Income Tax Act, 1961 – ss.190, 201, 209 and 234B – Proviso to s.209(1)(d), inserted by the Finance Act, 2012 – Interpretation of s.209 (1)(d) – The Respondent- Assessee is a non-resident company incorporated in Japan, with operations in India – Notice was issued to the Respondent-Assessee u/s. 143 (2) of the Act on 12.10.2006 – An assessment order was passed for the years 199899 to 2004-05 holding that a portion of the Assessee’s income was attributable to its activities in India and was therefore liable to be taxed in India, under Articles 4, 5 and 6 of the Double Taxation Avoidance Agreement between India and Japan, read with the provisions of the Act – The Respondent- Assessee filed appeals before the Commissioner of Income-Tax (Appeals) (CIT) only with respect to levy of interest u/s. 234B of the Act – CIT dismissed the appeals – Respondent filed appeal before Income Tax Appellate Tribunal (ITAT) – While allowing the appeal, the ITAT held that the respondent was not liable for payment of interest u/s. 234B, when tax at source was deductible from payment made to the Respondent – This decision was challenged before the High Court, which was dismissed and the order of ITAT was upheld – Batch of appeals were filed in Supreme Court pursuant to the judgment of High Court – Respondent-Assessee submitted that s.234B of the Act cannot be read in isolation but in the light of s.209 of the finance Act, 2012 – The Revenue contended that s.234B should be read in isolation – Held: The liability for payment of interest as provided in s.234B is for default in payment of advance tax – While the definition of “assessed tax”u/s.234B pertains to tax deducted or collected at source, the preconditions of s.234B, viz. liability to pay advance tax and non-payment or short payment of such tax, have to be satisfied, after which interest can be levied taking into account the assessed tax – Therefore, s.209 of the Act which relates to the computation of advance tax payable by the assessee cannot be ignored while construing the contents of s.234B – The proviso to s.209(1)(d) is in the nature of an exception to s.209(1)(d), as an assessee, who has received any income without deduction or collection of tax, is made liable to pay advance tax in respect of such income – The proviso makes it clear that assesse cannot reduce the amounts of income tax paid to it by the payer without deduction, while computing liability for advance tax – However, the intended effect of amendment made to s.209(1)(d) by insertion of the proviso has to be understood to entitle the assessee, for all assessments prior to the financial year 2012-2013 to reduce the amount of income- tax which would be deductible or collectible, in computation of its advance tax liability – Therefore, prior to the financial year 2012-2013, the amount of income tax which is deductible or collectible at source can be reduced by the assessee while calculating advance tax, the Respondent cannot be held to have defaulted in payment of its advance tax liability – The view adopted by the High Court is upheld.
Disposing of the appeals, this Court
HELD: 1. The relevant provision of the Act which falls for consideration in this case are in Chapter XVII, which pertains to collection and recovery of tax. In accordance with Section 190 of the Act, tax on income shall be payable by deduction or collection at source or by advance payment, notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year. Any person responsible for paying to a nonresident or to a foreign company shall, at the time of the credit of such income, deduct income- tax thereon at the rate inforce, according to Section 195. Section 200 provides that a person deducting any sum in accordance with the provisions of Chapter XVII shall pay, within the prescribed time, the sum so deducted to the credit of the Central Government. The consequences of failure to deduct tax or pay the tax after deduction are dealt with in Section 201 of the Act. [Para 11][759-G-H; 760-A-C]
2. An analysis of clauses (a) and (d) of Section 209 (1) would make it clear that the assessee shall estimate his current income and income-tax for payment of advance tax on the basis of rates in force in the financial year. The calculation of the advance tax is to be reduced by the amount of income-tax which would be deductible or collectible at source during the said financial year. In case of failure to pay advance tax under Section 208 or where the advance tax paid by the assessee as per the provision of Section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay interest on the amount of shortfall from the assessed tax, according to Section 234B of the Act. [Para 12][762-E-F]
3. The primary issue is the interpretation of Section 209
(1) (d). A proviso was inserted to Section 209 (1) (d) by the Finance Act, 2012. The proviso is in the nature of an exception to Section
209 (1) (d), as an assessee, who has received any income without deduction or collection of tax, is made liable to pay advance tax in respect of such income. It is relevant to note that the amendment was brought into effect from 1st April, 2012 and was made applicable to cases of advance tax payable in the financial year 2012-13 and thereafter. All the appeals before this court pertain to the period prior to assessment year 2013-14. [Para 14, 16][763-B; 764-B-C]
4. The dispute relating to the interpretation of the words “would be deductible or collectible” in Section 209 (1) (d) of the Act can be resolved by referring to the proviso to Section 209
(1) (d), which was inserted by the Finance Act, 2012. The proviso makes it clear that the assessee cannot reduce the amounts of income-tax paid to it by the payer without deduction, while computing liability for advance tax. The memorandum explaining the provisions of the Finance Bill, 2012 provides necessary context that the amendment was warranted due to the judgements of courts, interpreting Section 209 (1) (d) of the Act to permit computation of advance tax by the assessee by reducing the amount of income-tax which is deductible or collectible during the financial year. If the construction of the words “would be deductible or collectible” as placed by the Revenue is accepted, the amendment made to Section 209 (1) (d) by insertion of the proviso would be meaningless and an exercise in futility. To give the intended effect to the proviso, Section 209 (1) (d) of the Act has to be understood to entitle the assessee, for all assessments prior to the financial year 2012-13, to reduce the amount of income- tax which would be deductible or collectible, in computation of its advance tax liability, notwithstanding the fact that the assessee has received the full amount without deduction. [Para 19][765-E-H; 766-A-B]
5. This does not find force in the contention of the Revenue that Section 234B should be read in isolation without reference to the other provisions of Chapter XVII. The liability for payment of interest as provided in Section 234B is for default in payment of advance tax. While the definition of “assessed tax” under Section 234B pertains to tax deducted or collected at source, the pre-conditions of Section 234B, viz. liability to pay advance tax and non-payment or short payment of such tax, have to be satisfied, after which interest can be levied taking into account the assessed tax. Therefore, Section 209 of the Act which relates to the computation of advance tax payable by the assessee cannot be ignored while construing the contents of Section 234B. As this Court has already held that prior to the financial year 201213, the amount of income-tax which is deductible or collectible at source can be reduced by the assessee while calculating advance tax, the Respondent cannot be held to have defaulted in payment of its advance tax liability. This Court upholds the view adopted in the impugned judgment of the Delhi High Court in Civil Appeal No. 1262 of 2016 aswell as by the Madras High Court in the Madras Fertilizers case, that the Revenue is not remediless and there are provisions in the Act enabling the Revenue to proceed against the payer who has defaulted in deducting tax at source. There is no doubt that the position has changed since the financial year 2012-13, in view of the proviso to Section 209 (1) (d), pursuant to which if the assessee receives any amount, including the tax deductible at source on such amount, the assessee cannot reduce such tax while computing its advance tax liability. [Para 20][766-B-F]
6. As this Court had dealt with the submissions relating to Section 209 and Section 234B of the Act, this Court does not deem it necessary to deal with other contentions that have been raised on behalf of the Revenue. Accordingly, the Appeals filed by the Revenue are dismissed. [Para 21, 22][766-G-H] Gem Granites v. Commissioner of Income Tax, T.N. (2005) 1 SCC 289 : [2004] 6 Suppl. SCR 332; State of Bihar v. S.K. Roy [1966] Suppl. SCR 259; Ian Peter Morris v. Assistant Commissioner of Income Tax (2020)
15 SCC 123 – referred to.
Motorola Incorporation v. Deputy CIT [2005] 95 ITD 269; Commissioner of Income-Tax v. Tide Water Marine International Inc [2009] 309 ITR 85; Director of Income-Tax (International Taxation) v. NGC Network Asia LLC [2009] 313 ITR 187; Commissioner of Income Tax and Anr. v. Sedco Forex International Drilling Co. Ltd. [2003] 264 ITR 320; Commissioner of Income Tax, Tamil Nadu – I, Madras v. Madras Fertilizers Ltd. [1984]
149 ITR 703; Director of Income-tax v. Mitsubishi Corporation [2010] 330 ITR 578 – referred to.
Cape Brandy Syndicate v. I.R.C [1921] 2 K.B. 403 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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