Jt. Director Of Income Tax vs Booz Allen And Hamilton Inc., ... on 18 September, 2006

Income Tax Appellate Tribunal - Mumbai

Equivalent citations: 2008 298 ITR 87 Mum, (2007) 112 TTJ Mum 42

Bench: K Boliya, S Chowla

ORDER

K.K. Boliya, Accountant Member

1. These four departmental appeals involving common issue are disposed off by this common order The department has raised the following ground of appeal, which is common in respect of the four appeals:

On the facts and in the circumstances of the case and in law, the CAT (A) erred in holding that interest Under Section 234A and 234B of the Income Tax Act, 1961 was not chargeable in the case of the assessee, on the ground that in the case of a non-resident assessee, all sums chargeable to tax are liable to deduction of tax at source Under Section 195 of the Income Tax Act, 1961.

2. The relevant facts are that the assessee company has been treated by the assessing officer as represented assessee of M/s Booz Allen Hamilton Inc. SE Asia/UK/USA/Brazil Under Section 163. The aforesaid company received various payments on which tax was deductible at source as per the provisions of Section 195 of the Act. The assessee company filed return of income in respect of assessment year 98-99 declaring nil income on the ground that the payments received by one NRI company from other NRI companies cannot be brought to the charge of tax under the provisions of Income Tax Act, 1961 This claim was rejected by 1he assessing officer with the result that the payments receivcd by the NRI were assessed in the hands of the assessee company as representative assessee of the NRI The assessing officer also levied interest Under Section 234A & 234B. The assessment made by the assessing officer was carried in appeal before the CIT(A), who confirmed the quantum of the assessed income but deleted the interest charged under both the sections as mentioned above with the following observations:

In so far as objection to the levy of interest Under Section 234A and 234B for want of any specific direction in the assessment is concerned, I do not agree with the appellant because on a specific query by me, it was admitted by the AR that a duly signed form ITNS no. 150 was also served on the appellant along with the assessment order Therefore, there does not remain any defect of not giving any specific direction of charging of interest Under Section 234A and 234B of the Income Tax Act, 1969 in the assessment order However, I agree with the contention of the AR that interest Under Section 234A & 234B is not chargeable in this case because it is a case of a non resident assessee where any sum chargeable to tax is liable to deduction of tax at source Under Section 195 of the Income Tax Act, 1961 Respectfully following the decisions as relied by the appellant levy of interest Under Section 234A & 234B is directed to be deleted.

3. The learned DR Shri R.N. Parbhat submitted that the learned CIT(A) was not justified in deleting the levy of interest charged by the assessing officer. The learned DR relied on the ITAT, Delhi Bench decision in the case of Asia Satellite Telecommunications Co. Ltd. - 85 ITD 478. He invited our attention to the relevant part of the ratio of this case, which is reproduced below from the head note -

The liability towards interest Under Section 234A is mandatory and arises on account of failure to file the return within the time as, prescribed Under Section 13991). As the assessee was under obligations to file the return on or before 30.11.1997. which was actually not filed in time, the liability to pay interest Under Section 234A was rightly attracted and the CIT(A) was justified in holding

Section 234B is attracted only when the assessee is liable to pay advance tax Under Section 208 It was an admitted position that no tax was actually deducted by the customers of the assessee But the word used in Section 209(1)(d) is 'deductible' and not 'deducted' Therefore, if any tax was deductible from any income paid to the assessee during the year, no interest Under Section 234B could be charged to the extent irrespective of the fact whether it had been actually deducted or not.

4. In the above case, with regard to levy of interest Under Section 234B, the Tribunal held that there is no liability on the part of the assessee to pay advance tax, if the income of the assessee is such on which tax is deductible at source as per the provisions of the Act. Therefore, in such a situation, interest Under Section 234B cannot be charged However, with regard to levy of interest Under Section 234A, the Tribunal held that such interest is leviable for the default of not filing the return of income in time and levy of such interest is mandatory. With regard to the interest Under Section 234B, the matter was restored to the assessing officer for determining the extent of such income on which tax was deductible at source. The learned DR also referred to ITAT, Delhi Special Bench decision in the case Motorola Inc. 95 ITD 269. In this case also, the Special bench was concerned with the question regarding levy of interest Under Section 234A & 234B, in a case where tax at source was deductible Under Section 195 of the Act. It was held by the Special Bench that the charging of interest under both the sections is mandatory and the assessing officer has no power to reduce or waive such interest. However, with regard to levy of interest Under Section 234B, it was held by the Special bench that no such interest can be chargeable, in a case where on the relevant income, tax is deductible at source.

5. The learned DR therefore, submitted that the learned CIT(A) was not justified in deleting interest charged Under Section 234A of the Act. With regard to the interest Under Section 234B, the learned DR relied on the decision of Hon'ble Calcutta High Court in the case of CIT v. Borhat Tea Co. Ltd. 193 ITR 134 Drawing support from this case, the learned DR contended that for the purpose of charging of interest Under Section 234B, what is relevant is the actual tax deducted at source and not tax deductible.

6. The learned Counsel appearing for the assessee Ms Mital Patel argued that with regard to the levy of interest 234B, the issue is squarely covered by the ITAT, Delhi special Bench decision in the case of Motorola Inc (supra). For the same proposition, the learned Counsel appearing for the assessee also drew support from the following cases:

1) Fisons PLC v. DCIT 272 ITR (AT) 59 (Bom)

2) SEDCO Forex International Drilling Inc. 67 TTJ 670 Delhi

7. Regarding interest Under Section 234A, she relied on the ITAT, Mumbai (TM) decision in the case of MM Ratnam 62 ITD 21. The learned Counsel submitted that in the above case, the Tribunal duly considered the provisions of Section 209(1)(d) and held that in a case, where tax at source is deductible from the relevant income, interest is not leviable Under Section 234A, 234B & 234C She invited our attention to the relevant part of this decision, which is reproduced below from page 43 of the report.

From the provisions of Sub-clause (d) of Section 209(1) extracted above, it is very clear that to arrive at the amount of advance tax payable by the assessee, income tax calculated under Clause (a) or Clause (b) or Clause (c) has to be reduced by the amount of income tax which would be deductible or collectible at source during the said financial year under any provisions of the Act, from any income which has been taken into account in computing the current income or as the case may be the total income, and the amount of income tax so reduced shall be the advance tax payable

23. In the light of these express provisions, we are of The opinion that if any perquisite was taxable in assessee's hands, then, it was liable to be deduction of tax source because the same was taxable under the head "salary"

24. We are further of the opinion, that if this was taxable under the head 'salary' then it was the responsibility of the employer to deduct the tax at source and for the failure of the employer, the assessee cannot be fastened with the liability to pay such amount by way of advance tax. Therefore the question of charging interest Under Section 234A, 234B & 234C do not arise at all and consequently the same are cancelled.

8. With regard to charging of interest Under Section 234A, the learned Counsel also placed reliance on the following cases -

1) Dr Pranay Roy v. CIT 254 ITR 755 (Del)

2) Milan Enterprises v. ACIT 95 ITD 18 (Bom)

9. We have given a careful consideration to the rival submissions and we have gone through the relevant facts as also the precedents cited before us We first deal with the question regarding charging of interest Under Section 234A. Interest Under Section 234A is chargeable where the return of income is not furnished before the due date. Such interest is chargeable on the amount of the tax on the total income as determined Under Section 143(1) or on regular assessment as reduced by the advance tax paid and any tax deducted or collected at source. Thus, such interest is leviable when return of income is filed late by the assessee and the calculation of interest is based upon the tax after allowing credit for the advance tax and tax, which is deducted at source It is notable that Section 234A refers to "tax deducted" and not "tax deductible". On the other hand, the liability for levy of interest Under Section 234B arises in a case, where an assessee, who is liable to pay advance tax has failed to pay such tax or where there is shortfall in payment of advance tax. The defaults for which interest is chargeable Under Section 234A and 234B are separate and distinct. Before interest Under Section 234B is charged, it must be established that the assessee is liable to pay advance tax Under Section 208 of the Act. There is no such requirement for levy of interest Under Section 234A. The learned Counsel appearing for the assessee has heavily relied on the ITAT, Mumbai decision in the case of MM Ratnam (supra), the relevant part of which is already reproduced above. It is true that the Tribunal has duly considered the provisions of Section 209(1)(d) and after considering these provisions, it has been held that the liability for payment of advance tax arises only after deducting the tax deductible at source from the tax payable. In that case, the assessee had received certain payments assessable under the head income from salary on which tax was deductible at source by the employer. It was held by the Tribunal that in such a case, the assessee cannot be fastened with the liability to pay such amount by way of tax. After observing thus, the Tribunal at para 24 abruptly held that question, of charging interest Under Section 234A, 234B & 234C does not arise. As mentioned by us above, default regarding payment of advance tax has no relation whatsoever with levy of interest Under Section 234A. Irrespective of the fact as to whether advance tax has been paid or not, interest Under Section 234A will be chargeable if there is a delay in filing return of income. The separate provisions of law as regards charging of interest Under Section 234A & 234B have not been considered by the Tribunal in the case of MM Ratnam (supra). The learned Counsel appearing for the assessee has also relied on the Hon'ble Delhi High Court decision in the case of Dr. Pranay Roy (supra). The relevant part of the ratio of this case is reproduced below from the head note:

For the assessment year 1995-96, the petitioner earned substantial capital gains and paid the lax due before the return was due to be filed on October 31, 1995. The assessing officer charged interest for the return filed by assessee after a delay of 11 months Under Section 234A of the Income Tax Act, 1961. In a revision petition filed by the assessee Under Section 264, the Commissioner held that deduction of tax paid was not provided in Section 234A, as it compensates delay or default in filing the return of income and not the lax On a writ petition:

Held, allowing the petition, that the petitioner had paid the tax before the due date for filing the return for the year in question. The revenue had not suffered any monetary loss for the non-filing of the return by the petitioner. Section 234A, 234b & 234C were enacted to see that the income tax return was filed within the prescribed time. If the return was not filed within the time prescribed, the assessing officer would not only be entitled to issue an appropriate notice directing the assessee to file a return but also in a case of this nature take recourse to the provisions of Section 147 and 148 of the Act. Therefore, interest Under Section 234A would be payable only in a case where tax had not been deposited prior to the due date of filing of the return.

10. From the above, it is seen that even though, the filing of return of income was delayed, the entire tax was already paid by the asscssee before the due date for filing of return of income. Therefore, the High Court held that interest Under Section 234A is not chargeable as there was no loss to the revenue, the interest being only compensatory. The facts of this case cannot be applied to the facts of the assessee's case. Similarly, in the case Milan Enterprises (supra), the Tribunal held that where income tax has been paid before the due date for filing return of income, interest Under Section 234A cannot be levied. In the case before us, the return has been delayed and the tax has not been paid before the due date for filing the return of income. The learned Counsel appearing for the assessee has contended that on the entire income, tax was deductible at source and further the return of income was filed by the assessee declaring nil income. In our view, these arguments are not relevant for the purpose of charging of interest Under Section 234A. The liability for payment of advance tax is determined after taking into account the tax deductible at source. However, the return of income for the relevant assessment year is required to be filed in the subsequent financial year and before filing the return of income, the assessee is well aware as to whether any tax at source has been deducted or not. The assessee is liable to levy of interest Under Section 234A on the assessed tax as reduced by the advance tax actually paid and the tax actually deducted at source. In our view, in the present case, the liability for levy of interest Under Section 234A has arisen on account of the additions made by the assessing officer and therefore even though interest Under Section 234A is mandatorily leviable as held by the ITAT Special Bench in the case of Motorola inc, such interest has to be consequential to the quantum of tax determined as payable. We have been given to understand that the assessee's quantum appeal is pending before the Tribunal and therefore we direct the assessing officer to recalculate the interest chargeable Under Section 234A on correct tax after giving effect to the Tribunal's order in the quantum appeal.

11. Coming to the levy of charging of interest Under Section 234B, the learned DR has relied on the Hon'ble Calcutta High Court decision in the case of Borhat Tea Co. ltd. In that case, the Hon'ble Calcutta High Court was concerned about levy of penalty Under Section 273(1)(b) and the definition of assessed tax contained Under Section 215(5) for the purpose of calculating the penalty leviable. The ratio of this decision may be reproduced below from the head note:

While computing the assessed tax as defined Under Section 215(5) of the Income Tax Act, 1961, for the purpose of determining the quantum of minimum penalty imposable for the default falling Under Section 273(1)(b) tax deductible at source and deducted within the financial year has to be taken into consideration. The assessee is not liable to pay any advance tax on the income which is subject to deduction of tax at source. The advance tax is paid in a financial year; the credit for the tax so paid in advance is given to the assessee at the time of regular assessment in the assessment year immediately following the year in which the advance tax is paid. It is, therefore, clear that lax deductible in the context of Section 215(5) means tax deducted at source. The amount of tax so deducted at source under the provisions of Section 192 to 195 is, so far as the affected person is concerned, to be treated as income received by him. For the purpose of computation of his total income, gross salary, gross dividend or gross interest, etc., i.e. the amount actually received plus the amount of tax deduced at source, will have to be considered. Unless tax is deducted at source during the relevant previous year by the payer, the payee cannot claim the benefit of such deduction while filing the estimate of advance tax.

12. The Hon'ble Calcutta High Court held that unless tax is deducted at source, the payee cannot claim the benefit of such deduction while filing the estimate of advance tax. It is not known as to whether in that case, the income subject to deduction of tax had already been received by the assessee before filing the estimate of advance tax. This question has been addressed by the ITAT Special Bench in the case of Motorola inc (supra) and the relevant part of the ratio of this decision is reproduced below from the head note:

With regard to Section 234B the view of the CIT (A) based on the judgment of the Hon'ble Supreme Court in CIT v. Ranchi Club ltd. (supra) could not be accepted. The language of Section 209(1 )(d) supported the assessee's contention, that they were not liable to pay the advance tax. All the payments made to the assessees were tax deductible at source (even assuming that they were taxable). In that case, having regard to the provisions of Sections 201(1) and 201(1A) the assessees could not be held to have committed default in paying the advance tax. They were entitled to take into account the tax which was deductible by the payer, though not actually deducted. Consequently, there was no liability to pay interest. The decision of the CIT (A) to cancel the interest Under Section 2324B was to be upheld on merits. As regards the interest Under Section 234A, the matter was to be restored to the file of the assessing officer so that a proper adjudication could be made with regard to the applicability of the sections so that both sides would have an opportunity of putting forth their respective stands clearly.

13. Same view has been adopted by several Benches of the Tribunal in the cases, which have been relied upon by the learned Counsel appearing for the assessee and which have been referred to (supra). In our view, the Hon'ble Calcutta High Court decision relied upon by the learned DR cannot be applied to the facts of the present case. The ITAT Special Bench decision in the case of Motorola inc is squarely applicable and therefore, we hold that interest Under Section 234B is not leviable as the entire income was subjected to tax deductible at source. The liability for payment of advance tax arises Under Section 208 of the Act and the advance tax payable has to be computed Under Section 209. Section 209(1)(d) clearly stipulates that income tax shall be reduced by the amount of income tax, which would be deductible or collectable at source during the relevant financial year. Respectfully following the Tribunal Special Bench decision in the case of Motorola inc. we direct the assessing officer to delete the interest levied Under Section 234B.

14. In the result, the appeals are allowed in part.

Order pronounced in the open Court on 18.09.06.