DIRECTOR OF INCOME TAX, NEW DELHI versus M/S MITSUBISHI CORPORATION on 17 September 2021

750

SUPREME COURT REPORTS

[2021] 7 S.C.R.

ADIRECTOR OF INCOME TAX, NEW DELHI

v.

M/s MITSUBISHI CORPORATION

(Civil Appeal No. 1262 of 2016)

BSEPTEMBER 17, 2021

[L. NAGESWARA RAO AND ANIRUDDHA BOSE, JJ.]

Income Tax Act, 1961 – ss.190, 201, 209 and 234B – Provisoto s.209(1)(d), inserted by the Finance Act, 2012 – Interpretationof s.209 (1)(d) – The Respondent- Assessee is a non-residentCcompany incorporated in Japan, with operations in India – Noticewas issued to the Respondent-Assessee u/s. 143 (2) of the Act on12.10.2006 – An assessment order was passed for the years 1998-99 to 2004-05 holding that a portion of the Assessee’s income wasattributable to its activities in India and was therefore liable to beDtaxed in India, under Articles 4, 5 and 6 of the Double TaxationAvoidance Agreement between India and Japan, read with theprovisions of the Act – The Respondent- Assessee filed appealsbefore the Commissioner of Income-Tax (Appeals) (CIT) only withrespect to levy of interest u/s. 234B of the Act – CIT dismissed theappeals – Respondent filed appeal before Income Tax AppellateETribunal (ITAT) – While allowing the appeal, the ITAT held thatthe respondent was not liable for payment of interest u/s. 234B,when tax at source was deductible from payment made to theRespondent – This decision was challenged before the High Court,which was dismissed and the order of ITAT was upheld – Batch ofFappeals were filed in Supreme Court pursuant to the judgment ofHigh Court – Respondent-Assessee submitted that s.234B of the Actcannot be read in isolation but in the light of s.209 of the financeAct, 2012 – The Revenue contended that s.234B should be read inisolation – Held: The liability for payment of interest as provided ins.234B is for default in payment of advance tax – While the definitionGof “assessed tax”u/s.234B pertains to tax deducted or collected atsource, the preconditions of s.234B, viz. liability to pay advancetax and non-payment or short payment of such tax, have to besatisfied, after which interest can be levied taking into account theassessed tax – Therefore, s.209 of the Act which relates to the H

computation of advance tax payable by the assessee cannot beignored while construing the contents of s.234B – The proviso tos.209(1)(d) is in the nature of an exception to s.209(1)(d), as anassessee, who has received any income without deduction orcollection of tax, is made liable to pay advance tax in respect ofsuch income – The proviso makes it clear that assesse cannot reducethe amounts of income tax paid to it by the payer without deduction,while computing liability for advance tax – However, the intendedeffect of amendment made to s.209(1)(d) by insertion of the provisohas to be understood to entitle the assessee, for all assessmentsprior to the financial year 2012-2013 to reduce the amount ofincome- tax which would be deductible or collectible, in computationof its advance tax liability – Therefore, prior to the financial year2012-2013, the amount of income tax which is deductible orcollectible at source can be reduced by the assessee whilecalculating advance tax, the Respondent cannot be held to havedefaulted in payment of its advance tax liability – The view adoptedby the High Court is upheld.

Disposing of the appeals, this Court

Conclusion

Disposing of the appeals, this Court

HELD: 1. The relevant provision of the Act which falls forconsideration in this case are in Chapter XVII, which pertains tocollection and recovery of tax. In accordance with Section 190 ofthe Act, tax on income shall be payable by deduction or collectionat source or by advance payment, notwithstanding that the regularassessment in respect of any income is to be made in a laterassessment year. Any person responsible for paying to a non-resident or to a foreign company shall, at the time of the credit ofsuch income, deduct income- tax thereon at the rate inforce,according to Section 195. Section 200 provides that a persondeducting any sum in accordance with the provisions of ChapterXVII shall pay, within the prescribed time, the sum so deductedto the credit of the Central Government. The consequences offailure to deduct tax or pay the tax after deduction are dealt within Section 201 of the Act. [Para 11][759-G-H; 760-A-C]

2. An analysis of clauses (a) and (d) of Section 209 (1) wouldmake it clear that the assessee shall estimate his current incomeand income-tax for payment of advance tax on the basis of rates AB

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Ain force in the financial year. The calculation of the advance tax isto be reduced by the amount of income-tax which would bedeductible or collectible at source during the said financial year.In case of failure to pay advance tax under Section 208 or wherethe advance tax paid by the assessee as per the provision ofSection 210 is less than ninety per cent of the assessed tax, theBassessee shall be liable to pay interest on the amount of shortfallfrom the assessed tax, according to Section 234B of the Act. [Para12][762-E-F]

3. The primary issue is the interpretation of Section 209(1) (d). A proviso was inserted to Section 209 (1) (d) by the FinanceCAct, 2012. The proviso is in the nature of an exception to Section209 (1) (d), as an assessee, who has received any income withoutdeduction or collection of tax, is made liable to pay advance taxin respect of such income. It is relevant to note that theamendment was brought into effect from 1[st] April, 2012 and wasDmade applicable to cases of advance tax payable in the financialyear 2012-13 and thereafter. All the appeals before this courtpertain to the period prior to assessment year 2013-14. [Para 14,16][763-B; 764-B-C]

4. The dispute relating to the interpretation of the wordsE“would be deductible or collectible” in Section 209 (1) (d) of theAct can be resolved by referring to the proviso to Section 209(1) (d), which was inserted by the Finance Act, 2012. The provisomakes it clear that the assessee cannot reduce the amounts ofincome-tax paid to it by the payer without deduction, whilecomputing liability for advance tax. The memorandum explainingFthe provisions of the Finance Bill, 2012 provides necessarycontext that the amendment was warranted due to the judgementsof courts, interpreting Section 209 (1) (d) of the Act to permitcomputation of advance tax by the assessee by reducing theamount of income-tax which is deductible or collectible duringGthe financial year. If the construction of the words “would bedeductible or collectible” as placed by the Revenue is accepted,the amendment made to Section 209 (1) (d) by insertion of theproviso would be meaningless and an exercise in futility. To givethe intended effect to the proviso, Section 209 (1) (d) of the Acthas to be understood to entitle the assessee, for all assessmentsH

prior to the financial year 2012-13, to reduce the amount ofincome- tax which would be deductible or collectible, incomputation of its advance tax liability, notwithstanding the factthat the assessee has received the full amount without deduction.[Para 19][765-E-H; 766-A-B]

5. This does not find force in the contention of the Revenuethat Section 234B should be read in isolation without referenceto the other provisions of Chapter XVII. The liability for paymentof interest as provided in Section 234B is for default in paymentof advance tax. While the definition of “assessed tax” underSection 234B pertains to tax deducted or collected at source,the pre-conditions of Section 234B, viz. liability to pay advancetax and non-payment or short payment of such tax, have to besatisfied, after which interest can be levied taking into accountthe assessed tax. Therefore, Section 209 of the Act which relatesto the computation of advance tax payable by the assessee cannotbe ignored while construing the contents of Section 234B. Asthis Court has already held that prior to the financial year 2012-13, the amount of income-tax which is deductible or collectible atsource can be reduced by the assessee while calculating advancetax, the Respondent cannot be held to have defaulted in paymentof its advance tax liability. This Court upholds the view adoptedin the impugned judgment of the Delhi High Court in Civil AppealNo. 1262 of 2016 aswell as by the Madras High Court in theMadras Fertilizers case, that the Revenue is not remediless andthere are provisions in the Act enabling the Revenue to proceedagainst the payer who has defaulted in deducting tax at source.There is no doubt that the position has changed since the financialyear 2012-13, in view of the proviso to Section 209 (1) (d),pursuant to which if the assessee receives any amount, includingthe tax deductible at source on such amount, the assessee cannotreduce such tax while computing its advance tax liability. [Para20][766-B-F]

6. As this Court had dealt with the submissions relatingto Section 209 and Section 234B of the Act, this Court does notdeem it necessary to deal with other contentions that have beenraised on behalf of the Revenue. Accordingly, the Appeals filedby the Revenue are dismissed. [Para 21, 22][766-G-H]

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AGem Granites v. Commissioner of Income Tax, T.N.(2005) 1 SCC 289 : [2004] 6 Suppl. SCR 332; State ofBihar v. S.K. Roy [1966] Suppl. SCR 259; Ian PeterMorris v. Assistant Commissioner of Income Tax (2020)15 SCC 123 – referred to.

BMotorola Incorporation v. Deputy CIT [2005] 95 ITD269; Commissioner of Income-Tax v. Tide Water MarineInternational Inc [2009] 309 ITR 85; Director ofIncome-Tax (International Taxation) v. NGC NetworkAsia LLC [2009] 313 ITR 187; Commissioner of IncomeTax and Anr. v. Sedco Forex International Drilling Co.CLtd. [2003] 264 ITR 320; Commissioner of Income Tax,Tamil Nadu – I, Madras v. Madras Fertilizers Ltd. [1984]149 ITR 703; Director of Income-tax v. MitsubishiCorporation [2010] 330 ITR 578 – referred to.

Cape Brandy Syndicate v. I.R.C [1921] 2 K.B. 403 –Dreferred to.

CaseLawReference

From the Judgment and Order dated 30.08.2010 of the High CourtFof Delhi at New Delhi in ITA No.301 of 2010.

With

Civil Appeal Nos. 1256, 1268, 1271, 1272, 1301 of 2016, 5734,5735, 4766, 5737 of 2021 and Civil Appeal No.3884 of 2014.GK. M. Natraj, ASG, Nishant Thakker, M. S. Syali, Sr. Advs., DeepakChopra, Harpreet Singh Ajmani, Ashwarya Sinha, Alok K Singh,Ms. Shubhi Sharma, B. V. Balaram Das, Neeraj Shekhar, KumarShashank, Manish Pushkarna, Sughosh Subramanium, Ms. SwarupmaChaturvedi, Zoheb Hossain, Udai Khanna, Raj Bahadur Yadav,Mrs. Anil Katiyar, Anil Kumar, Kamal Mohan Gupta, Aarohi Bhalla,HMs. Sujata Kurdukar, Satyen Sethi, Sachit Jolly, Anish Kapur, Rohit Garg,

Ms. Disha Jham, Kunal Dutt, Ms. B. Vijayalakshmi Menon, Ms. MahuaKalra, Niraj Sheth, Rustom B. Hathikhanawala, Udit, Ms. Kavita Jha,Siddharth Vasudev, T. V. S. Raghavendra Sreyas, Salil Kapoor, SumitLalchandani, Ms. Ananya Kapoor, Sanat Kapoor, Ms. Souma Singh,Ms. Payal Awarup, Praveen Swarup, Ms. Jasmine Amsadvalla, KishoreKunal, Manish Rastogi, Mayank Nagi, Tarun Singh, Pulkit Verma,Rameshwar Prasad Goyal, H. Raghavendra Rao, Advs. for the appearingparties.

The Judgment of the Court was delivered by

L. NAGESWARA RAO, J.

1. The conundrum before this Court concerns the liability of anassessee to pay interest on short payment of advance tax due to defaultof the payer in not deducting tax at the time of payment, under theprovisions of the Income-tax Act, 1961 (hereinafter referred to as the“Act”). The facts giving rise to Civil Appeal No. 1262 of 2016 are referredto herein, for the sake of convenience.

2. Notice was issued to the Respondent-Assessee under Section143 (2) of the Act on 12.10.2004. The Assessing Officer passed anassessment order on 24.03.2006 for the assessment years 1998-99 to2004-05. The Assessee is a non-resident company incorporated in Japan,with operations in India. In spite of resistance from the Assessee, it washeld by the Department that a portion of the Assessee’s income wasattributable to its activities in India and was therefore liable to be taxedin India, under Articles 4, 5 and 6 of the Double Taxation AvoidanceAgreement between India and Japan, read with the provisions of theAct. The Respondent-Assessee filed appeals against the assessmentorder dated 24.03.2006 before the Commissioner of Income-Tax(Appeals) (hereinafter referred to as the “CIT”) only with respect tolevy of interest under Section 234B of the Act. The CIT dismissed theappeals by a common order dated 10.02.2009, aggrieved by which theRespondent filed appeals before the Income Tax Appellate Tribunal(hereinafter referred to as the “ITAT”). The ITAT allowed the appealsby an order dated 23.06.2009 and held that the Respondent was notliable for payment of interest under Section 234B, when tax at sourcewas deductible from payment made to the Respondent. The judgementof the ITAT was challenged by the Appellant before the High Court. On30.08.2010, the High Court dismissed the appeals and upheld thejudgement of the ITAT. Dissatisfied with the judgements of the ITAT

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Aand the High Court, the Appellant has preferred Civil Appeal No. 1262of 2016 before this Court.

3. The Assessing Officer examined the structure of theRespondent-Assessee which was engaged in carrying out tradingactivities in carbon crude oil, LPG, ferrous products, industrial machinery,Bmineral, non-ferrous metal and products, textiles, automobiles etc. throughits liaison offices in India. The Assessing Officer rejected the contentionof the Respondent that it had no income which was taxable in India andpassed the assessment order dated 24.03.2006, determining the incomeattributable to Indian operations and charging interest as per the provisionsof the Act. The assessment order was challenged before the CIT,Crestricted to the imposition of interest under Section 234B of the Act.

4. The appeals were dismissed by the CIT as not beingmaintainable. The appeals filed by the Respondent-Assessee againstthe order of the CIT were disposed of by the ITAT on 16.11.2007 byremanding the appeals for the assessment years 1998-99 to 2004-05 toDthe CIT to be decided on merits. On remand of the appeals for theaforesaid assessment years, the CIT framed two questions forconsideration, which are as below:

(a) whether the Appellant is liable to pay interest under Section234B of the Act, in case tax which was deductible at sourceEhas not been deducted; and (b) whether in the facts and circumstances of the case therewas any tax deductible at source from the receipts of theappellant so as to apply the ratio of the ITAT decision inappellant’s own case for assessment year 2005-06.F

5. The CIT took note of the order passed by the ITAT on08.08.2008 in respect of the assessment year 2005-06 in case of theRespondent. In the said order, the ITAT had followed an earlier orderpassed in Motorola Incorporation v. Deputy CIT[1], in which the assesseewas found to be not liable for payment of advance tax and for consequentGinterest under Section 234B, as the entire income received by the assesseewas such from which tax was deductible at source. However, whiledeciding the appeals filed by the Respondent for the assessment years1998-99 to 2004-05 on the merits of the issue, the CIT came to theconclusion, independent of the ITAT’s order dated 08.08.2008, that the Respondent is liable to pay advance tax in terms of Section 191 of theAct, in case of no deduction by the payer where tax is deductible atsource. Consequently, the Respondent was held to be liable to pay interestunder Section 234B of the Act for default in payment of advance tax.The CIT, therefore, dismissed the Respondent’s appeals for assessmentyears 1998-99 to 2004-05.

6. In the appeals filed by the Respondent against the order dated10.02.2009 of the CIT, the ITAT held that the issue was covered by itsearlier decision dated 08.08.2008 in the case of the Respondent for theassessment year 2005-06, the decision of the special bench of the ITATin the case of Motorola Incorporation (supra)as well as decisions ofthe Uttarakhand High Court and the Bombay High Court. Reliance wasplaced by the ITAT on a judgement of the Uttarakhand High Court inCommissioner of Income-Tax v. Tide Water Marine InternationalInc[2], whereby it was held that an individual assessee cannot be heldliable to pay interest under Section 234B for default of the company,who had engaged or employed the assessee, to deduct tax at sourcewhile making payments to the assessee. In Director of Income-Tax(International Taxation) v. NGC Network Asia LLC[3], the BombayHigh Court held that on failure of the payer to deduct tax at source, nointerest can be imposed on the payee-assessee under Section 234B.The ITAT observed that in all the seven years under consideration, taxwas liable to be deducted at source from payments made to theRespondent-Assessee and it had not been demonstrated that theRespondent had a liability to pay advance tax, even after deduction oftaxes at source. Therefore, the ITAT concluded that the Respondentwas not liable for payment of interest, as the conditions of Section 234Bwere not attracted. The Respondent’s appeals were allowed.

7. The question of law framed by the High Court is whether thelevy of interest under Section 234B of the Act for short deduction of taxat source is mandatory and is leviable automatically. The High Courtreferred to a judgement of the Uttarakhand High Court in the case ofCommissioner of Income Tax and Anr. v. Sedco Forex InternationalDrilling Co. Ltd.[4], judgement of the Bombay High Court in the NGCNetwork Asia LLC case (supra) and a judgement of the Madras HighCourt in Commissioner of Income Tax, Tamil Nadu – I, Madras v.

2 [2009] 309 ITR 85

3 [2009] 313 ITR 187

4 [2003] 264 ITR 320

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AMadras Fertilizers Ltd.[5], to uphold the submission of the Respondent-Assessee that the tax deductible at source should be excluded fromconsideration while the estimate of income for the payment of advancetax is submitted. On a scrutiny of the relevant provisions of the Act, theHigh Court observed that interest under Section 234B of the Act cannotbe imposed on an assessee for failure on the part of the payer in deductingBtax at source, when Section 201 provides for consequences of failure todeduct tax at source or failure to pay the tax after making deduction.

8. Mr. Zoheb Hossain, learned counsel appearing for the Revenue,argued that the obligation of the assessee to pay advance tax isindependent of the obligation of the payer to deduct tax at source andCsuch obligation of the assessee continues under Sections 190 and 191 ofthe Act, even in case of non-deduction at source by the payer. Hesubmitted that Section 234B is compensatory in nature as the interestcomponent is meant to compensate the Government for the loss accruedin terms of the tax which became due and was not paid. He contendedDthat when there are two modes of recovery of tax, i.e., one from theassessee and other from the payer who had an obligation to deduct tax,the choice of the Revenue regarding the mode of recovery cannot berestricted. By referring to the relevant provisions of the Act, Mr. Hossainargued that the payment of advance tax is the liability of the assesseeand any default or shortfall in such payment from the assessed taxEcontinues to be a liability of the assessee.

9. While construing Section 209 (1) (d) of the Act, he submittedthat the High Court committed a serious error in its interpretation of thephrase “deductible or collectible at source”. According to him, thephrase “deductible or collectible at source” would not take into itsFfold tax which was not deducted within the statutory time limit and was,in fact, paid to the assessee without deduction. To support his argument,he relied on Explanation 1 to Section 234B (1), which states the definitionof “assessed tax” to be tax on the total income reduced by inter alia“any tax deducted or collected at source”. For the purposes of levy ofGinterest under Section 234B, the non-payment or shortfall in payment ofadvance tax is measured against “assessed tax”, which takes into accounttax which was actually deducted or collected at source. He furthersubmitted that Section 234B is a standalone provision and the said sectionbeing a complete code in itself, the words used in Section 209 (1) (d) of H5 [1984] 149 ITR 703

the Act cannot be imported into Section 234B. Even though the Revenuemay proceed against the assessee as well as the payer for collection ofthe unpaid tax, along with interest, the Revenue would refund the excessamounts collected to either of the parties, most likely to the payee, onceit is successful in recovering the amounts due.

10. Mr. M.S. Syali, learned Senior Counsel appearing for theRespondent-Assessee, submitted that Section 234B of the Act cannotbe read in isolation but should be construed in light of Section 209 of theAct. Relying upon a judgement of this Court in Ian Peter Morris v.Assistant Commissioner of Income Tax[6], he submitted that theprovisions pertaining to payment of advance tax and levy of interest fordefault in payment of advance tax would not come into play once it wasdetermined that tax had to be deducted at source. He sought supportfrom the judgements of the Uttarakhand High Court in the Sedco Forexcase (supra), the Bombay High Court in the NGC Network Asia LLCcase (supra) and the Madras High Court in the Madras Fertilizerscase (supra) to justify the findings recorded in the impugned judgement.He argued that deduction of tax at source and payment of tax are twodifferent components of tax-recovery under the Act. According to him,the assessee cannot be penalized for default on the part of the payer.The Act provides that the payer can be declared as an assessee in defaultfor his failure to deduct tax at source and proceedings can be initiatedagainst the payer for recovery, apart from invoking the penal provisionsprovided under the Act. While it was agreed by Mr. Syali that the Actimposes an obligation on the Assessee to pay advance tax, it wasemphasised that for the levy of interest under Section 234B, pre-conditionsas specified in the provision had to be met. He contended that an imminentliability to pay advance tax and a subsequent default of such paymenthad to be established, to attract the levy of interest under Section 234B.In the present case, these pre-conditions for levy of interest under Section234B had not been satisfied, as Section 209 (1) (d) had been compliedwith to compute that the Respondent-Assessee had no advance taxliability.

11. The relevant provision of the Act which falls for considerationin this case are in Chapter XVII, which pertains to collection and recoveryof tax. In accordance with Section 190 of the Act, tax on income shallbe payable by deduction or collection at source or by advance payment, 6 (2020) 15 SCC 123

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Anotwithstanding that the regular assessment in respect of any income isto be made in a later assessment year. Any person responsible for payingto a non-resident or to a foreign company shall, at the time of the creditof such income, deduct income-tax thereon at the rate in force, accordingto Section 195. Section 200 provides that a person deducting any sum inaccordance with the provisions of Chapter XVII shall pay, within theBprescribed time, the sum so deducted to the credit of the CentralGovernment. The consequences of failure to deduct tax or pay the taxafter deduction are dealt with in Section 201 of the Act. Section 209(1)of the Act and Section 234B, which fall for consideration in this case, are reproduced below as they stood prior to the Finance Act, 2012:C“209.Computation of advance tax.—

(1) The amount of advance tax payable by an assessee in thefinancial year shall, subject to the provisions of sub- sections(2) and (3), be computed as follows, namely:- D(a) where the calculation is made by the assessee for thepurposes of payment of advance tax under sub-section (1) orsub-section (2) or sub-section (5) or sub-section (6) of section210, he shall first estimate his current income and income-taxthereon shall be calculated at the rates in force in the financialyear;E

(b) where the calculation is made by the Assessing Officerfor the purpose of making an order under sub-section (3) ofsection 210, the total income of the latest previous year inrespect of which the assessee has been assessed by way ofregular assessment or the total income returned by the assesseeFin any return of income furnished by him for any subsequentprevious year, whichever is higher, shall be taken and income-tax thereon shall be calculated at the rates in force in thefinancial year;

(c) where the calculation is made by the Assessing OfficerGfor the purpose of making an amended order under sub-section (4) of section 210, the total income declared in thereturn furnished by the assessee for the later previous year,or, as the case may be, the total income in respect of whichthe regular assessment, referred to in that sub-section has H

been made, shall be taken and income-tax thereon shall becalculated 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 ofincome- tax which would be deductible or collectible at sourceduring the said financial year under any provision of this Actfrom any income (as computed before allowing any deductionsadmissible under this Act) which has been taken into accountin computing the current income or, as the case may be, thetotal income aforesaid; and the amount of income-tax as soreduced shall be the advance tax payable.

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“234B. Interest for defaults in payment of advance tax.—

(1) Subject to the other provisions of this section, where, inany financial year, an assessee who is liable to pay advancetax under section 208 has failed to pay such tax or, where theadvance tax paid by such assessee under the provisions ofsection 210 is less than ninety per cent. of the assessed tax,the assessee shall be liable to pay simple interest at the rateof one per cent. for every month or part of a month comprisedin the period from the 1st day of April next following suchfinancial year to the date of determination of total incomeunder sub-section (1) of section 143 and where a regularassessment is made, to the date of such regular assessment,on an amount equal to the assessed tax or, as the case maybe, on the amount by which the advance tax paid as aforesaidfalls short of the assessed tax.

Explanation 1.—In this section, “assessed tax” means the taxon the total income determined under sub-section (1) ofsection 143 and where a regular assessment is made, the taxon the total income determined under such regular assessmentas reduced by the amount of,—

(i) any tax deducted or collected at source in accordancewith the provisions of Chapter XVII on any income which issubject to such deduction or collection and which is takeninto account in computing such total income; A

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A(ii) any relief of tax allowed under section 90 on account oftax paid in a country outside India;

(iii) any relief of tax allowed under section 90A on accountof tax paid in a specified territory outside India referred to inthat section; B

(iv) any deduction, from the Indian income-tax payable,allowed under section 91, on account of tax paid in a countryoutside India; and

(v) any tax credit allowed to be set off in accordance with theprovisions of section 115JAA.

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Explanation 2.—Where, in relation to an assessment year, anassessment is made for the first time under section 147 orsection 153A, the assessment so made shall be regarded as aregular assessment for the purposes of this section.

DExplanation 3.—In Explanation 1 and in sub-section (3), “taxon the total income determined under sub-section (1) ofsection 143” shall not include the additional income-tax, ifany, payable under section 143.”

12. An analysis of clauses (a) and (d) of Section 209 (1) would make it clear that the assessee shall estimate his current income andEincome-tax for payment of advance tax on the basis of rates in force inthe financial year. The calculation of the advance tax is to be reduced bythe amount of income-tax which would be deductible or collectible atsource during the said financial year. In case of failure to pay advancetax under Section 208 or where the advance tax paid by the assessee asFper the provision of Section 210 is less than ninety per cent of the assessedtax, the assessee shall be liable to pay interest on the amount of shortfallfrom the assessed tax, according to Section 234B of the Act.

13. The main point argued on behalf of the Revenue relates to theinterpretation of Section 209 (1) (d) of the Act, with stress on the wordsG“deductible or collectible at source”. The contention of the Revenueis based on the fact that an assessee, who has received any paymentwithout the payer deducting tax on such payment, cannot be permittedto escape liability in payment of advance tax and consequent interest forsuch non-payment under Sections 191 and 234B of the Act. It wascontended that as all the Assesses in the matters before us were fullyH

aware of the receipt of amounts without deduction of taxes at source,they should not be allowed to then rely on Section 201 of the Act toreduce their advance tax liability. In this connection, it was submitted bythe Revenue that the expression “would be deductible or collectible”would not include amounts, which had not been deducted at the time ofpayment and, in fact, were paid to the assessee by the payer.

14. The primary issue before us pertains to the interpretation ofSection 209 (1) (d). A proviso was inserted to Section 209 (1) (d) by theFinance Act, 2012, which reads as under:

“Provided that for computing liability for advance tax, income-tax calculated under clause (a) or clause (b) or clause (c)shall not, in each case, be reduced by the aforesaid amountof income-tax which would be deductible or collectible atsource during the said financial year under any provision ofthis Act from any income, if the person responsible fordeducting tax has paid or credited such income withoutdeduction of tax or it has been received or debited by theperson responsible for collecting tax without collection ofsuch tax.”

15. Notes to the memorandum explaining the provisions in theFinance Bill, 2012 are as under:

“-Liability to pay advance tax in case of nondeduction of taxUnder the existing provisions of section 209 of the Income-tax Act, the amount of advance tax payable is computed byreducing the amount of income-tax which would be deductibleor collectible during the financial year from income-tax onestimated income. Therefore, in cases where the assesseereceives or pays any amount (on which the tax was deductibleor collectible) without deduction or collection of tax, it hasbeen held by courts that he is not liable to pay advance tax tothe extent the tax is deductible or collectible from such amount.

In order to make an assessee liable for payment of advancetax in respect of income which has been received or paidwithout deduction or collection of tax, it is proposed to amendthe aforesaid section to provide that where a person hasreceived any income without deduction or collection of tax,he shall be liable to pay advance tax in respect of such income.

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AThis amendment will take effect from the 1st April, 2012 andwould, accordingly, apply in relation to advance tax payablefor the financial year 2012-13 and subsequent financialyears.”

16. The proviso is in the nature of an exception to Section 209 (1)B(d), as an assessee, who has received any income without deduction orcollection of tax, is made liable to pay advance tax in respect of suchincome. It is relevant to note that the amendment was brought into effectfrom 1[st] April, 2012 and was made applicable to cases of advance taxpayable in the financial year 2012-13 and thereafter. All the appealsbefore us pertain to the period prior to assessment year 2013-14.C17. In Cape Brandy Syndicate v. I.R.C.[7], Lord Sterndale M.R.had said:

“I think it is clearly established in Attorney General v.Clarkson[8 ]that subsequent legislation may be looked at inDorder to see the proper construction to be put upon an earlierAct where that earlier Act is ambiguous. I quite agree thatsubsequent legislation if it proceeded on an erroneousconstruction of previous legislation cannot alter that previouslegislation; but if there be any ambiguity in the earlierlegislation, then the subsequent legislation may fix the properEinterpretation which is to be put upon the earlier Act”.

18. This Court in State of Bihar v. S.K. Roy[9 ]had upheld the well-recognised principle that in dealing with matters of construction,subsequent legislation may be looked at in order to see what is the properinterpretation to be put upon the earlier Act, where the earlier Act isFobscure or ambiguous or readily capable of more than one interpretation.While construing sub-section 2(b) of Section 80-HHC of the Act, as itstood prior to its amendment and thereafter, this Court in Gem Granitesv. Commissioner of Income Tax, T.N.[10 ]held as follows:

“13. The introduction of the phrase “other than” in clauseG(b) of sub-section (2) of Section 80-HHC in 1991, in ouropinion, indicates the carving out of a specific class from the 7 [1921] 2 K.B. 403

8 [1900] 1 Q.B. 156, 163, 164

9 (1966) Supp. SCR 259H10 (2005) 1 SCC 289

generic class of “minerals and ores”. This means that were itnot for the exception, the specified processed minerals andores would have been covered by the words “minerals andores”. It also indicates that only the minerals and oressubjected to the process of cutting and polishing would beentitled to the benefit of Section 80-HHC meaning therebythat all other species of processed minerals and ores wouldcontinue to be covered by the general exclusion applicableto the generic class. The 1991 amendment to Section 80-HHCthus conclusively demonstrates that the words “minerals andores” must be construed widely and in an unrestricted manner.As has been held in Municipal Committee v. Manilal [(1967)2 SCR 100 : AIR 1967 SC 1201] and Pappu Sweets andBiscuits v. Commr. of Trade Tax [(1998) 7 SCC 228]subsequent legislation may be looked into to fix the properinterpretation to be put on the statutory provisions as theystood earlier. The benefit of Section 80-HHC has beenextended by the amendment to a specific kind of mineral andwas introduced for the first time in 1991. If we were to holdthat the word “minerals” in sub-section (2)(b) never includedprocessed minerals then the 1991 amendment exceptingprocessed minerals from the exclusionary effect of the sub-section would be rendered meaningless and an exercise infutility.”

19. The dispute relating to the interpretation of the words “wouldbe deductible or collectible” in Section 209 (1) (d) of the Act can beresolved by referring to the proviso to Section 209 (1) (d), which wasinserted by the Finance Act, 2012. The proviso makes it clear that theassessee cannot reduce the amounts of income-tax paid to it by thepayer without deduction, while computing liability for advance tax. Thememorandum explaining the provisions of the Finance Bill, 2012 providesnecessary context that the amendment was warranted due to thejudgements of courts, interpreting Section 209 (1) (d) of the Act to permitcomputation of advance tax by the assessee by reducing the amount ofincome-tax which is deductible or collectible during the financial year.If the construction of the words “would be deductible or collectible”as placed by the Revenue is accepted, the amendment made to Section209 (1) (d) by insertion of the proviso would be meaningless and anexercise in futility. To give the intended effect to the proviso, Section A

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A209 (1) (d) of the Act has to be understood to entitle the assessee, for allassessments prior to the financial year 2012-13, to reduce the amount ofincome-tax which would be deductible or collectible, in computation ofits advance tax liability, notwithstanding the fact that the assessee hasreceived the full amount without deduction.

B20. We do not find force in the contention of the Revenue thatSection 234B should be read in isolation without reference to the otherprovisions of Chapter XVII. The liability for payment of interest asprovided in Section 234B is for default in payment of advance tax. Whilethe definition of “assessed tax” under Section 234B pertains to taxdeducted or collected at source, the pre-conditions of Section 234B, viz.Cliability to pay advance tax and non-payment or short payment of suchtax, have to be satisfied, after which interest can be levied taking intoaccount the assessed tax. Therefore, Section 209 of the Act which relatesto the computation of advance tax payable by the assessee cannot beignored while construing the contents of Section 234B. As we haveDalready held that prior to the financial year 2012-13, the amount of income-tax which is deductible or collectible at source can be reduced by theassessee while calculating advance tax, the Respondent cannot be heldto have defaulted in payment of its advance tax liability. We uphold theview adopted in the impugned judgement of the Delhi High Court in CivilAppeal No. 1262 of 2016 as well as by the Madras High Court in theEMadras Fertilizers case (supra), that the Revenue is not remedilessand there are provisions in the Act enabling the Revenue to proceedagainst the payer who has defaulted in deducting tax at source. There isno doubt that the position has changed since the financial year 2012-13,in view of the proviso to Section 209 (1) (d), pursuant to which if the Fassessee receives any amount, including the tax deductible at source onsuch amount, the assessee cannot reduce such tax while computing itsadvance tax liability.

21. As we have dealt with the submissions relating to Section 209and Section 234B of the Act, we do not deem it necessary to deal withGother contentions that have been raised on behalf of the Revenue. Wehave not dealt with the facts of each case before us, in view of ourinterpretation of the provisions of the Act germane to the question oflaw herein.

22. Accordingly, the Appeals filed by the Revenue are dismissed.

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-Civil Appeal Nos. 13381341 of 2016, Civil Appeal No.1323of 2016, Civil Appeal No. 1324 of 2016, Civil Appeal No. 1325 of-2016, Civil Appeal Nos.13261331 of 2016, Civil Appeal No.1322-of 2016, Civil Appeal No.1342 of 2016, Civil Appeal Nos.1295-1299 of 2016, Civil Appeal Nos. 13031307 of 2016, Civil AppealNos.1311-1312 of 2016, Civil Appeal No. 1314 of 2016 and CivilAppeal No.1310 of 2016

23. Assessment orders were passed for the assessment years2004-05 to 2007-08 in respect of Alcatel Lucent USA, Inc. and for theassessment years 2004-05 to 2008-09 in respect of Alcatel Lucent WorldServices Inc. The assessees were inter alia directed to pay interestunder Sections 234A, 234B and 234C of the Act. Dissatisfied with theassessment orders, the assessees filed appeals which were dismissedby the CIT. The ITAT held that the assessees were not liable to payinterest under Section 234B of the Act, by placing reliance on a judgementof the Delhi High Court in Director of Income-tax v. MitsubishiCorporation[11]. Appeals filed by the Revenue under Section 260A of theAct challenging the order of the ITAT passed on 21.10.2011 was allowedby a Division Bench of the Delhi High Court by a judgement dated07.11.2013, on the ground that the assessees after initially denying thetax liability cannot later be permitted to shift the responsibility to theIndian payers for not deducting tax at source. It was further observedby the High Court that it was difficult to imagine that the payers wouldhave failed to deduct tax at source except on being prompted by theassessees. The High Court, accordingly, held that the assessees wereliable to pay interest in terms of Section 234B of the Act.

24. The subject-matter of the aforementioned Appeals is thejudgement of the Division Bench of the High Court dated 07.11.2013 aswell as a subsequent decision of the Delhi High Court dated 08.09.2014,which ruled on the issue of interest under Section 234B in favour of theRevenue, relying on the Division Bench judgement dated 07.11.2013.The point that arises for consideration in these Appeals is covered byour judgement in Civil Appeal No.1262 of 2016.

25. Accordingly, these Civil Appeals are allowed.

Ankit Gyan

Appeals disposed of.

11 [2010] 330 ITR 578

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