The Delhi Bench of the Income Tax Appellate Tribunal ( ITAT ) in the case of Daikin Industries Ltd. v. ACIT partly allowing the appeal held that unless the payer actually deducts tax at source, the liability to pay advance tax and interest will continue in the hands of the payee.
The issues in the present case are against treating M/s Daikin Air-conditioning India Pvt. Ltd. (DAIPL) as the dependent agent Permanent Establishment (PE) of the Daikin Industries Ltd. i.e. the assessee and the second one is against the attribution of income to the PE by the AO. Another ground for appeal is against the charging of interest u/s 234B of the Act.
The factual matrix of the case is that the assessee is engaged in the development, manufacture, assembly and supply of air-conditioning and refrigeration equipment incorporated in and tax-resident of Japan. DAIPL is the wholly owned subsidiary of the assessee. During the assessment proceedings, the Assessing Officer (AO) held DAIPL to be a dependent agent PE of the assessee in India and attributed income to it.
The assessee’s claim was that it was directly negotiating and finalizing prices, payment terms, delivery schedules and other contractual terms with the customers in India.
The Tribunal was hence of the view that since the assessee has failed to establish by presenting appropriate evidences, the inescapable conclusion which follows is that the entire activity starting from identifying customers, approaching them, negotiating prices with them and finalization of products and prices were done by DAIPL in India.
Further, on the issue of determination of the quantum of income attributable to the PE, the Tribunal remitted the matter to the file of the AO to determine the amount attributable to the PE in India.
With regard to the issue on determination of interest u/s 234B of the Act, it was held that there will be no liability on the assessee to pay interest u/s 234B since the entire income was liable for deduction of tax at source and the tax was not deducted at source in the proper manner. It was held relying upon a number of case laws that when a duty is cast on the payer to deduct tax at source, on the failure of the payer to do so, no interest can be imposed on the payee assessee. Therefore, unless the payer actually deducts tax at source, the liability to pay advance tax and interest will continue in the hands of the payee.
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