Interest u/s 201(1A) to be levied from dt of on which tax was deductible till dt of payment of tax by deductee – Delhi HC


CIT v BABCOCK POWER (OVERSEAS PROJECTS) LTD. ITA 178/2002 dated 05.09.2014 – DELHI HIGH COURT

Background:

The assessee – M/s.Babcock Power (Overseas Projects) Ltd., a non-resident company incorporated in United Kingdom, during the Assessment Years 1987-88 to 1989-90 had a project office in India and was engaged in execution of a contract of setting up a coal based thermal plant. The assessee to fulfil their contractual obligations, had engaged their foreign technicians who were deputed to work at the Indian project office. These employees were on pay roll of UK office of the respondent assessee and salaries were paid in foreign currency in their bank accounts abroad. These contracts of employment were duly approved by the Ministry of Mines for the purposes of Section 10(6) of the Act. Assessee did not deduct Tax at Source on the salary paid on the ground that tax was not required to be deducted. The Assessing Officer disagreed and also directed interest under Section 201(A) of the Act be charged.

A question arose, whether the assessee was liable to deduct tax at source under Section 192 of the Act on the salaries paid to the foreign technicians. Tribunal, by the impugned order, has rejected the contention of the  assessee that they were not liable to deduct tax at source. Tribunal further upheld levy of interest and observed that interest was payable under Sections 201(1) and 201(1A). Interest has been referred to as the legitimate amount of tax due for delayed payment. However, the Tribunal did not accept and agree with levy of interest for the period commencing from 1st April following the Financial Year till the date of the order of levy of interest under Section 201(1A) observing that this was erroneous and cannot be sustained. This finding/direction is questioned. 

HELD:

  • This issue was no more res integra having been decided by this Court with respect to the same assessee in ITA No.82/2000 
  • The admitted position is that the foreign employees of the assessee had paid tax in India either by way of advance tax or self assessment tax. Tribunal has further observed that the Assessing Officer had himself not levied interest commencing from the period of deductibility of tax till the end of the Financial Year. Accordingly, the Tribunal was not inclined to enlarge the period for which the interest was payable. 
  • In the subsequent paragraphs, Tribunal has held and directed the Assessing Officer to re-compute levy of interest for the period commencing from the first date of April following the end of the relevant Financial Year till the date of actual payment i.e. the date of payment of self assessment tax, if payable by the employees, or after taking into consideration the advance tax and self assessment tax paid by the employees. No further interest, it has been directed, would be payable. 
  • The view taken by the Tribunal is in consonance with the decision of a Division Bench of this Court dated 21.12.2011 in ITA No.74/2003 titled Commissioner of Income Tax TDS vs. M/s. American Express Bank Ltd., in which it has been held as under:
    “If the employees (i.e. payee) had paid taxes as per the individual return/assessment, no amount as tax would be payable to that extent and the liability for interest would be only for the period commencing from the date of such tax was deductible to the date on which tax was actually paid. [CIT vs. Adidas India Marketing (P) Ltd. (2007) 288 ITR 379 Delhi and CIT – XVII vs. Trans Bharat Aviation (P) Ltd. (2010) 320 ITR 671.]
  • In view of the aforesaid position, the question is answered against the appellant Revenue and in favour of the respondent/assessee. The order of the Tribunal does not call for any interference.

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