Whether assessee, a foreign company, should pay interest u/s 234B on account of non-payment of advance tax?
Case: Geopetrol International Inc. v. ADIT, Delhi ITAT
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- This case deals with levying of interest on advance tax and the deduction of tax at source for remittances received by foreign company assessees. (More judgements on these issues can be viewed here)
- The assessee was a non-resident company governed under laws of the Republic of Panama and was engaged in the business of exploration and development of oil fields.
- The entire income of the assessee in India, came from assessee’s India customer viz., Indian Oil Corporation.
- The assessee filed its income tax return for the AY 2011-12 declaring an income of INR 21,98,88,472. The assessee has paid the entire tax on this amount through TDS and through self-assessment tax.
- The AO held that the assessee has failed to pay advance tax u/s 209 of the Income Tax Act and, thus, levied interest u/s 234B, assessing the total income as INR 22,19,80,674.
- The assessee filed an appeal against this assessment before the CIT(A) which was dismissed.
- Hence, the present appeal by the assessee.
Revenue relied on the decision of the Delhi High Court in Alcatel-Lucent wherein it was held that a foreign taxpayer who does not admit to income chargeable to tax is presumed to have induced the Indian taxpayer not to deduct TDS and hence is liable to pay advance tax interest.
- It was a foreign company and its entire income was derived from Indian Oil Corporation (IOC) and that the IOC, as the payer was liable for the relevant AY, to deduct tax at source under section 195 before making the remittance. Hence, the liability would fall on the payer IOC and not on the assessee.
- It has obtained a lower tax deduction certificate under section 197 and all tax, as required by such certificate, has been fully deducted by IOC. Taking into account all the tax that had already been deducted, the assessee was not obligated to pay any advance tax. As no liability to pay advance tax accrues to the assessee, hence no interest under section 234B should be levied upon them.
- The counsel for the assessee relied on the decisions of DIT vs. Jacabs Civil Incorporated and DIT (Intl. Tax.) vs. GE Packaged Power.
The decision was rendered by Ms Suchitra Kamble, the Judicial Member (see analytics)
- A foreign company assessee which receives income that is attributable as business profits are permitted a tax credit, as the tax is deducted at source. Such tax credit may not be evidence of the actual deduction, but the amount which is deductible. Hence, the assessee was entitled to claim tax credits, as it had done under section 197, regardless of the actual deductions made. No interest could be levied upon the assessee under Section 234B.
- The Tribunal, disregarded the case law of Alcatel Lucent cited by Revenue by drawing support from the decision of Delhi High Court in GE Packaged Power, wherein it was observed that the ratio of Alcatel Lucent, cannot be applied to all fact situations
- The Tribunal relied upon the GE Packaged Power judgment (which bases its decision on Jacabs and Samsung Electronics decisions) to hold that, it is the payer of the sums of money to the foreign assessee, who is responsible to ascertain the quantum of deductions and is responsible for deducting tax at source. The payer shall be considered as an assessee in default if it fails to deduct tax at source at the right rate.
- The appeal of the assessee was allowed.
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Written by Soumya Shekhar, | Legal content writer @ Riverus