Delhi High Court
Director Of Income Tax ... vs Ge Packaged Power Inc. on 12 January, 2015
Author: S.Ravindra Bhat
$~6 to 46
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Decided on : 12.01.2015
+ ITA 352/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE PACKAGED POWER INC. ..... Respondent
+ ITA 353/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
M/S GE PACKAGED POWER INC. ..... Respondent
+ ITA 354/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE PACKAGED POWER INC ..... Respondent
+ ITA 355/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE PACKAGED POWER INC. ..... Respondent
+ ITA 356/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE PACKAGED POWER INC. ..... Respondent
+ ITA 357/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
ITA 352/2014 and connected matters Page 1
GE PACKAGED POWER INC ..... Respondent
+ ITA 358/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE JENBACHER GMBH & CO. OHG ..... Respondent
+ ITA 359/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE JENBACHER GMBH & CO. OHG ..... Respondent
+ ITA 360/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE JENBACHER GMBH & CO. OHG ..... Respondent
+ ITA 361/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE NUOVO PIGNONE S.P.A. ..... Respondent
+ ITA 362/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE NUOVO PIGNONE S.P.A. ..... Respondent
+ ITA 363/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE NUOVO PIGNONE S.P.A. ..... Respondent
ITA 352/2014 and connected matters Page 2
+ ITA 364/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE NUOVO PIGNONE S.P.A. ..... Respondent
+ ITA 365/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE ENGINE SERVICES DISTRIBUTION LLC ..... Respondent
+ ITA 366/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE ENGINE SERVICES DISTRIBUTION LLC ..... Respondent
+ ITA 367/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE ENGINE SERVICES DISTRIBUTION LLC ..... Respondent
+ ITA 368/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE ENGINE SERVICES DISTRIBUTION LLC..... Respondent
+ ITA 369/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE ENGINE SERVICES DISTRIBUTION LLC..... Respondent
+ ITA 370/2014
ITA 352/2014 and connected matters Page 3
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE ENGINE SERVICES DISTRIBUTION LLC..... Respondent
+ ITA 371/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE ENERGY PARTS INC ..... Respondent
+ ITA 372/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE ENERGY PARTS INC ..... Respondent
+ ITA 373/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE ENERGY PARTS INC ..... Respondent
+ ITA 374/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE ENERGY PARTS INC ..... Respondent
+ ITA 375/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE ENERGY PARTS INC ..... Respondent
+ ITA 376/2014
ITA 352/2014 and connected matters Page 4
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE AIRCRAFT ENGINE SERVICES LIMITED ..... Respondent
+ ITA 377/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE AIRCRAFT ENGINE SERVICES LIMITED..... Respondent
+ ITA 378/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE AIRCRAFT ENGINE SERVICES LIMITED..... Respondent
+ ITA 379/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE AIRCRAFT ENGINE SERVICES LIMITED..... Respondent
+ ITA 380/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE AIRCRAFT ENGINE SERVICES LIMITED..... Respondent
+ ITA 381/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE ENGINE SERVICES MALAYSIA SDN BHD..... Respondent
+ ITA 382/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
ITA 352/2014 and connected matters Page 5
..... Appellant
versus
GE ENGINE SERVICES MALAYSIA SDN BHD..... Respondent
+ ITA 383/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE ENGINE SERVICES MALAYSIA SDN BHD
..... Respondent
+ ITA 384/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE ENGINE SERVICES MALAYSIA SDN BHD
..... Respondent
+ ITA 385/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE ENGINE SERVICES MALAYSIA SDN BHD
..... Respondent
+ ITA 386/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
M/S GE JAPAN LTD
..... Respondent
+ ITA 387/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE JAPAN LTD
..... Respondent
+ ITA 388/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
ITA 352/2014 and connected matters Page 6
..... Appellant
versus
GE JAPAN LTD
..... Respondent
+ ITA 389/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE JAPAN LTD
..... Respondent
+ ITA 390/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE NUOVO PIGNONE S.P.A
..... Respondent
+ ITA 391/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE NUOVO PIGNONE S.P.A
..... Respondent
+ ITA 402/2014
DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION
..... Appellant
versus
GE ENERGY PARTS INC
..... Respondent
Through : Sh. Balbir Singh, Sr. Standing Counsel
with Ms. Rubal Maini, Advocate, for CIT.
Sh. Sachit Jolly and Ms. Gargi Bhatt, Advocates,
for the respondent.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.K. GAUBA
ITA 352/2014 and connected matters Page 7
MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT)
%
1. In these appeals under Section 260A of the Income Tax Act, 1961
(hereafter referred to as "the Act"), the Revenue questions the common
order of the ITAT dated 16.7.2013 in ITA No.6034/Del-2010 and connected
appeals, by which the order of the Commissioner of Income Tax (Appeals)
("CIT(A)") deleting the interest levied under Section 234B, was confirmed.
The Revenue argues that the substantial question of law which arises for
consideration is whether the Income Tax Appellate Tribunal (ITAT) fell into
error in holding that the assessee could not be saddled with interest liability
under Section 234B of the Act.
2. Briefly, the facts are that General Electric group was manufacturing
equipment relating to oil and gas, energy, transportation and aviation, for
supply to customers in India. After a survey under Section 133A at the
premises of General Electric International Operations Company Inc.
("GEIOC"), the liaison office, reassessment proceedings were initiated
against several entities of the GE group for assessment years (AYs) 2000-
2001 till AY 2006-07, on 31.3.2008. The respondents in these appeals are 8
such entities ("assessees") i.e. GE Packaged Power Inc., GE Jenbacher
Gmbh, Nuovo Pignone Spa, GE Engine Services Inc., GE Energy Parts Inc.,
GE Aircraft Engine Services Ltd., GE Engine Services Malaysia, and GE
Japan Ltd., over various AYs. The assessees filed NIL returns of income and
sought reasons for reopening assessment, which were duly provided.
Objections to reassessment were disposed of, and notice under Section
143(2) was issued, and final assessment order was issued. The Assessing
ITA 352/2014 and connected matters Page 8
Officer (AO) found that the assessees had a permanent establishment ("PE")
in India. The taxable income of the assessees was computed by attributing
some percentage of the sale price/consideration received as profits to the PE;
interest under Sections 234A and 234B of the Act was also levied.
3. The assessees appealed against the order of the AO; the CIT(A)
disposed of the appeals by its order of 30.9.2010, confirming the reopening
of the assessment, the finding on existence of PEs in India, and the
attribution of profits to the PEs. However, on the question of interest under
Section 234B for failure to pay advance tax in terms of Sections 208 and
209, the CIT(A) applied the interpretation to Section 234B of the Act, given
in Director of Income Tax v. Jacabs Civil Inc. 330 ITR 578 (Del.) and
deleted the interest, therefore, holding in favour of the assessees. Before the
ITAT, the Revenue argued that the position of law, as held by the Supreme
Court in CIT v. Anjum M.H. Ghaswala and Ors. (2001) 252 ITR 01, was
that interest under Section 234B is mandatory, and that the AO is not vested
with any discretion in that regard. The appeals by the Revenue before the
ITATwere dismissed, by its order of 16.7.2013, on the ground that the
position of law in Jacabs (supra) was applicable squarely, and that the
judgment sought to be relied upon by the Revenue, in Anjum M.H.
Ghaswala (supra) was also considered in Jacabs(supra). The Revenue is in
appeal before this Court against the said order of the ITAT.
4. The Revenue argues that the ITAT's reliance on Jacab (supra) in the
impugned order was misplaced as the proposition that interest, under Section
234B, is not chargeable cannot be unqualified, because regard must be had
to the role of the assessee/payee in the non-deduction or short-deduction of
tax at source. Mr. Balbir Singh for the Revenue argues that the relevance of
ITA 352/2014 and connected matters Page 9
the assessee's role was made clear in DIT - International Taxation v. Alcatel
Lucent USA Inc, by a Division Bench of this Court in ITA No. 327 of 2012,
dated 07.11.2013, in which it was held that interest could be imposed on an
assessee foreign company which denies tax liability, for non-payment of
advance tax, because there exists a presumption that the assessee had
represented to the Indian payer that tax should not be deducted from the
remittances made to it. In Alcatel Lucent (supra), the foreign assessee first
contested the PE status, but later, during the appellate stage, in a volte face,
admitted that it was a PE and that its income was chargeable to tax in India.
In such a situation, if the payer does not deduct tax, the assessee is assumed
to have played some role in the non-deduction of tax at source by the payer,
and interest under Section 234B is payable by the assessee.
5. Specific reliance was sought to be placed by the revenue, on the
Court's emphasis that an assessee claiming its income not to be taxable in
India, unlike one that admits its tax liability from the outset, cannot argue
that it is the responsibility of the payers to deduct tax, and at the same time
benefit from the tax credit under Section 209(1)(d). It was argued that this
case was akin to Alcatel Lucent (supra), in that the assessees had denied
their tax liability initially (by filing NIL returns after the Section 148 notice),
and, therefore, could not take shelter under Jacabs (supra),to now argue that
the payer had an absolute liability to deduct tax from the remittance to the
non-resident payee. The Indian payer could not possibly have been
responsible for deducting tax from the remittances made to the assessees,
under such circumstances.
6. The case of the assessees is that they are non-resident companies and
the payment received by them should have suffered a tax deduction at
ITA 352/2014 and connected matters Page 10
source, by the payer, who was required so to do by Section 195 of the Act.
Placing reliance on Jacabs (supra), it is argued that the obligation upon the
payer to deduct tax at source, before making remittances to the non-resident
assessee, was absolute. This was evident from the terms of pre-amended
Section 209(1)(d), by which the assessee was not liable to pay advance tax,
owing to the tax credit that it was entitled to for the tax that was
"deductible" at source, in computing its advance tax. In other words, in
computing its own advance tax liability, it was entitled to reduce that tax
deductible or collectible at source by the payer. The amendment of proviso
to Section 209(1) in the Finance Act, 2012, prescribing that the non-
resident assessee can take credit only for the amount of tax actually
deducted by the payer, was with effect from 1.4.2012, having been made
expressly prospective. Consequently, during the AYs in question, no interest
was leviable under Section 234B. Alcatel Lucent (supra) was sought to be
distinguished, on the ground that that decision turned on the volte face of the
assessee as to whether its income was taxable in India, at the appellate stage.
There being no admission here of tax liability, it is argued that the obligation
rests upon the payer to deduct tax at source. Reliance was also placed on
CIT v. Madras Fertilizers Ltd. [1984] 149 ITR 703 (Mad.); DIT (Int.
Taxation) v. NGC Network Asia LLC 313 ITR 187 (Bom.); Sedco Forex
International Drilling Inc. v. DCIT 264 ITR 320 (Utt.); Motorola Inc. v. DIT
95 ITR 269 (Delhi SB) and Qualcomm Inc. v. ADIT, 153 TTJ 513 (Del.), for
this proposition.
7. The question that arises for consideration is whether interest should be
levied on the assessee under Section 234B, on the ground of non-payment of
advance tax. The case of the Revenue, in short, is that the position of law in
ITA 352/2014 and connected matters Page 11
Alcatel Lucent (supra) is applicable, 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 non-
payment of advance tax. The case of the assessees on the other hand is that
the position of law in Jacabs (supra) must apply, and that the obligation was
upon the payer to deduct tax at source before making remittances to them;
the payer's failure to do so cannot invite an interest upon the payees.
8. Section 195(1) envisages deduction of tax at source by "any person
responsible for paying" to a foreign company, "any other sum chargeable"
under the provisions of the Act, at the time of credit of such income to the
account of the payee. The Court, in Jacabs (supra), interpreted this
obligation of the payer to deduct tax as absolute, in these terms:
"8. ...The scheme of the Act in respect of non residents is clear.
Section 195 of the Act puts an obligation on the payer, i.e. any
person responsible for paying to a non-resident, to deduct income
tax at source at the rates in force from such payments excluding
those incomes which are chargeable under the head "Salaries‟.
Therefore, the entire tax is to be deducted at source which is
payable on such payments made by the payee to the non-resident.
Section 201 of the Act lays down the consequences of failure to
deduct or pay. These consequences include not only the liability to
pay the amount which such a person was required to deduct at
source from the payments made to a non-resident but also
penalties etc. Once it is found that the liability was that of the
payer and the said payer has defaulted in deducting the tax at
source, the Department is not remedy-less and therefore can take
action against the payer under the provisions of Section 201 of the
Income Tax Act and compute the amount accordingly. No doubt, if
the person (payer) who had to make payments to the non-resident
had defaulted in deducting the tax at source from such payments,
the non- resident is not absolved from payment of taxes thereupon.
However, in such a case, the non-resident is liable to pay tax and
ITA 352/2014 and connected matters Page 12
the question of payment of advance tax would not arise. This
would be clear from the reading of Section 191 of the Act along
with Section 209 (1) (d) of the Act. For this reason, it would not be
permissible for the Revenue to charge any interest under Section
234B of the Act."
9. To understand whether Section 234B may be had recourse to, for
failure to pay advance tax, one must understand the scheme of advance tax
payment. One obligation is imposed upon the payer of a sum to a foreign
company, requiring a deduction of tax at source under Section 195. A
second obligation is directly imposed upon the assessee, by requiring it to
compute its advance tax liability as stipulated under Section 209. However,
a foreign company assessee that receives remittances that are attributable as
business profits to a PE in India, is permitted a tax credit while computing
its advance tax liability under Section 209, since a tax is deductible at source
under Section 195.Section 209(1)(d), prior to the Finance Act, 2012, read:
"Section 209. Computation of advance tax
(1) The amount of advance tax payable by an assessee in the
financial year shall, subject to the provisions of sub-sections (2)
and (3), be computed as follows, namely:-
a. ...
b. ...
c. ...
d. the income-tax calculated under clause (a) or clause (b) or
clause (c) shall, in each case, be reduced by the amount of
income-tax, which would be deductible [or collectible] at source
during the said financial year under any provision of this Act from
any income (as computed before allowing any deductions
admissible under this Act) which has been taken into account in
computing the current income or, as the case may be, the total
ITA 352/2014 and connected matters Page 13
income aforesaid; and the amount of income-tax as so reduced
shall be the advance tax payable:"
10. The position in law, therefore, was that the assessee was entitled to, in
its computation of its advance tax liability, take a tax credit of that amount
which was deductible or collectible, regardless of whether the amount was
actually deducted or collected. As Jacabs (supra) noted, the reason for this
was because, advance tax is to be computed either based on the previous
year's assessment, or on an estimate of the income to be earned that year-
which is to be made much before the final assessment. There is no possible
way in which the provision could allow a tax credit of the amount deducted
or collected, because the actual deduction takes place at a later point in time
i.e. at the point at which the payment is actually made to the assessee.
11. This provision unsurprisingly opened the window for the assessee to
take tax credit of an amount that was deductible, even if it was not actually
deducted. There were several reasons why the amount actually deducted
could be less than the amount deductible by the payer. Despite not suffering
deduction, the position of law permitted the assessee to take credit of the
amount deductible. Of course, such amount which was not actually deducted
could later be brought to tax under Section 191. Nonetheless, 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) in the
following terms:
1
[Provided that for computing liability for advance tax, income-
tax calculated under clause (a) or clause (b) or clause (c) shall
not, in each case, be reduced by the aforesaid amount of income-
tax which would be deductible or collectible at source during the
ITA 352/2014 and connected matters Page 14
said financial year under any provision of this Act from any
income, if the person responsible for deducting tax has paid or
credited such income without deduction of tax or it has been
received or debited by the person responsible for collecting tax
without collection of such tax.]
12. This Court is of the opinion that the law prior to the 2012 amendment
must be read to prevent such anomalies from arising. With this background,
this Court has to examine the applicability of the position of law in Alcatel
Lucent (supra). The facts in Alcatel Lucent (supra) were that the assessee
was a non-resident company which supplied some equipment to Indian
consumers, and received payment for it in the AY 2007-08. Based on the
materials found in the survey at the premises of Alcatel Lucent India Ltd.,
the Indian subsidiary, the AO for Alcatel Lucent France concluded that the
assessee had a PE in India. Reassessment proceedings were initiated against
the assessee for AYs 2004-05 to 2007-08. The assessee maintained the
position that it was not liable to tax in India, as it did not have a PE in India.
Consequently, it filed NIL returns. However, the AO found that a percentage
of its income was taxable in India, attributable to its PE, and levied interest
under Section 234A, 234B and 234C. In the appeal to the CIT(A), the
assessee claiming inter alia, first, that the computation of income, by
attributing business profits to a PE, was incorrect, and second, that the
interest levied under Section 234B was incorrect, since the whole
consideration received by it was liable to tax deduction at source under
Section 195, thus precluding any advance tax liability on its part. However,
it did not press the first ground in the proceedings. The CIT(A) ultimately
deleted the interest under Section 234B, on the ground that while the non-
resident assessee was liable to tax, it could not be held to be liable to
ITA 352/2014 and connected matters Page 15
advance tax, as first, the obligation was absolute upon the payer to deduct
tax at source, under Section 195, read with Section 201 (which permitted
recovery from the payer, as assessee-in-default, of both the tax as well as
interest, for not deducting tax) and second, whether or not any tax was
actually deducted, the assessee was allowed a tax credit of that amount of
tax that was deductible or collectible at source, by the pre-amended Section
209(1)(d), thus negating the assessee's liability to pay advance tax. The
ITAT, on appeal by the Revenue, confirmed the view of the CIT(A).
13. The Division Bench of this Court however, held in favour of the
Revenue, reasoning:
"20. The other argument on behalf of the assessee that the liability
of the payer under Section 201 is absolutely different from the
liability of the non-resident assessee under Section 234B need not
be examined and for the purpose of the present case it would not
make any difference, on account of the peculiar facts of the
present case. It may be recalled that the argument put forth by the
revenue before the Income Tax Appellate Tribunal was that at the
time of the receipt of monies from India, the assessee took the plea
that it did not have any PE in India and, therefore, the payment
was not chargeable to tax in India, with the consequence that
Section 195(1) was not applicable, whereas in the appeals before
the CIT (Appeals), a contradictory stand was adopted by the
assessee, by accepting the fact that it had a PE in India and by
admitting that the income earned in India was chargeable to tax. It
was further argued by the revenue that such a contradictory plea
cannot be permitted to be taken by the assessee. It was pointed out
that consistent with the stand taken in the return, the assessee
would have told the Indian payer that no tax should be deducted
from the remittance and it was, therefore, not open to the assessee,
merely because at the first appeal stage it chose not to contest the
assessment of the income attributable to the Indian PE, to turn
around and say that since it has now accepted its liability to pay
tax on the Indian income, it was for the Indian payers to have
ITA 352/2014 and connected matters Page 16
deducted the tax and if they had not done so the assessee cannot
be held liable for the interest.This argument of the revenue was
rejected by the Tribunal on the ground that there was no material
in support of the plea that the assessee represented to the Indian
payers not to deduct tax, nor did any such facts or circumstances
emerged from the impugned orders.
21. We are unable to uphold this part of the decision of the
Tribunal. It must be remembered that in the note appended to the
return the assessee was quite categorical in denying its liability to
be assessed in India. It relied on the double taxation avoidance
agreement between India and USA and pointed out that there was
no permanent establishment in India. It further stated that the
telecom equipments were sold outside India and the payments
were also received outside India and thus the assessee did not
have any taxable presence in India so as to be liable for tax on its
Indian income. If this was the stand of the assessee, it is not
impermissible or unreasonable to visualise a situation where, the
assessee would have represented to its Indian telecom dealers not
to deduct tax from the remittances made to it. On the contrary it
would be surprising if the assessee did not make any such
representation; such a representation would only be consistent
with the assessee's stand regarding its tax liability in India.
Moreover, no purpose would have been served by the assessee
taking such a categorical stand regarding its tax liability in India
and at the same time suffering tax deduction under Section 195(1).
Therefore, in our opinion, even though there may not be any
positive or direct evidence to show that the assessee did make a
representation to its Indian telecom dealers not to deduct tax from
the remittances, such a representation or informal communication
of the request can be reasonably inferred or presumed. The
Tribunal ought to have accorded due weightage to the strong
possibility or probability of such a request having been made by
the assessee to the Indian payers since otherwise the denial of its
tax liability on its Indian income would have served little purpose
for the assessee.
...
ITA 352/2014 and connected matters Page 17
23. The Tribunal, keeping in mind the above observations,
underlined by us, ought to have drawn the inference that the
Indian payers did not deduct the tax under Section 195(1) because
of the request made by the assessee, consistent with its stand that
it was not liable to be taxed in India."
[emphasis added]
14. The Court went on to state in para 25:
"25. ...It is open to the assessee to deny its liability to tax in India
on whatever grounds it thinks fit and proper. Having denied its tax
liability, it seems unfair on the part of the assessee to expect the
Indian payers to deduct tax from the remittances. It is also open to
the assessee to change its stand at the first appellate stage and
submit to the assessment of the income. When it does so, all
consequences under the Act follow, including its liability to pay
interest under Section 234B since it would not have paid any
advance tax. Such liabilities would arise right from the time when
the income was earned. Advance tax was introduced as a PAYE
Scheme - "pay as you earn". It is not open to the assessee, after
accepting the assessment at the first appellate stage to claim that
the Indian payers ought to have deducted the tax irrespective of
the fact that the assessee itself claimed the Indian income to be not
taxable. We can understand an assessee who admits its tax
liability right from the beginning to contend that it was the
responsibility of the payers to deduct the tax and if they did not,
even then the tax which ought to have been deducted by them
should be set off against the assessee's advance tax liabilities."
[emphasis added]
15. Apparently, it is this part of the decision that the Revenue seeks to
rely upon, in arguing that the view in Alcatel Lucent (supra) did not turn on
the volte face by the assessee as to its PE status, but instead on the fact that,
at the time of assessment, the assessee denied its tax liability altogether. This
Court, upon consideration, is of the view that the fact that was central to the
decision of this Court in Alcatel Lucent (supra) is the assessee's initial denial
of PE status, and consequently of its tax liability, that was aggravated by its
ITA 352/2014 and connected matters Page 18
subsequent volte face by way of its admission that it was a PE liable to tax in
India. This resulted in the Court's view that the assessee had played a role in
influencing the payer's non-deduction of tax at source, and was thus
required to compensate for such a volte face, by paying interest under
Section 234B.
16. This Court respectfully cannot apply the view taken in Alcatel Lucent
(supra) 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 A.O'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.
17. 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
ITA 352/2014 and connected matters Page 19
attributable to its PE in India. That this determination is the responsibility of
the payer is provided for, in the statute, in Section 195(2), which reads:
(2) Where the person responsible for paying any such sum
chargeable under this Act other than salary to a non-resident
considers that the whole of such sum would not be income
chargeable in the case of the recipient, he may make an
application to the Assessing Officer to determine, by general or
special order, the appropriate proportion of such sum so
chargeable, and upon such determination, tax shall be deducted
under sub-section (1) only on that proportion of the sum which is
so chargeable.
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.
18. 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 (supra) 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.
19. Alcatel Lucent (supra), in any event, can be distinguished on the
ground that the Court was persuaded to confirm the levy of interest under
ITA 352/2014 and connected matters Page 20
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 assessee to invoke section 201 and point fingers
at the Indian 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."
ITA 352/2014 and connected matters Page 21
[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.
20. This court also notices that the Madras High Court decision in
Madras Fertilizers Ltd. (supra) and that of the Uttarakhand High Court in
Sedco (supra) was considered and affirmed by the Bombay High Court in
Director International Taxation v NGC Network Asia LLC [2009] 313 ITR
187(Bom) that "We are clearly of the opinion that when a duty is cast on the
payer to pay the tax at source, on failure, no interest can be imposed on the
payee-assessee." An important decision is that of the Karnataka High Court
in Commissioner of Income Tax v Samsung Electronics Co Ltd. 2012 (345)
ITR 494 (Kar), which also considered the same issue, i.e. the obligation
under Section 195 (1). The High Court in the first instance had rejected the
Revenue's appeal; the Supreme Court remitted the matter - for
determination as to whether income by way of royalty had been made out in
the facts of the case. The High Court decision first set out the order of the
Supreme Court inter alia, as to the nature of obligation cast upon the payer
under Section 195:
"While remanding the matter, Hon'ble Supreme Court has made
certain observations while analysing the provisions
of Section 195 of the Act as follows:
ITA 352/2014 and connected matters Page 22
"7. Under Section 195(1), the tax has to be deducted at source
from interest (other than interest on securities) or any other sum
(not being salaries) chargeable under the I.T. Act in the case of
non-residents only and not in the case of residents. Failure to
deduct the tax under this Section may disentitle the payer to any
allowance apart from prosecution under Section 276B.
Thus, Section 195 imposes a statutory obligation on any person
responsible for paying to a non-resident, any interest (not being
interest on securities) or any other sum (not being dividend)
chargeable under the provisions of the I.T. Act, to deduct income
tax at the rates in force unless he is liable to pay income tax
thereon as an agent. Payment to non-residents by way of royalty
and payment for technical services rendered in India are common
examples of sums chargeable under the provisions of the I.T. Act
to which the aforestated requirement of tax deduction at source
applies. The tax so collected and deducted is required to be paid
to the credit of Central Government in terms of Section 200 of the
I.T. Act read with Rule 30 of the I.T. Rules, 1962. Failure to
deduct tax or failure to pay tax would also render a person liable
to penalty under Section 201 read with Section 221 of the I.T. Act.
In addition, he would also be liable under Section201(1A) to pay
simple interest at 12 per cent per annum on the amount of such tax
from the date on which such tax was deductible to the date on
which such tax is actually paid. The most important expression
in Section 195(1) consists of the words "Chargeable under the
provisions of the Act". A person paying interest or any other sum
to a non-resident is not liable to deduct tax if such is not
chargeable to tax under the I.T. Act. For instance, where there is
no obligation on the part of the payer and no right to receive the
sum by the recipient and that the payment does not arise out of
any contract or obligation between the payer and the recipient but
is made voluntarily, such payments cannot be regarded as income
under the I.T. Act. It may be noted that Section 195 contemplate
not merely amounts, the whole of which are pure income
payments, it also covers composite payments which has an element
of income embedded or incorporated in them. Thus, where an
amount is payable to a non-resident, the payer is under an
obligation to deduct TAS in respect of such composite payments.
ITA 352/2014 and connected matters Page 23
The obligation to deduct TAS is, however, limited to the
appropriate proportion of income chargeable under the Act
forming part of the gross sum of money payable to the non-
resident. This obligation being limited to the appropriate
proportion of income flows from the words used in Section 195(1),
namely, "chargeable under the provisions of the Act". It is for this
reason that vide Circular No. 728 dated October 30, 1995 the
CBDT has clarified that the tax deductor can take into
consideration the effect of while deducting TAS. It may also be
noted that Section 195(1) is in identical terms
with Section 18(3B) of the 1922 Act, In CIT v. Cooper Engineering
(MANU/MH/0040/1967 : 68 ITR 457) it was pointed out that if
the payment made by the resident to the non-resident was an
amount which was not chargeable to tax in India, then no tax is
deductible at source even though the assessee had not made an
application under Section 18(3B) (now Section 195(2) of the I.T.
Act). The application of Section 195(2) pre-supposes that the person
responsible for making the payment to the non-resident is in no
doubt that tax is payable in respect of some part of the amount to
be remitted to a non-resident but is not sure as to what should be
the portion so taxable or is not sure as to the amount of tax to be
deducted. In such a situation, he is required to make an
application to the ITO (TDS) for determining the amount. It is only
when these conditions are satisfied and an application is made to
the ITO (TDS) that the question of making an order under
Section 195(2) will arise. In fact, at one point of time, there was a
provision in the I.T. Act to obtain a NOC from the Department that
no tax was due. That certificate was required to be given to RBI
for making remittance. It was held in the case of Czechoslovak
Ocean Shipping lnternational Joint Stock Company v.
ITO MANU/WB/0143/1970 : 81 ITR 162 (Calcutta) that an
application for NOC cannot be said to be an application
under Section 195(2) of the Act. Which deciding the scope
of Section 195(2) it is important to note that the tax which is
required to be deducted at source is deductible only out of the
chargeable sum. This is the underlying principle of Section195.
Hence, apart from Section 9(1), Sections 4, 5, 9, 90, 91 as well as
the provisions of DTAA are also relevant, while applying tax
ITA 352/2014 and connected matters Page 24
deduction at source provisions. Reference to ITO (TDS)
under Section 195(2) or 195(3) either by the non-resident or by
the resident payer is to avoid any future hassles for both resident
as well as non-resident. In our
view, Sections 195(2) and 195(3) are safeguards. The said
provisions are of practical importance. This reasoning of ours is
based on the decision of this Court in Transmission Corporation
(supra) in which this safeguard. From this it follows that where a
person responsible for deduction is fairly certain then he can make
his own determination as to whether the tax was deductible at
source and, if so, what should be the amount thereof."
The Supreme Court after considering the submissions of learned counsel
appearing for the parties regarding the validity of the order passed by this
Court dated 24-9-2009 has observed as follows:
"9. One more aspect needs to be highlighted. Section 195 falls in
Chapter XVII which deals with collection and recovery. Chapter
XVII-B deals with deduction at source by the payer. On analysis
of various provisions of Chapter XVII one finds use of different
expressions however, the expression "sum chargeable under the
provisions of the Act" is used only in Section 195. For
example, Section 194C casts an obligation to deduct TAS in respect
of "any sum paid to any resident".
Similarly, Sections 194EE and 194F inter alia provide for deduction
of tax in respect of "any amount" referred to in the specified
provisions. In none of the provisions we find the expression "sum
chargeable under the provisions of the Act", which as stated
above, is an expression used only in Section 195(1). Therefore,
this Court is required to give meaning and effect to the said
expression. It follows, therefore, that the obligation to deduct TAS
arises only when there is a sum chargeable under the
Act. Section 195(2) is not merely a provision to provide
information to the ITO(TDS). It is a provision requiring tax to be
deducted as source to be paid to the Revenue by the payer who
makes payment to a non-resident. Therefore, Section 195 has to be
read in conformity with the charging provisions,
ie., Sections 4, 5 and 9. This reasoning flows from the words "sum
ITA 352/2014 and connected matters Page 25
chargeable under the provisions of the Act" in Section 195(1). The
fact that the Revenue has not obtained any information per se
cannot be a ground to construe Section 195 widely so as to require
deduction of TAS even in a case where an amount paid is not
chargeable to tax in India at all. We cannot read Section 195, as
suggested by the Department, namely, that the moment there is
remittance the obligation to deduct TAS arises. If we were to
accept such a contention it would mean that on mere payment
income would be said to arise or accrue in India. Therefore, as
stated earlier, if the contention of the Department was accepted it
would mean obliteration of the expression "sum chargeable under
the provisions of the Act" from Section 195(1). While interpreting
a Section one has to give weightage to every word used in
that section. While interpreting the provisions of the Income Tax
Act one cannot read the charging Sections of that Act de hors the
machinery Sections. The Act is to be read as an integrated
code. Section 195 appears in Chapter XVII which deals with
collection and recovery. As held in the case of C.I.T. v. Eli Lilly &
Co. (India) (P.) Ltd. [MANU/SC/0487/2009 : 312 ITR 225) the
previsions for deduction of TAS which is in Chapter XVII dealing
with collection of taxes and the charging provisions of the I.T. Act
form one single integral, inseparable Code and, therefore, the
provisions relating to TDS applies only to those sums which are
"chargeable to tax" under the I.T. Act. It is true that the judgment
in Eli Lilly (supra) was confined to Section 192 of the I.T. Act.
However, there is some similarity between the two. If one looks
at Section 192 one finds that it imposes statutory obligation on the
payer to deduct TAS when he pays any income "chargeable under
the head salaries". Similarly, Section 195 imposes a statutory
obligation on any person responsible for paying to a non-resident
any sum 'chargeable under the provisions of the Act', which
expression, as stated above, do not find place in other Sections of
Chapter XVII. It is in this sense that we hold that the I.T. Act
constitutes one single integral inseparable Code. Hence, the
provisions relating to TDS applies only to those sums which are
Department that any person making payment to a non-resident is
necessarily required to deduct TAS then the consequence would be
that the Department that any person making payment to a non-
ITA 352/2014 and connected matters Page 26
resident is necessarily required to deduct TAS then the
consequence would be that the Department would be entitled to
appropriate the moneys deposited by the payer even if the sum
paid is not chargeable to tax because there is no provision in the
I.T. Act by which a payer can obtain refund. Section237 read
with Section 199 implies that only the recipient of the sum. i.e., the
payee could seek a refund. It must therefore follow, if the
Department is right that the law requires tax to be deducted on all
payments. The payer, therefore, has to deduct and pay tax, even if
the so-called deduction comes out of his own pocket and he has no
remedy whatsoever, even where the sum paid by him is not a sum
changeable under the Act. The interpretation of the Department,
therefore, not only requires the words "chargeable under the
provisions of the Act" to be omitted, it also leads to an absurd
consequence. The interpretation placed by the Department would
result in a situation where even when the income has no territorial
nexus with India or is not chargeable in India, the Government
would nonetheless collect tax. In our
view, Section 195(2) provides a remedy by which a person may
seek a determination of the "appropriate proportion of such so
chargeable" where a proportion of the sum so chargeable is liable
to tax. The entire basis of the Department's contention is based on
administrative convenience in support of its interpretation.
According to the Department huge seepage of revenue can take
place if persons making payments to non-residents are free to
deduct TAS or not to deduct TAS. It is the case of the Department
that Section 195(2), as interpreted by the High Court, would plug
the loophole as the said interpretation requires the payer to make
a declaration before the ITO(TDS) of payments made to non-
residents. In other words, according to the
Department Section 195(2) is a provision by which payer is
required to inform the Department of the remittances he makes to
the non-residents by which the Department is able to keep track of
the remittances being made to non-residents outside
India. Section 195(1)uses the expression "sum chargeable under the
provisions of the Act". We need to give weightage to those words.
Further, Section 195 uses the word 'prayer' and not the word
"assessee". The payer is not an assessee. The payer becomes an
ITA 352/2014 and connected matters Page 27
assessee-in-default only when he fails to fulfil the statutory
obligation under Section 195(1). If the payment does not contain
the element of income the payer cannot be made liable. He cannot
be declared to be an assessee-in-default. The above mentioned
contention of the Department is based on an apprehension which
is ill founded. The payer is also an assessee under the ordinary
provisions of the I.T. Act. When the payer remits an amount to a
non-resident out of India he claims deduction or allowances under
the Income Tax Act for the said sum as an "expenditure".
Under Section 40(a)(i), inserted vide Finance Act, 1988 w.e.f. 1.4.89,
payment in respect of royalty, fees technical services or other
sums chargeable under the Income Tax Act would not get the
benefit of deduction if the assessee fails to deduct TAS in respect
of payments outside India which are chargeable under the IT. Act.
This provision ensures effective compliance of Section195 of the
I.T. Act relating to tax deduction at source in respect of payments
outside India in respect of royalties, fees or other sums chargeable
under the I.T. Act. In a given case where the payer is an assessee
he will definitely claim deduction under the I.T. Act for such
remittance and on inquiry if the AO finds that the sums remitted
outside India comes within the definition of royalty or fees for
technical service or other sums chargeable under the I.T. Act then
it would be open to the AO to disallow such claim for deduction.
Similarly, vide Finance Act, 2008, w.e.f. 1.4.2008 sub-section (6)
has been inserted in Section 195 which requires the payer to
furnish information relating to payment of any sum in such form
and manner as may be prescribed by the Board. This provision is
brought into force only from 1.4.2008. It will not apply for the
period with which we are concerned in these cases before us.
Therefore, in our view, there are adequate safeguards in the Act
which would prevent revenue leakage."
The Karnataka High Court first addressed this question and stated that:
"17. It is clear from the scrutiny of the material on record and
the contentions of the parties viz., revenue and the respective
respondent in these cases that the fact that payments have been
made by the respondent herein to non-resident for having
ITA 352/2014 and connected matters Page 28
imported shrink wrapped software/off-the-shelf software is not
disputed. There is also no dispute that no tax was deducted at
source by the respondent under Section 195(1) of the Act in respect
of such payments on the ground that the same were made for the
purpose of purchase of shrink wrapped software/off-the-shelf
software. It is contended by the respondent that since there is no
permanent establishment of the non-resident in India, the said
payments have to be treated as income from business and is not
taxable under the Income Tax Act in India and consequently, there
is no obligation on the part of the respondent to deduct the
advance tax under Section 195 of the Act and also consequential
proceedings would not be attracted. Therefore, the dispute
between the revenue and the respondent in these cases is whether
payments made by the respondent to the non-resident would
constitute 'royalty' or 'Income from Business' and if it is to be
treated as 'Income from Business', whether the non-resident is
required to have a permanent establishment in India. Further, in
the absence of any permanent establishment of the non resident in
India, is there no obligation on the part of the payee, the
respondent herein to deduct tax at source under Section 195 of the
Act. Therefore, the fact that the payments made by the payee, the
respondent herein to the non-resident would constitute income of
the non-resident is indisputable. However, the dispute is as to
whether such income in the hands of the non-resident is to be
treated as sale and income from business covered under
Article 7 of the DTAA with respective countries or whether the
payments would amount to royalty in the hands of the non-
resident, for which no permanent establishment is required for
making payment in India. There is also no dispute that if the
payments made by the respondent are held to be royalty and not
'Income from Business', there is an obligation on the part of the
payee, the respondent herein to deduct the tax at source and in
default, the respondent herein would be considered as a default
assessee. Once there is an obligation to deduct tax at source
under Section 195 of the Act, which imposes a statutory right on
any person responsible for paying to a non-resident, any interest
(not being interest on securities) or any other sum (not being
dividend) chargeable under the provisions of the Act, to deduct
ITA 352/2014 and connected matters Page 29
income-tax at the rates in force unless he is liable to pay income-
tax thereon as an agent. Payment to non-residents by way of
royalty and payment for technical services rendered in India are
common examples of sums chargeable under the provisions of the
Act to which the aforestated requirement of TDS applies. The tax
so collected and deducted is required to be paid to the credit of
Central Government in terms of Section 200 of the Act read with
rule 30 of the Income Tax Rules, 1962. Failure to deduct tax or
failure to pay tax would also render a person liable to penalty
under Section 201 read with Section 221 of the Act. In addition, he
would also be liable under Section201(1A) to pay simple interest at
12 per cent per annum on the amount of such tax from the date on
which such tax was deductible to the date on which such tax is
actually paid. Therefore, if the amount is held to be royalty, the
other consequences as referred to above would follow."
After holding that the transaction in that case amounted to royalty
and, therefore, taxable, the Court ruled that the obligation to deduct tax was
with the payer:
"In any view of the matter, in view of the provisions of
Section 90 of the Act, agreements with foreign countries DTAA
would override the provisions of the Act. Once it is held that
payment made by the respondents to the non-resident Companies
would amount to 'royalty' within the meaning of Article 12 of the
DTAA with the respective country, it is clear that the payment
made by the respondents to the non-resident supplier would
amount to royalty. In view of the said finding, it is clear that there
is obligation on the part of the respondents to deduct tax at source
under Section 195 of the Act and consequences would follow as
held by the Hon'ble Supreme Court while remanding these appeals
to this Court."
21. A Court's task is to unravel the legislative intent, if it is not discernable.
Where, however, the provisions are clear, the Court's duty is to administer
the law in its terms. It is bound to adhere to its precedents; yet its devotion to
ITA 352/2014 and connected matters Page 30
a previous holding cannot blind it to the clear terms of the statute, wherever
found. If Alcatel Lucent (supra) is correct and is to be applied in all
situations, there would be dissimilar and asymmetrical results entirely
dependent on the facts presented in each case. It is unclear what would be
the outcome where the payee is, in fact, under the bona fide belief that it
does not have a PE, or how the payer is to discern that a payee's assertion is
intended to defeat the law. This Court therefore, notes that this precise
question was addressed in Samsung Electronics (supra) by the Supreme
Court, while remitting the matter for reconsideration by the High Court. The
Court perceptively held that:
"Hence, apart from Section 9(1), Sections 4, 5, 9, 90, 91 as well
as the provisions of DTAA are also relevant, while applying tax
deduction at source provisions. Reference to ITO (TDS)
under Section 195(2) or 195(3) either by the non-resident or by the
resident payer is to avoid any future hassles for both resident as
well as non resident. In our view, Sections 195(2) and 195(3) are
safeguards. The said provisions are of practical importance. This
reasoning of ours is based on the decision of this Court in
Transmission Corporation (supra) in which this safeguard. From
this it follows that where a person responsible for deduction is
fairly certain then he can make his own determination as to
whether the tax was deductible at source and, if so, what should be
the amount thereof."
22. This Court, therefore, holds that Jacabs (supra) applies in such
situations; Alcatel Lucent (supra) can be explained as a decision turning
upon its facts; its seemingly wide observations, limited to the circumstances
of the case. This Court, therefore, holds that the view taken by ITAT was
correct; the primary liability of deducting tax (for the period concerned,
since the law has undergone a change after the Finance Act, 2012) is that of
ITA 352/2014 and connected matters Page 31
the payer. The payer will be an assessee in default, on failure to discharge
the obligation to deduct tax, under Section 201 of the Act.
23. For the above reasons, this Court finds that no interest is leviable on
the respondent assessees under Section 234B, even though they filed returns
declaring NIL income at the stage of reassessment. The payers were obliged
to determine whether the assessees were liable to tax under Section 195(1),
and to what extent, by taking recourse to the mechanism provided in Section
195(2) of the Act. The failure of the payers to do so does not leave the
Revenue without remedy; the payer may be regarded an assessee-in-default
under Section 201, and the consequences delineated in that provision will
visit the payer. The appeal of the Revenue is accordingly dismissed without
any order as to costs.
S. RAVINDRA BHAT
(JUDGE)
R.K. GAUBA
(JUDGE)
JANUARY 12, 2015
ITA 352/2014 and connected matters Page 32
