TaxTMI 
TaxTMI 
TaxTMI 
2013 (11) TMI 734
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....s court framed the following substantial question of law, common to all the appeals: - "Whether in the facts and circumstances of this case the Tribunal fell into error in holding that the assessee was not liable to pay interest in terms of Section 234B of the Income Tax Act?" 3. ITA No.327 of 2012 was taken as the lead matter by consent. The facts relating to this appeal may be noted in brief. The assessee-Alcatel Lucent USA, INC., is a tax-resident of USA and is part of the Alcatel Lucent Group. It supplied telecom equipments to customers in India in the year under consideration, which is the FYE 31.03.2006, relevant to the assessment year 2007-08. It would appear that the aforesaid group started its operations in India in 1982 in terms of an agreement with ITI Limited, a public sector undertaking which was engaged in the manufacture of telephones. Thereafter a joint venture was established with C-DOT at Chennai, besides establishing a research centre at Bangalore. On 27.02.2009, a survey under Section 133 A of the Act was conducted in the premises of Alcatel Lucent India Ltd., which is the Indian subsidiary and which according to the income tax authorities constituted the perm....
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....y the Assistant Director of Income-tax, Circle -1(1), International Taxation, Drum Shape Building, I.P. Estate, New Delhi. The return is being filed only with a view to comply with the said notice. The act of such compliance is not an admission of any sorts that Alcatel Lucent Inc. had any taxable income in India for the year under consideration. The return is being filed without prejudice to the Company's contention that the notice issued to it is without jurisdiction and bad in law. The return is being filed without prejudice to the legal rights the Company has under law to contest the above notice, including the right to challenge the extra territorial application of the Act in the present case. The act of filing the return in compliance to the above notice should not be construed as Alcatel Lucent Inc. acceding to the jurisdiction of the Indian Tax Authorities in any, manner whatsoever." 5. The assessing officer however did not accept the assessee's stand and in the assessment order passed on 23.03.2010 attributed 2.5% of the sale proceeds of the hardware as profit attributable to the PE in India, which came to Rs. 21,02,58,238/- for the assessment year 2007-08. Similar re-ass....
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....efaulted in deducting the tax, it was open to the Income Tax Department to take action against the payer under Section 201 of the Act, but no action can be taken for recovery of the interest under Section 234B from the non-resident assessee. It was further held in this decision that the non-resident will, no doubt, be liable to pay the income tax on the income assessed upon it, but it cannot be held liable for payment of any advance tax thereon if the tax deductible by the payer in India exceeds the amount of advance tax payable on the estimated income. It was further held that the position would be so even if the income tax was not in fact deducted from the remittance because Section 209 (1)(d) of the Act permitted the non-resident assessee to take credit, while computing its advance tax liability, for the amount of income tax that was "deductible" from the remittance, though not actually deducted. It was furthermore held in the judgment that once it was found that the liability was that of the payer under Section 201 of the Income Tax Act, which permitted recovery of the tax from the payer by treating him as an assessee in default and also recovery of interest under Section 201 (....
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....pting the fact that it had a PE in India and admitting that the income earned in India was chargeable to tax. Nevertheless, it was pointed out by the revenue, the assessee still contended that no interest under Section 234 B can be levied because if the entire income was subject to tax in India the consequence would be that it was the responsibility of the payer to deduct tax and if he has not done so, the remedy of the Income Tax Department lies against him in terms of Section 201 and not against the assessee under Section 234B. The Revenue seriously contested this contradictory stand taken by the assessee before the CIT (Appeals) and submitted before the Tribunal that the assessee should not be allowed to take such a plea. It was pointed out that consistent with the stand taken by the assessee originally in the return filed in response to the notice under Section 148, it would have told the Indian payer that it did not have any PE in India and therefore no tax should be deducted from the remittance; and having said so and led the payers in India to make the entire payment of the purchase price of the equipments without any deduction of tax in terms of Section 195, it is now not o....
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....evenue based on the time limit set by the amendment made to Section 201 with effect from 01.04.2010 was that in terms of Section 40(a)(i), inserted with effect from 01.04.1989, certain types of payments which are claimed as a deduction by the payer would not get the benefit of deduction if the tax was not deducted at source, if such payments were made outside India. According to the Tribunal this provision ensured effective compliance of Section 195 of the Act relating to tax deduction at source. The Tribunal eventually found that the controversy was covered by the judgment of this court in Jacabs Civil Incorporated (supra) and accordingly confirmed the decision of the CIT (Appeals) that the assessee was not liable to pay any interest under Section 234B of the Act. 12. According to the learned standing counsel for the income tax department, the approach of the Tribunal is seriously flawed. According to him the legal position that the non-resident assessee is entitled to take credit, while computing its advance tax liability, for the tax which was "deductible" though not actually deducted, within the meaning of Section 209(1)(d) is not applicable to the facts of the present case. I....
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....non-resident and Section 234B which levies interest on the non-resident assessee for non-payment of advance tax are mutually exclusive and operate on different fact-situations. They are not alternative courses in the sense that the department can choose to proceed under the one or the other; (d) There is no concession given by Section 201 in the sense that no plea of reasonable cause for the failure to deduct the tax can be entertained under that Section; (e) The proviso to Section 209(1) inserted by the Finance Act, 2012 amending the sub-section to provide that the non-resident assessee can take credit only for the amount of tax actually deducted by the payer while computing his advance tax liability was inserted only w. e. f. 01.04.2012 and would apply only from the assessment year 2012-13. The amendment is not clarificatory or explanatory and has been made expressly prospective. 14. In his rejoinder, the learned standing counsel for the income tax department submitted that the definition of the expression "assessed tax" appearing in Section 215(5) is different from the definition of the said expression appearing in Explanation 1 below Section 234B and this makes a crucial dif....
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....erest under Section 234B, overruling the assessees objection that tax was "deductible" by the National Highway Authority of India for whom the assessee was executing the projects. The plea was, however, accepted by the CIT (Appeals) and the Income Tax Appellate Tribunal. It was in those facts that this Court held that since it was the duty of NHAI to deduct tax under Section 195(1) from the payments made to the assessee, and even though no tax was actually deducted and paid by the NHAI, the assessee was entitled to take credit for the tax which was "deductible" by the NHAI while computing its advance tax liability. In the present case, the factual position is quite different. Herein the assessee did not admit any income in the returns. In the note appended to the return (which we have extracted earlier) the assessee denied its liability to be taxed in India on the ground that it had no PE in India. The assessee also pointed out that no income from the supply of telecom equipment to the Indian dealers arose in India since all sales were made from outside India (in the USA). The assessing officer did not accept the claim made in the note and proceeded to assess the assessee in respec....
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.... - "2. The appellant Mitsubishi Corporation is a Japanese non-resident company and it had been carrying on its activities through its liaison office in New Delhi and offices in other cities called "divisions". It claimed that it has no income taxable in India. The department, however, carried survey and recorded statement of General Managers in India and, on the basis of documents recovered in survey, held that a portion of income of the assessee attributable to Indian activities was liable to be taxed in India under Article 4, 5 and 6 of DTAA between India and Japan and under provisions of the Indian Income Tax Act. Initially, the assessee resisted such assessment but ultimately accepted that income taken by the AO was rightly taxed. The quantum of assessments was not challenged before the ld CIT(A). The challenge was restricted to the levy of interest u/s 234B of the Act. Before the ld. CIT(A), assessee placed reliance on decision of ITAT in assessee's own case for AY 2005-06 wherein similar interest u/s 234B imposed on the assessee was deleted vide order in ITA No.848/D/08 dated 08.08.2008 after a detailed discussion. As a matter of judicial discipline, the ld. CIT (A) should h....
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....ther argued by the revenue that such a contradictory plea cannot be permitted to be taken by the assessee. It was pointed out that consistent with the stand taken in the return, the assessee would have told the Indian payer that no tax should be deducted from the remittance and it was, therefore, not open to the assessee, merely because at the first appeal stage it chose not to contest the assessment of the income attributable to the Indian PE, to turn around and say that since it has now accepted its liability to pay tax on the Indian income, it was for the Indian payers to have deducted the tax and if they had not done so the assessee cannot be held liable for the interest. This argument of the revenue was rejected by the Tribunal on the ground that there was no material in support of the plea that the assessee represented to the Indian payers not to deduct tax, nor did any such facts or circumstances emerged from the impugned orders. 21. We are unable to uphold this part of the decision of the Tribunal. It must be remembered that in the note appended to the return the assessee was quite categorical in denying its liability to be assessed in India. It relied on the double taxati....
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....judgment on conjectures, surmises or speculation. Between the claims of the public revenue and of the taxpayers, the Tribunal must maintain a judicial balance." (underlining ours) 23. The Tribunal, keeping in mind the above observations, underlined by us, ought to have drawn the inference that the Indian payers did not deduct the tax under Section 195(1) because of the request made by the assessee, consistent with its stand that it was not liable to be taxed in India. 24. The learned counsel for the assessee submitted in the course of his arguments that the assessee and the Indian telecom equipment dealers cannot contract out of the statute and, therefore, even if such an arrangement had been made between them, it cannot be given effect to and the liability of the Indian payer under Section 195(1) has to be strictly enforced. In other words, it was his contention that the Indian payers ought not to have paid any heed, and should have acted strictly in accordance with Sections 195(1), even assuming, but not admitting that there was such a request from the assessee. Taking a practical view of the matter, it is difficult to see how the Indian payers could have resisted the request ....
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....ught to have been deducted by them should be set off against the assessee's advance tax liabilities. That is the type of case dealt with in the decision of this Court in Jacabs (supra). We were not referred to a single case where on facts similar to the case of the assessee before us, the Court took the view that no interest under Section 234B was chargeable. The case of Mitsubishi Corporation decided along with the case of Jacabs, was on facts similar to the assessee's case. However, as pointed out by us earlier, this Court in Jacabs case proceeded on the assumption that the facts in Mitsubishi Corporation were similar to those in Jacabs. That assumption, as we have earlier demonstrated, with respect, is not borne out by the facts. 26. It further seems to us inequitable that the assessee, who accepted the tax liability after initially denying it, should be permitted to shift the responsibility to the Indian payers for not deducting the tax at source from the remittances, after leading them to believe that no tax was deductible. The assessee must take responsibility for its volte face. Once liability to tax is accepted, all consequences follow; they cannot be avoided. After having....
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....the literal or strict construction. In Calcutta Jute Manufacturing Co. v. Commercial Tax Officer : (AIR 1997 SC 2920) the Supreme Court held that if there is a provision in a taxing statute to compensate the state by charging interest, that provision need not be strictly construed but may be so construed as to effectuate its purpose. The Court held: "10. The State is empowered by the legislature to raise revenue through the mode prescribed in the Act so the State should not be the sufferer on account of the delay caused by the taxpayer in payment of the tax due. The provision for charging interest would have been introduced in order to compensate the State (or the Revenue) for the loss occasioned due to delay in paying the tax (vide Commr. of Income-tax A.P. v. M. Chandra Sekhar : 1985 (1) SCC 283 : (AIR 1985 SC 114) and Central Provinces Manganese Ore Co. Ltd. v. Commr. of Income-tax : 1986 (3) SCC 461 : (AIR 1987 SC 438). When interpreting such a provision in a taxing statute a construction which would preserve the purpose of the provision must be adopted. It is well-settled that in interpreting a taxing statute normally, there is no scope for consideration of principles of equi....