Court rules assessee not liable for interest under Income Tax Act; precedence set in GE Packaged Power Inc. case

The court ruled in favor of the petitioner, holding that the assessee was not liable to pay interest under Sections 234B and 234C of the Income Tax Act, 1961. The court emphasized that the primary responsibility for deducting tax at source rested with the payer, absolving the assessee of interest liability for the defaults of the deductor. The decision aligned with the precedent set in the GE Packaged Power Inc. case, setting aside the demand for interest while allowing the department to proceed as per specific directions outlined in the judgment.

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Issues:
Challenge to order of settlement commission regarding imposition of interest under Sections 234B and 234C of Income Tax Act, 1961.

Analysis:
The petitioner contested an order by the settlement commission primarily focusing on the imposition of interest under Sections 234B and 234C of the Income Tax Act, 1961. The petitioner argued that they should not be held liable for interest due to defaults of the deductor during the relevant period. Reference was made to a Division Bench judgment of the Delhi Court which favored the assessee in a similar scenario. The court considered the arguments presented by both parties and examined the materials on record.

The key issue addressed in the referenced case was whether interest should be imposed on the assessee under Section 234B for nonpayment of advance tax. The Revenue contended that the assessee's denial of tax liability led to the payer refraining from deducting tax, thus justifying interest imposition. However, the assessee argued that the obligation to deduct tax at source rested with the payer, and their failure should not result in interest liability for the payees. The court held that the primary liability to deduct tax for the relevant period lay with the payer, as per changes in the law post Finance Act, 2012. Consequently, the assessee was not liable to pay the interest imposed by the settlement commission under Sections 234B and 234C of the Income Tax Act, 1961, aligning with the decision in the GE Packaged Power Inc. case.

The court, following the precedent set by the GE Packaged Power Inc. case, set aside the demand for interest under Sections 234B and 234C. However, the department was not restricted from taking action as per the directions outlined in paragraph 23 of the GE Packaged Power Inc. judgment specific to the present case. The court disposed of the writ petition with these directives, clarifying the stance on interest liability in cases where the primary responsibility for tax deduction lies with the payer.

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