2021 (9) TMI 875 - SC - Income Tax

Interest u/s 234B - Shortfall in payment of advance tax - TDS was not deducted on the income received by the payer - whether the levy of interest under Section 234B of the Act for short deduction of tax at source is mandatory and is leviable automatically? - interpretation of Section 209 (1) (d) of the Act, with stress on the words deductible or collectible at source - HELD THAT - 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 us pertain to the period prior to assessment year 2013-14. 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. No 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 we have already held that prior to the financial year 2012-13, 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 -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. - Decided against revenue.

Issues Involved:
1. Liability of an assessee to pay interest under Section 234B of the Income-tax Act, 1961, due to the payer's failure to deduct tax at source.
2. Interpretation of Section 209 (1) (d) of the Income-tax Act, 1961, especially the phrase "deductible or collectible at source."
3. Applicability of amendments made by the Finance Act, 2012, to Section 209 (1) (d) of the Income-tax Act, 1961.

Detailed Analysis:

1. Liability of an Assessee to Pay Interest under Section 234B of the Income-tax Act, 1961:
The primary issue before the court was whether an assessee is liable to pay interest under Section 234B for short payment of advance tax due to the payer's failure to deduct tax at source. The court noted that the assessee, a non-resident company, was engaged in various trading activities in India. The Department had attributed a portion of the assessee's income to its Indian operations and taxed it accordingly. The assessee contested the levy of interest under Section 234B, arguing that tax was deductible at source from payments made to it. The CIT upheld the Department's view, but the ITAT and the High Court ruled in favor of the assessee, stating that interest under Section 234B could not be imposed due to the payer's failure to deduct tax at source.

2. Interpretation of Section 209 (1) (d) of the Income-tax Act, 1961:
The court examined the interpretation of Section 209 (1) (d), focusing on the phrase "deductible or collectible at source." The Revenue argued that the obligation to pay advance tax is independent of the payer's obligation to deduct tax at source. They contended that the phrase "deductible or collectible at source" should not include amounts not deducted within the statutory time limit. The court, however, found that Section 209 (1) (d) allowed the assessee to reduce the amount of income-tax deductible or collectible at source while computing advance tax liability. The court emphasized that the provisions of Section 209 (1) (d) should be read in conjunction with Section 234B, and the pre-conditions for levying interest under Section 234B must be satisfied.

3. Applicability of Amendments Made by the Finance Act, 2012, to Section 209 (1) (d):
The court considered the amendment to Section 209 (1) (d) introduced by the Finance Act, 2012, which provided that for computing liability for advance tax, income-tax calculated should not be reduced by the amount of income-tax deductible or collectible at source if the payer failed to deduct or collect such tax. The court noted that this amendment was applicable from the financial year 2012-13 onwards and did not apply to the assessment years in question. The court referred to the memorandum explaining the provisions of the Finance Bill, 2012, which clarified that the amendment was necessary due to court judgments permitting the computation of advance tax by reducing the amount of income-tax deductible or collectible at source.

Conclusion:
The court concluded that for assessment years prior to the financial year 2012-13, the assessee was entitled to reduce the amount of income-tax deductible or collectible at source while computing advance tax liability, even if the payer had failed to deduct tax. Consequently, the assessee could not be held liable for interest under Section 234B for the payer's default in deducting tax at source. The court upheld the judgments of the ITAT and the High Court, dismissing the Revenue's appeals. The court also allowed related appeals, applying the same interpretation of the provisions of the Act.

Separate Judgments:
The court delivered a separate judgment for Civil Appeal Nos. 1338-1341 of 2016, Civil Appeal No. 1323 of 2016, Civil Appeal No. 1324 of 2016, Civil Appeal No. 1325 of 2016, Civil Appeal Nos. 1326-1331 of 2016, Civil Appeal No. 1322 of 2016, Civil Appeal No. 1342 of 2016, Civil Appeal Nos. 1295-1299 of 2016, Civil Appeal Nos. 1303-1307 of 2016, Civil Appeal Nos. 1311-1312 of 2016, Civil Appeal No. 1314 of 2016, and Civil Appeal No. 1310 of 2016, which were allowed based on the same reasoning provided in the main judgment.

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