Non-resident not liable for interest under Income Tax Act - Delhi High Court ruling

The tribunal upheld the decision of the Commissioner of Income Tax (Appeals) in favor of the non-resident assessee, ruling that interest under section 234B of the Income Tax Act was not chargeable when the income was subject to tax deduction at source under section 195. The Delhi High Court held that the responsibility for deducting tax at source lies with the payer, not the non-resident payee, and therefore, the non-resident was not liable for interest under section 234B. The revenue's appeal was dismissed, confirming the deletion of the interest under section 234B.

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Issues Involved:
1. Whether interest under section 234B of the Income Tax Act can be levied on the tax payable by a non-resident assessee when tax is deductible under section 195.

Issue-wise Detailed Analysis:

1. Levy of Interest under Section 234B:
The main contention of the revenue was that the Commissioner of Income Tax (Appeals) erred in deleting the interest levied under section 234B of the Income Tax Act. The brief facts reveal that the appellant, a liaison office of a Hong Kong company, was found to be earning income in India, making it chargeable to tax. The dispute centered on whether interest under section 234B could be imposed when the tax on the assessee’s income was deductible at source under section 195.

The assessing officer held that interest under section 234B was chargeable, which led the assessee to appeal before the Commissioner of Income Tax (Appeals). The CIT (A), relying on various High Court decisions, including the jurisdictional High Court, concluded that interest under section 234B was not chargeable on a non-resident whose income was subject to tax deduction at source under section 195. Consequently, the revenue appealed this decision.

2. Revenue's Argument:
The departmental representative argued that interest under section 234B is a consequence of income determination and tax thereon, and hence, it is leviable.

3. Tribunal’s Analysis:
The tribunal carefully considered the contentions of the departmental representative and reviewed the relevant orders of the lower authorities. The key issue was whether interest under section 234B is chargeable in the case of a non-resident whose income is subject to tax deduction at source under section 195. The tribunal noted that the Delhi High Court in the case of DIT v. G E Packaged Power Inc. had already decided this issue in favor of the assessee. The Supreme Court had dismissed the special leave petition filed by the revenue against this order.

4. High Court's Ruling:
The Delhi High Court had held that when the entire income of a non-resident is subject to tax deduction at source under section 195, the non-resident cannot be burdened with interest under section 234B for failure to pay advance tax. The court explained that the payer is responsible for deducting tax at source, and if the payer fails to do so, the payer is treated as an assessee-in-default under section 201, not the non-resident payee.

5. Tribunal’s Conclusion:
Respecting the decision of the Delhi High Court, the tribunal held that the payer was required to deduct tax at source under section 195 on the payments received by the assessee. Since the tax was deductible under section 195, there was no failure on the part of the assessee in paying advance tax. Hence, the assessee could not be held liable for interest under section 234B. The tribunal confirmed the order of the CIT (A) deleting the interest under section 234B and dismissed the revenue’s appeal.

Final Judgment:
The appeal filed by the revenue was dismissed, and the order was pronounced in the open court on 03/06/2016.

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