No Section 234B interest on salary fully TDS-deducted; advance tax not payable, employer liable under Section 201(1A)

HC held that interest u/s 234B is not chargeable where the assessee's income is under the head "Salaries" and subject to TDS u/s 192. In such cases, the assessee is not liable to pay advance tax u/s 208; the obligation is on the employer to deduct tax at source, and failure to do so attracts interest u/s 201(1A) from the employer, not the employee. The assessee becomes directly liable to tax only at the stage of self-assessment u/s 191. HC therefore upheld the Tribunal's view and directed the AO to pass consequential orders, deciding the issue in favour of assessee.

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Issues Involved:
- Liability to pay interest under section 234B of the Income-tax Act, 1961, when tax is not deducted at source by the employer.

Detailed Analysis:

Reference to Larger Bench:
A Division Bench of the court found itself unable to agree with the decision of another Division Bench and referred the matter to a Full Bench to decide the case.

Case Background:
In the case of CIT v. Tide Water Marine International Inc., the question was whether the Income-tax Appellate Tribunal erred in holding that interest was not payable by the assessee under section 234B of the Income-tax Act, 1961, even though the income was subject to tax deduction at source. The High Court affirmed that the assessee was not liable to pay interest under section 234B for the employer's failure to deduct tax at source.

Division Bench's Contradiction:
The Division Bench in the present appeal disagreed with the decision in Tide Water Marine, holding that if the assessee was liable to be taxed in India, it was his obligation to pay advance tax and, if failed, he was liable to pay interest under section 234B. This contradiction led to the matter being referred to a Larger Bench.

Facts of the Present Case:
The case involved M/s. Maersk Co. Ltd., a non-resident company providing technicians to ONGC. The Income-tax Department treated MCL as an agent of the employees and assessed the income under sections 143(3)/147 and 163 of the Act, holding that the agent company was liable to pay interest under section 234B for non-deduction of tax at source.

Arguments by Income-tax Department:
The Department contended that section 234B was applicable to income under the head "Salaries" and that the assessee was liable to pay interest for non-payment of advance tax, even if the employer failed to deduct tax at source. The Department argued that the provisions of section 234B are mandatory, and interest can be imposed on either the employer or the assessee.

Arguments by Assessee:
The assessee argued that the obligation to pay advance tax does not apply to salaried income as the employer is responsible for deducting tax at source under section 192. If there was a short deduction, the Department should move against the employer under section 201 for recovery of tax and interest. The assessee claimed that section 234B does not apply where income is liable to tax deduction at source.

Legal Provisions Considered:
- Section 190(1): Tax payable by deduction at source or by advance payment.
- Section 191: Tax payable directly by the assessee if not deducted at source.
- Section 192(1): Employer's obligation to deduct tax at source on salaries.
- Section 201(1A): Interest liability on the person who fails to deduct tax at source.
- Section 208: Advance tax payable during the financial year.
- Section 209: Computation of advance tax payable.
- Section 234B: Interest on failure to pay advance tax.

Court's Analysis:
The court held that the liability to pay interest under section 234B arises only if the assessee fails to pay advance tax under section 208. For salaried income, the obligation to deduct tax at source lies with the employer under section 192. The assessee cannot foresee the employer's failure to deduct tax. Therefore, the liability to pay interest under section 234B does not extend to the assessee for the employer's default.

Precedents:
- Sedco Forex International Drilling Co. Ltd.: Held that interest was not payable by the assessee under section 234B for non-deduction of tax at source by the employer.
- Halliburton Offshore Services Inc.: Reiterated that interest under section 234B could not be charged when income was subject to TDS.
- Madras Fertilisers Ltd.: Held that the person who failed to deduct tax at source was liable to pay interest, not the assessee.
- Ranoli Investment P. Ltd.: Concluded that the liability to pay interest is on the payer for non-deduction of tax.

Conclusion:
The court concluded that the assessee was not liable to pay advance tax under section 208 as the employer was responsible for deducting tax at source under section 192. The employer's failure to deduct tax makes them liable for interest under section 201(1A), not the assessee under section 234B. The court concurred with the decision in Tide Water Marine and disagreed with the Division Bench's order dated December 9, 2010.

Final Judgment:
The court dismissed the appeals and directed the Assessing Officer to pass consequential orders based on the Full Bench's decision. The assessee is not liable to pay interest under section 234B for the employer's failure to deduct tax at source.

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