Case Law Details
Facts of the Case-
General Electric group was manufacturing equipment relating to oil and gas, energy, transportation and aviation, for supply to customers in India. After a survey under Section 133A at the premises of General Electric International Operations Company Inc. (“GEIOC”), the liaison office, reassessment proceedings were initiated against several entities of the GE group for assessment years (AYs) 2000- 2001 till AY 2006-07, on 3 1.3.2008. The respondents in these appeals are 8 such entities (“assessees”) i.e. GE Packaged Power Inc., GE Jenbacher Gmbh, Nuovo Pignone Spa, GE Engine Services Inc., GE Energy Parts Inc., GE Aircraft Engine Services Ltd., GE Engine Services Malaysia, and GE Japan Ltd., over various AYs. The assessees filed NIL returns of income and sought reasons for reopening assessment, which were duly provided. Objections to reassessment were disposed of, and notice under Section 143(2) was issued, and final assessment order was issued. The Assessing Officer (AO) found that the assessees had a permanent establishment (“PE”) in India. The taxable income of the assessees was computed by attributing some percentage of the sale price/consideration received as profits to the PE; interest under Sections 234A and 234B of the Act was also levied.
The assessees appealed against the order of the AO; the CIT(A) disposed of the appeals by its order of 30.9.20 10, confirming the reopening of the assessment, the finding on existence of PEs in India, and the attribution of profits to the PEs. However, on the question of interest under Section 234B for failure to pay advance tax in terms of Sections 208 and 209, the CIT(A) applied the interpretation to Section 234B of the Act, given in Director of Income Tax v. Jacabs Civil Inc. 330 ITR 578 (Del.) and deleted the interest, therefore, holding in favour of the assessees. Before the ITAT, the Revenue argued that the position of law, as held by the Supreme Court in CIT v. Anjum M.H. Ghaswala and Ors. (2001) 252 ITR 01, was that interest under Section 234B is mandatory, and that the AO is not vested with any discretion in that regard. The appeals by the Revenue before the ITATwere dismissed, by its order of 16.7.20 13, on the ground that the position of law in Jacabs (supra) was applicable squarely, and that the judgment sought to be relied upon by the Revenue, in Anjum M.H. Ghaswala (supra) was also considered in Jacabs(supra). The Revenue is in appeal before this Court against the said order of the ITAT.
The Revenue argues that the ITAT’s reliance on Jacab (supra) in the impugned order was misplaced as the proposition that interest, under Section 234B, is not chargeable cannot be unqualified, because regard must be had to the role of the assessee/payee in the non-deduction or short-deduction of tax at source. Mr. Balbir Singh for the Revenue argues that the relevance of the assessee’s role was made clear in DIT – International Taxation v. Alcatel Lucent USA Inc, by a Division Bench of this Court in ITA No. 327 of 2012, dated 07.11.2013, in which it was held that interest could be imposed on an assessee foreign company which denies tax liability, for non-payment of advance tax, because there exists a presumption that the assessee had represented to the Indian payer that tax should not be deducted from the remittances made to it. In Alcatel Lucent (supra), the foreign assessee first contested the PE status, but later, during the appellate stage, in a volte face, admitted that it was a PE and that its income was chargeable to tax in India. In such a situation, if the payer does not deduct tax, the assessee is assumed to have played some role in the non-deduction of tax at source by the payer, and interest under Section 234B is payable by the assessee.
Specific reliance was sought to be placed by the revenue, on the Court’s emphasis that an assessee claiming its income not to be taxable in India, unlike one that admits its tax liability from the outset, cannot argue that it is the responsibility of the payers to deduct tax, and at the same time benefit from the tax credit under Section 209(1)(d). It was argued that this case was akin to Alcatel Lucent (supra), in that the assessees had denied their tax liability initially (by filing NIL returns after the Section 148 notice), and, therefore, could not take shelter under Jacabs (supra),to now argue that the payer had an absolute liability to deduct tax from the remittance to the non-resident payee. The Indian payer could not possibly have been responsible for deducting tax from the remittances made to the assessees, under such circumstances.
The case of the assessees is that they are non-resident companies and the payment received by them should have suffered a tax deduction at source, by the payer, who was required so to do by Section 195 of the Act. Placing reliance on Jacabs (supra), it is argued that the obligation upon the payer to deduct tax at source, before making remittances to the non-resident assessee, was absolute. This was evident from the terms of pre-amended Section 209(1)(d), by which the assessee was not liable to pay advance tax, owing to the tax credit that it was entitled to for the tax that was “deductible” at source, in computing its advance tax. In other words, in computing its own advance tax liability, it was entitled to reduce that tax deductible or collectible at source by the payer. The amendment of proviso to Section 209(1) in the Finance Act, 2012, prescribing that the nonresident assessee can take credit only for the amount of tax actually deducted by the payer, was with effect from 1.4.2012, having been made expressly prospective. Consequently, during the AYs in question, no interest was leviable under Section 234B. Alcatel Lucent (supra) was sought to be distinguished, on the ground that that decision turned on the volte face of the assessee as to whether its income was taxable in India, at the appellate stage. There being no admission here of tax liability, it is argued that the obligation rests upon the payer to deduct tax at source. Reliance was also placed on CIT v. Madras Fertilizers Ltd. [1984] 149 ITR 703 (Mad.); DIT (Int. Taxation) v. NGC Network Asia LLC 313 ITR 187 (Bom.); Sedco Forex International Drilling Inc. v. DCIT 264 ITR 320 (Utt.); Motorola Inc. v. DIT 95 ITR 269 (Delhi SB) and Qualcomm Inc. v. ADIT, 153 TTJ 513 (Del.), for this proposition.
The question that arises for consideration is whether interest should be levied on the assessee under Section 234B, on the ground of non-payment of advance tax. The case of the Revenue, in short, is that the position of law in Alcatel Lucent (supra) is applicable, since the assessee, having denied tax liability during reassessment, caused the payer to erroneously refrain from deducting tax under Section 195; it must thus suffer an interest for nonpayment of advance tax. The case of the assessees on the other hand is that the position of law in Jacabs (supra) must apply, and that the obligation was upon the payer to deduct tax at source before making remittances to them; the payer’s failure to do so cannot invite an interest upon the payees.
Held by High Court-
The primary liability of deducting tax (for the period concerned, since the law has undergone a change after the Finance Act, 2012) is that of the payer. The payer will be an assessee in default, on failure to discharge the obligation to deduct tax, under Section 201 of the Act.
This Court finds that no interest is leviable on the respondent assessees under Section 234B, even though they filed returns declaring NIL income at the stage of reassessment. The payers were obliged to determine whether the assessees were liable to tax under Section 195(1), and to what extent, by taking recourse to the mechanism provided in Section 195(2) of the Act. The failure of the payers to do so does not leave the Revenue without remedy; the payer may be regarded an assessee-in-default under Section 201, and the consequences delineated in that provision will visit the payer. The appeal of the Revenue is accordingly dismissed without any order as to costs.
