TMI Blog2013 (11) TMI 734X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be only an argument of convenience or despair - It may be true that the general rule is that equity has no place in the interpretation of tax laws. But, 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt services to the assessees. Based on the materials found during the survey, the assessing officer in charge of the assessment of Alcatel - Lucent France, which was another flagship company belonging to the same group, concluded that the assessee had a PE in India in terms of the Double Taxation Avoidance Agreement between India and US and was liable to tax in India on the income earned therein. Based on these findings of the assessing officer who was in charge of the assessment of Alcatel - Lucent France, the assessing officer who was in charge of the assessment of the present assessee issued notices under Section 148 of the Act for the assessment years 2004-05 to 2007-08. It may be added that similar reassessment notices under Section 148 were also issued to the other assessee concerned in the present appeals, i.e. Alcatel Lucent World Services INC. for the very same assessment years; in addition, for the assessment year 2008-09, a notice under Section 142 (1) was also issued to that company. Apparently, these notices were issued on the ground that income chargeable to tax in India had escaped assessment. 4. In response, both the assessees herein filed returns of income for al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder, in addition to the aforesaid income, the assessing officer also directed that interest under Sections 234A, 234B and 234C shall be charged. Demand notices were accordingly issued. 6. Appeals were taken by the assessee in respect of all the assessment years before the CIT (Appeals). Three grounds were taken in the appeals. The first ground was that the assessing officer erred in computing the income of the assessee as was done in the re-assessment orders; the second ground was that on the facts and in the circumstances of the case and in law, the assessing officer erred in levying interest under Section 234B "in view of the fact that the entire consideration in the hands of appellant was subject to deduction of tax at source under Section 195 of the Act"; the third ground was against the initiation of penalty proceedings for alleged concealment of income. 7. Before the CIT (Appeals), the assessee did not press the appeals in respect of the first ground, i.e. the ground against the computation of the income attributable to the PE in India. Only ground No.2 which was directed against the levy of interest under Section 234B of the Act was pressed, the contention being that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-resident assessee to pay interest under Section 234B. 8. The CIT (Appeals) accepted the contention of the assessee based on the language employed in Section 209(1)(d) read with Section 195 of the Act and on the basis of the judgment cited above and held as follows: "In this case, it is undisputed that the tax on the entire income received by the appellant was required to be deducted at appropriate rates by the respective payers u/s 195(2) of the Income-tax Act. Had the payer made the deduction of tax at the appropriate rate, the net tax payable by the appellant would have been Nil. Therefore, it is clear that there was no liability to pay advance tax by the appellant. I have carefully gone through the various judgments relied upon by the appellant in this regard. The jurisdictional High court i.e. Hon'ble Delhi High Court, in recent judgment dated 30th August 2010 in the case of Director of Income-tax vs. Jacabs Civil Incorporated/ Mitsubishi Corporation : (2010) 330 ITR 578 (Delhi), has held that section 195 puts an obligation on the payer, i.e., any person responsible for paying any tax resident, to deduct tax at source at the rates in force from such payments and if paye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontest the assessment of the income attributable to the Indian PE, to turn around and say that now that it has accepted the liability to pay tax on its Indian income, it was for the Indian payers to have deducted the tax and if they had not done so, the assessee cannot be held liable for the interest. It was further pointed out by the Revenue that consequent to the amendment made to Section 201 by the Finance Act, 2012 with effect from 01.04.2012, time limit of four years was set for taking action under Section 201 and therefore no action can be taken against the payers for the years under consideration since the aforesaid time limit had already expired. It was submitted that when this court decided the case of Jacabs Civil Incorporated and Mitsubishi Corporation (supra) there was no time limit for taking action against the payer. Now that the action against the payer has become time barred, the basis of the judgment has been removed, with the result that the assessee would be liable for payment of the interest under Section 234B. 10. These submissions of the Revenue did not find favour with the Tribunal. It held that undisputedly the tax on the income received by the assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a and articulated its stand in the note appended to the returns filed in response to notices issued under Section 148, and even filed appeals against the reassessments; but before the CIT (Appeals) it gave up the claim that it was not liable to tax in India and pressed its claim only to the extent of its liability to pay interest under Section 234B. It is submitted that this factual position is in complete contrast to the facts before this Court in Jacabs (supra) where the assessee admitted its liability to pay tax on the Indian income in the return filed by it and the payer was, therefore, found clearly liable to deduct tax. It was in those circumstances that this Court held that the tax was "deductible" and the non-resident assessee can rightly take credit for the same, even though the tax was not actually deducted, while computing its advance tax liability, According to the learned standing counsel, it is not open to the non-resident assessee in the present case to say that though it was not liable to pay tax on its Indian income, but still the Indian telecom equipment dealer ought to have deducted the tax under Section 195 of the Act. According to him, this would be a contradic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation, as it stood both before being amended by the Finance Act, 2006 w. e. f. 01.04.2007 and thereafter, only the tax actually deducted at source is permitted to be deducted from the tax on the total income determined under the regular assessment and if no tax is deducted at source, no such adjustment from the tax on the total income assessed is permissible. In other words, his contention was that the Explanation below Section 234B overrides the provisions of Section 209(1)(d) and, therefore, the benefit of reducing the tax on the estimated income by the tax which was "deductible", but not actually deducted, was not available to the non-resident assessee. , He further pointed out that in the present case the payer knew that no income was chargeable to tax in the hands of the non-resident assessee as the sum remitted represented the purchase price of the telecom equipments and, therefore, advisedly did not deduct any tax from the remittance. When the assessee accepted its tax liability in India, it follows that it would also be liable to pay interest under Section 234B for failure to pay the advance tax and such a consequence cannot be avoided, once the tax liability is admitted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n estimate basis. The assessment was not accepted and appeals were filed but in the appeals the assessee did not press the ground of appeal against the computation of the income, but pressed the appeals only against the levy of interest under Section 234B. Thus it was at the stage of the CIT (Appeals) that the assessee accepted its tax liability in India. It would be incongruous, as pointed out on behalf of the revenue, to hold that even though the assessee did not admit any tax liability in India while filing the return and even up to the stage of first appeal, and correspondingly the payers were also not liable to deduct tax under Section 195(1), still it can take credit for the tax "deductible", though not deducted, by the Indian payers from the remittance made to the assessee. In our opinion this factual position makes a crucial difference to the legal position also and, therefore, the benefit of the decision of this Court in Jacabs (supra) cannot be extended to the assessee. 17. The learned counsel for the assessee, however, put forth two arguments in rebuttal. The first is that this Court also decided the case of Mitsubishi Corporation in the same judgment dated 30th August ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... theinterest levied, more particularly, when decision of Hon'ble Supreme Court in the case of Union of India and others vs. Kamalakshi Finance Corporation Ltd., [1992 AIR 711 (SC)] and of Hon'ble Jurisdictional High Court (Del) in case of Nokia Corporation v. Director of Income Tax (International Taxation) (2007) 292 ITR 22 were brought to his notice and placed on record. He also noted that judicial discipline required that subordinate authorities should follow decision of higher authorities. He, however, acted just the opposite." (underlining ours) 19. It is thus noticed that the facts of Mitsubishi Corporation are different from the facts of Jacabs and are akin to the facts of the present case. Therefore, the observation of this Court in Jacabs case (supra) that in the case of Mitsubishi Corporation, interest was charged under Section 234B under circumstances similar to those obtaining in Jacabs case appears, with respect, to be inaccurate. The facts of the present case being similar to those of Mitsubishi Corporation, have to be, therefore, dealt with separately. This Court would appear to have proceeded on the assumption that the facts of Mitsubishi Corporation were similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them not to deduct tax from the remittances. The Indian payers have to keep in mind the future business prospects and it was necessary for them to keep the assessee in good humour so that the business relationship remains profitable for them. They would have been in no position to resist the request. Moreover, since the sales were claimed to have been concluded outside India, again it would be a fair and reasonable inference to be drawn that the Indian dealers would have had an interface with the assessee in USA while concluding the sale contracts and on such an occasion it is normal for the parties to finalise all aspects touching on their relationship including the tax compliances. It should also be remembered that no reason whatsoever has been given by the assessee as to why it did not press its appeals before the CIT (Appeals) on the question of liability to tax on its Indian income. 25. In the light of the view taken by us on the facts of the present case, we do not consider it necessary to discuss the plethora of authorities cited by both the sides. It is, however, necessary to just highlight one aspect of the matter. This was in fact pointed out on behalf of the revenue al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Inland Revenue Commissioners : (1921) 1 KB 64 at page 71: "In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." The above observation has been quoted with approval by a Bench of three Judges of this Court in Commissioner of Income-tax Madras v. Ajax Products Ltd. : 55 ITR 741: (AIR 1965 SC 1358). In another decision rendered by a Bench of three Judges of this Court in State of Tamil Nadu v. M. K. Kandaswami : 36 STC 191 : (AIR 1975 SC 1871) It has been observed thus: "In interpreting such a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book should be eschewed. If more than one construction is possible, that which preserves its workability and efficacy is to be preferred to the one which would render it otiose or sterile." 11. We are, therefore, not adopting a construction which would upset or even impair the purpose in introducing Section 10A in the Act. The return to be filed by the dealer is the full ..... X X X X Extracts X X X X X X X X Extracts X X X X
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