TMI Blog2010 (8) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... chal and Bombay High Courts in the matters of CIT and Anr. vs. Sedco Forex International Drilling Co. Ltd. [2008 -TMI - 11559 - UTTARANCHAL High Court] and DIT (International Taxation) vs. NGC Network Asia LLC [2009 TMI - 33839 - BOMBAY HIGH COURT] followed Interest u/s 234D - Tribunal has held that the assessee was not liable to pay the interest under the aforesaid provision which was normally charged from the assessee for the assessment years 2002-03 and 2003-04. – Held that: - any provision made in a statute for charging or levying interest on delayed payment of tax must be construed as a substantive law and not adjectival law. So construed and applying the normal rule of interpretation of statutes if the Revenue's contention is accepted it leads to conflicts and creates certain anomalies which could never have been intended by the legislature. - therefore, of the opinion that the Tribunal was right in deleting the interest under Section 234D of the Act for the period prior to the assessment year 2004-05. As a result, these appeals of the Department are dismissed. - 491/2008 - - - Dated:- 30-8-2010 - CORAM: HON'BLE MR. JUSTICE A.K.SIKRI HON'BLE MS. JUSTICE REVA KHETRAPA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 234B of the Act could not be charged from the assessee. This contention was not acceptable to the Assessing Officer. In his opinion, it was for the assessee to show income from all the projects, compute the tax and take credit of taxes paid either prepaid or otherwise by enclosing the proof of such payment along with return of income. The TDS certificates were to be collected by the assessee even where taxes are borne by the payer. Since the assessee had not disclosed any certificates nor shown proof of payment of taxes, the Assessing Officer held that the assessee was liable to pay interest under Section 234B of the Act. The assessee preferred an appeal before the CIT(A) against the assessment order so passed challenging the levy of interest under the said provision. The assessee was successful in that appeal inasmuch as CIT(A) allowed the appeal vide order dated 29th November, 2004 and set aside the order of the Assessing Officer on this aspect. The Revenue, feeling aggrieved by the order of the CIT(A), approached the Income Tax Appellate Tribunal. However, the plea of the Revenue was not accepted by the ITAT which resulted in dismissal of the said appeal vide impugned orders da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his current income. The words used under Section 209(1)(a) make the assessee estimate his current income and since a bona fide dispute was pending, imposition of interest under Section 234B was not justified without hearing and without reasons. Accordingly, we answer this question in the affirmative, i.e., in favour of the assessee and against the Department." 5. This judgment was followed by the Bombay High Court in the case of Director of Income Tax (International Taxation) vs. NGC Network Asia LLC 222CTR (Bom) 86. The Bombay High Court also took note of the judgment of the Madras High Court in the case of Commissioner of Income Tax, Tamil Nadu-I, Madras vs. Madras Fertilizers Ltd. 149 ITR 703 which had taken a similar view. The following observations of the Madras High Court are also worth quoting: - " If the tax deductible at source has not been deducted and paid over to the Department, then the banks whose duty it is to make deduction can be treated as the assessee in default under the provisions of s. 201 of the Act. Interest also can be collected along with the amounts which they ought to have deducted but which they did not deduct under s. 201(1A). Therefore, under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is significant to note that normally advance tax is paid either on the basis of the previous year's assessment or on the basis of the estimate given by the assessee long before the final assessment and at that stage, there is no question of actual deduction of the tax at source in respect of the interest income and the deduction at source takes place practically at the end of the year when the interest is paid and it is for this reason the statute in sub-s. (5) of the Act uses the expression "deductible" instead of 'deducted'. Therefore, construing sub-s. (5), it is not possible to understand the expression "deductible" occurring therein as possible to understand the expression "deductible" occurring therein as "deducted". 6. Further, the learned counsel for the assessee appears to be right in his submission that in cases where the tax is deductible at source, that will have to be excluded from consideration while the estimate of the income for the payment of advance tax is submitted. Reliance is placed by the learned counsel on the language used in s. 190(1) which is as follows : "190. (1) Notwithstanding that the regular assessment in respect of any income is to be made in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there will be charging of interest twice on the payment of tax in relation to the same income. Such an interpretation should normally be avoided. In this case, therefore, the Tribunal appears to be right in holding that in terms of s. 215 interest could not be levied on the assessee on the tax which is deductible at source. We answer the said questions referred to us in the affirmative and against the Revenue. The Revenue will pay the costs of the assessee." 6. Mr. Sabharwal, the learned counsel appearing for the Revenue strenuously argued that Section 234B of the Act was an independent and stand-alone provision and once the ingredients /conditions contained in that Section were satisfied, the liability to pay the interest would arise. Reading the provision of the Section, he argued that since there was a default in payment of advance tax, interest thereupon had to be paid by the assessee as held by the Supreme Court in the case of CIT vs. M.H. Anjum Ghaswala and Ors. 252 ITR Page 1. He submitted that it was totally unnecessary to look into the other provisions like Sections 191, 195, 201, 209, 215 etc. for determining the liability of payment of interest. His submission was th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause categorically uses the expression "deductable or collectable at source" and it is this clause which is incorporated by the Uttaranchal High Court in the said judgment (supra) in the manner already pointed above. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following discussion in the said judgment is reproduced hereinafter: - "7. It is well known that when a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It, therefore, provides the machinery for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for charging interest on delayed payments, etc. Ordinarily the charging section which fixes the liability is strictly construed but that rule of strict construction is not extended to the machinery provisions which are construed like any other statute. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same.[See Whitney vs. IRC 1926 AC 37, CIT vs. Mahaliram Ramjidas (1940) 8 ITR 442 (PC), Indian United Mills Ltd. vs. CEPT (1955) 1 SCR 810 and Gursahai Saigal vs. CIT (1963) 3 SCR 893]. But it must also be realized that provision by which the authority is empowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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