Commissioner of Income Tax vs Tide Water Marine International Inc.

Prafulla C. Pant, J.—Both these appeals, preferred u/s 260A of the Income Tax Act, 1961, involve a common question of law, as such both are being taken up together for their disposal.

Income Tax Appeal No. 54 of 2007 (old No. 139 of 2000), is directed against the order dated August 24, 1999, passed by the Income Tax Appellate Tribunal, (Delhi Bench "A"), passed in I. T. A. No. 381/Del/99, whereby the appeal of the assessee was allowed holding that he is not liable to pay interest u/s 234B of the Income Tax Act, 1961. Income Tax Appeal No. 72 of 2007 is directed against the order dated September 15, 2006, passed by the Income Tax Appellate Tribunal (Delhi Bench "F") in I. T. A. No. 3616/D/2003, in which the appeal of the Revenue is dismissed and the order of the Commissioner of Income Tax (Appeals) (hereinafter referred as the Commissioner of Income Tax (Appeals)) is affirmed that the assessee is not liable to pay the interest u/s 234B of the Income Tax Act, 1961. The common question of law involved in the aforesaid two appeals is as under:

Whether the Income Tax Appellate Tribunal has erred in law in holding that interest is not payable by the assessee u/s 234B even though the income of the assessee was subject to tax deduction at source?

Heard learned Counsel for the parties at length.

The brief facts of the case are that the assessee/respondent M/s. Tide Water Marine International Inc. is a non-resident foreign company. Another non-resident foreign company M/s. Hyundai Heavy Industries Co. Ltd. has engaged the respondent/assessee in the business of exploration/ production of mineral oils. I. T. A. No. 54 of 2007 pertains to the assessment year 1996-97 while Income Tax Appeal No. 72 of 2007 pertains to the assessment year of 1997-98. Under the special provisions for computing profits and gains in connection with the business of exploration, etc., of mineral oils, Income Tax is payable by the assessee on the profits assessed u/s 44BB of the Income Tax Act, 1961 (hereinafter referred as the I. T. A. 1961). It is also not disputed that the Income Tax payable by the assessee was subject to tax deduction at source (hereinafter referred as TDS) u/s 195 of the Income Tax Act, 1961. In the case relating to I. T. A. No. 54 of 2007, the Assessing Officer (hereinafter referred as "the AO") while assessing the tax u/s 143 of the Income Tax Act, 1961, on the income shown in the return, directed that interest be charged u/s 234B of the Act. Aggrieved by the said order the assessee filed appeal before the Commissioner of Income Tax (Appeals), which was dismissed, vide order dated December 29, 1998. On this, the assessee went in appeal before the Income Tax Appellate Tribunal (hereinafter referred as "the ITAT"), which allowed the appeal and held that the interest is not payable by the assessee u/s 234B of the aforesaid Act as the assessee itself is not liable to deduct tax at source in order to pay advance tax u/s 208 of the Act. Hence, this appeal. In I. T. A. No. 72 of 2007, initially on the return filed by the assessee no interest was charged on the tax assessed by the Assessing Officer, but subsequently on receiving a petition of tax evasion the Assessing Officer issued notice u/s 148 of the Act and directed that interest be charged u/s 234B of the Act. Aggrieved by the said order the assessee preferred appeal before the Commissioner of Income Tax (Appeals). The same was allowed, vide order dated March 17, 2003, by the said authority. On this the Revenue went in appeal before the Income Tax Appellate Tribunal, which dismissed the appeal, vide order dated September 15, 2006. Hence, this appeal by the Revenue.

It is not disputed that the assessee is a non-resident foreign company and was engaged by another non-resident foreign company in the business of exploration of mineral oils in Bombay High and as such the profits and gains were to be assessed u/s 44BB of the Income Tax Act, 1961. It is also not disputed that Tide Water Marine International Inc. is in fact an individual assessee, engaged by another non-resident foreign company who had to deduct the tax at source u/s 195 of the Act. The dispute relates only to the point that if the company who engaged the assessee, has not deducted tax at source, is the individual assessee liable to pay interest u/s 234B of the Act or not.

Before further discussions, we think it just and proper to quote the relevant provisions of law to show when the interest is payable u/s 234B of the Act. Section 208 of the Income Tax Act, 1961, reads as under:

Advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this Chapter, is five thousand rupees or more.

The procedure to compute the tax is given in the next section, i.e., Section 209. Section 234B of the Act provides that the interest shall be paid for defaults in payment of advance tax. Sub-section (1) of Section 234B of the Income Tax Act, 1961, reads as under:

234B. (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax u/s 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of Section 210 is less than ninety per cent. of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one per cent. for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under Sub-section (1) of Section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax,

Explanation 1.-In this section, ''assessed tax'' means the tax on the total income determined under Sub-section (1) of Section 143 or on regular assessment as reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income.

(This Explanation is amended in 2006, but the same is not applicable to the assessment year in question).

Sri Arvind Vashistha, learned Counsel for the appellants/Revenue argued that since tax was admittedly liable to be deducted at source and there was default in the deduction as such assessee is liable to pay the interest u/s 234B of the Act. On the other hand, Sri S.K. Posti, learned Counsel for the respondent/assessee argued that for the negligence or inaction on the part of the employer or the company, who engaged the individual assessee, the individual assessee cannot be held responsible for it.

On behalf of the assessee our attention is drawn to the cases of Commissioner of Income Tax, Bangalore and Another Vs. Century Building Industries Pvt. Ltd., and Commissioner of Income Tax and Another Vs. Sedco Forex International Drilling Co. Ltd., . We have gone through the aforesaid cases and we found that in Commissioner of Income Tax and Another Vs. Sedco Forex International Drilling Co. Ltd., a Division Bench of this Court in a similar case has taken the view that where the employer company has not calculated the amount of tax as required u/s 209(1)(d) of the Income Tax Act, 1961, the individual assessee cannot be faulted. In the case of Commissioner of Income Tax, Bangalore and Another Vs. Century Building Industries Pvt. Ltd., , when a penalty was imposed on the employer u/s 201 of the Income Tax Act, 1961, for not complying with the provisions of Section 195 of the Act, the apex court held that for default on the part of the employer''s failure to deduct the tax, penalty was leviable u/s 201(1) of the Act and it allowed the appeal of the Revenue in the said case.

Having gone through both the abovementioned case law, we are of the view that now it is settled principle of law that where it is the duty of the non-resident foreign company who engaged the individual assessee, who is non-resident foreign company to deduct the tax at source, the individual assessee cannot be made liable to pay the interest u/s 234B for default on the part of the company who engaged or employed such individual. The question of law raised stands answered accordingly.

Therefore, for the reasons as discussed above, the impugned orders passed by the Income Tax Appellate Tribunal suffer from no illegality and these two appeals have no force. The same are liable to be dismissed.

Both the appeals are dismissed.