Reserved IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL Income Tax Appeal No. 54 of 2007 (Old No. 139 of 2000) (1) The Commissioner of Income Tax, Meerut. (2) Addl. Commissioner of Income Tax, Spl. Range, Dehradun. …………………..Appellants. Versus M/s Tide Water Marine Intl. Inc. C/o Earnst & Young SRB House, 20, Community Centre, Pushap Vihar, New Delhi ………………Respondent. Along with Income Tax Appeal No. 72 of 2007 (1) The Commissioner of Income Tax, Dehradun. (2) Dy. Commissioner Income Tax Circle-I, Dehradun. …………………..Appellants. Versus Tidewater Marine International Inc. C/o M/s Nangia & Co., CA’s, 75/7, Rajpur Road, Dehradun. ………………Respondent. 2 Sri Arvind Vashistha, Standing Counsel for the appellants. Sri S.K. Posti, Advocate for the respondent / assessee. Hon’ble Prafulla C. Pant, J. Hon’ble Dharam Veer, J. [Oral- Prafulla C. Pant, J.] Both these appeals, preferred under Section 260-A of the Income Tax Act, 1961, involve common question of law, as such both are being taken up together for their disposal. The Income Tax Appeal No. 54 of 2007 (Old No. 139 of 2000), is directed against the order dated 24th August 1999, passed by Income Tax Appellate Tribunal, (Delhi Bench ‘A’), passed in I.T.A. No. 381/Del/99, whereby the appeal of the assessee was allowed holding that he is not liable to pay interest under Section 234B of Income Tax Act, 1961. Income Tax Appeal No. 72 of 2007, is directed against the order dated 15.09.2006, passed by Income Tax Appellate Tribunal (Delhi Bench ‘F’) in I.T.A. No. 3616/D/2003, in which the appeal of the revenue is dismissed and the order of Commissioner of Income Tax (Appeals) (hereinafter referred as CIT (Appeals)) is affirmed that the assessee is not liable to pay the interest under Section 234B of Income Tax Act, 1961. The common question of law involved in the aforesaid two appeals is as under:- Whether the Income Tax Appellate Tribunal has erred in law in holding that interest is not payable by the assessee under Section 234B even though the 3 income of the assessee was subject to tax deduction at source. (2) Heard learned counsel for the parities at length. (3) Brief facts of the case are that assessee / respondent M/s Tide Water Marine International Inc. is a non resident foreign company. Another non resident foreign company M/s Hyundai Heavy Industries Co. Ltd. has engaged the respondent / assessee in the business of exploration / production of mineral oils. The I.T.A. No. 54 of 2007 pertains to assessment year 1996-97 while the Income Tax Appeal No. 72 of 2007 pertains to the assessment year of 1997-98. Under the special provisions for computing profits and gains in connection with business of exploration etc. of mineral oils, income tax is payable by the assessee on the profits assessed under Section 44BB of Income Tax Act, 1961 (hereinafter referred as ITA 1961). It is also not disputed that the income tax payable by the assessee was subject to tax deduction at source (hereinafter referred as TDS) under Section 195 of ITA 1961. In the case relating to I.T.A. No. 54 of 2007, the Assessing Officer (hereinafter referred as AO) while assessing the tax under Section 143 of ITA 1961 on the income shown in the return, directed that interest be charged under Section 234B of the Act. Aggrieved by said order the assessee filed appeal before CIT (Appeals), which was dismissed vide order dated 29.12.1998. On this, the assessee went in appeal before the Income Tax Appellate Tribunal (hereinafter referred as 4 ITAT), which allowed the appeal and held that the interest is not payable by the assessee under Section 234B of the aforesaid Act as the assessee himself is not liable to deduct tax at source in order to pay advance tax under Section 208 of the Act. Hence this appeal. In I.T.A. No. 72 of 2007, initially on return filed by the assessee no interest was charged on the tax assessed by the Assessing Officer, but subsequently on receiving a petition of tax evasion the A.O. issued notices under Section 148 of the Act and directed that interest be charged under Section 234B of the Act. Aggrieved by said order the assessee preferred appeal before CIT (Appeals). The same was allowed vide order dated 17.03.2003 by said authority. On this Revenue went in appeal before the ITAT, which dismissed the appeal vide order dated 15.09.2006. Hence this appeal by the Revenue. (4) It is not disputed that the assessee is a non resident foreign company and was engaged by another non resident foreign company in the business of exploration of mineral oils, in Bombay High as such the profits and gains were to be assessed under Section 44BB of the ITA 1961. It is also not disputed that Tidewater Marine International Inc. is in fact an individual assessee, engaged by another non resident foreign company who had to deduct the tax at source under Section 195 of the Act. The dispute relates only to the point that if the company who engaged the assessee, has not deducted tax at source, is the individual assessee liable to pay interest under Section 234B of the Act or not. 5 (5) Before further discussions, we think it just and proper to quote the relevant provisions of law to show when the interest is payable under Section 234B of the Act. Section 208 of ITA 1961 reads as under:- “208. Advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this Chapter, is five thousand rupees or more.” The procedure to compute the tax is given in the next Section i.e. Section 209. Section 234B of the Act provides that the interest shall be paid for defaults in payment of advance tax. Sub-section (1) of Section 234B of ITA 1961 reads as under:- “234B. (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate 6 of one per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax, Explanation 1.-In this section, “assessed tax” means the tax on the total income determined under sub-section (1) of Section 143 or on regular assessment as reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income.” (This explanation is amended in 2006, but the same is not applicable to the assessment year in question). “Explanation 2._…………………… Explanation 3._…………………..” 7 (6) Sri Arvind Vashistha, learned counsel for the appellants / revenue argued that since tax was admittedly liable to be deducted at source and there was default in the deduction as such assessee is liable to pay the interest under Section 234B of the Act. On the other hand Sri S.K. Posti, learned counsel for the respondent / assessee argued that for the negligence or inaction on the part of the employer or the company, who engaged the individual assessee, the individual assessee cannot be held responsible for it. (7) On behalf of assessee our attention is drawn to the cases of Commissioner of Income Tax, Bangalore and another Vs. Century Building Industries (P) Ltd. (2007) 7 Supreme Court Cases 262, and Commissioner of Income Tax and another Vs. Sedco Forex International Drilling Co. Ltd. (2003) Vol 264 ITR pg. 320 (Uttarakhand High Court). We have gone through the aforesaid cases and we found that in Commissioner of Income Tax and another Vs. Sedco Forex International Drilling Co. Ltd., Division Bench of this Court in a similar case has taken the view that where the employer company has not calculated the amount of tax as required under Section 209(1)(d) of ITA 1961, the individual assessee cannot be faulted. In the case of Commissioner of Income Tax, Bangalore and another Vs. Century Building Industries (P) Ltd., when a penalty was imposed on the employer under Section 201 of ITA. 1961 for not complying the provisions of Section 195 of Act, the apex court held that for default on the part of the employer’s failure to deduct the 8 tax, penalty was leviable under Section 201(1) of the Act and it allowed the appeal of the Revenue in said case. (8) Having gone through both the above mentioned case laws, we are of the view that now it is settled principle of law that where it is the duty of the non resident foreign company who engaged the individual assessee, who is non resident foreign company to deduct the tax at source, the individual assessee cannot be made liable to pay the interest under Section 234B for default on the part of the company who engaged or employed such individual. Question of law raised stands answered accordingly. Therefore, for the reasons as discussed above, impugned orders passed by ITAT suffer from no illegality and these two appeals have no force. The same are liable to be dismissed. Both the appeals are dismissed. (Dharam Veer, J.) (Prafulla C. Pant, J.) 28.07.2008 NS 9