Court rules taxpayer not liable for interest under Section 234B when payer fails to deduct tax.

Director of Income Tax, New Delhi Versus M/s. Mitsubishi Corporation

Director of Income Tax, New Delhi Versus M/s. Mitsubishi Corporation - [2021] 438 ITR 174 (SC) Issues Involved:
1. Liability of an assessee to pay interest under Section 234B of the Income-tax Act, 1961, due to the payer's failure to deduct tax at source.
2. Interpretation of Section 209 (1) (d) of the Income-tax Act, 1961, especially the phrase "deductible or collectible at source."
3. Applicability of amendments made by the Finance Act, 2012, to Section 209 (1) (d) of the Income-tax Act, 1961.

Detailed Analysis:

1. Liability of an Assessee to Pay Interest under Section 234B of the Income-tax Act, 1961:
The primary issue before the court was whether an assessee is liable to pay interest under Section 234B for short payment of advance tax due to the payer's failure to deduct tax at source. The court noted that the assessee, a non-resident company, was engaged in various trading activities in India. The Department had attributed a portion of the assessee's income to its Indian operations and taxed it accordingly. The assessee contested the levy of interest under Section 234B, arguing that tax was deductible at source from payments made to it. The CIT upheld the Department's view, but the ITAT and the High Court ruled in favor of the assessee, stating that interest under Section 234B could not be imposed due to the payer's failure to deduct tax at source.

2. Interpretation of Section 209 (1) (d) of the Income-tax Act, 1961:
The court examined the interpretation of Section 209 (1) (d), focusing on the phrase "deductible or collectible at source." The Revenue argued that the obligation to pay advance tax is independent of the payer's obligation to deduct tax at source. They contended that the phrase "deductible or collectible at source" should not include amounts not deducted within the statutory time limit. The court, however, found that Section 209 (1) (d) allowed the assessee to reduce the amount of income-tax deductible or collectible at source while computing advance tax liability. The court emphasized that the provisions of Section 209 (1) (d) should be read in conjunction with Section 234B, and the pre-conditions for levying interest under Section 234B must be satisfied.

3. Applicability of Amendments Made by the Finance Act, 2012, to Section 209 (1) (d):
The court considered the amendment to Section 209 (1) (d) introduced by the Finance Act, 2012, which provided that for computing liability for advance tax, income-tax calculated should not be reduced by the amount of income-tax deductible or collectible at source if the payer failed to deduct or collect such tax. The court noted that this amendment was applicable from the financial year 2012-13 onwards and did not apply to the assessment years in question. The court referred to the memorandum explaining the provisions of the Finance Bill, 2012, which clarified that the amendment was necessary due to court judgments permitting the computation of advance tax by reducing the amount of income-tax deductible or collectible at source.

Conclusion:
The court concluded that for assessment years prior to the financial year 2012-13, the assessee was entitled to reduce the amount of income-tax deductible or collectible at source while computing advance tax liability, even if the payer had failed to deduct tax. Consequently, the assessee could not be held liable for interest under Section 234B for the payer's default in deducting tax at source. The court upheld the judgments of the ITAT and the High Court, dismissing the Revenue's appeals. The court also allowed related appeals, applying the same interpretation of the provisions of the Act.

Separate Judgments:
The court delivered a separate judgment for Civil Appeal Nos. 1338-1341 of 2016, Civil Appeal No. 1323 of 2016, Civil Appeal No. 1324 of 2016, Civil Appeal No. 1325 of 2016, Civil Appeal Nos. 1326-1331 of 2016, Civil Appeal No. 1322 of 2016, Civil Appeal No. 1342 of 2016, Civil Appeal Nos. 1295-1299 of 2016, Civil Appeal Nos. 1303-1307 of 2016, Civil Appeal Nos. 1311-1312 of 2016, Civil Appeal No. 1314 of 2016, and Civil Appeal No. 1310 of 2016, which were allowed based on the same reasoning provided in the main judgment.