M/S B. J. SERVICES COMPANY MIDDLE EAST LIMITED V. ASSISTANT COMMISSIONER OF INCOME TAX OSD RANGE-I

ITA/5/2010

AI Insights

The case involves M/s B.J. Services Company Middle East Limited, a non-resident company engaged in mineral oil services, which appealed against the tax levied on its income and interest received on tax refunds by the Income Tax Department. The primary legal contention was the rate of tax applied to the interest income and the applicability of advance tax payments under Section 234B of the Income Tax Act. The Income Tax Appellate Tribunal had earlier upheld the tax authority's decision to tax the interest income at 42% and charged interest for non-payment of advance tax. The High Court's decision dismissed the company's appeal, affirming the Tribunal's findings and the tax authority's assessment.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 747199 (HC-UTTARAKHAND)
• Appeal Type: Others
• Pronouncement Date: 25-07-2019
• Assessment Year: misc
• Other Referred Cases: CIT Vs. Halliburton Offshore Services, CIT Vs. Hughes Services Far East Pvt. Ltd, Circle IV, Bombay Vs. Vokart Brothers and Others, Director of Income Tax, International Taxation and another Vs. M/s Maersk Co. Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: H M BHATIA
• Assessee Lawyers: S K POSTI; ASHUTOSH POSTI
• Keywords: Assessment Order; Income Tax; Interest income; Permanent establishment; Rectification Application; Tax rate; TDS Certificate
• Section: 143(3); 154; 234B; 260A; 234D

Judgement Text

" IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL Income Tax Appeal No. 05 of 2010 M/s B.J. Services Company Middle East Limited ...Appellant Vs. Deputy Commission of Income Tax …Respondent Mr. S.K. Posti, learned Senior Counsel assisted by Mr. Ashutosh Posti, learned counsel for the appellant. Mr. H.M. Bhatia, learned Senior Standing Counsel for the Income Tax Department. Dated: 25th July, 2019 Coram: Hon’ble Ramesh Ranganathan, C.J. Hon’ble Alok Kumar Verma, J. Ramesh Ranganathan, C.J. (Oral) This Appeal, under Section 260A of the Income Tax Act, is preferred by the assessee against the order passed by the Income Tax Appellate Tribunal, in ITA No. 104/Del/2008 dated 25.05.2009 relating to the assessment year 2004-05. The assessee, a non-resident company engaged in the business of providing services in connection with prospecting, extraction and production of mineral oil, filed its return declaring an income of Rs. 8,85,81,570/-. An assessment order was passed, under Section 143(3) of the Income Tax Act (for short “the Act”), on 29.11.2005 levying tax on a total income of Rs. 8,85,81,570/-. In addition, interest of Rs. 9,56,032/- was charged under Section 234B of the Act and Rs. 13,515/- under Section 234D of the Act. Credit was given for the prepaid taxes, except for a sum of Rs. 3,97,394/-, as no TDS certificate for the said amount had been filed. 2. Aggrieved by the assessment order, wherein tax at the rate of 42% was also levied on the interest received by the assessee on refund of Income Tax from the Income Tax Department, the assessee carried the matter in appeal to the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals), by his appellate order dated 28.02.2006, dismissed the said appeal holding that the assessee was 2 carrying on business through its Permanent Establishment; and interest was received by it as an agent of its technicians, whose salary was debited by the assessee company in their accounts. The Commissioner of Income Tax (Appeals) agreed with the Assessing Officer that it was a case where the appellant was operating in India through its Permanent Establishment; taxability of interest would be governed by Article 7 of the DTAA between India and UK; and the Assessing Officer was right in taxing the interest income at 42%. 3. Against the order passed by the Commissioner of Income Tax (Appeals), the assessee carried the matter in further appeal to the Income Tax Appellate Tribunal, New Delhi in ITA No. 1713/Del/2006 and the Tribunal, by its order dated 29.05.2009, followed its earlier order in the assessee’s own case, for the assessment year 2002-03 and 2003-04, and upheld the order of the Commissioner of Income Tax (Appeals) in directing the Assessing Officer to tax interest income at the rate of 42% instead of 15%, as provided in para 2 of Article 12 of the DTAA between India and the United Kingdom. 4. Against the order passed by the Income Tax Appellate Tribunal, the assessee carried the matter in appeal to this Court in Income Tax Appeal No. 01 of 2010 and batch. A Division Bench of this Court, by a common order in four appeals i.e. Income Tax Appeal Nos. 01, 02, 03 and 04 of 2010 dated 19.05.2015, dismissed the appeals preferred by the assessee; and answered the question against the assessee and in favour of the Revenue. 5. Mr. S.K. Posti, learned Senior Counsel appearing on behalf of the assessee, would submit that, against the order passed by the Division Bench of this Court in Income Tax Appeal Nos. 01, 02, 03 and 04 of 2010 dated 19.05.2015, the assessee has carried the matter in appeal to the Supreme Court, and the matter is still pending thereat. 3 6. During the pendency of the appeal before the Commissioner of Income Tax (Appeals), the assessee filed an application, under Section 154 of the Act, seeking rectification of the assessment order contending that levy of interest, under Section 234B of the Act for a sum of Rs.9,56,032/-, was erroneous. The rectification application was allowed in part; and the interest liability of the assessee, under Section 234B of the Act, was reduced from Rs. 9,56,032/- to Rs. 7,78,860/-. 7. Against the order passed by the Assessing Authority, in the application filed under Section 154 of the Income Tax Act, the assessee carried the matter in appeal to the Commissioner of Income Tax (Appeals) who set aside the order, passed by the Assessing Officer, as a mistake of law apparent on the record; and following the decision of this Court in CIT Vs. Halliburton Offshore Services : 271 ITR 395, and CIT Vs. Hughes Services Far East Pvt. Ltd (order dated 09.10.2003) held that there was no liability on the assessee to pay advance tax, and interest could not be charged under Section 234B. 8. Aggrieved by the said order, the Revenue carried the matter in appeal to the Income Tax Appellate Tribunal in ITA 104/Del/2008. The Tribunal held that a mistake apparent from the record must be an obvious and patent mistake, and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions; while exercising power, under Section 154 of the Act, it was not open to the Assessing Officer to examine the matter on merits and come to a finding different from the one already arrived at; an obvious mistake can only be rectified under Section 154 of the Act; and it does not cover any mistake which may be discovered by a process of investigation, argument or proof. Relying on the judgment of the Supreme Court in Circle IV, Bombay Vs. Vokart Brothers and Others : (1971) 82 ITR 50, the Tribunal opined that the issue, with regards charging of interest under Section 234B of the Act, was considered by the Assessing Officer under Section 143(3) of the Act as per settled legal principles; as the scope of Section 154 of the Act was limited, the 4 proposition of law laid down by the Uttaranchal High Court could not be applied; in the assessment order, passed under Section 143(3) of the Act, the Assessing Officer had charged interest under Section 234B of the Act in respect of the shortfall in the tax paid as compared to the assessed tax reduced by TDS; the proper course of action, available to the assessee, was to file an appeal against the order passed under Section 143(3) of Act, and to contend that there was a wrong charging of interest under Section 234B of the Act; and deleting the interest charged under Section 234B of the Act without giving a finding on the nature of the assessee’s income, whether it is liable to TDS or not, is a debatable issue; and the same cannot be rectified by way of an application under Section 154 of the Act. While holding that there was no dispute with regards the settled legal position as laid down by the Uttaranchal High Court, the Tribunal held that deliberations on the nature of income could not be examined in an application under Section 154 of the Act. Aggrieved thereby, the assessee is now in appeal before us. 9. Mr. S.K. Posti, learned Senior Counsel appearing on behalf of the assessee, would place reliance on the judgments of the Supreme Court, in The Income Tax Officer, Alwaye Vs. The Asok Textiles Ltd., Alwaye : [1961] 41 ITR 732 (SC); and Anchor Pressings (P) Ltd. Vs. Commissioner of Income Tax, U.P. and Ors. : [1986] 161 ITR 159 (SC), to submit that an application under Section 154 of the Act can be made for correction of any mistake apparent from the record; the scope of examination, in an application under Section 154 of the Act, is far wider than in the case of a review; the Tribunal has erred in equating the scope of examination under Section 154 with the scope of examination in review proceedings; the question whether interest can be charged under Section 234 of the Act could be examined by the Assessing Officer, if such levy of interest was on account of any mistake apparent from the record; as laid down by a Full Bench of this Court, in Director of Income Tax, International Taxation and another Vs. M/s Maersk Co. Ltd. : 2011 (1) U.D. 439, the obligation, to deduct tax at source, is on the employer; failure on their part to deduct tax at source may necessitate 5 action being taken against them for shortfall in the deduction of tax at source, and the liability cannot be mulcted on the assessee; while the assessee would, undoubtedly, be liable to pay tax, as determined by the Assessing Officer, the liability to pay interest, on the shortfall in the deduction of tax at source, is to be charged on the employer and not on the assessee; Section 195 of the Income Tax Act uses the words “any person”; consequently the Income Tax Department, which paid interest to the assessee, on the refund amount due to them, was liable to deduct tax at source; for failure on the part of the Income Tax Department to deduct tax at source, the assessee cannot be mulcted with interest under Section 234B of the Income Tax Act; and interest, if any, can only be charged on the person responsible for deducting tax at source, and not on the assessee. 10. On the other hand Mr. H.M. Bhatia, learned Senior Standing Counsel for the Income Tax Department, would draw our attention to the calculation chart to submit that the Income Tax Department had, in fact, deducted tax at source on the interest paid to the assessee for refund of tax; from out of the total tax deducted at source of Rs. 3,28,21,492/- for the assessment year 2004-05, TDS deducted by the Income Tax Department was Rs. 24,77,391/-; the present case is not with respect to shortfall in the deduction of TDS; while offering the other income received by them to tax at 42%, the assessee had paid tax only at 15% on the amount received as interest on the refund of income tax by the Income Tax Department; the Assessing Officer had computed the tax, even on this interest, at 42%; and, since the tax was actually paid after 20 months of its falling due, interest at 01% per month for 20 months was charged on the tax due of Rs. 38,94,346/-, and a sum of Rs. 7,78,660/- was arrived at. 11. Since we are satisfied, for reasons to follow, that the assessee’s appeal necessitates rejection even on merits, it is unnecessary for us to dwell on the question as to whether such a contention, now urged before us on behalf of the assessee, could have been raised in an application 6 made under Section 154 of the Income Tax Act. While making it clear that we have not expressed any opinion in this regard, we are satisfied that no interference is called for, even if we were to proceed on the premise that the contention, now urged before us, could have been raised by the assessee in his application under Section 154 of the Act. 12. A Full Bench of this Court, in Director of Income Tax, International Taxation and another Vs. M/s Maersk Co. Ltd. : 2011 (1) U.D. 439, was examining the question of interest charged under Section 234B of the Act on short-deduction of TDS on salaries. While examining the liability of the employer, under Section 192(1) of the Act, to deduct tax at source on salaries, the Full Bench held that, unlike advance tax, liability to deduct tax at source is that of the employer and, for the fault of the employer in deducting sufficient amount of tax at source, the assessee cannot be mulcted with interest; and the liability to pay interest, if any, is on the employer who had deducted tax at source for an amount lower than what was stipulated. 13. The submission of Mr. S.K. Posti, learned Senior Counsel for the assessee, is that Section 192(1) of the Act is in pari materia with Section 195; and what would apply to a case falling under Section 192(1) of the Act, would automatically apply even to those coming within the purview of Section 195 of the Act. 14. As noted hereinabove, the assessee is a non-resident company and, under Section 195(1) of the Act, any person responsible for paying to a non-resident not being a company, or to a foreign company, any interest (not being interest referred to in Section 194LC) or Section 194LD or any other sum chargeable under the provisions of this Act, not being income chargeable under the head “Salaries”, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. The provisions of Section 195(1) of the Act relate to interest or any other sum chargeable 7 under the provisions of the Act, not being income chargeable under the head “Salaries”. Section 192(1) of the Act, on the other hand, specifically relates to deduction of tax at source with respect to salaries. 15. We find it difficult to accept the submission of Mr. S.K. Posti, learned Senior Counsel for the assessee, that the law declared with respect to Section 192(1) of the Act by the Full Bench of this Court, in Director of Income Tax, International Taxation and another Vs. M/s Maersk Co. Ltd. : 2011 (1) U.D. 439, would automatically apply to Section 195(1) also. Accepting the submission of Mr. S.K. Posti, learned Senior Counsel for the assessee, would result in absurd consequences. The submission of the learned Senior Counsel is that the tax deducted at source, on the interest paid to the assessee on the Income-Tax refund, should have been deducted by the Income Tax Department itself. Carrying this submission to its logical conclusion would mean that the Income Tax Department should collect interest, for non-deduction/short- deduction of tax at source on the interest amount paid on the Income Tax refund to the assessee, from itself i.e. the Income Tax Department should charge interest, under Section 234B of the Act, on the Income Tax Department itself. This is extremely difficult to accept. 16. Be that as it may, it is evident from the material placed before us that the Income Tax Department had, in fact, deducted tax at source at Rs. 24,77,391/- from the amount paid to the assessee as interest on the Income-Tax refund. The assessee’s liability to pay tax was on account of the difference in tax which they declared in their Income-Tax Return, of the tax and as determined by the Assessing Officer. In his order under Section 143(3) of the Act, the Assessing Officer held that this interest, which was paid to the assessee on the Income-Tax refund, was also liable to be taxed at 42% and not at 15% which the assessee had declared in its Income-Tax Return. The provisions of the Act make it clear that the percentage of tax deducted at source is invariably lower than the actual tax rate on which the assessee is, ordinarily, liable to pay tax. 8 17. The income from other sources declared by the assessee in its Income-Tax Return (representing the interest income on income tax refund) was Rs. 1,65,15,942/-. The assessee had offered tax at 15% thereon of Rs. 24,77,391/-. In his assessment order, under Section 143(3) of the Act, the Assessing Officer had levied tax at 42% on this income i.e. for Rs. 69,36,695.64/-. The difference of the tax amount was Rs.44,59,304.64/-, on which interest at 1% per month was computed for 20 months. In the present case, the Assessing Officer has held the assessee liable to pay tax even on this interest amount at 42%. The assessee ought to have paid advance tax on this differential amount and, for their failure to do so, the Assessing Officer had rightly levied interest under Section 234B of the Act. 18. We are satisfied therefore, albeit for reasons recorded in this order, that the order passed by the Tribunal does not necessitate interference. The appeal fails and is, accordingly, dismissed. No costs. (Alok Kumar Verma, J.) (Ramesh Ranganathan, C.J.) 25.07.2019 25.07.2019 Rahul "