DDIT(IT) 3(1), MUMBAI V. JOHNSON & JOHNSON PTE LTD, MUMBAI

ITA 5044/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55556 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 22-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 17-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 234B

Judgement Text

1 ITA NO. 5044/MUM/2010 (ASST YEAR 2007-08) IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI J SUDHAKAR REDDY, AM & SHRI VIJAY PAL RAO, JM ITA NO. 5044/MUM/2010 (ASST YEAR 2007-08) THE DY DIRECTOR OF INCOME TAX(IT) 3(1), MUMBAI VS M/S JOHNSON & JOHNSON P LTD FORJETT ST. GRANT ROAD (WEST) MUMBAI 36 (APPELLANT) (RESPONDENT) PAN NO. AABCJ9049E ASSESSEE BY SHRI KIRIT KAMDAR REVENUE BY SH SUHIL KUMAR SINGH DT.OF HEARING 22 ND SEPT 2011 DT OF PRONOUNCEMENT 28 TH SEPT 2011 PER VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 4.3.2010 OF THE CIT(A) FOR THE AY 2007-08. 2 THE ONLY GROUND RAISED BY THE REVENUE IN THIS APP EAL READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A)A ERRED IN HOLDING THAT INTEREST U/S 234B IS NOT CHARG EABLE IN THE CASE OF THE NON-RESIDENT ASSESSEE WHO IS SUBJECTED TO TAX DEDUCT ION AT SOURCE. 3 THE ASSESSEE IS A NON-RESIDENT COMPANY AND THE EN TRE RECEIPTS WERE SUBJECTED TO TAX DEDUCTION AT SOURCE. THE ASSESSIN G OFFICER COMPUTED THE INTEREST U/S 234B SINCE THE ASSESSEE HAD NOT PAID THE ADVANC E TAX U/S 208/209 OF THE I T ACT. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER BEFORE THE CIT(A). THE CIT(A) DIRECTED THE ASSESSING OFFICER NOT TO CHARGE INTEREST U/S 234B BY FOLLOWING 2 ITA NO. 5044/MUM/2010 (ASST YEAR 2007-08) VARIOUS DECISIONS OF THE TRIBUNAL INCLUDING THE CAS E OF THE SPECIAL BENCH IN THE CASE OF MOTOROLA INC VS DCIT REPORTED IN 95 ITD 269 AND THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) V. NGC NETWORK ASIA LLC REPORTED IN 313 ITR 187. 4 WE HAVE HEARD THE LD DR AS WELL AS LD AR OF THE ASSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD AR OF THE ASSE SSEE HAS SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S NGC NETWORK ASIA LLC (SUPRA) AS WELL AS THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME-TAX V. JACABS CIVIL INCORPORATED REPORTED IN 330 ITR 578. 5 AS POINTED OUT BY THE LD AR OF THE ASSESSEE, WE N OTE THAT THE JURISDICTIONAL HIGH COURT IN THE CASE OF NGC NETWORK ASIA LLC (SUP RA) HAS HELD IN PARA 5 TO 8 AS UNDER; 5 UNDER THE PROVISIONS OF THE PRESENT ACT, THE ISSUE HAD COME FOR CONSIDERATION IN THE CASE OF CIT V. SEDCO FOREX INTE RNATIONAL DRILLING CO. LTD. REPORTED IN [2003] 264 ITR 320 (UTTARANCHAL). ONE OF THE QUESTIONS WAS, AS TO WHETHER INTEREST COULD BE LEVIED ON THE ASSESSEE UNDER SECTION 234B OF THE ACT IN RESPECT OF TAX WHICH WA S NOT LIABLE TO BE DEDUCTED AT SOURCE. A LEARNED BENCH OF THE UTTARANC HAL HIGH COURT, AFTER CONSIDERING THE PRO- VISIONS, HELD AS UNDER : ' SECONDLY, ALTHOUGH SECTION 191 OF THE ACT IS NOT OVERRIDDEN BY SECTIONS 192, 208 AND 209(1)(A)(D) OF THE ACT, THE SCHEME OF SECTIONS 208 AND 209 OF THE ACT INDICATES THAT IN ORDER TO C OMPUTE ADVANCE TAX THE ASSESSEE HAS TO, INTER ALIA, ESTIMATE HIS CURRE NT INCOME AND CALCULATE THE TAX ON SUCH INCOME BY APPLYING THE RA TES IN FORCE. THAT UNDER SECTION 209(1)(D) THE INCOME-TAX CALCULATED I S TO BE REDUCED BY THE AMOUNT OF TAX WHICH WOULD BE DEDUCTIBLE AT SOURC E OR COLLECTIBLE AT SOURCE, WHICH IN THIS CASE HAS NOT BEEN DONE BY T HE EMPLOYER COM- PANY ACCORDING TO THE LAW PREVAILING FOR WHICH THE A SSESSEE CANNOT BE FAULTED.' 3 ITA NO. 5044/MUM/2010 (ASST YEAR 2007-08) 6 RELYING ON THE JUDGMENT IN SEDCO FOREX INTERNATIO NAL DRILLING CO. LTD. [2003] 264 ITR 320 (UTTARANCHAL), A LEARNED B ENCH OF THIS COURT WAS PLEASED TO PASS AN ORDER DATED JULY 16, 2008 IN INC OME-TAX APPEAL (L) NO. 1796 OF 2007 IN THE CASE OF THE DIRECTOR OF IN COME-TAX (INTERNATIONAL TAXATION) V. MORGAN CORPORATION GUARANTEE INTERNATIO NAL FINANCE CORPORATION, BY APPLYING THE RATIO OF THAT JUDGME NT. 7 OUR ATTENTION IS ALSO INVITED TO THE JUDGMENT OF T HE MADRAS HIGH COURT, IN THE CASE OF CIT V. MADRAS FERTILISERS LTD. REPORTED IN [1984] 149 ITR 703, WHERE THE MADRAS HIGH COURT TOOK THE VIEW T HAT THE AMOUNT OF TAX DEDUCTIBLE AT SOURCE IS TO BE TAKEN INTO CONSID ERATION TO DETERMINE THE LIABILITY TO PAY THE INTEREST UNDER SECTION 21 5. IN THAT CASE, THE ASSESSEE HAD NOT PAID ADVANCE TAX ON THE INTEREST INCOME. THE PAYER OF INTEREST HAD NOT DEDUCTED THE TAX. THE LEARNED BEN CH OF THE MADRAS HIGH COURT WAS OF THE VIEW THAT LEVY OF INTEREST UN DER SECTION 215 ON THE ASSESSEE WAS NOT JUSTIFIED. 8 WE ARE IN RESPECTFUL AGREEMENT WITH THE VIEW TAKEN IN THE CASE OF CIT V. SEDCO FOREX INTERNATIONAL DRILLING CO. LTD. [2003] 264 ITR 320, BY THE UTTARANCHAL HIGH COURT. WE ARE CLEARLY OF THE O PINION THAT WHEN A DUTY IS CAST ON THE PAYER TO PAY THE TAX AT SOURCE , ON FAILURE, NO INTEREST CAN BE IMPOSED ON THE PAYEE-ASSESSEE. CONSIDERI NG THE SUBMISSIONS OF BOTH PARTIES AND THE PROVISIONS OF LAW, CONSEQ UENTLY THE APPEAL IS DISMISSED. 5.1 WE FURTHER NOTE THAT THIS ISSUE WAS ALSO CONSID ERED AND ADJUDICATED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF JACABS CIVI L INCORPORATED (SUPRA) WHEREIN THE HONBLE HIGH COURT, AFTER CONSIDERING THE DECIS ION OF THE HONBLE UTTARANCHAL HIGH COURT IN CASE OF CIT VS SEDCO FOREX INTERNATI ONAL DRILLING CO LTD REPORTED IN 264 ITR 320 AS WELL AS THE DECISION OF THE JURISDICTION AL HIGH COURT IN THE CASE OF M/S NGC NETWORK ASIA LLC (SUPRA) IN PARA 7 TO 9 HAS HELD AS UNDER: 4 ITA NO. 5044/MUM/2010 (ASST YEAR 2007-08) SECTION 2(1) OF THE ACT DEFINES 'ADVANCE TAX' TO M EAN THE ADVANCE TAX PAYABLE IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII-C OF THE ACT. THESE PROVISIONS ARE CONTAINED FROM SECTION 207 ONWARDS . SECTION 209 FALLS UNDER THIS CHAPTER. SUB-SECTION (1) THEREOF DEALS WITH FOUR SITUATIONS UNDER WHICH THE ADVANCE TAX PAYABLE BY THE ASSESSEE IS TO BE COMPUTED. ADMITTEDLY, THESE CASES DO NOT CONCERN WITH CLAUSES (A) TO (C). CLAUSE (D) OF SUBSECTION (1) OF SECTION 209, WHICH IS RELEVANT READS AS UNDER : '(D) THE INCOME-TAX CALCULATED UNDER CLAUSE (A) OR C LAUSE (B) OR CLAUSE (C) SHALL, IN EACH CASE, BE REDUCED BY THE AM OUNT OF INCOME-TAX WHICH WOULD BE DEDUCTIBLE OR COLLECTIBL E AT SOURCE DURING THE SAID FINANCIAL YEAR UNDER ANY PROVISION OF THIS ACT FROM ANY INCOME (AS COMPUTED BEFORE ALLOWING ANY DEDUCTI ONS ADMISSIBLE UNDER THIS ACT) WHICH HAS BEEN TAKEN IN TO 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.' THIS CLAUSE CATEGORICALLY USES THE EXPRESSION 'DEDUC TIBLE OR COLLECTIBLE AT SOURCE' AND IT IS THIS CLAUSE WHICH IS INCORPORATED B Y THE UTTARANCHAL HIGH COURT IN THE SAID JUDGMENT (SUPRA) IN THE MANNER ALREA DY POINTED ABOVE. THE SCHEME OF THE ACT IN RESPECT OF NON-RESIDENTS IS CLEAR. SECTION 195 OF THE ACT PUTS AN OBLIGATION ON THE PAYER, I.E., ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT, TO DEDUCT INCOME-TAX AT S OURCE AT THE RATES IN FORCE FROM SUCH PAYMENTS EXCLUDING THOSE INCOMES WHIC H ARE CHARGEABLE UNDER THE HEAD 'SALARIES'. THEREFORE, TH E ENTIRE TAX IS TO BE DEDUCTED AT SOURCE WHICH IS PAYABLE ON SUCH PAYMEN TS MADE BY THE PAYEE TO THE NONRESIDENT. SECTION 201 OF THE ACT LA YS DOWN THE CONSEQUENCES OF FAILURE TO DEDUCT OR PAY. THESE CON SEQUENCES INCLUDE NOT ONLY THE LIABILITY TO PAY THE AMOUNT WHICH SUC H A PERSON WAS REQUIRED TO DEDUCT AT SOURCE FROM THE PAYMENTS MADE TO A NON -RESIDENT BUT ALSO PENALTIES ETC. ONCE IT IS FOUND THAT THE LIABILITY WAS THAT OF THE PAYER AND THE SAID PAYER HAS DEFAULTED IN DEDUCTING THE TAX AT SOURCE, THE DEPARTMENT IS NOT REMEDY-LESS AND THEREFORE CAN TAKE ACTION AGAINST THE PAYER UNDER THE PROVISIONS OF SECTION 201 OF THE INCO ME-TAX ACT AND COMPUTE THE AMOUNT ACCORDINGLY. NO DOUBT, IF THE PE RSON (PAYER) WHO HAD TO MAKE PAYMENTS TO THE NON-RESIDENT HAD DEFAUL TED IN DEDUCTING THE TAX AT SOURCE FROM SUCH PAYMENTS, THE NONRESIDENT IS NOT ABSOLVED FROM PAYMENT OF TAXES THEREUPON. HOWEVER, IN SUCH A CASE, THE NON- RESIDENT IS LIABLE TO PAY TAX AND THE QUESTION OF PA YMENT OF ADVANCE TAX WOULD NOT ARISE. THIS WOULD BE CLEAR FROM THE READING OF SECTION 191 OF THE ACT ALONG WITH SECTION 209(1)(D) OF THE ACT. FO R THIS REASON, IT WOULD NOT BE PERMISSIBLE FOR THE REVENUE TO CHARGE ANY INTE REST UNDER SECTION 234B OF THE ACT. 5 ITA NO. 5044/MUM/2010 (ASST YEAR 2007-08) WE THUS, ANSWER THE AFORESAID QUESTION IN FAVOUR OF T HE ASSESSEE AS WE ARE OF THE OPINION THAT THE TRIBUNAL HAS RIGHTLY HEL D THAT THE ASSESSEE WAS NOT LIABLE TO PAY ANY INTEREST UNDER SECTION 234B OF THE ACT FOLLOWING THE JUDGMENTS OF THE UTTARANCHAL AND BOMBAY HIGH COURTS. 7 ACCORDINGLY, FOLLOWING THE DECISIONS OF THE HONB LE JURISDICTIONAL HIGH AS WELL AS THE HONBLE DELHI COURT, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 8 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 28 TH ,DAY OF SEPT 2011. SD/ SD/- ( J SUDHAKAR REDDY ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 28 TH SEPT 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI