Madras H.C : Interest under section 234B could not be levied by the order under section 154 on the ground that the words used in section 209(1)(d) is ‘tax deductible at source’. Without appreciating that the said word is used in the context of payment of advance tax in the course of the ‘current year’ and the actual liability for levy of interest under section 234B has to be determined in the clear terms of Explanation 1 to section 234B

High Court Of Madras

CIT vs. Reiter Inglostadt Spinners Imaechinanbau A.G.

Assessment Years : 1991-92 And 1994-95

Section 234B, 154

Mrs. Chitra Venkataraman And M. Jaichandren, JJ.

Tax Case (Appeal) Nos. 218 & 219 Of 2005

July 26, 2011

JUDGMENT

Mrs. Chitra Venkataraman, J. – These tax cases (appeals) have been filed by the Revenue as against the common order of the Tribunal relating to the two assessment years, viz., 1991-92 and 1994-95, by raising the following substantial question of law :

“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that interest under section 234B could not be levied by the order under section 154 on the ground that the words used in section 209(1)(d) is ‘tax deductible at source’. Without appreciating that the said word is used in the context of payment of advance tax in the course of the ‘current year’ and the actual liability for levy of interest under section 234B has to be determined in the clear terms of Explanation 1 to section 234B of the Income-tax Act, 1961 ?”

2. The only issue raised herein is as regards the levy of interest under section 234B of the Income-tax Act for tax deductible at source. The said levy was sought to be made by invoking section 154 of the Income-tax Act. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals), who agreed with the assessee holding that the question as to whether interest could be levied in a case where no advance tax is payable by the assessee is a debatable issue. Quite apart, the Commissioner of Income-tax (Appeals) pointed out that the entire receipt was tax deductible consequently, the proceedings under section 154 of the Income-tax Act, could not be sustained. Aggrieved by the said order, the Revenue went on appeal before the Income-tax Appellate Tribunal, which confirmed the view of the Commissioner of Income-tax (Appeals) holding that on a debatable issue, there could be no rectification proceedings. Further, the Tribunal pointed out that in a case of a foreign company, no advance tax was required to be paid under section 209 of the Income-tax Act. Thus, on the dismissal of the appeals before the Tribunal, the Revenue has come before this court.

3. Tax Case Appeal No. 218 of 2005 relates to the assessment year 1991-92. While passing the assessment under section 143(3) of the Income-tax Act, the contention of the assessee that the receipt was towards technical service, was, however, rejected and the same was treated as royalty. The assessee’s income was, however, assessed at 20 per cent. in terms of article VII-A(ii) of the Double Taxation Avoidance Agreement. The Assessing Officer pointed out that since the company is a foreign company, not liable to pay advance tax, interest under section 234B of the Income-tax Act was not attracted, even though TDS was less than 90 per cent. of the tax payable. However, for the short payment of TDS, interest was levied under section 201(1A) of the Income-tax Act for the period July, 1990, to October, 1993. By proceedings dated February 4, 1997, the Assessing Officer passed the rectification order under section 154 of the Income-tax Act on the premise that while giving effect to the order of the Commissioner of Income-tax (Appeals), interest was omitted to be charged. Thus the officer levied interest under section 234B of the Income-tax Act.

4. Tax Case Appeal No. 219 of 2005 relates to the assessment year 1994-95. Originally under proceedings under section 143(1)(a) of the Income-tax Act, the Assessing Officer assessed the receipt as royalty, taxable at 30 per cent. On appeal, the Commissioner of Income-tax (Appeals) deleted the tax charged at 30 per cent. on the ground that the nature of income could not be decided under section 143(1)(a) of the Income-tax Act. Thus, when the regular assessment proceedings were taken, the Assessing Officer treated the receipt as royalty and assessed the same at 30 per cent. By proceedings dated December 4, 1997, the assessing authority passed the rectification order, holding that while passing the order under section 143(3) of the Income-tax Act, interest under section 234B was omitted to be charged. Thus, the officer viewed that in respect of the assessment years 1991-92 and 1994-95, since the advance tax paid was less than 90 per cent. of the assessed tax, the assessee was liable to pay interest under section 234B of the Income-tax Act.

5. The question with regard to rate of tax as to whether it should be 30 per cent. as applicable to royalty or 20 per cent. on the technical know-how fees came up for consideration before this court in the assessee’s own case CIT v. Reiter Ingolsteadt Spinnereimaschinenbau AG [2006] 285 ITR 199 (Mad). This related to the assessment year 1993-94 and 1994-95. This court held that the entire payment receipt, received by the foreign company, constituted fees on technical know-how, hence, taxable at 20 per cent. as per the Double Taxation Avoidance Agreement. The said decision was again applied by this court in T. C. (A) No. 711 of 2004 under order dated July 5, 2011, wherein, in the appeal preferred for the assessment year 1991-92, this court held that in terms of the agreement, the rate of tax was to be at 20 per cent. only. Thus on the merits, the assessment stood concluded, holding that the assessee could be taxed only at 30 (sic) per cent. and not at 30 per cent.

6. Leaving this aside for a moment, as far as the present case is concerned, the proceedings were taken under section 154 of the Income-tax Act on the ground that since the advance tax paid was less than 90 per cent., interest under section 234B of the Income-tax Act was leviable on the assessee. It is seen from the facts narrated above that as on the date of passing of the order under section 154 of the Income-tax Act, the question as to whether the rate of tax at which the receipt was assessable was to be 20 per cent. or 30 per cent. itself remained a matter of dispute and the same was challenged in the appeals before the Commissioner of Income-tax. Apart from this, the Assessing Officer admitted the fact that the assessee-company is a foreign company and, hence, the payment of advance tax did not arise at all. In the assessment order made for the assessment year 1991-92, this was also admitted by the Assessing Officer. The facts relating to the assessment year 1994-95, are no different and the same position continues. Hence, rightly, the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal took the view that the question of the assessee herein as liable to pay advance tax did not arise and consequently, the question of invoking the penal provision under section 234B of the Income-tax Act did not arise on the facts.

7. Learned counsel appearing for the assessee placed reliance on the decision DIT v. Jacabs Civil Incorporated [2011] 330 ITR 578/[2010] 194 Taxman 495 (Delhi) rendered by the Delhi High Court, which considered the levy of interest in a case of a non-resident where there was no liability to pay advance tax. The Delhi High Court pointed out that when there was 100 per cent. deduction of tax at source and there being no liability to pay any advance tax, interest under section 234B could not be charged on the assessee. The Delhi High Court further pointed out to the decision of the Uttaranchal High Court under similar circumstances, reported in CIT v. Sedco Forex International Drilling Co. Ltd. [2003] 264 ITR 320/[2004] 134 Taxman 109, followed subsequently by the Bombay High Court in the decision reported in Director of I. T. (International Taxation) v. NGC Network Asia LLC [2009] 313 ITR 187 which followed the decision of this court reported in CIT v. Madras Fertilisers Ltd. [1984] 149 ITR 703/[1985] 20 Taxman 349 and held that reading section 191 along with section 209(1)(d) of the Income-tax Act, when the entire tax is deducted at source and the consequence of non-deduction is given under section 201, the question of levy of interest under section 234B on the assessee did not arise.

8. We agree with the view taken by the Delhi High Court. When the Revenue does not dispute the fact that the amount received by the assessee, a non-resident, is subjected to 100 per cent. tax deduction at source and that there was no liability on the assessee to pay advance tax, the question of levy of interest under section 234B of the Income-tax Act alleging short payment does not arise. In the circumstances, we have no hesitation in dismissing the appeals filed by the Revenue. Accordingly, the question is answered against the Revenue and both the tax case (appeals) stand dismissed. No costs.

[Citation : 353 ITR 349]

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