Supreme Court of India
DIRECTOR OF INCOME TAX, NEW DELHIversusM/S MITSUBISHI CORPORATION
- Citation
- 2021 INSC 495
- Decided
- 17 September 2021
- Disposal
- Disposed off
- Bench
- L NAGESWARA RAO
Holding
For assessment years prior to FY 2012‑13, the assessee may reduce its advance tax liability by the amount of tax deductible or collectible at source under section 209(1)(d), and therefore is not liable to interest under section 234B.
Summary
M/s Mitsubishi Corporation, a non‑resident Japanese company, was assessed for income attributable to its Indian operations for the years 1998‑99 to 2004‑05 and was levied interest under section 234B of the Income‑Tax Act for alleged default in payment of advance tax. The company argued that, because tax was deductible at source under the Double Taxation Avoidance Agreement, it could reduce the amount of advance tax payable under section 209(1)(d), and therefore no default occurred. The Revenue contended that section 234B should be read in isolation and that the company was liable for interest. The Supreme Court held that liability under section 234B arises only when there is a default in advance tax after accounting for the reduction permitted by section 209(1)(d); for assessment years prior to FY 2012‑13 the proviso inserted by the Finance Act 2012 does not apply, so the company could reduce the advance tax by the tax deductible at source and was not in default. Consequently, the Revenue’s appeals were dismissed and the High Court’s decision upholding the ITAT’s order was affirmed.
Issues considered
- The interpretation of section 209(1)(d) of the Income‑Tax Act and the effect of the proviso inserted by the Finance Act, 2012.
- Whether interest under section 234B can be levied on a non‑resident assessee when tax at source was not deducted by the payer.
- Whether section 234B must be read in isolation or in conjunction with other provisions of Chapter XVII.
Legislation cited
- Finance Act, 2012s. Proviso to s.209(1)(d)
- Income Tax Act, 1961s. 190, s. 191, s. 195, s. 200, s. 201, s. 208, s. 209(1)(d), s. 210, s. 234B, s. 260A
Subjects
Section 234BAdvance taxSection 209(1)(d)Finance Act 2012Non‑resident assesseeTax deducted at sourceInterest on defaultDouble Taxation Avoidance Agreement
Judgment
750 [2021]REPORTS
SUPREME COURT 7 S.C.R. 750 [2021] 7 S.C.R.
A DIRECTOR OF INCOME TAX, NEW DELHI
v.
M/s MITSUBISHI CORPORATION
(Civil Appeal No. 1262 of 2016)
B SEPTEMBER 17, 2021
[L. NAGESWARA RAO AND ANIRUDDHA BOSE, JJ.]
Income Tax Act, 1961 – ss.190, 201, 209 and 234B – Proviso
to s.209(1)(d), inserted by the Finance Act, 2012 – Interpretation
of s.209 (1)(d) – The Respondent- Assessee is a non-resident
C
company incorporated in Japan, with operations in India – Notice
was issued to the Respondent-Assessee u/s. 143 (2) of the Act on
12.10.2006 – An assessment order was passed for the years 1998-
99 to 2004-05 holding that a portion of the Assessee’s income was
attributable to its activities in India and was therefore liable to be
D 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
before the Commissioner of Income-Tax (Appeals) (CIT) only with
respect to levy of interest u/s. 234B of the Act – CIT dismissed the
appeals – Respondent filed appeal before Income Tax Appellate
E
Tribunal (ITAT) – While allowing the appeal, the ITAT held that
the respondent was not liable for payment of interest u/s. 234B,
when tax at source was deductible from payment made to the
Respondent – This decision was challenged before the High Court,
which was dismissed and the order of ITAT was upheld – Batch of
F appeals were filed in Supreme Court pursuant to the judgment of
High Court – Respondent-Assessee submitted that s.234B of the Act
cannot be read in isolation but in the light of s.209 of the finance
Act, 2012 – The Revenue contended that s.234B should be read in
isolation – Held: The liability for payment of interest as provided in
s.234B is for default in payment of advance tax – While the definition
G
of “assessed tax”u/s.234B pertains to tax deducted or collected at
source, the preconditions of s.234B, viz. liability to pay advance
tax and non-payment or short payment of such tax, have to be
satisfied, after which interest can be levied taking into account the
assessed tax – Therefore, s.209 of the Act which relates to the
H
750
DIRECTOR OF INCOME TAX, NEW DELHI v. M/s MITSUBISHI 751
CORPORATION
computation of advance tax payable by the assessee cannot be A
ignored while construing the contents of s.234B – The proviso to
s.209(1)(d) is in the nature of an exception to s.209(1)(d), as an
assessee, who has received any income without deduction or
collection of tax, is made liable to pay advance tax in respect of
such income – The proviso makes it clear that assesse cannot reduce
B
the amounts of income tax paid to it by the payer without deduction,
while computing liability for advance tax – However, the intended
effect of amendment made to s.209(1)(d) by insertion of the proviso
has to be understood to entitle the assessee, for all assessments
prior to the financial year 2012-2013 to reduce the amount of
income- tax which would be deductible or collectible, in computation C
of its advance tax liability – Therefore, prior to the financial year
2012-2013, the amount of income tax which is deductible or
collectible at source can be reduced by the assessee while
calculating advance tax, the Respondent cannot be held to have
defaulted in payment of its advance tax liability – The view adopted
D
by the High Court is upheld.
Disposing of the appeals, this Court
HELD: 1. The relevant provision of the Act which falls for
consideration in this case are in Chapter XVII, which pertains to
collection and recovery of tax. In accordance with Section 190 of E
the Act, tax on income shall be payable by deduction or collection
at source or by advance payment, notwithstanding that the regular
assessment in respect of any income is to be made in a later
assessment year. Any person responsible for paying to a non-
resident or to a foreign company shall, at the time of the credit of
such income, deduct income- tax thereon at the rate inforce, F
according to Section 195. Section 200 provides that a person
deducting any sum in accordance with the provisions of Chapter
XVII shall pay, within the prescribed time, the sum so deducted
to the credit of the Central Government. The consequences of
failure to deduct tax or pay the tax after deduction are dealt with G
in Section 201 of the Act. [Para 11][759-G-H; 760-A-C]
2. An analysis of clauses (a) and (d) of Section 209 (1) would
make it clear that the assessee shall estimate his current income
and income-tax for payment of advance tax on the basis of rates
H
752 SUPREME COURT REPORTS [2021] 7 S.C.R.
A in force in the financial year. The calculation of the advance tax is
to be reduced by the amount of income-tax which would be
deductible or collectible at source during the said financial year.
In case of failure to pay advance tax under Section 208 or where
the advance tax paid by the assessee as per the provision of
Section 210 is less than ninety per cent of the assessed tax, the
B
assessee shall be liable to pay interest on the amount of shortfall
from the assessed tax, according to Section 234B of the Act. [Para
12][762-E-F]
3. The primary issue is the interpretation of Section 209
(1) (d). A proviso was inserted to Section 209 (1) (d) by the Finance
C Act, 2012. The proviso is in the nature of an exception to Section
209 (1) (d), as an assessee, who has received any income without
deduction or collection of tax, is made liable to pay advance tax
in respect of such income. It is relevant to note that the
amendment was brought into effect from 1st April, 2012 and was
D made applicable to cases of advance tax payable in the financial
year 2012-13 and thereafter. All the appeals before this court
pertain to the period prior to assessment year 2013-14. [Para 14,
16][763-B; 764-B-C]
4. The dispute relating to the interpretation of the words
E “would be deductible or collectible” in Section 209 (1) (d) of the
Act can be resolved by referring to the proviso to Section 209
(1) (d), which was inserted by the Finance Act, 2012. The proviso
makes it clear that the assessee cannot reduce the amounts of
income-tax paid to it by the payer without deduction, while
computing liability for advance tax. The memorandum explaining
F the provisions of the Finance Bill, 2012 provides necessary
context that the amendment was warranted due to the judgements
of courts, interpreting Section 209 (1) (d) of the Act to permit
computation of advance tax by the assessee by reducing the
amount of income-tax which is deductible or collectible during
G the financial year. If the construction of the words “would be
deductible or collectible” as placed by the Revenue is accepted,
the amendment made to Section 209 (1) (d) by insertion of the
proviso would be meaningless and an exercise in futility. To give
the intended effect to the proviso, Section 209 (1) (d) of the Act
has to be understood to entitle the assessee, for all assessments
H
DIRECTOR OF INCOME TAX, NEW DELHI v. M/s MITSUBISHI 753
CORPORATION
prior to the financial year 2012-13, to reduce the amount of A
income- tax which would be deductible or collectible, in
computation of its advance tax liability, notwithstanding the fact
that the assessee has received the full amount without deduction.
[Para 19][765-E-H; 766-A-B]
5. This does not find force in the contention of the Revenue B
that Section 234B should be read in isolation without reference
to the other provisions of Chapter XVII. The liability for payment
of interest as provided in Section 234B is for default in payment
of advance tax. While the definition of “assessed tax” under
Section 234B pertains to tax deducted or collected at source,
the pre-conditions of Section 234B, viz. liability to pay advance C
tax and non-payment or short payment of such tax, have to be
satisfied, after which interest can be levied taking into account
the assessed tax. Therefore, Section 209 of the Act which relates
to the computation of advance tax payable by the assessee cannot
be ignored while construing the contents of Section 234B. As D
this Court has already held that prior to the financial year 2012-
13, the amount of income-tax which is deductible or collectible at
source can be reduced by the assessee while calculating advance
tax, the Respondent cannot be held to have defaulted in payment
of its advance tax liability. This Court upholds the view adopted
in the impugned judgment of the Delhi High Court in Civil Appeal E
No. 1262 of 2016 aswell as by the Madras High Court in the
Madras Fertilizers case, that the Revenue is not remediless and
there are provisions in the Act enabling the Revenue to proceed
against the payer who has defaulted in deducting tax at source.
There is no doubt that the position has changed since the financial F
year 2012-13, in view of the proviso to Section 209 (1) (d),
pursuant to which if the assessee receives any amount, including
the tax deductible at source on such amount, the assessee cannot
reduce such tax while computing its advance tax liability. [Para
20][766-B-F]
G
6. As this Court had dealt with the submissions relating
to Section 209 and Section 234B of the Act, this Court does not
deem it necessary to deal with other contentions that have been
raised on behalf of the Revenue. Accordingly, the Appeals filed
by the Revenue are dismissed. [Para 21, 22][766-G-H]
H
754 SUPREME COURT REPORTS [2021] 7 S.C.R.
A Gem Granites v. Commissioner of Income Tax, T.N.
(2005) 1 SCC 289 : [2004] 6 Suppl. SCR 332; State of
Bihar v. S.K. Roy [1966] Suppl. SCR 259; Ian Peter
Morris v. Assistant Commissioner of Income Tax (2020)
15 SCC 123 – referred to.
B Motorola Incorporation v. Deputy CIT [2005] 95 ITD
269; Commissioner of Income-Tax v. Tide Water Marine
International Inc [2009] 309 ITR 85; Director of
Income-Tax (International Taxation) v. NGC Network
Asia LLC [2009] 313 ITR 187; Commissioner of Income
Tax and Anr. v. Sedco Forex International Drilling Co.
C Ltd. [2003] 264 ITR 320; Commissioner of Income Tax,
Tamil Nadu – I, Madras v. Madras Fertilizers Ltd. [1984]
149 ITR 703; Director of Income-tax v. Mitsubishi
Corporation [2010] 330 ITR 578 – referred to.
Cape Brandy Syndicate v. I.R.C [1921] 2 K.B. 403 –
D referred to.
Case Law Reference
[2004] 6 Suppl. SCR 332 referred to Para 18
[1966] Suppl. SCR 259 referred to Para 18
E
(2020) 15 SCC 123 referred to Para 10
CIVIL APPELLATE JURISDICTION: Civil Appeal No.1262 of
2016.
From the Judgment and Order dated 30.08.2010 of the High Court
F of Delhi at New Delhi in ITA No.301 of 2010.
With
Civil Appeal Nos. 1256, 1268, 1271, 1272, 1301 of 2016, 5734,
5735, 4766, 5737 of 2021 and Civil Appeal No.3884 of 2014.
G K. M. Natraj, ASG, Nishant Thakker, M. S. Syali, Sr. Advs., Deepak
Chopra, Harpreet Singh Ajmani, Ashwarya Sinha, Alok K Singh,
Ms. Shubhi Sharma, B. V. Balaram Das, Neeraj Shekhar, Kumar
Shashank, Manish Pushkarna, Sughosh Subramanium, Ms. Swarupma
Chaturvedi, Zoheb Hossain, Udai Khanna, Raj Bahadur Yadav,
Mrs. Anil Katiyar, Anil Kumar, Kamal Mohan Gupta, Aarohi Bhalla,
H Ms. Sujata Kurdukar, Satyen Sethi, Sachit Jolly, Anish Kapur, Rohit Garg,
DIRECTOR OF INCOME TAX, NEW DELHI v. M/s MITSUBISHI 755
CORPORATION
Ms. Disha Jham, Kunal Dutt, Ms. B. Vijayalakshmi Menon, Ms. Mahua A
Kalra, Niraj Sheth, Rustom B. Hathikhanawala, Udit, Ms. Kavita Jha,
Siddharth Vasudev, T. V. S. Raghavendra Sreyas, Salil Kapoor, Sumit
Lalchandani, Ms. Ananya Kapoor, Sanat Kapoor, Ms. Souma Singh,
Ms. Payal Awarup, Praveen Swarup, Ms. Jasmine Amsadvalla, Kishore
Kunal, Manish Rastogi, Mayank Nagi, Tarun Singh, Pulkit Verma,
B
Rameshwar Prasad Goyal, H. Raghavendra Rao, Advs. for the appearing
parties.
The Judgment of the Court was delivered by
L. NAGESWARA RAO, J.
1. The conundrum before this Court concerns the liability of an C
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. D
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 E
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 F
(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 G
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 judgement
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
judgement of the ITAT. Dissatisfied with the judgements of the ITAT H
756 SUPREME COURT REPORTS [2021] 7 S.C.R.
A 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,
B 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,
C 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
D 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
E 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.
F
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 CIT1, in which the assessee
was found to be not liable for payment of advance tax and for consequent
G interest under Section 234B, as the entire income received by the assessee
was such from which tax was deductible at source. However, while
deciding the appeals filed by the Respondent for the assessment years
1998-99 to 2004-05 on the merits of the issue, the CIT came to the
conclusion, independent of the ITAT’s order dated 08.08.2008, that the
1
H [2005] 95 ITD 269
DIRECTOR OF INCOME TAX, NEW DELHI v. M/s MITSUBISHI 757
CORPORATION [L. NAGESWARA RAO, J.]
Respondent is liable to pay advance tax in terms of Section 191 of the A
Act, in case of no deduction by the payer where tax is deductible at
source. Consequently, the Respondent was held to be liable to pay interest
under Section 234B of the Act for default in payment of advance tax.
The CIT, therefore, dismissed the Respondent’s appeals for assessment
years 1998-99 to 2004-05.
B
6. In the appeals filed by the Respondent against the order dated
10.02.2009 of the CIT, the ITAT held that the issue was covered by its
earlier decision dated 08.08.2008 in the case of the Respondent for the
assessment year 2005-06, the decision of the special bench of the ITAT
in the case of Motorola Incorporation (supra)as well as decisions of
the Uttarakhand High Court and the Bombay High Court. Reliance was C
placed by the ITAT on a judgement of the Uttarakhand High Court in
Commissioner of Income-Tax v. Tide Water Marine International
Inc2, whereby it was held that an individual assessee cannot be held
liable to pay interest under Section 234B for default of the company,
who had engaged or employed the assessee, to deduct tax at source D
while making payments to the assessee. In Director of Income-Tax
(International Taxation) v. NGC Network Asia LLC3, the Bombay
High Court held that on failure of the payer to deduct tax at source, no
interest can be imposed on the payee-assessee under Section 234B.
The ITAT observed that in all the seven years under consideration, tax
was liable to be deducted at source from payments made to the E
Respondent-Assessee and it had not been demonstrated that the
Respondent had a liability to pay advance tax, even after deduction of
taxes at source. Therefore, the ITAT concluded that the Respondent
was not liable for payment of interest, as the conditions of Section 234B
were not attracted. The Respondent’s appeals were allowed. F
7. The question of law framed by the High Court is whether the
levy of interest under Section 234B of the Act for short deduction of tax
at source is mandatory and is leviable automatically. The High Court
referred to a judgement of the Uttarakhand High Court in the case of
Commissioner of Income Tax and Anr. v. Sedco Forex International G
Drilling Co. Ltd.4, judgement of the Bombay High Court in the NGC
Network Asia LLC case (supra) and a judgement of the Madras High
Court in Commissioner of Income Tax, Tamil Nadu – I, Madras v.
2
[2009] 309 ITR 85
3
[2009] 313 ITR 187
4
[2003] 264 ITR 320 H
758 SUPREME COURT REPORTS [2021] 7 S.C.R.
A Madras Fertilizers Ltd.5, to uphold the submission of the Respondent-
Assessee that the tax deductible at source should be excluded from
consideration while the estimate of income for the payment of advance
tax is submitted. On a scrutiny of the relevant provisions of the Act, the
High Court observed that interest under Section 234B of the Act cannot
be imposed on an assessee for failure on the part of the payer in deducting
B
tax at source, when Section 201 provides for consequences of failure to
deduct tax at source or failure to pay the tax after making deduction.
8. Mr. Zoheb Hossain, learned counsel appearing for the Revenue,
argued that the obligation of the assessee to pay advance tax is
independent of the obligation of the payer to deduct tax at source and
C such obligation of the assessee continues under Sections 190 and 191 of
the Act, even in case of non-deduction at source by the payer. He
submitted that Section 234B is compensatory in nature as the interest
component is meant to compensate the Government for the loss accrued
in terms of the tax which became due and was not paid. He contended
D that when there are two modes of recovery of tax, i.e., one from the
assessee and other from the payer who had an obligation to deduct tax,
the choice of the Revenue regarding the mode of recovery cannot be
restricted. By referring to the relevant provisions of the Act, Mr. Hossain
argued that the payment of advance tax is the liability of the assessee
and any default or shortfall in such payment from the assessed tax
E continues to be a liability of the assessee.
9. While construing Section 209 (1) (d) of the Act, he submitted
that the High Court committed a serious error in its interpretation of the
phrase “deductible or collectible at source”. According to him, the
phrase “deductible or collectible at source” would not take into its
F fold tax which was not deducted within the statutory time limit and was,
in fact, paid to the assessee without deduction. To support his argument,
he relied on Explanation 1 to Section 234B (1), which states the definition
of “assessed tax” to be tax on the total income reduced by inter alia
“any tax deducted or collected at source”. For the purposes of levy of
G interest under Section 234B, the non-payment or shortfall in payment of
advance tax is measured against “assessed tax”, which takes into account
tax which was actually deducted or collected at source. He further
submitted that Section 234B is a standalone provision and the said section
being a complete code in itself, the words used in Section 209 (1) (d) of
5
H [1984] 149 ITR 703
DIRECTOR OF INCOME TAX, NEW DELHI v. M/s MITSUBISHI 759
CORPORATION [L. NAGESWARA RAO, J.]
the Act cannot be imported into Section 234B. Even though the Revenue A
may proceed against the assessee as well as the payer for collection of
the unpaid tax, along with interest, the Revenue would refund the excess
amounts collected to either of the parties, most likely to the payee, once
it is successful in recovering the amounts due.
10. Mr. M.S. Syali, learned Senior Counsel appearing for the B
Respondent-Assessee, submitted that Section 234B of the Act cannot
be read in isolation but should be construed in light of Section 209 of the
Act. Relying upon a judgement of this Court in Ian Peter Morris v.
Assistant Commissioner of Income Tax 6, he submitted that the
provisions pertaining to payment of advance tax and levy of interest for
default in payment of advance tax would not come into play once it was C
determined that tax had to be deducted at source. He sought support
from the judgements of the Uttarakhand High Court in the Sedco Forex
case (supra), the Bombay High Court in the NGC Network Asia LLC
case (supra) and the Madras High Court in the Madras Fertilizers
case (supra) to justify the findings recorded in the impugned judgement. D
He argued that deduction of tax at source and payment of tax are two
different components of tax-recovery under the Act. According to him,
the assessee cannot be penalized for default on the part of the payer.
The Act provides that the payer can be declared as an assessee in default
for his failure to deduct tax at source and proceedings can be initiated
against the payer for recovery, apart from invoking the penal provisions E
provided under the Act. While it was agreed by Mr. Syali that the Act
imposes an obligation on the Assessee to pay advance tax, it was
emphasised that for the levy of interest under Section 234B, pre-conditions
as specified in the provision had to be met. He contended that an imminent
liability to pay advance tax and a subsequent default of such payment F
had to be established, to attract the levy of interest under Section 234B.
In the present case, these pre-conditions for levy of interest under Section
234B had not been satisfied, as Section 209 (1) (d) had been complied
with to compute that the Respondent-Assessee had no advance tax
liability.
G
11. The relevant provision of the Act which falls for consideration
in this case are in Chapter XVII, which pertains to collection and recovery
of tax. In accordance with Section 190 of the Act, tax on income shall
be payable by deduction or collection at source or by advance payment,
6
(2020) 15 SCC 123 H
760 SUPREME COURT REPORTS [2021] 7 S.C.R.
A notwithstanding that the regular assessment in respect of any income is
to be made in a later assessment year. Any person responsible for paying
to a non-resident or to a foreign company shall, at the time of the credit
of such income, deduct income-tax thereon at the rate in force, according
to Section 195. Section 200 provides that a person deducting any sum in
accordance with the provisions of Chapter XVII shall pay, within the
B
prescribed time, the sum so deducted to the credit of the Central
Government. The consequences of failure to deduct tax or pay the tax
after deduction are dealt with in Section 201 of the Act. Section 209(1)
of the Act and Section 234B, which fall for consideration in this case,
are reproduced below as they stood prior to the Finance Act, 2012:
C “209.Computation of advance tax. —
(1) The amount of advance tax payable by an assessee in the
financial year shall, subject to the provisions of sub- sections
(2) and (3), be computed as follows, namely:-
D (a) where the calculation is made by the assessee for the
purposes of payment of advance tax under sub-section (1) or
sub-section (2) or sub-section (5) or sub-section (6) of section
210, he shall first estimate his current income and income-tax
thereon shall be calculated at the rates in force in the financial
year;
E
(b) where the calculation is made by the Assessing Officer
for the purpose of making an order under sub-section (3) of
section 210, the total income of the latest previous year in
respect of which the assessee has been assessed by way of
regular assessment or the total income returned by the assessee
F in any return of income furnished by him for any subsequent
previous year, whichever is higher, shall be taken and income-
tax thereon shall be calculated at the rates in force in the
financial year;
(c) where the calculation is made by the Assessing Officer
G for the purpose of making an amended order under sub-
section (4) of section 210, the total income declared in the
return furnished by the assessee for the later previous year,
or, as the case may be, the total income in respect of which
the regular assessment, referred to in that sub-section has
H
DIRECTOR OF INCOME TAX, NEW DELHI v. M/s MITSUBISHI 761
CORPORATION [L. NAGESWARA RAO, J.]
been made, shall be taken and income-tax thereon shall be A
calculated at the rates in force in the financial year;
(d) the income- tax calculated under clause (a) or clause (b)
or clause (c) shall, in each case, be reduced by the amount of
income- tax which would be deductible or collectible at source
during the said financial year under any provision of this Act B
from any income (as computed before allowing any deductions
admissible under this Act) which has been taken into account
in computing the current income or, as the case may be, the
total income aforesaid; and the amount of income-tax as so
reduced shall be the advance tax payable.
C
…”
“234B. Interest for defaults in payment of advance tax.—
(1) Subject to the other provisions of this section, where, in
any financial year, an assessee who is liable to pay advance
tax under section 208 has failed to pay such tax or, where the D
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 E
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. F
Explanation 1.—In this section, “assessed tax” means the tax
on the total income determined under sub-section (1) of
section 143 and where a regular assessment is made, the tax
on the total income determined under such regular assessment
as reduced by the amount of,— G
(i) any 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;
H
762 SUPREME COURT REPORTS [2021] 7 S.C.R.
A (ii) any relief of tax allowed under section 90 on account of
tax paid in a country outside India;
(iii) any relief of tax allowed under section 90A on account
of tax paid in a specified territory outside India referred to in
that section;
B (iv) any deduction, from the Indian income-tax payable,
allowed under section 91, on account of tax paid in a country
outside India; and
(v) any tax credit allowed to be set off in accordance with the
provisions of section 115JAA.
C
Explanation 2.—Where, in relation to an assessment year, an
assessment is made for the first time under section 147 or
section 153A, the assessment so made shall be regarded as a
regular assessment for the purposes of this section.
D Explanation 3.—In Explanation 1 and in sub-section (3), “tax
on the total income determined under sub-section (1) of
section 143” shall not include the additional income-tax, if
any, payable under section 143.”
12. An analysis of clauses (a) and (d) of Section 209 (1) would
make it clear that the assessee shall estimate his current income and
E
income-tax for payment of advance tax on the basis of rates in force in
the financial year. The calculation of the advance tax is to be reduced by
the amount of income-tax which would be deductible or collectible at
source during the said financial year. In case of failure to pay advance
tax under Section 208 or where the advance tax paid by the assessee as
F per the provision of Section 210 is less than ninety per cent of the assessed
tax, the assessee shall be liable to pay interest on the amount of shortfall
from the assessed tax, according to Section 234B of the Act.
13. The main point argued on behalf of the Revenue relates to the
interpretation of Section 209 (1) (d) of the Act, with stress on the words
G “deductible or collectible at source”. The contention of the Revenue
is based on the fact that an assessee, who has received any payment
without the payer deducting tax on such payment, cannot be permitted
to escape liability in payment of advance tax and consequent interest for
such non-payment under Sections 191 and 234B of the Act. It was
contended that as all the Assesses in the matters before us were fully
H
DIRECTOR OF INCOME TAX, NEW DELHI v. M/s MITSUBISHI 763
CORPORATION [L. NAGESWARA RAO, J.]
aware of the receipt of amounts without deduction of taxes at source, A
they should not be allowed to then rely on Section 201 of the Act to
reduce their advance tax liability. In this connection, it was submitted by
the Revenue that the expression “would be deductible or collectible”
would not include amounts, which had not been deducted at the time of
payment and, in fact, were paid to the assessee by the payer.
B
14. The primary issue before us pertains to the interpretation of
Section 209 (1) (d). A proviso was inserted to Section 209 (1) (d) by the
Finance Act, 2012, which reads as under:
“Provided that for computing liability for advance tax, income-
tax calculated under clause (a) or clause (b) or clause (c) C
shall not, in each case, be reduced by the aforesaid amount
of income-tax which would be deductible or collectible at
source during the said financial year under any provision of
this Act from any income, if the person responsible for
deducting tax has paid or credited such income without
deduction of tax or it has been received or debited by the D
person responsible for collecting tax without collection of
such tax.”
15. Notes to the memorandum explaining the provisions in the
Finance Bill, 2012 are as under:
E
“Liability to pay advance tax in case of non-deduction of tax
Under the existing provisions of section 209 of the Income-
tax Act, the amount of advance tax payable is computed by
reducing the amount of income-tax which would be deductible
or collectible during the financial year from income-tax on F
estimated income. Therefore, in cases where the assessee
receives or pays any amount (on which the tax was deductible
or collectible) without deduction or collection of tax, it has
been held by courts that he is not liable to pay advance tax to
the extent the tax is deductible or collectible from such amount.
G
In order to make an assessee liable for payment of advance
tax in respect of income which has been received or paid
without deduction or collection of tax, it is proposed to amend
the aforesaid section to provide that where a person has
received any income without deduction or collection of tax,
he shall be liable to pay advance tax in respect of such income. H
764 SUPREME COURT REPORTS [2021] 7 S.C.R.
A This amendment will take effect from the 1st April, 2012 and
would, accordingly, apply in relation to advance tax payable
for the financial year 2012-13 and subsequent financial
years.”
16. The proviso is in the nature of an exception to Section 209 (1)
B (d), as an assessee, who has received any income without deduction or
collection of tax, is made liable to pay advance tax in respect of such
income. It is relevant to note that the amendment was brought into effect
from 1st April, 2012 and was made applicable to cases of advance tax
payable in the financial year 2012-13 and thereafter. All the appeals
before us pertain to the period prior to assessment year 2013-14.
C
17. In Cape Brandy Syndicate v. I.R.C.7, Lord Sterndale M.R.
had said:
“I think it is clearly established in Attorney General v.
Clarkson 8 that subsequent legislation may be looked at in
D order to see the proper construction to be put upon an earlier
Act where that earlier Act is ambiguous. I quite agree that
subsequent legislation if it proceeded on an erroneous
construction of previous legislation cannot alter that previous
legislation; but if there be any ambiguity in the earlier
legislation, then the subsequent legislation may fix the proper
E interpretation which is to be put upon the earlier Act”.
18. This Court in State of Bihar v. S.K. Roy9 had upheld the well-
recognised principle that in dealing with matters of construction,
subsequent legislation may be looked at in order to see what is the proper
interpretation to be put upon the earlier Act, where the earlier Act is
F obscure or ambiguous or readily capable of more than one interpretation.
While construing sub-section 2(b) of Section 80-HHC of the Act, as it
stood prior to its amendment and thereafter, this Court in Gem Granites
v. Commissioner of Income Tax, T.N.10 held as follows:
“13. The introduction of the phrase “other than” in clause
G (b) of sub-section (2) of Section 80-HHC in 1991, in our
opinion, indicates the carving out of a specific class from the
7
[1921] 2 K.B. 403
8
[1900] 1 Q.B. 156, 163, 164
9
(1966) Supp. SCR 259
H 10
(2005) 1 SCC 289
DIRECTOR OF INCOME TAX, NEW DELHI v. M/s MITSUBISHI 765
CORPORATION [L. NAGESWARA RAO, J.]
generic class of “minerals and ores”. This means that were it A
not for the exception, the specified processed minerals and
ores would have been covered by the words “minerals and
ores”. It also indicates that only the minerals and ores
subjected to the process of cutting and polishing would be
entitled to the benefit of Section 80-HHC meaning thereby
B
that all other species of processed minerals and ores would
continue to be covered by the general exclusion applicable
to the generic class. The 1991 amendment to Section 80-HHC
thus conclusively demonstrates that the words “minerals and
ores” must be construed widely and in an unrestricted manner.
As has been held in Municipal Committee v. Manilal [(1967) C
2 SCR 100 : AIR 1967 SC 1201] and Pappu Sweets and
Biscuits v. Commr. of Trade Tax [(1998) 7 SCC 228]
subsequent legislation may be looked into to fix the proper
interpretation to be put on the statutory provisions as they
stood earlier. The benefit of Section 80-HHC has been
D
extended by the amendment to a specific kind of mineral and
was introduced for the first time in 1991. If we were to hold
that the word “minerals” in sub-section (2)(b) never included
processed minerals then the 1991 amendment excepting
processed minerals from the exclusionary effect of the sub-
section would be rendered meaningless and an exercise in E
futility.”
19. The dispute relating to the interpretation of the words “would
be deductible or collectible” in Section 209 (1) (d) of the Act can be
resolved by referring to the proviso to Section 209 (1) (d), which was
inserted by the Finance Act, 2012. The proviso makes it clear that the F
assessee cannot reduce the amounts of income-tax paid to it by the
payer without deduction, while computing liability for advance tax. The
memorandum explaining the provisions of the Finance Bill, 2012 provides
necessary context that the amendment was warranted due to the
judgements of courts, interpreting Section 209 (1) (d) of the Act to permit
computation of advance tax by the assessee by reducing the amount of G
income-tax which is deductible or collectible during the financial year.
If the construction of the words “would be deductible or collectible”
as placed by the Revenue is accepted, the amendment made to Section
209 (1) (d) by insertion of the proviso would be meaningless and an
exercise in futility. To give the intended effect to the proviso, Section H
766 SUPREME COURT REPORTS [2021] 7 S.C.R.
A 209 (1) (d) of the Act has to be understood to entitle the assessee, for all
assessments prior to the financial year 2012-13, to reduce the amount of
income-tax which would be deductible or collectible, in computation of
its advance tax liability, notwithstanding the fact that the assessee has
received the full amount without deduction.
B 20. We do not find force in the contention of the Revenue that
Section 234B should be read in isolation without reference to the other
provisions of Chapter XVII. The liability for payment of interest as
provided in Section 234B is for default in payment of advance tax. While
the definition of “assessed tax” under Section 234B pertains to tax
deducted or collected at source, the pre-conditions of Section 234B, viz.
C liability to pay advance tax and non-payment or short payment of such
tax, have to be satisfied, after which interest can be levied taking into
account the assessed tax. Therefore, Section 209 of the Act which relates
to the computation of advance tax payable by the assessee cannot be
ignored while construing the contents of Section 234B. As we have
D already held that prior to the financial year 2012-13, the amount of income-
tax which is deductible or collectible at source can be reduced by the
assessee while calculating advance tax, the Respondent cannot be held
to have defaulted in payment of its advance tax liability. We uphold the
view adopted in the impugned judgement of the Delhi High Court in Civil
Appeal No. 1262 of 2016 as well as by the Madras High Court in the
E Madras Fertilizers case (supra), that the Revenue is not remediless
and there are provisions in the Act enabling the Revenue to proceed
against the payer who has defaulted in deducting tax at source. There is
no doubt that the position has changed since the financial year 2012-13,
in view of the proviso to Section 209 (1) (d), pursuant to which if the
F assessee receives any amount, including the tax deductible at source on
such amount, the assessee cannot reduce such tax while computing its
advance tax liability.
21. As we have dealt with the submissions relating to Section 209
and Section 234B of the Act, we do not deem it necessary to deal with
G other contentions that have been raised on behalf of the Revenue. We
have not dealt with the facts of each case before us, in view of our
interpretation of the provisions of the Act germane to the question of
law herein.
22. Accordingly, the Appeals filed by the Revenue are dismissed.
H
DIRECTOR OF INCOME TAX, NEW DELHI v. M/s MITSUBISHI 767
CORPORATION [L. NAGESWARA RAO, J.]
Civil Appeal Nos. 1338-1341 of 2016, Civil Appeal No.1323 A
of 2016, Civil Appeal No. 1324 of 2016, Civil Appeal No. 1325 of
2016, Civil Appeal Nos.1326-1331 of 2016, Civil Appeal No.1322
of 2016, Civil Appeal No.1342 of 2016, Civil Appeal Nos.1295-
1299 of 2016, Civil Appeal Nos. 1303-1307 of 2016, Civil Appeal
Nos.1311-1312 of 2016, Civil Appeal No. 1314 of 2016 and Civil
B
Appeal No.1310 of 2016
23. Assessment orders were passed for the assessment years
2004-05 to 2007-08 in respect of Alcatel Lucent USA, Inc. and for the
assessment years 2004-05 to 2008-09 in respect of Alcatel Lucent World
Services Inc. The assessees were inter alia directed to pay interest
under Sections 234A, 234B and 234C of the Act. Dissatisfied with the C
assessment orders, the assessees filed appeals which were dismissed
by the CIT. The ITAT held that the assessees were not liable to pay
interest under Section 234B of the Act, by placing reliance on a judgement
of the Delhi High Court in Director of Income-tax v. Mitsubishi
Corporation11. Appeals filed by the Revenue under Section 260A of the D
Act challenging the order of the ITAT passed on 21.10.2011 was allowed
by a Division Bench of the Delhi High Court by a judgement dated
07.11.2013, on the ground that the assessees after initially denying the
tax liability cannot later be permitted to shift the responsibility to the
Indian payers for not deducting tax at source. It was further observed
by the High Court that it was difficult to imagine that the payers would E
have failed to deduct tax at source except on being prompted by the
assessees. The High Court, accordingly, held that the assessees were
liable to pay interest in terms of Section 234B of the Act.
24. The subject-matter of the aforementioned Appeals is the
judgement of the Division Bench of the High Court dated 07.11.2013 as F
well as a subsequent decision of the Delhi High Court dated 08.09.2014,
which ruled on the issue of interest under Section 234B in favour of the
Revenue, relying on the Division Bench judgement dated 07.11.2013.
The point that arises for consideration in these Appeals is covered by
our judgement in Civil Appeal No.1262 of 2016.
G
25. Accordingly, these Civil Appeals are allowed.
Ankit Gyan Appeals disposed of.
11
[2010] 330 ITR 578 H
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