3823.08.sxw 1/24 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL (L) NO.3823 OF 2008 The Commissioner of Income Tax- IV 60/61, Praptikar Sadan, Erandwane, Annex Gbuilding, Karve Road, Pune 411 004. ..Appellant Versus Mr. Emilio Ruiz Berdejo ..Respondent c/o Tetra Pak India Ltd., Mayfair Towers, Ground floor, Shivajinagar, Mumbai – Pune Rd., Pune 411 005. INCOME TAX APPEAL (L) NO.3821 OF 2008 WITH INCOME TAX APPEAL NO.2499 OF 2009 The Commissioner of Income Tax- IV ..Appellant Versus Mr. Lars Nygren ..Respondent INCOME TAX APPEAL (L) NO.3826 OF 2008 WITH INCOME TAX APPEAL NO.2504 OF 2009 WITH INCOME TAX APPEAL NO.2246 OF 2009 The Commissioner of Income Tax- IV ..Appellant Versus Mr. Jean Louis Joner ..Respondent INCOME TAX APPEAL NO.2244 OF 2009 WITH INCOME TAX APPEAL NO.2476 OF 2009 WITH INCOME TAX APPEAL NO.2486 OF 2009 3823.08.sxw 2/24 WITH INCOME TAX APPEAL NO.2535 OF 2009 The Commissioner of Income Tax- IV ..Appellant Versus Mr.Olov Jan Hillero ..Respondent INCOME TAX APPEAL NO.2245 OF 2009 WITH INCOME TAX APPEAL NO.2480 OF 2009 WITH INCOME TAX APPEAL NO.2496 OF 2009 WITH INCOME TAX APPEAL NO.2538 OF 2009 The Commissioner of Income Tax- IV ..Appellant Versus Mr.Stefan Johansson ..Respondent INCOME TAX APPEAL NO.2475 OF 2009 WITH INCOME TAX APPEAL NO.2537 OF 2009 WITH INCOME TAX APPEAL NO.2491 OF 2009 The Commissioner of Income Tax- IV ..Appellant Versus Mr.Kjell Mouritz Nilsson ..Respondent INCOME TAX APPEAL NO.2477 OF 2009 WITH INCOME TAX APPEAL NO.2540 OF 2009 The Commissioner of Income Tax- IV ..Appellant Versus Mr.Bengt Ake Anderson ..Respondent INCOME TAX APPEAL NO.2478 OF 2009 WITH INCOME TAX APPEAL NO.2488 OF 2009 WITH INCOME TAX APPEAL NO.2489 OF 2009 3823.08.sxw 3/24 The Commissioner of Income Tax- IV ..Appellant Versus Mr.Didier Fredric Maillard ..Respondent INCOME TAX APPEAL NO.2479 OF 2009 WITH INCOME TAX APPEAL NO.2481 OF 2009 The Commissioner of Income Tax- IV ..Appellant Versus Mr.Igor Akimov ..Respondent INCOME TAX APPEAL NO.2482 OF 2009 WITH INCOME TAX APPEAL NO.2500 OF 2009 WITH INCOME TAX APPEAL NO.2503 OF 2009 The Commissioner of Income Tax- IV ..Appellant Versus Mr.James Murdoch Anderson ..Respondent INCOME TAX APPEAL NO.2483 OF 2009 The Commissioner of Income Tax- IV ..Appellant Versus Mr.Gordon Mayfield ..Respondent INCOME TAX APPEAL NO.2484 OF 2009 WITH INCOME TAX APPEAL NO.2497 OF 2009 The Commissioner of Income Tax- IV ..Appellant Versus Mr.Henrik Hauggard ..Respondent INCOME TAX APPEAL NO.2485 OF 2009 WITH INCOME TAX APPEAL NO.2492 OF 2009 The Commissioner of Income Tax- IV ..Appellant Versus Mr.Lars Sten Svensson ..Respondent 3823.08.sxw 4/24 INCOME TAX APPEAL NO.2487 OF 2009 WITH INCOME TAX APPEAL NO.2494 OF 2009 WITH INCOME TAX APPEAL NO.2536 OF 2009 The Commissioner of Income Tax- IV ..Appellant Versus Mr.Bo Bjarheden ..Respondent INCOME TAX APPEAL NO.2490 OF 2009 WITH INCOME TAX APPEAL NO.2493 OF 2009 The Commissioner of Income Tax- IV ..Appellant Versus Mr.Drummond Rimmer ..Respondent INCOME TAX APPEAL NO.2501 OF 2009 WITH INCOME TAX APPEAL NO.2539 OF 2009 The Commissioner of Income Tax- IV ..Appellant Versus Mr.Carlos Ferreira Carvalho ..Respondent INCOME TAX APPEAL NO.2495 OF 2009 The Commissioner of Income Tax- IV ..Appellant Versus Mr.Brian Hinchliff ..Respondent INCOME TAX APPEAL NO.2506 OF 2009 The Commissioner of Income Tax- IV ..Appellant Versus Mr.Peter Salmon ..Respondent Shri Vimal Gupta for appellant in all the matters. Shri F.V. Irani with Shri A.K. Jasani, for respondent in all the matters. CORAM:- V.C. DAGA & J.P. DEVADHAR, JJ. DATED :- 15TH OCTOBER, 2009 3823.08.sxw 5/24 JUDGMENT (PER : V.C. DAGA, J.) 1] All these appeals filed under Section 260A of the Income Tax Act, 1961, are (“the Act” for short) against the order dated 27.6.2008 of the Income Tax Appellate Tribunal (“ITAT” for short), Pune Bench Pune in the Income Tax Appeals arising assessments meant for the assessment year 2001-02 and raising three questions of law. 2] Counsel appearing for the appellant and respondent agree that first two questions sought to be raised in all these group of appeals are covered against the Revenue by virtue of the judgments of the Hon’ble Supreme Court. The first question stands answered in the case of Hindustan Coca Cola Beverage P. Ltd. Vs. Commissioner of Income-Tax, reported in 2007 (293) ITR 226 (SC). Whereas second question stands answered by the decision of the Apex Court in the case of Commissioner of Income-Tax and Anr. Vs. Pranoy Roy and Anr., reported in 2009 (309) ITR 231 (SC). On this backdrop the first two questions can hardly be said to be the substantial questions of law warranting consideration afresh at the hands of this Court. 3] Having said so, we are now required to consider third question, which revolves around interpretation of Sections 234-B and 234-C of the Act resulting from the failure on the part of the assessee to pay Advance Tax which in our view needs consideration. Hence appeal stands admitted to adjudicate upon the third question reading as under: (iii) “Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT erred in not appreciating that the assessee had failed to pay advance tax and hence section 234B and 234C were rightly invoked ? 4] The learned Counsel for the respondent has waived service in all the appeals. The group of appeals involving identical question is heard finally by 3823.08.sxw 6/24 consent of parties. All these appeals involve common question of law based on identical facts, as such the factual matrix is drawn from ITA (L) No.3823 of 2008 (CIT Vs. Mr.Emilio Ruiz Berdejo) for considering rival submissions. 5] Having heard rival parties, before considering the aforesaid question, it is necessary to draw factual matrix giving rise to the above question. FACTUAL MATRIX : 6] The respondent is an assessee under the provisions of the Act. The relevant assessment year is 2001-02. The respondent - assessee an individual, is an employee of M/s.Tetra Pak International SA. He was deputed to India for working in M/s.Tetra Pak (India) Ltd. for the previous year ended on 31.3.2001 relevant to the assessment year 2001-02. 7] The assessee filed his original return of income for the assessment year 2001-02 on 26.7.2001 declaring total income in the sum of Rs.34,69,150/-. The assessee had received from outside India an amount of Rs.90,50,970/- from M/s.Tetra Pak International SA, which he did not disclose in his original return of income filed by him. In the opinion of the Assessing Officer, the income chargeable to tax, had escaped assessment within the meaning of Section 147 of the Act, a notice under Section 148 of the Act was issued on 10.11.2006. It was served on the assessee on 17.11.2006. In response thereto, the assessee filed a revised return of income on 26.06.2007 showing his income at Rs.1,25,20,120/-. An assessment was completed under Section 143(3) r/w Section 147 of the Act vide order dated 14.09.2007 determining the total income of the assessee in the sum income of Rs.1,25,20,120/- by making an addition of Rs.90,50,970/- on account of addition of the amount which the assessee had received from outside India, i.e. from M/s.Tetra Pak International SA with further order directing levy of interest under Sections 234A, 234B and 234C of the Act. 3823.08.sxw 7/24 8] The assessee, not satisfied with the action of the Assessing Officer levying interest under Sections 234A, 234B and 234C on the income determined under Section 143(3) r/w Section 147 of the Act preferred an appeal before CIT (A)-III, Pune, which was dismissed by an order dated 28.2.2008 affirming the order of the Assessing Officer. 9] Aggrieved by the aforesaid order of CIT (A)-III, Pune, dated 28.2.2008 an appeal was carried by the respondent to the ITAT, Pune Bench (B), Pune. The ITAT vide its order dated 27.06.2008 allowed the appeal holding that the issue of interest under Sections 234B and 234C of the Act is covered by the Special Bench decision in the case of Sumit Bhattacharya Vs. ACIT (300 ITR AT 347), wherein the Special Bench relying upon another decision of the Special Bench in the case of Motrola Inc. Vs. DCIT (95 ITD SB 269) had ruled that interest under Sections 234B and 234C of the Act could not have been levied, since as the assessee’s employer had paid interest for the delayed payment under Sections 234B and 234C of the Act. It was further held that in view of Apex Court Judgment in the case of Dr. Prannoy Roy and another Vs. Commissioner of Income-Tax and Anr. reported in 2002 (254) ITR 755 the interest under Section 234A was not leviable in a case where there was delay in filing of return provided entire tax liability paid. On these findings the Tribunal, vide its order dated 27th June, 2006 was pleased to hold the levy of interest under Sections 234A and 234B and 234C of the Act was not permissible. 10] Being dis-satisfied with the aforesaid order of the Tribunal, the Revenue is before this Court under Section 260A of the Act, raising third substantial question of law extracted herein above warranting consideration on the rival submissions sketched herein below. 3823.08.sxw 8/24 RIVAL SUBMISSIONS: 11] Shri Gupta, learned Counsel for the appellant/Revenue urged that ITAT has erroneously concluded that the imposition of two compensatory levies by way of interest u/s.234-B and 234-C are operating in the same field for the identical lapse. for the same lapse. In his submission, the lapse on the part of the assessee/employee, having failed to pay Advance Tax made them liable to pay interest, being compensatory levy under Sections 234B and 234C of the Act for delayed payment. He further submits that the payment made by the deducting company (employer) after issuance of notice under Section 147 r/w 148 of the Act cannot be considered as payment towards T.D.S. Such payment can only be considered as other payment made on behalf of assessee. He further submits that it was obligatory on the part of the assessee to make payment of the Advance Tax under Section 191 of the Act, as as stipulated under Sections 207 and 208 of the Act in respect of amounts on which tax had not been deducted at source in accordance with the provisions of Chapter XVII of the Act. He further urged that on the facts and circumstances of the case the Tribunal has ignored the fact that the central issue was not of interest but was that of non-payment of Advance Tax eventually attracting compensatory levy of interest under Section 234-B and 234- C of the Act. In his concluding submission, Mr.Gupta submits that the order of the Tribunal is palpably erroneous, wrong and perverse based on misinterpretation of the provisions of Sections 234A, 234B and 234C of the Act warranting inference at the hands of this Court. 12] Per Contra, Mr.Irani, learned Counsel appearing with Mr.Jasani, for respondents urged that the interest under Sections 234B and 234C of the Act can be levied only if an assessee is liable to pay Advance Tax but defaults in payment thereof. According to him, in the present case, the assessee was not liable to pay Advance Tax at all as such there was no question of he being liable to pay interest either under section 234B or under Section 234C of the Act. 3823.08.sxw 9/24 13] According to Mr.Irani, two steps are required to be taken in determining an assesseee’s liability to pay Advance Tax; in the first step the assesse’s current income is required to be estimated and Income Tax thereon at prescribed rate is required to be calculated as per Section 209 (1) (a); and in second step, income Tax deductible at source is required to be reduced from the figure arrived at in first step above, and it is only if any balance is remaining then only the Assessee would be liable to pay Advance Tax under Section 209 (1) (d)). 14] Mr.Irani further submits that the entire tax on the estimated salary income of an employee is required to be deducted by his employer. The employee is not liable to pay Advance Tax. Hence, assessee employee cannot be subjected to interest liability under Section 234B and Section 234C of the Act. Reliance is placed on Section 192(1) of the Act, which lays down that, every employer, who is responsible for paying to an employee, income chargeable under the head “Salaries”, is obliged to deduct tax therefrom at the “average rate of Income Tax”. 15] In the submission of Mr.Irani, the expression “average rate of Income Tax” is defined in Section 2(10) of the Act to mean the rate arrived at by dividing the amount of Income Tax calculated on the total income. Thus, an employer, under Section 192(1) of the Act, has to deduct, by way of T.D.S., the entire tax on the income of the employee. In other words, the entire tax on the employee’s salary income would be deductible by the employer, and, as such, there would be no liability on the part of the employee to pay Advance Tax and consequently, no liability on the part of the employee to interest under Section 234B and Section 234C. He submits that these propositions are fully supported by the decision of this Court in the case of Director of Income-Tax (International Taxation) Vs. NGC Network Asia LLC (313 ITR page 187). 16] In the submission of Mr.Irani, the Revenue’s argument that Section 192 of the Act does not apply to a non-resident company stands negated by the 3823.08.sxw 10/24 decision of the Supreme Court in the case of Commissioner of Income-Tax Vs. Eli Lilly and Co.(India) P. Ltd. (312 ITR 225 SC) where the Apex Court has held that Section 192 of the Act applies equally to non-resident companies. 17] Mr.Irani, alternatively, without prejudice to his above submission, submits that in any event, considering the fact that first step requires an estimation of current income, it, thus, follows that if two views are possible regarding the taxability of a receipt in an employee’s hands and if the employee, under a bonafide belief regarding its non-taxability, excludes it from the estimate of his current income, there can be no question of his being in default of payment of Advance Tax and consequently, he cannot be made liable for interest under Section 234B /234C of the Act. In support of this submission, reliance is placed on the judgment of the Uttaranchal High Court in CIT Vs. Sedco Forex International Drilling Co. Ltd., (264 ITR 320) followed by this Court in NGC Network Asia LLC (supra). 18] Lastly, Mr.Irani submits that in any event, the employer company having already paid interest under Section 201 (1A) of the Act on account of non- deduction, by it, of T.D.S., the employee Respondent cannot be subjected to interest liability under Section 234B/234C of the Act. In his submission, it is now well settled that interest payable under the Act is compensatory in nature and hence there cannot be a double recovery of interest by the Revenue. Reliance is placed on the judgment of the Supreme Court, in the case of Hindustan Coca Cola Beverage P. Ltd. Vs. Commissioner of Income-Tax (293 ITR 226 SC) to contend that deduction of Tax at Source by a payer and direct payment of tax by the payee were alternative and not cumulative methods of tax recovery, so that once there is direct payment of tax by the payee, the liability of the payer for interest under Section 201 (1A) of the Act for default in deducting Tax at Source would cease. 3823.08.sxw 11/24 19] On the above premise, submission advanced by Mr.Irani is that, once the Revenue has received and accepted Tax and interest from the employer, in respect of non/short deduction of T.D.S. on the employees’ salary, the Revenue cannot seek to recover tax or interest in respect of the same salary from the employee. He has also reiterated that the interest under Section 201 (1A) of the Act having paid by the employer and accepted by the Revenue is in the sum of Rs.8,62,41,956/- whereas the demand of interest raised by the Revenue on the various non-resident employees was Rs.7,74,23,326/- as such the employer has actually paid interest more than the demand made. RELEVANT PROVISIONS OF THE ACT : 192. (1) Any person responsible for paying any income chargeable under the head Salaries shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the [rates in force] for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year. [(1A) Without prejudice to the provisions contained in sub-section (1), the person responsible for paying any income in the nature of a perquisite which is not provided for by way of monetary payment, referred to in clause (2) of section 17, may pay, at his option, tax on the whole or part of such income without making any deduction therefrom at the time when such tax was otherwise deductible under the provisions of sub-section (1). (1B) For the purpose of paying tax under sub-section (1A), tax shall be determined at the average of income-tax computed on the basis of the rates in force for the financial year, on the income chargeable under the head Salaries including the income referred to in sub-section (1A), and the tax so payable shall be construed as if it were, a tax deductible at source, from the income under the head Salaries as per the provisions of sub- section (1), and shall be subject to the provisions of this Chapter.] [(2) Where, during the financial year, an assessee is employed simultaneously under more than one employer, or where he has held successively employment under more than one employer, he may furnish to the person responsible for making the payment referred to in sub- 3823.08.sxw 12/24 section (1) (being one of the said employers as the assessee may, having regard to the circumstances of his case, choose), such details of the income under the head Salaries due or received by him from the other employer or employers, the tax deducted at source therefrom and such other particulars, in such form and verified in such manner as may be prescribed, and thereupon the person responsible for making the payment referred to above shall take into account the details so furnished for the purposes of making the deduction under sub-section (1).] 201.[(1) Where any person, including the principal officer of a company, (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax.] [(1A) prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct [the whole or any part of the tax] or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at [one per cent for every month or part of a month] on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid [and such interest shall be paid before furnishing [the statement] in accordance with the provisions of sub- section (3) of section 200].] [Liability for payment of advance tax. 207. Tax shall be payable in advance during any financial year, in accordance with the provisions of sections 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year, such income being hereafter in this Chapter referred to as current income. 3823.08.sxw 13/24 Computation of advance tax. 209. [(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 : (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; (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 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.] 234A. (1) Where the return of income for any assessment year under sub- section (1) or sub-section (4) of section 139, or in response to a notice under sub-section (1) of section 142, is furnished after the due date, or is not furnished, 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 commencing on the date immediately following the due date, and, (a) where the return is furnished after the due date, ending on the date of furnishing of the return; or (b) where no return has been furnished, ending on the date of completion of the assessment under section 144, [on the amount of the tax on the total income as determined under sub- section (1) of section 143, and where a regular assessment is made, on the amount of the tax on the total income determined under regular assessment, as reduced by the amount of, (i) advance tax, if any, paid; 3823.08.sxw 14/24 (ii) any tax deducted or collected at source; (iii) any relief of tax allowed under section 90 on account of tax paid in a country outside ; (iv) any relief of tax allowed under section 90A on account of tax paid in a specified territory outside referred to in that section; (v) any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside ; and (vi) any tax credit allowed to be set off in accordance with the provisions of section 115JAA.] Explanation 1.In this section, due date means the date specified in sub- section (1) of section 139 as applicable in the case of the assessee. [Explanation 2.In this sub-section, tax on the total income as determined under sub-section (1) of section 143 shall not include the additional income-tax, if any, payable under section 143.] Explanation 3.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. Explanation 4 (2) The interest payable under sub-section (1) shall be reduced by the interest, if any, paid under section 140A towards the interest chargeable under this section. (3) Where the return of income for any assessment year, required by a notice under section 148 [or section 153A] issued [after the determination of income under sub-section (1) of section 143 or] after the completion of an assessment under sub-section (3) of section 143 or section 144 or section 147, is furnished