for short-fall of advance-tax if it induced payee not to deduct TDS cannot be followed. View in Jacobs has to be followed because obligation of payer to deduct TDS is absolute & not dependent on assertion of payee. Impact of Proviso to s. 209(1) inserted by FA 2012 w.e.f. 1.4.2012 considered|
(i) In Jacabs Civil Inc 330 ITR 578 (Del) it was held that interest u/s 234B cannot be levied on the assessee on the ground of non-payment of advance tax because the obligation was upon the payer to deduct tax at source before making remittances to them. A contrary view was taken in Alcatel Lucent 264 CTR 240 (Del) and it was held that since the assessee, having denied tax liability during reassessment, caused the payer to erroneously refrain from deducting tax under Section 195, it must thus suffer an interest for nonpayment of advance tax;
(ii) The view in Jacabs Civil Inc 330 ITR 578 (Del) opened the window for the assessee to take tax credit of an amount that was deductible, even if it was not actually deducted. In recognition of this anomalous situation, Parliament inserted a proviso in the Finance Act, 2012, – with prospective effect from 1.4.2012, to Section 209 (1). This Court is of the opinion that the law prior to the 2012 amendment must be read to prevent such anomalies from arising;
(iii) This Court respectfully cannot apply the view taken in Alcatel Lucent to this case. This is 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. Tax obligations cannot be founded on assertions of interested parties. In such cases, the payer’s obligation to deduct tax would depend on the payee’s opinion of whether it is liable to tax, which may differ from its actual liability to tax as determined by the AO’s final order. This effectively authorizes the assessee and the payer to contract out of the statutory obligation to deduct tax at source, which in this case, is located in Section 195(1). Surely this could not be the Parliamentary intent. If such were the case, there would have been no need to treat the payer as an assessee-in-default for failure to deduct tax at source, under Section 201.This Court is thus in agreement with the position of law in Jacabs (supra), that the obligation of the payer to deduct tax is absolute.
(iv) The implication of an absolute obligation upon the payer to deduct tax at source under Section 195(1) is that it becomes the responsibility of the payer to determine the amount it ought to deduct from the remittance to be paid to the assessee, towards tax. This determination would depend directly on the income of the assessee that is taxable in India on account of being attributable to its PE in India. Thus, the assessee’s liability to tax does not depend on its own view of its PE status, or its admission or denial of tax liability. If an assessee files NIL returns at the stage of assessment, and maintains that it is not liable to tax in India, the payer is obliged to apply to the AO to determine what portion, if any, of its remittance to the assessee, is liable to be deducted at source towards tax.
(v) The view of this Court finds confirmation in the position of law as it stands at present, after the Finance Act, 2012; should a situation akin to that in Alcatel Lucent arise, the payer would be treated as the assessee-in-default according to Section 201, and the payee/assessee would not be permitted a tax credit under the proviso in Section 209(1)(d). Clearly, the anomaly of an assessee denying tax liability (whether under a bona fide mistake or by deceit), thereby not suffering a tax deduction at source, and still being permitted a tax credit for the tax deductible, is remedied after the Finance Act, 2012.
(vi) Alcatel Lucent, 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 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.