1. Liability for interest under Section 234B of the Income-tax Act, 1961, regarding short payment of advance tax when tax deductible at source was not deducted by the payer. (Para 1 , 2 , 3 )
Back
Next 
2021 Supreme(SC) 501
SUPREME COURT OF INDIA
L. NAGESWARA RAO, ANIRUDDHA BOSE, JJ.
DIRECTOR OF INCOME TAX, NEW DELHI - APPELLANT
VERSUS
M/S. MITSUBISHI CORPORATION – RESPONDENT
CIVIL APPEAL NO.1262, 1256, 1268, 1271, 1272, 1301 OF 2016, CIVIL APPEAL NO. 5734, 5735, 4766, 5737 OF 2021 CIVIL APPEAL NO. 3884 OF 2014
DECIDED ON : 17-09-2021
Important Points
IMPORTANT POINTS
(1) Interest under Section 234B of Income Tax Act, 1961 cannot be imposed on an assessee for failure on part of payer in deducting tax at source.
(2) Interpretation of Statute – Subsequent legislation may be looked at in order to see what is proper interpretation to be put upon earlier Act, where earlier Act is obscure or ambiguous or readily capable of more than one interpretation.
(1) Interest under Section 234B of Income Tax Act, 1961 cannot be imposed on an assessee for failure on part of payer in deducting tax at source.
(2) Interpretation of Statute – Subsequent legislation may be looked at in order to see what is proper interpretation to be put upon earlier Act, where earlier Act is obscure or ambiguous or readily capable of more than one interpretation.
Subject
Taxation Law - Income Tax
Act Referred
Headnote
(A) Income Tax Act, 1961 – Section 243(B), 201 and 209(1)(d), Proviso – Non-deduction of TDS – Liability of assessee to pay interest – Interest under Section 234B of Act cannot be imposed on an assessee for failure on part of payer in deducting tax at source, when Section 201 provides for consequences of failure to deduct tax at source or failure to pay tax after making deduction – Section 209 of Act which relates to computation of advance tax payable by assessee cannot be ignored while construing contents of Section 234B – Prior to financial year 2012-13, amount of income-tax which is deductible or collectible at source can be reduced by assessee while calculating advance tax, Respondent cannot be held to have defaulted in payment of its advance tax liability – If assessee receives any amount including tax deductible at source on such amount, assessee cannot reduce such tax while computing its advance tax liability – Appeals filed by Revenue dismissed. (Paras 7, 20 and 22)
(B) Interpretation of Statute – Principle of Construction – Subsequent legislation may be looked at in order to see what is proper interpretation to be put upon earlier Act, where earlier Act is obscure or ambiguous or readily capable of more than one interpretation. (Para 18)
Facts of the case:
Point-in-issue concerns liability of an assessee to pay interest on short payment of advance tax due to default of the payer in not deducting tax at the time of payment, under the provisions of Income-tax Act, 1961. Question of law framed by High Court is whether levy of interest under Section 234B of the Act for short deduction of tax at source is mandatory and is leviable automatically.
Findings of Court:
Revenue is not remediless and there are provisions in the Act enabling Revenue to proceed against the payer who has defaulted in deducting tax at source.
Result : Civil Appeals dismissed.
Legal Category Hierarchy
Advocates appeared:
For the Appellant(S) :K M Natraj, Sughoh Subramanium, Manish Pushkarna, Kumar Shashank, Zoheb Hussain , Udai Khanna, Swarupma Chaturvedi, Raj Bahadur Yadav, Ashwarya Sinha, B. V. Balaram Das, Neeraj Shekhar, Anil Katiyar, Advocates
For the Respondent(s):M.S Syali, Mahua Kalra, Mayank Nagi, Tarun Singh, Pulkit Verma, Kamal Mohan Gupta, Sujata Kurdukar, Praveen Swarup, Kishore Kunal, Rameshwar Prasad Goyal, Anil Katiyar, Advocates
For the Appellant(S) :K M Natraj, Sughoh Subramanium, Manish Pushkarna, Kumar Shashank, Zoheb Hussain , Udai Khanna, Swarupma Chaturvedi, Raj Bahadur Yadav, Ashwarya Sinha, B. V. Balaram Das, Neeraj Shekhar, Anil Katiyar, Advocates
For the Respondent(s):M.S Syali, Mahua Kalra, Mayank Nagi, Tarun Singh, Pulkit Verma, Kamal Mohan Gupta, Sujata Kurdukar, Praveen Swarup, Kishore Kunal, Rameshwar Prasad Goyal, Anil Katiyar, Advocates
Table of Contents
2. Whether advance tax liability is independent of the payer's obligation to deduct tax at source and if interest under Section 234B is mandatory despite such non-deduction. (Para 8 , 9 , 10 )
3. Analysis of Section 209(1)(d) and the 2012 amendment, determining that subsequent legislation clarifies the interpretation of ambiguous earlier provisions regarding advance tax computation. (Para 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 )
4. Prior to FY 2012-13, assessees could reduce tax that would be deductible at source from advance tax liability, regardless of whether the payer actually deducted such tax. (Para 19 , 20 )
5. Appeals filed by the Revenue were dismissed, upholding the assessee's lack of liability for interest under Section 234B for the period prior to FY 2012-13. (Para 22 , 25 )
6. How is advance tax computed under Section 209(1)(d) for periods prior to the Finance Act, 2012?
For assessments prior to FY 2012-13, an assessee is entitled to reduce the amount of income-tax that would be deductible or collectible at source from their advance tax liability, even if the payer failed to actually deduct the tax. (Para 12 , 19 , 20 )
7. What is the effect of the proviso added to Section 209(1)(d) by the Finance Act, 2012?
The proviso stipulates that for FY 2012-13 and subsequent years, an assessee cannot reduce the amount of income-tax from their advance tax liability if the person responsible for deducting tax paid or credited the income without deduction. (Para 14 , 15 , 16 , 20 )
8. Does the levy of interest under Section 234B operate independently of the computation of advance tax under Section 209?
No, the liability for interest under Section 234B is for default in payment of advance tax. Therefore, the computation of advance tax payable under Section 209 must be considered to determine if a default occurred. (Para 20 )
9. Can subsequent legislation be used to interpret an earlier, ambiguous statutory provision?
Yes, subsequent legislation may be looked at to determine the proper construction of an earlier Act where that earlier Act is obscure, ambiguous, or capable of more than one interpretation. (Para 17 , 18 , 19 )
JUDGMENT :
L. NAGESWARA RAO, J.
1. The conundrum before this Court concerns the liability of an assessee to pay interest on short payment of advance tax due to default of the payer in not deducting tax at the time of payment, under the provisions of the Income-tax Act, 1961 (hereinafter referred to as the “Act”). The facts giving rise to Civil Appeal No. 1262 of 2016 are referred to herein, for the sake of convenience.
2. Notice was issued to the Respondent-Assessee under Section 143 (2) of the Act on 12.10.2004. The Assessing Officer passed an assessment order on 24.03.2006 for the assessment years 1998-99 to 2004-05. The Assessee is a non-resident company incorporated in Japan, with operations in India. In spite of resistance from the Assessee, it was held by the Department that a portion of the Assessee’s income was attributable to its activities in India and was therefore liable to be taxed in India, under Articles 4, 5 and 6 of the Double Taxation Avoidance Agreement between India and Japan, read with the provisions of the Act. The Respondent-Assessee filed appeals against the assessment order dated 24.03.2006 before the Commissioner of Income-Tax (Appeals) (hereinafter referred to as the “CIT”) only with respect to levy of interest under Section 234B of the Act. The CIT dismissed the appeals by a common order dated 10.02.2009, aggrieved by which the Respondent filed appeals before the Income Tax Appellate Tribunal (hereinafter referred to as the “ITAT”). The ITAT allowed the appeals by an order dated 23.06.2009 and held that the Respondent was not liable for payment of interest under Section 234B, when tax at source was deductible from payment made to the Respondent. The judgment of the ITAT was challenged by the Appellant before the High Court. On 30.08.2010, the High Court dismissed the appeals and upheld the judgment of the ITAT. Dissatisfied with the judgments of the ITAT and the High Court, the Appellant has preferred Civil Appeal No. 1262 of 2016 before this Court.
3. The Assessing Officer examined the structure of the Respondent-Assessee which was engaged in carrying out trading activities in carbon crude oil, LPG, ferrous products, industrial machinery, mineral, non-ferrous metal and products, textiles, automobiles etc. through its liaison offices in India. The Assessing Officer rejected the contention of the Respondent that it had no income which was taxable in India and passed the assessment order dated 24.03.2006, determining the income attributable to Indian operations and charging interest as per the provisions of the Act. The assessment order was challenged before the CIT, restricted to the imposition of interest under Section 234B of the Act.
4. The appeals were dismissed by the CIT as not being maintainable. The appeals filed by the Respondent-Assessee against the order of the CIT were disposed of by the ITAT on 16.11.2007 by remanding the appeals for the assessment years 1998-99 to 2004-05 to the CIT to be decided on merits. On remand of the appeals for the aforesaid assessment years, the CIT framed two questions for consideration, which are as below:
(a) whether the Appellant is liable to pay interest under Section 234B of the Act, in case tax which was deductible at source has not been deducted; and
(b) whether in the facts and circumstances of the case there was any tax deductible at source from the receipts of the appellant so as to apply the ratio of the ITAT decision in appellant’s own case for assessment year 2005-06.
5. The CIT took note of the order passed by the ITAT on 08.08.2008 in respect of the assessment year 2005-06 in case of the Respondent. In the said order, the ITAT had followed an earlier order passed in Motorola Incorporation v. Deputy CIT , [2005] 95 ITD 269, in which the assessee was found to be not liable for payment of advance tax and for consequent interest under Section 234B, as the entire income received by the assessee was such from which tax was deductible at source. However, whi
