TDS liability and prospectivity of interest provisions barred Sections 234B and 234D interest on non-resident income.

Interest under Section 234B cannot be levied on a non-resident where tax was statutorily deductible at source by the payer, because the advance-tax computation excludes income subject to TDS and the non-resident has no statutory role in deduction or collection; the Department's remedy lies against the payer defaulting in withholding. Interest under Section 234D is not retrospective and applies only from assessment year 2004-05, so it cannot be charged for earlier assessment years. On these principles, the interest demands were deleted and the Revenue's appeals failed.

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Issues: (i) Whether interest under Section 234B of the Income-tax Act, 1961 could be levied on non-resident assessees where tax was required to be deducted at source by the payer. (ii) Whether interest under Section 234D of the Income-tax Act, 1961 could be charged for assessment years prior to 2004-05.

Issue (i): Whether interest under Section 234B of the Income-tax Act, 1961 could be levied on non-resident assessees where tax was required to be deducted at source by the payer.

Analysis: The liability to deduct tax at source was that of the payer, not the non-resident payee. The scheme of Sections 191, 195, 201 and 209(1)(d) of the Income-tax Act, 1961 showed that income on which tax was deductible at source was to be excluded while computing advance tax, and where the payer defaulted, the Department's remedy lay against the payer. Since the assessee had no role in deducting or collecting the tax, the statutory conditions for treating the assessee as in default for the purpose of Section 234B were not attracted.

Conclusion: Interest under Section 234B was not leviable on the assessee and the issue was decided in favour of the assessee.

Issue (ii): Whether interest under Section 234D of the Income-tax Act, 1961 could be charged for assessment years prior to 2004-05.

Analysis: Interest provisions are substantive in nature and, absent clear legislative indication, do not operate retrospectively. Section 234D was held to apply only from assessment year 2004-05 onwards. On that basis, interest could not be levied for earlier assessment years.

Conclusion: Interest under Section 234D was not leviable for the earlier assessment years and the issue was decided in favour of the assessee.

Final Conclusion: The Revenue's appeals failed, and the Tribunal's deletion of the interest demands was upheld.

Ratio Decidendi: Where tax is statutorily deductible at source by the payer, a non-resident assessee cannot be fastened with interest for advance-tax default under Section 234B; and an interest provision will not apply retrospectively unless the statute clearly so provides.

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