No Section 234C Interest When Payers Fail to Deduct TDS Under Sections 196D and 194LD

ITAT Mumbai held that interest under section 234C cannot be levied on an assessee when payers failed to deduct TDS under sections 196D and 194LD. The tribunal ruled that since advance tax liability is reduced by TDS deductible at source, and the assessee discharged full tax liability after payers' failure to deduct TDS, no interest is leviable. Following precedent from NGC Network Asia LLC case, the tribunal determined this was not a case of deferred advance tax payment but payer's fault in TDS deduction. The addition was deleted in favor of the assessee.

---

---

Issues:
Levy of interest under section 234C of the Income Tax Act on the assessee.

Detailed Analysis:

1. Background: The appeal by the assessee was against the order of the ld. CIT(A)-58, Mumbai, pertaining to AY 2021-22, challenging the levy of interest under section 234C of the Act amounting to Rs. 51,75,514.

2. Facts of the Case: The assessee, a company incorporated in Singapore, made investments in debt securities and equity shares in India. The return filed declared a total income of Rs. 7,56,66,23,191. The issue arose when the payers did not deduct tax at source on some interest income, leading to a demand notice.

3. Arguments: The assessee contended that it paid full tax on the interest receipts as advance tax, despite the payer's failure to deduct tax at source. The assessee relied on legal precedents to support the argument that interest under section 234C should not be levied due to the fault of the payers.

4. Consideration of Authorities: The Tribunal considered the arguments and legal provisions, emphasizing that the assessee cannot be penalized for the payer's failure to deduct TDS. It was noted that the assessee diligently discharged its tax liability by paying the entire advance tax on the interest income.

5. Legal Provisions: Section 234C of the Act was analyzed, which deals with interest for deferment of advance tax. The Tribunal highlighted that the advance tax is reduced by any tax deductible or collectible at the source, indicating that the liability of the payer to deduct tax at source is considered.

6. Decision: Citing the decision of the Hon'ble Jurisdictional High Court of Bombay, the Tribunal concluded that no interest under section 234C can be imposed on the assessee when the payer fails to deduct tax at source. It was clarified that since the assessee discharged the tax liability, no interest is leviable under section 234C of the Act. Consequently, the AO was directed to delete the addition, and the appeal of the assessee was allowed.

This detailed analysis of the legal judgment provides insights into the issues raised, the arguments presented, the legal provisions considered, and the final decision reached by the Tribunal regarding the levy of interest under section 234C of the Income Tax Act.

---