2023 (4) TMI 112 - AT - Income Tax

Tribunal affirms interest charge on NRI under Income Tax Act 1961, stresses timely Advance Tax payment

Siva Rama Krishna Rao Nutakki, Visakhapatnam Versus Income Tax Officer, Ward-2 (1), Visakhapatnam

The Tribunal upheld the Ld. CIT(A)-NFAC's decision, affirming the charging of interest under section 234B of the Income Tax Act, 1961. The Tribunal ruled ... Interest levied u/s. 234B - Liability of advance Tax - TDS was not deducted by the payer - delay in deposit of tax and filing of return - whether for the purpose of working out Advance Tax payable, the Tax deductible has to be reduced and according to the said provision no Advance Tax need to be paid? - HELD THAT:- Assessee was aware of the fact that the tax has not been deducted U/s. 195 of the Act and he was required to deposit the Advance Tax by 31st March of the previous year. The assessee was aware about the delay in deposit of tax and filing of return and therefore the onus cannot be shifted to the buyer. The action of the Ld. Revenue Authorities cannot be at fault and therefore the confirm the order of the Ld. CIT (A)-NFAC. CIT(A)-NFAC has rightly appreciated the facts of the case as well as the provisions of the IT Act, 1961 before deciding the issue on hand against the assessee. Therefore, we are of the considered opinion that there is no infirmity in the order of the Ld. CIT(A)-NFAC and no interference is required in the order of the Ld. CIT (A) -NFAC on this issue. Appeal filed by the assessee is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether interest under section 234B of the Income Tax Act is chargeable on an assessee in respect of capital gains where the purchaser of the immovable property did not deduct tax under section 195, but the assessee contends that tax was 'deductible' at source by the purchaser. 2. Whether the onus of ensuring payment of tax by way of advance tax (to avoid interest under section 234B) can be shifted to the purchaser/deductor where the assessee was aware that tax under section 195 had not been deducted. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Chargeability of interest under section 234B where tax under section 195 was not deducted by the purchaser Legal framework: Section 234B levies interest for shortfall in payment of advance tax; the statutory computation reduces the shortfall by 'tax deducted' (i.e., tax actually deducted and deposited) rather than by tax merely 'deductible' in law. Section 195 imposes obligation on payer to deduct tax at source when making certain payments to non-residents. Precedent treatment: No prior judicial precedents are cited or relied upon in the record; the Tribunal and the Commissioner (Appeals) decided the question on the statutory language and facts. Interpretation and reasoning: The Tribunal (affirming the Commissioner (Appeals)) construed the language of section 234B as referring to actual tax deducted and not to tax that was only liable to be deducted by a third party. Where the assessee had realised full consideration and was aware that the purchaser had not deducted tax under section 195, the statutory reduction for 'tax deducted' could not be invoked by the assessee. The correct test is whether tax has been deducted and credited (i.e., an actual reduction in the assessee's tax liability), not whether tax ought to have been deducted by the payer. Consequently, the shortfall in advance tax remained and interest under section 234B was properly chargeable from 1st April of the assessment year until assessment/determination of tax. Ratio vs. Obiter: Ratio - Where tax has not actually been deducted by the purchaser under section 195, the assessee cannot treat such notional deduction as reducing advance tax liability for purposes of section 234B; interest under section 234B is chargeable on the shortfall not reduced by tax merely 'deductible'. Obiter - Observations as to the practical awareness of the assessee regarding the purchaser's failure to deduct are factual and supportive but not the determinative statutory point. Conclusions: The finding that interest under section 234B is chargeable was upheld. The Tribunal concluded there was no error in confirming interest under section 234B since the purchaser had not actually deducted tax and the statutory reduction applies only to tax actually deducted. Issue 2 - Onus to pay advance tax and permissibility of shifting onus to purchaser/deductor Legal framework: The law requires an assessee liable to tax to discharge advance tax obligations within prescribed dates; interest under section 234B arises where advance tax paid is inadequate. Section 195 places obligation on the payer to deduct tax when making certain payments to non-residents, but that obligation does not, by itself, absolve the payee/assessee from meeting advance tax obligations. Precedent treatment: No judicial authorities are referenced; the authorities applied statutory obligations and factual knowledge of the assessee. Interpretation and reasoning: The Tribunal accepted the Commissioner (Appeals)'s reasoning that when an assessee is aware that tax has not been deducted by the payer, the assessee cannot shift the responsibility of making advance tax payments to the purchaser. The statutory scheme contemplates that if the purchaser fails to deduct, the assessee remains liable to arrange payment of tax (including by way of advance tax) to avoid interest. The assessee's awareness of non-deduction and failure to pay advance tax by 31st March led to levy of interest; this factual awareness reinforces, but is not necessary to, the statutory conclusion that actual deduction is required for reduction under section 234B. Ratio vs. Obiter: Ratio - The onus to ensure payment of tax by way of advance tax lies on the assessee and cannot be shifted to the purchaser merely because the purchaser was liable to deduct under section 195; failure to arrange payment attracts interest under section 234B. Obiter - Comments on the assessee's state of awareness are factual observations supporting the conclusion. Conclusions: The Tribunal agreed that the assessee could not escape interest liability by relying on a third party's failure to deduct; therefore, the charge of interest under section 234B was properly confirmed. Interrelationship and final disposition Cross-reference: Issues 1 and 2 are interrelated - the statutory meaning of 'tax deducted' (Issue 1) and the practical onus on the assessee to pay advance tax (Issue 2) together justify the imposition of interest under section 234B where no actual deduction occurred and the assessee failed to remit advance tax. Final conclusion: The order charging interest under section 234B was sustained; the appeal against that aspect was dismissed. (The partial relief granted earlier in relation to section 234C is acknowledged in the record but the Tribunal's decision focused on confirming the section 234B liability.)