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2016 (2) TMI 501 - ITAT DELHI

2016 (2) TMI 501 - ITAT DELHI - TMI - Assessment u/s 44BB - Including revenue from part of contract executed outside Indian taxable territory, for the purpose of aggregate amount referred under sub-section (2) of Section 44BB - Held that:- Revenue/receipt from mobilisation charges (i.e. for work performed outside India) received by the assessee has been rightly taken for the purpose of amount referred under sub-section (2) of Section 44BB of the Act by the Ld CIT(A) and thus no interference is r .....

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s the interest of the assessee. We are in agreement with the findings of the Hon’ble Supreme Court in the case of Sedco Forex International Drilling Incorporation Vs. Commissioner of Income Tax, (2005 (11) TMI 25 - SUPREME Court ) that clarificatory provisions should be made applicable form the date when the main provision was introduced. In above judgment it is also held that if the amendment changes the law , it has to be prospective in nature. The Tribunal in the case of the assessee for AY 2 .....

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ower or no deduction of certificate, following the judgement of the Jurisdictional High Court in the case of Jacabs Civil Incorporated (2010 (8) TMI 37 - DELHI HIGH COURT ) , we restore the issue to the file of Assessing Officer for verification of the fact , whether any certificate of lower or no deduction of tax was obtained and provided by the assessee to the payer, and if the answer is negative, no interest under section 234B of the Act is chargeable in the case of the assessee - ITA No. 521 .....

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cross objection are heard together and being disposed by a consolidated order. ITA No. 5217/Del/2012 for AY 2009-10 2. The assessee raised the following ground of appeal: The learned Commissioner of Income Tax(Appeals) has erred in holding that the revenue of ₹ 38,454,152/- on account of work performed outside Indian taxable territory were includible in the aggregate amount referred to in sub-section 92) of Section 44BB of the I.T. Act, 1961 as opposed to the appellant s claim that the sa .....

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rn was engaged in carrying out survey work for another company, namely, M/s B.G. International Production India Ltd. In the previous year relevant to the assessment year under consideration, M/s. B.J. International Production India Ltd. was engaged by M/s Reliance Industries Ltd. for laying pipelines for gas production facility in KG Basin. The assessee filed its return of income on 04.01.2010, declaring total income of ₹ 20,04,62,410/-. The return of income of the assessee was selected fo .....

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ion 9(1)(vii) of the Act. Further, the learned Assessing Officer also observed that part of the revenue from the contract with M/s Allseas Marine Contractor pertaining to the activities of demobilization of the vessel i.e. bringing vessel for carrying out contract and its exit from Indian territorial water, was excluded by the assessee from the gross contract receipt offered under Section 44BB(2) of the Act and profit from the said revenue was treated as income earned outside India by the assess .....

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05/- offered by the assessee under Section 44BB(2) of the Act and thereafter the Assessing Officer proposed computation of income of ₹ 51,07,69,560/- at the rate of 25 percent on the above gross revenue/receipt of Rs. (200,46,24,105+ 3,84,54,152=) 204,30,78,257/- as fee from technical services (FTS) . As the assessee expressed its wish not to object before the DRP, the learned Assessing Officer passed final assessment order under Section 143(3) r.w.s. 144C of the Act and assessed the incom .....

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obal revenue from the contract including demobilization charges would be considered for the purpose of computation of aggregate amount and thus, the claim of the assessee that the revenue from the activity outside India was excluded from Section 44BB of the Act, was rejected by him. Aggrieved, both the assessee and the Revenue are before us in appeal and cross objection. 4. In sole ground raised by the assessee in appeal qua including revenue from part of contract executed outside Indian taxable .....

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ubmissions of the learned Authorized Representative. 6. We have heard the rival submissions and perused material on record. The Hon ble Uttaranchal High Court in the case of Sedco Forex International Drilling Inc.(supra) has decided the issue in dispute as under: 8. The question of law raised to be considered by this Court is as under : "Whether on the facts and circumstances of the case, the Tribunal was right in upholding the inclusion of mobilization charges while calculating the aggrega .....

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erred in sub-s. (2) of s. 44BB are the amounts (a) paid to the assessee (whether in or out of India) on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India, (b) payable to the assessee (whether in or out of India) on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or t .....

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hinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India, which is clear from the perusal of s. 44BB, which is reproduced as under : "44BB. (1) Notwithstanding anything to the contrary contained in ss. 28 to 41 and ss. 43 and 43A, in the case of an assessee, being a nonresident, engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in the pros .....

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ions. (2) The amounts referred to in sub-s. (1) shall be the following, namely : (a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils in India; and (b) the amount received or deemed to be received in India by or on behalf of the assessee on .....

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counts audited and furnishes a report of such audit as required under s. 44AB, and thereupon the AO shall proceed to make an assessment of the total income or loss of the assessee under sub-s. (3) of s. 143 and determine the sum payable by, or refundable to, the assessee. Explanation-For the purpose of this section,- (i) plant includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business; (ii) mineral oil includes petroleum and .....

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and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of, mineral oils outside India. 11. Sri Porus Kaka, learned counsel for the assessee submitted that the amount of mobilization charges cannot be included in the amount referred to under sub-s. (2) of s. 44BB as the mobilization charges represent reimbursement of expenses incurred for transportation of drilling units of rigs from outside India to de .....

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(SC); (4) CIT vs. Tata Chemicals Ltd. (1974) 94 ITR 85 (Bom); (5) CIT vs. Hukumchand Mills Ltd. (1968) 67 ITR 79 (SC); (6) Anglo-French Textile Co. Ltd. vs. CIT (1954) 25 ITR 27 (SC); (7) Hukum Chand Mills Ltd. vs. CIT 1976 CTR (SC) 217 : (1976) 103 ITR 548 (SC); (8) CIT vs. Avtar Singh Wadhwan (2001) 165 CTR (Bom) 414 : (2001) 247 ITR 260 (Bom); (9) CBDT vs. Chowgule & Co. Ltd. & Ors. (1991) 98 CTR (Kar) 124 : (1991) 192 ITR 40 (Kar); (10) V.M. Salgaocar & Bros. Ltd. vs. Deputy Con .....

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64 : (1997) 225 ITR 746 (SC); (16) CIT vs. Tejaji Farasram Kharawalla Ltd. (1968) 67 ITR 95 (SC); (17) Union of India & Anr. vs. A. Sanyasi Rao & Ors. (1996) 132 CTR (SC) 81 : (1996) 219 ITR 330 (SC); (18) CIT vs. Amarchand N. Shroff (1963) 48 ITR 59 (SC); (19) CIT vs. Ajax Products Ltd. (1965) 55 ITR 741 (SC); (20) Sedco Forex International Drilling Inc. vs. Jt. CIT (Tribunal D Bench, Delhi) (ITA No. 2024/Del/2001) (Asst. yr. 1998-99); (21) Circular No. 495 dt. 22nd Sept., 1987 [(1988) .....

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ajima-Harima Heavy Industries Ltd. vs. Director of IT (2007) 207 CTR (SC) 361 : (2007) 288 ITR 408 (SC) : 2007 (3) SCC 481. 12. Sri Porus Kaka, learned counsel for the appellant concluded by relying heavily on the law laid down by Hon ble apex Court in case of Ishikawajma-Harima Heavy Industries Ltd. vs. Director of IT (supra). The facts of this case have been narrated in the para 2 of the judgment and are that the assessee appellant company was incorporated in Japan, a resident of said country, .....

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in the State of Gujarat. A supplementary agreement was entered into by the parties on 19th March, 2001. The contract envisaged a turnkey project. Role and responsibility of each member of the consortium was specified separately. Each of the members of the consortium was also to receive separate payments. The appellant was to develop, design, engineer and procure equipment, materials and supplies, to erect and construct storage tanks of 5 MMTPA capacity, with potential expansion to 10 MMTPA capac .....

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contract indisputably involved : (i) offshore supply, (ii) offshore services, (iii) onshore supply, (iv) onshore services and (v) construction and erection. The price was payable for offshore supply and offshore services in US dollars, whereas that of onshore supply as also onshore services and construction and erection partly in US dollars and partly in Indian rupees. 13. While determining the tax liability of the appellant, the Hon ble apex Court has taken into consideration s. 5(2), s. 9(1)( .....

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14. And sub-cl. (1) of cl. (B) of para 98 of the aforesaid judgment reads as below : "Sufficient territorial nexus between the rendition of services and territorial limits of India is necessary to make the income taxable." 15. Sri Porus Kaka also referred from the judgment and submitted that where the non-resident assessee entered into a composite contract with a resident company under turnkey project the severable parts thereof comprised onshore and offshore services in India and als .....

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ction and s. 5 contains the scope of total income, which provides that subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income as described under this section and s. 9 provides the incomes deemed to accrue or arise in India in the contingencies described under this section. Therefore, s. 5 and s. 9 both are aimed at the income for the taxability under s. 4 of the Act, while s. 44BB does not take into account the income for ca .....

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ction is a complete code in itself. Thus, the reliance placed by Sri Porus Kaka, learned counsel for the assessee, is misplaced as we have observed that the amount referred in sub-s. (2) of s. 44BB are four types of amounts and all the four types of amounts are mutually inclusive and has to be taken into account either all of them or any of them and its clauses themselves provide that whether the payment is made inside India or outside India. 17. In the present case, a finding has been recorded .....

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contract regardless of actual expenditure which may be incurred by the assessee company for the purpose. In view of the fictional taxing provision contained under s. 44BB, the AO was right in adding the amount of ₹ 99,04,000 for the asst. yr. 1986-87 and amount worth ₹ 64,64,530 for the asst. yr. 1987-88 received by the assessee towards mobilization charges for the purpose of imposing income-tax and CIT(A) and Tribunal were also right in upholding the order of the AO. 18. In view of .....

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B of the Act by the Ld CIT(A) and thus no interference is required on his findings on the issue in dispute. Accordingly, this ground of appeal of the assessee is dismissed. 8. Hence, the appeal filed by the assessee is dismissed. ITA No. 5290/Del/2012 for AY: 2009-10 9. The Revenue raised the following grounds of appeal: 1. Whether on facts and circumstances of the case, the Commissioner of Income Tax(Appeals) had erred in holding that the provisions of vessels, ROV equipment and personnel to M/ .....

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a project undertaken by the assessee. 3. Whether on facts and circumstances of the case, the Commissioner of Income Tax(Appeals) had erred in holding that the assessee had deemed PE as per the proviso to Article 5(2) of the Indo-UK DTAA by virtue of which the income of the assessee was taxable under the presumptive provisions of sec. 44BB and ignoring the fact that taxability u/s 44BB shall not apply in respect of income in the nature of FTS/Royalty referred to in Section 44DA in view of the cl .....

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lling Vs. Commissioner of Income Tax, delivered on 17.11.2005. 5. Whether on facts and circumstances of the case, the Commissioner of Income Tax(Appeals) had erred in holding that interest u/s 234B was not chargeable in this case by relying upon the decision of Hon ble Uttarakhand High Court in the case of Maersk (334 ITR 79) where as the department has contested the issue and has filed SLP before the Apex Court against in the case of Jacobs Civil Incorporated/Mitsubishi involving similar issue. .....

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ant prays for leave to add, amend, modify or alter any grounds of appeal at the time of before the hearing of the appeal. 10. In respect of ground nos. 1 and 2 of the Revenue s appeal qua holding by the ld CIT(A) that the provisions of vessels, ROV equipment and personnel to M/s. Allseas Marine Contractor SA with M/s. BGIPL was not in the nature of FTS and it was taxable under the provision of Section 44BB of the Act, the learned Authorized Representative of the assessee submitted that these gro .....

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assessee was providing technical services and thus was taxed as fee for technical services rightly by the Assessing Officer. Further, the learned Commissioner of Income Tax (Departmental Representative) submitted that the assessee was a second leg contractor and, therefore, it was not providing plant and machinery directly for activities of prospecting for, or exploration or production of, mineral oils covered by Section 44BB of the Act. He further submitted that the argument in respect of highl .....

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iven in ITA No. 5283/Del/2010, are covered in favour of assessee. Accordingly, we hold that the income arising on account of royalty/FTS, letting out of equipment etc. was to be taxed u/s 44BB. Adopting the same reasons, we allow these grounds in favour of the assessee. 10.3 We have seen that Vessels and the status as second leg contractor of the assessee has not changed as compared to AY 2008-09, thus the facts and circumstances of the assessee remained same as were in AY 2008-09. Thus, in view .....

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ght out by the Finance Act, 2011 to the proviso to Section 44BB and Section 44DA of the act , was in the nature of a clarificatory amendment and, therefore, its application should be read into the main provisions with effect from the time the main provisions came into effect, as held in the judgment of the Apex Court in the case Sedco Forex International Drilling Incorporation Vs. Commissioner of Income Tax, (2005)2799 ITR 310/149 Taxmann 352 (SC) and thus the said amendment clearly takes the as .....

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effect from the retrospective effect as that it adversely affects the interest of the assessee. We are in agreement with the findings of the Hon ble Supreme Court in the case of Sedco Forex International Drilling Incorporation Vs. Commissioner of Income Tax, (supra) that clarificatory provisions should be made applicable form the date when the main provision was introduced. The relevant paragraph of the judgment is reproduced as under: 14. As was affirmed by this Court in Goslino Mario (supra), .....

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of U.P. AIR 1981 SC 1274, 1282 para 24 : (1981) 2 SCC 585, 598]. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force [See : Shyam Sunder vs. Ram Kumar (2001) 8 SCC 24 (para 44); Brij Mohan Das Laxman Das vs. CIT (1997) 138 CTR (SC) 214 : (1997) 1 SCC 352, 354; CIT vs. Podar Cement (P) Ltd. (1997) 141 CTR (SC) 67 : (1997) 5 SCC 482, 506]. But if it changes the law it is not presumed to be .....

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ive effect. The relevant para of the judgment of the Tribunal is as under: 65. The department s contention is that section 44DA inserted by the Finance Act, 2010 w.e.f. 01-04-2011 in section 44BB is retrospective and, therefore, royalty and fees for technical service should be taxed u/s 44DA and not u/s 44BB. In our opinion, the amendment cannot be held to be retrospective particularly because it brings substantial change in the taxability of assessee. It is well settled law that an amendment to .....

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he case of OHM (supra) and by the decision of the ITAT in CGG Veritas (supra) and Phonex (supra). 11.3 Respectfully following the above findings of the Tribunal in the case of the assessee for the assessment year 2008-09, we dismiss ground Nos. 3, 4 and 6 of appeal of the Revenue. 11.4 As regard to ground no. 5 qua the interest was not chargeable under Section 234B of the Act, The ld CIT(DR) relied upon the decision of Hon ble Uttaranchal High Court in the case of Maersk Company Ltd. Vs. Departm .....

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vour of the assessee in the assessee s case itself for assessment year 2008-09 . He also submitted that no certificate of lower or no deduction was obtained by the assessee. 11.6 We have heard the rival submissions and perused the material on record. The issue of charging interest under section 234B of the act has been dealt in the judgement of the Hon ble Delhi High Court in the case of Director of Incometax Vs Jacabs civil Incorporated ( supra) as under: 1. In IT Appeal No. 491 of 2008, M/s Ja .....

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uction of TDS is mandatory and is leviable automatically." For the sake of convenience, we may look into the facts as they appear in IT Appeal No. 491 of 2008. 2. The assessee in this case is a company which is incorporated in the United States of America and is executing World Bank finance projects. One of these projects financed by the World Bank is undertaken by the National Highway Authority of India which was also executed by the assessee. For the asst. yr. 2001-02 the assessee filed i .....

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-cause notice in this behalf, the AO added the liability of interest under s. 234B of the Act. 3. We may point out at this stage itself that the plea of the assessee was that all the projects which were being executed by the assessee at the relevant time, it was the obligation and the statutory duty of the National Highway Authority of India to deduct the tax at source and the assessee being a non-resident, 100 per cent tax at source was to be deducted. For this reason there was no liability of .....

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ee had not disclosed any certificates nor shown proof of payment of taxes, the AO held that the assessee was liable to pay interest under s. 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 in as much as CIT(A) allowed the appeal vide order dt. 29th Nov., 2004 and set aside the order of the AO on this aspect. The Revenue, feeling aggrieve .....

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wo judgments namely, that of the Uttaranchal High Court and the Bombay High Court where the views taken by the said Courts that since it was the payer who paid the amount to the assessee to deduct the tax at source, the assessee could not be fastened with the liability of interest. The judgment of the Uttaranchal High Court in the case of CIT & Anr. vs. Sedco Forex International Drilling Co. Ltd. & Ors. (2004) 186 CTR (Uttaranchal) 144 : (2003) 264 ITR 320 (Uttaranchal). After extensivel .....

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s regarding on period and off period salary were conflicting. Ultimately, the legislature has stepped into clarify the position by the Finance Act of 1999. In this connection, it is important to note that s. 234B imposes interest, which is compensatory in nature and not as a penalty [see Union Home Products Ltd. & Ors. vs. Union of India (1995) 129 CTR (Kar) 217 : (1995) 215 ITR 758, 766 (Kar)]. Secondly, although s. 191 of the Act is not overridden by ss. 192, 208 and 209(1)(a)(d) of the Ac .....

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lted. As stated above at the relevant time there were conflicting decisions of the Tribunal. A bona fide dispute was pending. The assessee had to estimate his current income. The words used under s. 209(1)(a) make the assessee estimate his current income and since a bona fide dispute was pending, imposition of interest under s. 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 Depar .....

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nd 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 provisions of s. 201, that portion of the tax which has not been deducted and paid over to the Department will have to be paid with interest by the banks which are under a duty .....

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mple interest at the rate of twelve per cent per annum from the 1st day of April next following the said financial year up to the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax so paid falls short of the assessed tax.' 5. This section provides that when the advance tax paid is less than seventy-five per cent of the assessed tax, simple interest @ 12 per cent per annum shall be levied from the 1st day of April next following the said f .....

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of tax deductible in accordance with the provisions of s. 194A of the Act. Therefore, the expression 'assessed tax' used in s. 215(1) of the Act has to be understood as the tax finally assessed as reduced by the amount of tax deductible in accordance with the provisions of s. 194A of the Act. As already stated, that tax is deductible at source on the interest income under s. 194A of the Act cannot be disputed. So long as s. 215 of the Act permits the levy of interest only on the differen .....

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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 'deducted'. 6. Further, the learned counsel for the assessee appears to be right in his .....

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as the case may be, in accordance with the provisions of this chapter.' 7. That section seems to provide that the tax in respect of a regular assessment is payable either by deduction at source or by advance payment, as the case may be, in accordance with the provisions of Chapter XVII. Thus, the deduction of tax at source and payment of advance tax have been treated as two alternative modes of payment of tax in advance. Hence, where the statute provides for deduction of tax at source in res .....

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s. 201 as an assessee in default. Sec. 201(1A) specifically provides that if a person or authority who is bound to make a deduction of tax at source as contemplated by the statute does not deduct or after deducting fails to pay the tax, then such a person or authority is liable to pay simple interest on the amount of tax not deducted from the date on which such tax was deductible to the date on which the said tax was actually paid. Thus, in respect of interest income on which deduction of tax at .....

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ncome, two persons are liable to pay interest for the delayed payment of tax. We are, therefore, inclined to hold that whatever there is a possibility of a deduction of tax at source, the person who had failed to deduct tax at source is liable to pay interest and not the assessee, as otherwise, 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 .....

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bility 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. Anjum M.H. Ghaswala & Ors. (2001) 171 CTR (SC) 1 : (2001) 252 ITR 1 (SC). He submitted that it was totally unnecessary to look into the other provisions like ss. 191, 195, 201, 209, 215 etc. for determining the liability of payment of interest. His .....

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he cost of repetition that the liability to deduct or collect the tax at source is that of the payer. Therefore, for the purposes of s. 234B of the Act, the question would be as to whether the payee, i.e. the assessee in this case, had any role in deducting or collecting the tax. Once that is in the negative, and it was not duty of the payee/assessee, the question of payment of any interest would not arise as it cannot be said, in such circumstances, that the assessee is in default for the purpo .....

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hese provisions are contained from s. 207 onwards. Sec. 209 falls under this chapter. Sub-s. (1) thereof deals with four situations under which the advance tax payable by the assessee is to be computed. Admittedly, these cases do not concern with cls. (a) to (c). Clause (d) of sub-s. (1) of s. 209, which is relevant reads as under : "(d) The income-tax calculated under cl. (a) or cl. (b) or cl. (c) shall, in each case, be reduced by the amount of income-tax which would be deductible or coll .....

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orporated 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. Sec. 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 .....

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ion against the payer under the provisions of s. 201 of the IT Act and compute the amount accordingly. No doubt, if the person (payer) who had to make payments to the non-resident had defaulted in deducting the tax at source from such payments, the non-resident is not absolved from payment of taxes thereupon. However, in such a case, the non-resident is liable to pay tax and the question of payment of advance tax would not arise. This would be clear from the reading of s. 191 of the Act along wi .....

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