Court rules no interest under Section 234B/234C if tax not deducted; waiver application maintainable.

The court ruled that no interest under Section 234B and 234C is chargeable when the payer has not deducted tax at source. The waiver application filed under the 1996 notification was deemed maintainable, and the subsequent 2006 notification could not retrospectively affect pending applications. The court emphasized that the revenue could pursue any other amounts due from the assessees or the deductor if permitted by law.

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Issues Involved:

1. Whether interest is to be paid under Section 234B and 234C of the Income Tax Act when no advance tax is payable by the assessee and the tax deductor/employer abroad has not deducted tax at source.
2. Whether the waiver application for interest under Section 234B and 234C is maintainable under the notification in force at the time of application.
3. Applicability of subsequent notifications to pending applications for waiver of interest.

Issue-wise Detailed Analysis:

1. Interest under Section 234B and 234C:

The primary issue in both appeals was whether the assessees were liable to pay interest under Section 234B and 234C of the Income Tax Act when no advance tax was payable, and the tax deductor/employer abroad had not deducted tax at source. The court considered various judgments, including:

- Hindustan Coca Cola Beverage (P) Ltd v. Commissioner of Income Tax: It was held that no interest is chargeable under Section 234B when the payer has failed to deduct tax at source.
- Director of Income Tax v. Jacabs Civil Incorporated: The Delhi High Court held that interest under Section 234B is not applicable when the entire tax is to be deducted at source by the payer.
- Director of Income Tax, New Delhi v. Mitsubishi Corporation: The Supreme Court upheld the view that no interest under Section 234B is chargeable when the payer has not deducted tax at source.

The court concluded that the liability for interest under Section 234B arises only when there is a default in payment of advance tax, and since the assessees were non-residents with tax deductible at source, they were not liable for interest under Section 234B.

2. Waiver Application under Section 234B and 234C:

The second issue was whether the waiver application for interest under Section 234B and 234C was maintainable under the notification in force at the time of application. The court analyzed the notifications issued under Section 119 of the Income Tax Act:

- Notification dated 23-05-1996: Allowed waiver of interest under Sections 234A, 234B, and 234C in cases of unavoidable circumstances.
- Notification dated 26-06-2006: Superseded the earlier notification and restricted the waiver of interest under Section 234B and 234C, making the reason of "unavoidable circumstances" applicable only to Section 234A.

The court held that the right to apply for waiver under the 1996 notification was a vested right and could not be undone by the subsequent 2006 notification. The court relied on Section 6 of the General Clauses Act, 1897, which protects substantive rights accrued under the repealed statute unless a different intention appears.

3. Applicability of Subsequent Notifications:

The court examined whether the subsequent notification dated 26-06-2006 could affect the pending applications for waiver of interest. It was concluded that the subsequent notification could not apply retrospectively to pending applications. The court cited:

- CIT v. Vatika Township (P) Ltd.: Held that amendments affecting substantive rights are presumed to be prospective unless explicitly stated otherwise.
- Neena Aneja v. Jai Prakash Associates Ltd.: Affirmed that pending proceedings should continue under the law in force at the time of their initiation unless a clear intention to the contrary is expressed.

The court ruled that the application for waiver of interest filed in 2003 under the 1996 notification was maintainable and should be considered on its merits based on the law at the time of application.

Conclusion:

The court dismissed both appeals, holding that:

- No interest under Section 234B and 234C is chargeable when the payer has not deducted tax at source.
- The waiver application filed under the 1996 notification was maintainable, and the subsequent 2006 notification could not retrospectively affect pending applications.

The court emphasized that the revenue could pursue any other amounts due from the assessees or the deductor if permitted by law.

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