THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 7th November, 2013
+ ITA 327/2012, ITA 330/2012, ITA 338/2012 & ITA 339/2012
DIT-I, INTERNATIONAL TAXATION .......Petitioner
versus
ALCATEL LUCENT USA, INC. ......Respondent
+ ITA 328/2012, ITA 329/2012, ITA 336/2012, ITA 337/2012 &
ITA 340/2012
DIT-I, INTERNATIONAL TAXATION .......Petitioner
versus
ALCATEL LUCENT WORLD SERVICES INC ....Respondent
Advocates who appeared in this case:
For the Petitioner : Mr N. P. Sahni, Advocate.
For the Respondent : Mr M. S. Syali, Sr. Advocate with Mr Mayank Nagi, Ms
Husnal Syali, Advocates.
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE R.V.EASWAR
JUDGMENT
R.V.EASWAR, J
1. These are nine appeals filed by the Revenue under Section 260A of
the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). They are
directed against the common order passed by the Income Tax Appellate
ITA Nos.327-330 & 336-340/2012 Page 1 of 33
Tribunal on 21.10.2011 in ITA Nos. 3821 to 3824/de1/2011 and ITA
Nos. 3825 to 3829/de1/2011. There are two respondents in these appeals
(i) Alcatel Lucent USA, INC. and (ii) Alcatel Lucent World Services
INC. In respect of the first assessee, the assessment years involved are
2004-05 to 2007-08 and in respect of the second assessee, the assessment
years involved are 2004-05 to 2008-09.
2. On 10th July, 2012 this court framed the following substantial
question of law, common to all the appeals: -
"Whether in the facts and circumstances of this case the
Tribunal fell into error in holding that the assessee was not
liable to pay interest in terms of Section 234B of the Income
Tax Act?"
3. ITA No.327 of 2012 was taken as the lead matter by consent. The facts
relating to this appeal may be noted in brief. The assessee-Alcatel Lucent
USA, INC., is a tax-resident of USA and is part of the Alcatel Lucent
Group. It supplied telecom equipments to customers in India in the year
under consideration, which is the FYE 31.03.2006, relevant to the
assessment year 2007-08. It would appear that the aforesaid group
started its operations in India in 1982 in terms of an agreement with ITI
Limited, a public sector undertaking which was engaged in the
manufacture of telephones. Thereafter a joint venture was established
ITA Nos.327-330 & 336-340/2012 Page 2 of 33
with C-DOT at Chennai, besides establishing a research centre at
Bangalore. On 27.02.2009, a survey under Section 133 A of the Act was
conducted in the premises of Alcatel Lucent India Ltd., which is the
Indian subsidiary and which according to the income tax authorities
constituted the permanent establishment (PE) of the assessee in India.
The Indian subsidiary provided marketing support services to the
assessees. Based on the materials found during the survey, the assessing
officer in charge of the assessment of Alcatel - Lucent France, which
was another flagship company belonging to the same group, concluded
that the assessee had a PE in India in terms of the Double Taxation
Avoidance Agreement between India and US and was liable to tax in
India on the income earned therein. Based on these findings of the
assessing officer who was in charge of the assessment of Alcatel -
Lucent France, the assessing officer who was in charge of the
assessment of the present assessee issued notices under Section 148 of
the Act for the assessment years 2004-05 to 2007-08. It may be added
that similar reassessment notices under Section 148 were also issued to
the other assessee concerned in the present appeals, i.e. Alcatel Lucent
World Services INC. for the very same assessment years; in addition, for
the assessment year 2008-09, a notice under Section 142 (1) was also
ITA Nos.327-330 & 336-340/2012 Page 3 of 33
issued to that company. Apparently, these notices were issued on the
ground that income chargeable to tax in India had escaped assessment.
4. In response, both the assessees herein filed returns of income for all
the assessment years declaring "nil" income. In the returns, the following
note was appended, explaining why the assessee took the position that it
was not liable to tax in India:
"a) Alcatel-Lucent USA Inc. ("Alcatel Lucent Inc." or
the Company") is a company incorporated in
USA. It is a tax resident of USA and entitled to
be governed by the provisions of the Double
Taxation Avoidance Agreement between India
and USA ("the DTAA').
b) Alcatel Lucent Inc. does not have any office,
premises or other place of business in India.
During the year under consideration, Alcatel
Lucent Inc. supplied certain goods I equipment
to Indian customers engaged in telecom.
business. The sales of these goods were made
from outside of India. The payments for the
same were also received outside of India. In
view of above, the Company does not have any
taxable presence in India and hence no portion
of its business profits is taxable in India.
c) The present return of income is being filed
under protest and in pursuance to the notice
issued under section 148 of the Indian Income-
tax Act, 1961 ("the ;Act") by the Assistant
Director of Income-tax, Circle -1(1),
International Taxation, Drum Shape Building,
I.P. Estate, New Delhi. The return is being filed
ITA Nos.327-330 & 336-340/2012 Page 4 of 33
only with a view to comply with the said notice.
The act of such compliance is not an admission
of any sorts that Alcatel Lucent Inc. had any
taxable income in India for the year under
consideration. The return is being filed without
prejudice to the Company's contention that the
notice issued to it is without jurisdiction and
bad in law. The return is being filed without
prejudice to the legal rights the Company has
under law to contest the above notice, including
the right to challenge the extra territorial
application of the Act in the present case. The
act of filing the return in compliance to the
above notice should not be construed as Alcatel
Lucent Inc. acceding to the jurisdiction of the
Indian Tax Authorities in any, manner
whatsoever."
5. The assessing officer however did not accept the assessee's stand
and in the assessment order passed on 23.03.2010 attributed 2.5% of the
sale proceeds of the hardware as profit attributable to the PE in India,
which came to `21,02,58,238/- for the assessment year 2007-08. Similar
re-assessments were made in all the years in respect of both the
assessees. In the re-assessment order, in addition to the aforesaid income,
the assessing officer also directed that interest under Sections 234A,
234B and 234C shall be charged. Demand notices were accordingly
issued.
ITA Nos.327-330 & 336-340/2012 Page 5 of 33
6. Appeals were taken by the assessee in respect of all the
assessment years before the CIT (Appeals). Three grounds were taken in
the appeals. The first ground was that the assessing officer erred in
computing the income of the assessee as was done in the re-assessment
orders; the second ground was that on the facts and in the circumstances
of the case and in law, the assessing officer erred in levying interest
under Section 234B "in view of the fact that the entire consideration in
the hands of appellant was subject to deduction of tax at source under
Section 195 of the Act"; the third ground was against the initiation of
penalty proceedings for alleged concealment of income.
7. Before the CIT (Appeals), the assessee did not press the appeals in
respect of the first ground, i.e. the ground against the computation of the
income attributable to the PE in India. Only ground No.2 which was
directed against the levy of interest under Section 234B of the Act was
pressed, the contention being that it was the liability of the purchasers of
the telecom equipment in India to deduct income tax at the applicable
rates from the remittance made to the assessee under Section 195 of the
Act, that in view of the language employed in Section 209(1)(d) the
assessee was entitled to take credit for the tax which was "deductible" at
ITA Nos.327-330 & 336-340/2012 Page 6 of 33
source while computing its liability for paying advance tax and if the
amount of tax so "deductible" by the payer in India is given credit, there
was no amount of advance tax payable by the assessee, and if that is so
there was no question of the assessee being liable to pay any interest
under Section 234B. Several authorities were cited before the CIT
(Appeals) in support of the above contention including the judgment of
a Division Bench of this court in Director of Income Tax vs. Jacabs
Civil Incorporated and Mitsubishi Corporation : (2010) 330 ITR 578.
It was submitted before the CIT (Appeals) that in this judgment, this
court held that Section 195 places an obligation on the payer to deduct
tax at source at the rates in force from the payments made and if the
payer has defaulted in deducting the tax, it was open to the Income Tax
Department to take action against the payer under Section 201 of the
Act, but no action can be taken for recovery of the interest under Section
234B from the non-resident assessee. It was further held in this decision
that the non-resident will, no doubt, be liable to pay the income tax on
the income assessed upon it, but it cannot be held liable for payment of
any advance tax thereon if the tax deductible by the payer in India
exceeds the amount of advance tax payable on the estimated income. It
was further held that the position would be so even if the income tax
ITA Nos.327-330 & 336-340/2012 Page 7 of 33
was not in fact deducted from the remittance because Section 209
(1)(d) of the Act permitted the non-resident assessee to take credit,
while computing its advance tax liability, for the amount of income tax
that was "deductible" from the remittance, though not actually
deducted. It was furthermore held in the judgment that once it was
found that the liability was that of the payer under Section 201 of the
Income Tax Act, which permitted recovery of the tax from the payer by
treating him as an assessee in default and also recovery of interest
under Section 201 (1A) for the default in not deducting the tax, there
can be no liability fastened upon the non-resident assessee to pay
interest under Section 234B.
8. The CIT (Appeals) accepted the contention of the assessee based
on the language employed in Section 209(1)(d) read with Section 195 of
the Act and on the basis of the judgment cited above and held as follows:
"In this case, it is undisputed that the tax on the
entire income received by the appellant was
required to be deducted at appropriate rates by the
respective payers u/s 195(2) of the Income-tax Act.
Had the payer made the deduction of tax at the
appropriate rate, the net tax payable by the appellant
would have been Nil. Therefore, it is clear that there
was no liability to pay advance tax by the appellant. I
have carefully gone through the various judgments
relied upon by the appellant in this regard. The
ITA Nos.327-330 & 336-340/2012 Page 8 of 33
jurisdictional High court i.e. Hon'ble Delhi High Court, in
recent judgment dated 30 th August 2010 in the case of
Director of Income-tax vs. Jacabs Civil Incorporated/
Mitsubishi Corporation : (2010) 330 ITR 578 (Delhi),
has held that section 195 puts an obligation on the
payer, i.e., any person responsible for paying any tax
resident, to deduct tax at source at the rates in force
from such payments and if payer has defaulted in
deducting tax at source, the department can, take
action against the payer under the provisions of
section 201. In such a case, the non-resident is liable
to pay tax but there is no question of payment of
advance-tax and, therefore, it cannot be held liable to
pay interest u/s 234B on account of default of the
payer in deducting tax source from the payments made
to the appellant."
9. The Revenue carried the matter in appeal before the Income Tax
Appellate Tribunal. All the nine appeals, four in the case of Alcatel Lucent
USA Inc. and five in the case of Alcatel Lucent World Services Inc. were
disposed of by the Tribunal by a common order passed on 21.10.2011.
Before the Tribunal the contention taken on behalf of the Revenue was
that at the time of the receipt of monies from India, the assessee had taken
the plea that it did not have a PE in India and therefore the payment was
not chargeable to tax in India and consequently the provisions of Section
195 were not applicable, whereas in the appeals before the CIT (Appeals)
a contradictory stand was taken by the assessee, by accepting the fact that
it had a PE in India and admitting that the income earned in India was
ITA Nos.327-330 & 336-340/2012 Page 9 of 33
chargeable to tax. Nevertheless, it was pointed out by the revenue, the
assessee still contended that no interest under Section 234 B can be levied
because if the entire income was subject to tax in India the consequence
would be that it was the responsibility of the payer to deduct tax and if he
has not done so, the remedy of the Income Tax Department lies against
him in terms of Section 201 and not against the assessee under Section
234B. The Revenue seriously contested this contradictory stand taken by
the assessee before the CIT (Appeals) and submitted before the Tribunal
that the assessee should not be allowed to take such a plea. It was
pointed out that consistent with the stand taken by the assessee
originally in the return filed in response to the notice under Section 148,
it would have told the Indian payer that it did not have any PE in India
and therefore no tax should be deducted from the remittance; and having
said so and led the payers in India to make the entire payment of the
purchase price of the equipments without any deduction of tax in terms
of Section 195, it is now not open to the assessee, merely because at the
first appellate stage it did not choose to contest the assessment of the
income attributable to the Indian PE, to turn around and say that now
that it has accepted the liability to pay tax on its Indian income, it was
ITA Nos.327-330 & 336-340/2012 Page 10 of 33
for the Indian payers to have deducted the tax and if they had not done
so, the assessee cannot be held liable for the interest. It was further
pointed out by the Revenue that consequent to the amendment made to
Section 201 by the Finance Act, 2012 with effect from 01.04.2012,
time limit of four years was set for taking action under Section 201 and
therefore no action can be taken against the payers for the years under
consideration since the aforesaid time limit had already expired. It was
submitted that when this court decided the case of Jacabs Civil
Incorporated and Mitsubishi Corporation (supra) there was no time
limit for taking action against the payer. Now that the action against
the payer has become time barred, the basis of the judgment has been
removed, with the result that the assessee would be liable for payment
of the interest under Section 234B.
10. These submissions of the Revenue did not find favour with the
Tribunal. It held that undisputedly the tax on the income received by
the assessee was required to be deducted at source at the applicable
rates by the respective payers under Section 195 of the Act. In terms
of Section 209(1)(d), the income tax calculated on the estimated
income of the assessee is to be reduced by the amount of tax which would
ITA Nos.327-330 & 336-340/2012 Page 11 of 33
be deductible at source. No tax was deducted by the payers, for which the
assessees cannot be faulted. However, the assessee can take credit for the
tax which ought to have been deducted by the payers because the
requirement of Section 209(1)(d) was that the tax "deductible" could be
taken credit for and it was not necessary that the tax should have been
actually deducted. In addition to this reasoning based on the language of
Section 209(1)(d), the Tribunal also held, with reference to the argument
of the Revenue that the assessee had represented to the payers that the
income was not liable to deduction of tax at source (as there was no PE),
that "no such material in support of this plea has been placed before us
nor any such facts and circumstances emerged from the impugned
orders".
11. The answer of the Tribunal to the argument of the Revenue based
on the time limit set by the amendment made to Section 201 with effect
from 01.04.2010 was that in terms of Section 40(a)(i), inserted with effect
from 01.04.1989, certain types of payments which are claimed as a
deduction by the payer would not get the benefit of deduction if the tax
was not deducted at source, if such payments were made outside India.
According to the Tribunal this provision ensured effective compliance of
ITA Nos.327-330 & 336-340/2012 Page 12 of 33
Section 195 of the Act relating to tax deduction at source. The Tribunal
eventually found that the controversy was covered by the judgment of
this court in Jacabs Civil Incorporated (supra) and accordingly
confirmed the decision of the CIT (Appeals) that the assessee was not
liable to pay any interest under Section 234B of the Act.
12. According to the learned standing counsel for the income tax
department, the approach of the Tribunal is seriously flawed. According
to him the legal position that the non-resident assessee is entitled to take
credit, while computing its advance tax liability, for the tax which was
"deductible" though not actually deducted, within the meaning of Section
209(1)(d) is not applicable to the facts of the present case. In the present
case, the assessee initially disputed its liability to pay tax in India and
articulated its stand in the note appended to the returns filed in response
to notices issued under Section 148, and even filed appeals against the
reassessments; but before the CIT (Appeals) it gave up the claim that it
was not liable to tax in India and pressed its claim only to the extent of its
liability to pay interest under Section 234B. It is submitted that this
factual position is in complete contrast to the facts before this Court in
Jacabs (supra) where the assessee admitted its liability to pay tax on the
ITA Nos.327-330 & 336-340/2012 Page 13 of 33
Indian income in the return filed by it and the payer was, therefore, found
clearly liable to deduct tax. It was in those circumstances that this Court
held that the tax was "deductible" and the non-resident assessee can
rightly take credit for the same, even though the tax was not actually
deducted, while computing its advance tax liability, According to the
learned standing counsel, it is not open to the non-resident assessee in the
present case to say that though it was not liable to pay tax on its Indian
income, but still the Indian telecom equipment dealer ought to have
deducted the tax under Section 195 of the Act. According to him, this
would be a contradictory stand which cannot be accepted at all.
13. The learned counsel for the assessee inter alia made the following
submissions: -
(a) The liability of the payer of the monies to the non-resident to
deduct tax from the payment under Section 195(1) is absolute and
does not depend on the stand taken by the non-resident assessee
with regard to the question whether or not the amount remitted
gives rise to tax liability under the Act in India. In case the payer
has any doubt about the taxability of the sum remitted by him in
the hands of the non-resident assessee, it is open to him to make an
ITA Nos.327-330 & 336-340/2012 Page 14 of 33
application under Section 195(2) to the appropriate authority to
have the income portion of the sum determined for the purpose of
deduction of tax;
(b) If the payer fails to deduct the tax, his liability to make good
the payment along with interest is governed by Section 201(1) and
(1A). This liability is absolute and exhaustive of the remedy
available to the revenue;
(c) Section 201(1A) which imposes the liability upon the payer
to pay interest on the amount which ought to have deducted from
the sum paid to the non-resident and Section 234B which levies
interest on the non-resident assessee for non-payment of advance
tax are mutually exclusive and operate on different fact-situations.
They are not alternative courses in the sense that the department
can choose to proceed under the one or the other;
(d) There is no concession given by Section 201 in the sense that
no plea of reasonable cause for the failure to deduct the tax can be
entertained under that Section;
(e) The proviso to Section 209(1) inserted by the Finance Act,
2012 amending the sub-section to provide that the non-resident
ITA Nos.327-330 & 336-340/2012 Page 15 of 33
assessee can take credit only for the amount of tax actually
deducted by the payer while computing his advance tax liability
was inserted only w. e. f. 01.04.2012 and would apply only from
the assessment year 2012-13. The amendment is not clarificatory or
explanatory and has been made expressly prospective.
14. In his rejoinder, the learned standing counsel for the income tax
department submitted that the definition of the expression "assessed tax"
appearing in Section 215(5) is different from the definition of the said
expression appearing in Explanation 1 below Section 234B and this
makes a crucial difference in the assessee's case. He pointed out that
under the aforesaid Explanation, as it stood both before being amended
by the Finance Act, 2006 w. e. f. 01.04.2007 and thereafter, only the tax
actually deducted at source is permitted to be deducted from the tax on
the total income determined under the regular assessment and if no tax
is deducted at source, no such adjustment from the tax on the total
income assessed is permissible. In other words, his contention was that
the Explanation below Section 234B overrides the provisions of Section
209(1)(d) and, therefore, the benefit of reducing the tax on the estimated
income by the tax which was "deductible", but not actually deducted,
was not available to the non-resident assessee. , He further pointed out
ITA Nos.327-330 & 336-340/2012 Page 16 of 33
that in the present case the payer knew that no income was chargeable to
tax in the hands of the non-resident assessee as the sum remitted
represented the purchase price of the telecom equipments and, therefore,
advisedly did not deduct any tax from the remittance. When the assessee
accepted its tax liability in India, it follows that it would also be liable to
pay interest under Section 234B for failure to pay the advance tax and
such a consequence cannot be avoided, once the tax liability is admitted.
He further submitted that the decision of this Court in Jacabs (supra) did
not deal with all the factual situations possible, because in that case the
assessee admitted the taxable income even in the return and the payer was
also found liable to deduct tax. According to him, the present case stands
on a completely different footing.
15. Both the sides filed written submissions which have also been
taken into consideration while disposing of the appeals.
16. In the light of the judgment of this Court in Jacabs (supra), the
interpretation to be placed on Section 209(1)(d) in juxtaposition with
Section 195(1) is that which is canvassed before us on behalf of the
assessee. However, we find merit in the submission of the learned
standing counsel for the income tax department that on the facts of the
present case, the aforesaid legal position cannot be applied. As pointed
ITA Nos.327-330 & 336-340/2012 Page 17 of 33
out by him, in the case of Jacabs (supra) the assessee filed its return of
income admitting tax liability on income of `296,83,278/-. On this
income it did not pay advance tax on the due dates. The assessing officer
proceeded to charge interest under Section 234B, overruling the assessees
objection that tax was "deductible" by the National Highway Authority of
India for whom the assessee was executing the projects. The plea was,
however, accepted by the CIT (Appeals) and the Income Tax Appellate
Tribunal. It was in those facts that this Court held that since it was the
duty of NHAI to deduct tax under Section 195(1) from the payments
made to the assessee, and even though no tax was actually deducted and
paid by the NHAI, the assessee was entitled to take credit for the tax
which was "deductible" by the NHAI while computing its advance tax
liability. In the present case, the factual position is quite different.
Herein the assessee did not admit any income in the returns. In the
note appended to the return (which we have extracted earlier) the
assessee denied its liability to be taxed in India on the ground that it
had no PE in India. The assessee also pointed out that no income from
the supply of telecom equipment to the Indian dealers arose in India
since all sales were made from outside India (in the USA). The
assessing officer did not accept the claim made in the note and
ITA Nos.327-330 & 336-340/2012 Page 18 of 33
proceeded to assess the assessee in respect of the income arising in India
from the supply of the telecom equipment on estimate basis. The
assessment was not accepted and appeals were filed but in the appeals
the assessee did not press the ground of appeal against the computation
of the income, but pressed the appeals only against the levy of interest
under Section 234B. Thus it was at the stage of the CIT (Appeals) that
the assessee accepted its tax liability in India. It would be incongruous,
as pointed out on behalf of the revenue, to hold that even though the
assessee did not admit any tax liability in India while filing the return and
even up to the stage of first appeal, and correspondingly the payers were
also not liable to deduct tax under Section 195(1), still it can take credit
for the tax "deductible", though not deducted, by the Indian payers from
the remittance made to the assessee. In our opinion this factual position
makes a crucial difference to the legal position also and, therefore, the
benefit of the decision of this Court in Jacabs (supra) cannot be extended
to the assessee.
17. The learned counsel for the assessee, however, put forth two
arguments in rebuttal. The first is that this Court also decided the case of
Mitsubishi Corporation in the same judgment dated 30th August, 2010 by
which Jacabs (supra) was decided. In this behalf, he drew our attention
ITA Nos.327-330 & 336-340/2012 Page 19 of 33
to the first paragraph of the judgment in which this Court observed that
except in ITA No.491/2008, in all other appeals, M/s. Mitsubishi
Corporation was the assessee-respondent. However, the issue in all the
cases was the same i.e. chargeability of interest under Section 234B.
While narrating the facts, this Court took note of the facts appearing in
ITA No.491/2008 which related to Jacabs (supra). The Court proceeded
to observe that "under similar circumstances, in the assessment orders
passed for the various assessment years in the case of M/s. Mitsubishi
Corporation, interest charged under Section 234B of the Act has been
deleted by the Tribunal". On the basis of these observations, the learned
counsel for the assessee submitted that the facts of Jacabs and Mitsubishi
Corporation were the same.
18. In order to ascertain the correct position, we summoned the file of
ITA No.229/2010 in Director of Income Tax vs. Mitsubishi
Corporation. The order of the Tribunal is dated 23.06.2009.
Paragraph 2 of the said order reads as under: -
"2. The appellant Mitsubishi Corporation is a Japanese
non-resident company and it had been carrying on its
activities through its liaison office in New Delhi and offices
in other cities called "divisions". It claimed that it has no
income taxable in India. The department, however, carried
survey and recorded statement of General Managers in
India and, on the basis of documents recovered in survey,
ITA Nos.327-330 & 336-340/2012 Page 20 of 33
held that a portion of income of the assessee attributable to
Indian activities was liable to be taxed in India under
Article 4, 5 and 6 of DTAA between India and Japan and
under provisions of the Indian Income Tax Act. Initially, the
assessee resisted such assessment but ultimately accepted
that income taken by the AO was rightly taxed. The
quantum of assessments was not challenged before the ld
CIT(A). The challenge was restricted to the levy of interest
u/s 234B of the Act. Before the ld. CIT(A), assessee placed
reliance on decision of ITAT in assessee's own case for AY
2005-06 wherein similar interest u/s 234B imposed on the
assessee was deleted vide order in ITA No.848/D/08 dated
08.08.2008 after a detailed discussion. As a matter of
judicial discipline, the ld. CIT (A) should have followed
order of ITAT given in identical circumstances and deleted
theinterest levied, more particularly, when decision of
Hon'ble Supreme Court in the case of Union of India
and others vs. Kamalakshi Finance Corporation Ltd.,
[1992 AIR 711 (SC)] and of Hon'ble Jurisdictional High
Court (Del) in case of Nokia Corporation v. Director of
Income Tax (International Taxation) (2007) 292 ITR 22
were brought to his notice and placed on record. He
also noted that judicial discipline required that
subordinate authorities should follow decision of higher
authorities. He, however, acted just the opposite."
(underlining ours)
19. It is thus noticed that the facts of Mitsubishi Corporation are
different from the facts of Jacabs and are akin to the facts of the present
case. Therefore, the observation of this Court in Jacabs case (supra)
that in the case of Mitsubishi Corporation, interest was charged under
Section 234B under circumstances similar to those obtaining in Jacabs
case appears, with respect, to be inaccurate. The facts of the present
ITA Nos.327-330 & 336-340/2012 Page 21 of 33
case being similar to those of Mitsubishi Corporation, have to be,
therefore, dealt with separately. This Court would appear to have
proceeded on the assumption that the facts of Mitsubishi Corporation
were similar to those of Jacabs (supra). Since it is not so, different
considerations will have to be applied and the legal position laid down
in Jacabs case cannot automatically be invoked and applied to the
present case.
20. The other argument on behalf of the assessee that the liability of
the payer under Section 201 is absolutely different from the liability of
the non-resident assessee under Section 234B need not be examined and
for the purpose of the present case it would not make any difference, on
account of the peculiar facts of the present case. It may be recalled that
the argument put forth by the revenue before the Income Tax Appellate
Tribunal was that at the time of the receipt of monies from India, the
assessee took the plea that it did not have any PE in India and,
therefore, the payment was not chargeable to tax in India, with the
consequence that Section 195(1) was not applicable, whereas in the
appeals before the CIT (Appeals), a contradictory stand was adopted by
the assessee, by accepting the fact that it had a PE in India and by
ITA Nos.327-330 & 336-340/2012 Page 22 of 33
admitting that the income earned in India was chargeable to tax. It was
further argued by the revenue that such a contradictory plea cannot be
permitted to be taken by the assessee. It was pointed out that consistent
with the stand taken in the return, the assessee would have told the
Indian payer that no tax should be deducted from the remittance and it
was, therefore, not open to the assessee, merely because at the first
appeal stage it chose not to contest the assessment of the income
attributable to the Indian PE, to turn around and say that since it has
now accepted its liability to pay tax on the Indian income, it was for the
Indian payers to have deducted the tax and if they had not done so the
assessee cannot be held liable for the interest. This argument of the
revenue was rejected by the Tribunal on the ground that there was no
material in support of the plea that the assessee represented to the Indian
payers not to deduct tax, nor did any such facts or circumstances emerged
from the impugned orders.
21. We are unable to uphold this part of the decision of the Tribunal.
It must be remembered that in the note appended to the return the
assessee was quite categorical in denying its liability to be assessed in
India. It relied on the double taxation avoidance agreement between
ITA Nos.327-330 & 336-340/2012 Page 23 of 33
India and USA and pointed out that there was no permanent
establishment in India. It further stated that the telecom equipments were
sold outside India and the payments were also received outside India and
thus the assessee did not have any taxable presence in India so as to be
liable for tax on its Indian income. If this was the stand of the assessee, it
is not impermissible or unreasonable to visualise a situation where, the
assessee would have represented to its Indian telecom dealers not to
deduct tax from the remittances made to it. On the contrary it would be
surprising if the assessee did not make any such representation; such a
representation would only be consistent with the assessee's stand
regarding its tax liability in India. Moreover, no purpose would have
been served by the assessee taking such a categorical stand regarding its
tax liability in India and at the same time suffering tax deduction under
Section 195(1). Therefore, in our opinion, even though there may not be
any positive or direct evidence to show that the assessee did make a
representation to its Indian telecom dealers not to deduct tax from the
remittances, such a representation or informal communication of the
request can be reasonably inferred or presumed. The Tribunal ought to
have accorded due weightage to the strong possibility or probability of
such a request having been made by the assessee to the Indian payers
ITA Nos.327-330 & 336-340/2012 Page 24 of 33
since otherwise the denial of its tax liability on its Indian income would
have served little purpose for the assessee.
22. In Esthuri Aswathiah vs. CIT, Mysore : (1967) 66 ITR 478, a
three Judge bench of the Supreme Court, while expounding on the
functions of the Tribunal and its duties while disposing of the appeals,
had this to say:
"The function of the Tribunal in hearing an appeal is
purely judicial. It is under a duty to decide all questions
of fact and law raised in the appeal before it: for that
purpose it must consider whether on the materials relied
upon by the assessee his plea is made out. Conclusive
proof of the claim is not predicated: the Tribunal may
act upon probabilities, and presumptions may supply
gaps in the evidence which may not, on account of delay
or the nature of the transactions or for other reasons, be
supplied from independent sources. But the Tribunal
cannot make arbitrary decisions: it cannot found its
judgment on conjectures, surmises or speculation.
Between the claims of the public revenue and of the
taxpayers, the Tribunal must maintain a judicial
balance.".
(underlining ours)
23. The Tribunal, keeping in mind the above observations, underlined
by us, ought to have drawn the inference that the Indian payers did not
deduct the tax under Section 195(1) because of the request made by the
ITA Nos.327-330 & 336-340/2012 Page 25 of 33
assessee, consistent with its stand that it was not liable to be taxed in
India.
24. The learned counsel for the assessee submitted in the course of his
arguments that the assessee and the Indian telecom equipment dealers
cannot contract out of the statute and, therefore, even if such an
arrangement had been made between them, it cannot be given effect to
and the liability of the Indian payer under Section 195(1) has to be strictly
enforced. In other words, it was his contention that the Indian payers
ought not to have paid any heed, and should have acted strictly in
accordance with Sections 195(1), even assuming, but not admitting that
there was such a request from the assessee. Taking a practical view of the
matter, it is difficult to see how the Indian payers could have resisted the
request which, according to our inference, was made by the assessee to
them not to deduct tax from the remittances. The Indian payers have to
keep in mind the future business prospects and it was necessary for them
to keep the assessee in good humour so that the business relationship
remains profitable for them. They would have been in no position to
resist the request. Moreover, since the sales were claimed to have been
concluded outside India, again it would be a fair and reasonable inference
to be drawn that the Indian dealers would have had an interface with the
ITA Nos.327-330 & 336-340/2012 Page 26 of 33
assessee in USA while concluding the sale contracts and on such an
occasion it is normal for the parties to finalise all aspects touching on
their relationship including the tax compliances. It should also be
remembered that no reason whatsoever has been given by the assessee as
to why it did not press its appeals before the CIT (Appeals) on the
question of liability to tax on its Indian income.
25. In the light of the view taken by us on the facts of the present case,
we do not consider it necessary to discuss the plethora of authorities
cited by both the sides. It is, however, necessary to just highlight one
aspect of the matter. This was in fact pointed out on behalf of the
revenue also. It is open to the assessee to deny its liability to tax in India
on whatever grounds it thinks fit and proper. Having denied its tax
liability, it seems unfair on the part of the assessee to expect the Indian
payers to deduct tax from the remittances. It is also open to the assessee
to change its stand at the first appellate stage and submit to the
assessment of the income. When it does so, all consequences under the
Act follow, including its liability to pay interest under Section 234B
since it would not have paid any advance tax. Such liabilities would
arise right from the time when the income was earned. Advance tax was
introduced as a PAYE Scheme "pay as you earn". It is not open to
ITA Nos.327-330 & 336-340/2012 Page 27 of 33
the assessee, after accepting the assessment at the first appellate stage
to claim that the Indian payers ought to have deducted the tax
irrespective of the fact that the assessee itself claimed the Indian
income to be not taxable. We can understand an assessee who admits its
tax liability right from the beginning to contend that it was the
responsibility of the payers to deduct the tax and if they did not, even
then the tax which ought to have been deducted by them should be set
off against the assessee's advance tax liabilities. That is the type of case
dealt with in the decision of this Court in Jacabs (supra). We were not
referred to a single case where on facts similar to the case of the
assessee before us, the Court took the view that no interest under
Section 234B was chargeable. The case of Mitsubishi Corporation
decided along with the case of Jacabs, was on facts similar to the
assessee's case. However, as pointed out by us earlier, this Court in
Jacabs case proceeded on the assumption that the facts in Mitsubishi
Corporation were similar to those in Jacabs. That assumption, as we
have earlier demonstrated, with respect, is not borne out by the facts.
26. It further seems to us inequitable that the assessee, who accepted
the tax liability after initially denying it, should be permitted to shift the
responsibility to the Indian payers for not deducting the tax at source
ITA Nos.327-330 & 336-340/2012 Page 28 of 33
from the remittances, after leading them to believe that no tax was
deductible. The assessee must take responsibility for its volte face. Once
liability to tax is accepted, all consequences follow; they cannot be
avoided. After having accepted the liability to tax at the first appellate
stage, it is unfair on the part of the assessee to invoke section 201 and
point fingers at the Indian payers. The argument advanced by the learned
counsel for the assessee that the Indian payers failed to deduct tax at their
own risk seems to us to be only an argument of convenience or despair.
As we have pointed out earlier, it is difficult to imagine that the Indian
telecom equipment dealers of the assessee would have failed to deduct
tax at source except on being prompted by the assessee. It may be true
that the general rule is that equity has no place in the interpretation of tax
laws. But we are of the view that when the facts of a particular case
justify it, it is open to the court to invoke the principles of equity even in
the interpretation of tax laws. Tax laws and equity need not be sworn
enemies at all times. The rule of strict interpretation may be relaxed
where mischief can result because of the inconsistent or contradictory
stands taken by the assessee or even the revenue. Moreover, interest is,
inter alia, compensation for the use of the money. The assessee has had
the use of the money, which would otherwise have been paid as advance
ITA Nos.327-330 & 336-340/2012 Page 29 of 33
tax, until it accepted the assessments at the first appellate stage. Where
the revenue has been deprived of the use of the monies and thereby put to
loss for no fault on its part and where the loss arose as a result of
vacillating stands taken by the assessee, it is not expected of the assessee
to shift the responsibility to the Indian payers. We are not to be
understood as passing a value-judgment on the assessee's conduct. We
are only saying that the assessee should take responsibility for its actions.
27. It is not unusual for the courts to invoke equitable considerations
even while interpreting tax laws. In Jodha Mal Kuthiala v. CIT : (1971)
82 ITR 570 (SC), Hegde, J., opined thus: "It is true that equitable
considerations are irrelevant in interpreting tax laws. But, those laws,
like all other laws, have to be interpreted reasonably and in consonance
with justice". In CIT v. J.H. Gotla : (1985) 156 ITR 323 (SC), it was
held by the Supreme Court that though equity and taxation are often
strangers, attempts should be made (to ensure) that they do not always
remain so and if a construction results in equity rather than injustice, that
should be preferred to the literal or strict construction. In Calcutta Jute
Manufacturing Co. v. Commercial Tax Officer : (AIR 1997 SC 2920)
the Supreme Court held that if there is a provision in a taxing statute to
compensate the state by charging interest, that provision need not be
ITA Nos.327-330 & 336-340/2012 Page 30 of 33
strictly construed but may be so construed as to effectuate its purpose.
The Court held:
"10. The State is empowered by the legislature to raise
revenue through the mode prescribed in the Act so the State
should not be the sufferer on account of the delay caused by
the taxpayer in payment of the tax due. The provision for
charging interest would have been introduced in order to
compensate the State (or the Revenue) for the loss occasioned
due to delay in paying the tax (vide Commr. of Income-tax
A.P. v. M. Chandra Sekhar : 1985 (1) SCC 283 : (AIR 1985
SC 114) and Central Provinces Manganese Ore Co. Ltd. v.
Commr. of Income-tax : 1986 (3) SCC 461 : (AIR 1987 SC
438). When interpreting such a provision in a taxing statute a
construction which would preserve the purpose of the
provision must be adopted. It is well-settled that in
interpreting a taxing statute normally, there is no scope for
consideration of principles of equity. It was so said by
Rowlatt J. in Cape Brandy Syndicate v. Inland Revenue
Commissioners : (1921) 1 KB 64 at page 71:
"In a taxing Act one has to look merely at what
is clearly said. There is no room for any
intendment. There is no equity about a tax.
There is no presumption as to a tax. Nothing is
to be read in, nothing is to be implied. One can
only look fairly at the language used."
The above observation has been quoted with approval
by a Bench of three Judges of this Court in Commissioner of
Income-tax Madras v. Ajax Products Ltd. : 55 ITR 741:
(AIR 1965 SC 1358). In another decision rendered by a
ITA Nos.327-330 & 336-340/2012 Page 31 of 33
Bench of three Judges of this Court in State of Tamil Nadu v.
M. K. Kandaswami : 36 STC 191 : (AIR 1975 SC 1871) It
has been observed thus:
"In interpreting such a provision, a construction
which would defeat its purpose and, in effect,
obliterate it from the statute book should be
eschewed. If more than one construction is
possible, that which preserves its workability
and efficacy is to be preferred to the one which
would render it otiose or sterile."
11. We are, therefore, not adopting a construction which
would upset or even impair the purpose in introducing
Section 10A in the Act. The return to be filed by the dealer is
the full and correct return as referred to in Section 10 and on
failure to furnish such a return the liability to pay interest
from the prescribed date would arise when assessment is
completed."
28. We think that the present case is one where such considerations
should prevail in the interpretation of section 234B; otherwise, it will not
merely result in injustice but the purpose of the provision would not have
been achieved. In any case, the facts of the present case are different, as
we have earlier pointed out, from the facts obtaining in Jacabs (supra)
and therefore the said decision cannot be applied.
ITA Nos.327-330 & 336-340/2012 Page 32 of 33
29. For the aforesaid reasons we answer the substantial question of law
framed by us in the affirmative, against the assessee and in favour of the
revenue. The appeals are allowed.
R.V.EASWAR, J
BADAR DURREZ AHMED, J
November 7, 2013
hs
ITA Nos.327-330 & 336-340/2012 Page 33 of 33
|
