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IN THE HIGH COURT OF JUDICATURE AT MADRAS
R. MAHADEVAN, J. SATHYA NARAYANA PRASAD, JJ.
The Chief Commissioner of Income Tax-I, Chennai & Others - Appellant
Versus
M/s. Van Oord ACZ Marine Contractors BV, Chennai & Others - Respondent
W.A. Nos. 979 of 2018 & 2811 of 2021 & C.M.P. Nos. 8348 of 2018 & 18588 of 2021
Decided On : 30-06-2022
Interest under Sections 234B and 234C of the Income Tax Act, 1961 (in short, “the Act”) is compensatory in nature and not as a penalty and the very same view holds good for Section 234C of the Act. The discretion available to the Chief Commissioner of Income Tax for waiving interest under Sections 234A, 234B and 234C is confined to the circumstances, adverted to in paragraph 2(a) to 2(d) of the Circular issued by the Central Government and if the case does not fall within the parameters laid down therein, then no waiver of interest can be granted.
Fact of the Case:
The respondent / assessee is an employee in India earning income from India as well as from abroad. The respondent did not disclose the income earned in foreign countries for the block period in question. Ultimately, he filed an application before the Income Tax Settlement Commission and disclosed his income for the assessment years from 1996-1997 to 2005-2006 and the Settlement Commission directed him to pay the tax together with interest. The respondent / assessee filed a miscellaneous application to modify the order relating to interest under Section 234B. The said application was rejected by the Settlement Commission on the ground that the Settlement Commission can only rectify a mistake, which is apparent on the face of record and cannot adjudicate on debatable issues after discussing the provisions and recording its interpretations.
Finding of the Court:
The issue involved in these writ appeals centres around the question as to whether the respondents/assessees are eligible for waiver of interest levied under Section 234B and 234C of the Act. In this context, reliance was placed on the decision of the Delhi High Court in the case of Director of Income Tax v. Jacabs Civil Incorporated/Mitsubishi Corporation [2010 (194) Taxman 495 (Delhi)] which gives a fitting answer to this issue. In that decision, it was held as follows: 7. Section 2 (1) of the Act defines 'advance tax' to mean the advance tax payable in accordance with the provisions of Chapter XVII-C of the Act. These provisions are contained from Section 207 onwards. Section 209 falls under this Chapter. Sub-section (1) thereof deals with four situations under which the advance tax payable by the assessee is to be computed. Admittedly, these cases do not concern with clauses (a) to (c). Clause (d)of sub-section (1) of Section 209, which is relevant reads as under: .............. 8. This clause categorically uses the expression 'deductible or collectible at source' and it is this clause which is incorporated by the Uttranchal High Court in the said judgment (supra) in the manner already pointed above. The scheme of the Act in respect of non-residents is clear. Section 195 of the Act puts an obligation on the payer, i.e., any person responsible for paying to a non-resident, to deduct income-tax at source at the rates in force from such payments excluding those incomes which are chargeable under the head 'salaries'. Therefore, the entire tax is to be deducted at source which is payable on such payments made by the payee to the non-resident. Section 201 of the Act lays down the consequences of failure to deduct or pay. These consequences include not only the liability to pay the amount which such a person was required to deduct at source from the payments made to a non-resident but also penalties etc., Once it is found that the liability was that of the payer and the said payer has defaulted in deducting the tax at source, the Department is not remedy-less and, therefore, can take action against the payer under the provisions of Section 201 of the Income-tax Act and compute the amount accordingly. No doubt, if the person (payer) who had to make payments to the non-resident had defaulted in deducting the tax at source from such payments, the nonresident is not absolved from payment of taxes thereupon. However, in such a case, the non-resident is liable to pay tax and the question of payment of advance tax would not arise. This would be clear from the reading of Section 191 of the Act along with section 209 (1) (d) of the Act. For this reason, it would not be permissible for the revenue to charge any interest under Section 234B of the Act.
Issues: Whether the respondents/assessees are eligible for waiver of interest levied under Section 234B and 234C of the Act.
Ratio Decidendi: Interest under Sections 234B and 234C of the Act is compensatory in nature and not as a penalty and the very same view holds good for Section 234C of the Act. The discretion available to the Chief Commissioner of Income Tax for waiving interest under Sections 234A, 234B and 234C is confined to the circumstances, adverted to in paragraph 2(a) to 2(d) of the Circular issued by the Central Government and if the case does not fall within the parameters laid down therein, then no waiver of interest can be granted.
Final Decision: Both the appeals are dismissed. However, it is open to the appellants / Revenue to claim any other amount due from the assessee(s) or the deductor, if they are permitted in law to do so.
JUDGMENT
(Prayer: W.A. No. 979 of 2018:- Appeal filed under Clause 15 of Letters Patent against the Order dated 03.01.2018 passed in W.P. No. 14165 of 2009 on the file of this Court.
W.A. No. 2811 of 2021:- Appeal filed under Clause 15 of Letters Patent against the Order dated 27.11.2017 passed in W.P. No. 18472 of 2009 on the file of this Court.)
Common Judgment
R. Mahadevan, J.
1. Both these appeals are filed by the appellants / Revenue, assailing the separate orders dated 03.01.2018 and 27.11.2017 passed by the learned Judge in the respective writ petitions viz., WP.Nos.14165 of 2009 and 18472 of 2009.
2. As the issues arise for consideration in both the appeals are common, they were taken up for hearing together and disposed of by this common judgment.
Facts relating to WA No. 979 of 2018 (WP No. 14165 of 2009)
3.1. The respondent herein, a non-resident company registered in Netherlands, is engaged in the business of dredging and marine contractors. According to them, during the course of such business, in the year 1996, Chennai Port Trust floated a tender for the Break Water Construction at Ennore Port titled "Ennore Coal Port Project". The respondent participated in the said tender as a joint venture company along with an Indian company known as Hindustan Construction Company Limited. The bid offered by the respondent was accepted by Chennai Port Trust and the contract was awarded in their favour. For the purpose of execution of the project, the respondent opened a project office in India with the permission of the Reserve Bank of India dated 23.01.1998. The entire contractual work was completed during the year 2000 and the profit derived thereof have been shared by the respondent with their business partner as per the agreement and receipt of such payment is protected under Section 195 of the Income Tax Act, 1961 (in short, “the Act”). Subsequently, the respondent made an application under Section 195 of the Act on 05.11.1998 to the Deputy Commissioner of Income Tax, Company Circle, in Form 15D with a request that no tax be deducted from the payments made by Chennai Port Trust, since the respondent is adopting the completed contract method of accounting. Alternatively, it was also requested that suitable direction be given to Chennai Port Trust to withhold income at 1.55% from the payments made in respect of the contract bills furnished for the work done by the respondent. In response, a letter dated 15.12.1998 was addressed to Chennai Port Trust calling upon them to make payment to the respondent for the contractual work completed by them, after deducting Tax Deducted at Source (TDS) at the rate of 7.1% thereon under Section 195 of the Act. However, Chennai Port Trust, by their letter dated 30.01.1999 informed that the contract has been taken up by HCC Oord ACZ JV of which M/s. HCC is the domestic company and lead partner of the joint venture. Therefore, payments were made only to the lead partner as per the contract and necessary tax was deducted at source while making payment to the Joint Venture. It was also stated that the TDS if applicable to the respondent is to be done by the joint venture company.
3.2. According to the respondent, as per Article 23 of the Joint Venture, the profits earned by the respondent was taxable in its own hands and no income was taxable in the status of joint venture. However, contrary to Article 23, Chennai Port Trust deducted tax only in the status of joint venture and refused to deduct tax at source for the profits earned by the respondent. In such circumstances, the respondent was forced to file an application under Section 245Q of the Act to the Authority of the Advance Ruling (AAR) during the year 1999. The ARR by order dated 14.09.2000 in A.R. No. 469 of 1999 concluded that the respondent is liable to be assessed on its own profits separately and not in the status as AOP. Thus, the ARR held that the income of the respondent has to be assessed in its own hands and not in the status of joint
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