The Income Tax Appellate Tribunal (ITAT), Delhi Bench ruled that the interest payable under Section 234C is applicable on default in payment of advance tax installment on returned income, and not on assessed income.
The assessee Company, Sumitomo Corporation is incorporated as per the rules of Japan, and is engaged in the business of supply of equipment for various projects and also executed erection and commissioning of equipment at the various project sites in India. The assessee filed its return of income in India thereby declaring an income. Subsequently, the assessee revised return. In the revised return of income, the assessee offered Rs.23,71,30,394/- being supervisory fees which had not been earlier included on the ground that it has no supervisory PE in India and the PE received being an integral part of the supply is not taxable in India.
The Delhi High Court vide its order in Assessment Year 1992-93 to 1996-97 accepted the contention of the assessee and held that the assessee did not have any PE for supervisory activities and income is taxable under Article 12(2) of the India- Japan DTAA. In such circumstances to maintain this and to avoid unending litigation, the assessee company offered the said sum of Rs.23.71 crore to tax under Article 12(2) of the DTAA. The return was selected for scrutiny assessment. The Assessing Officer issued a draft assessment order under the provisions of Section 144C of the Income Tax Act thereby proposing to make a variation to the returned income of the assessee.
The assessee contended that since the assessee had paid due taxes on its income, and hence no interest under section 234B of the Act is payable. Further, in the case due relief is granted based on merits of the case as well as allowing set- off against brought forward business loss, long term capital loss, and full TDS credit, there will not be any liability of tax and consequential interest under section 234B of the Act.
The assessee submitted however if it is found that tax exceeded the amount paid by the assessee during the FY including TDS, then only interest could have been levied. The Assessing Officer be directed to verify the facts and be redirected to compute the interest payable under section 234B of the Act.
The assessee urged that interest under section 234C of the Act is levied only when the assessee fails to deposit the tax based upon its return of income. As per the return of income tax payable aggregated to Rs. 6,92,78,828 which was duly discharged by TDS. It is not understood on what basis the Assessing Officer had levied the tax u/s 234C of the Act of Rs. 76,23,106/- which was not levied. Further, in the case due relief is granted based on merits of the case as well as allowing set-off against brought forward business loss, long term capital loss, and full TDS credit, there will not be any liability of tax and consequential interest under section 234C of the Act even on assessed income. Thus, the Assessing Officer has erred levying interest under section 234C on tax payable on the assessed income. It is prayed that the Assessing Officer be directed to delete the levy of interest under section 234C of the Act.
The coram of Judicial Member Suchitra Kamble and Accountant Member R.K.Panda ruled that the interest under Section 234C is leviable on default in payment of advance tax installment on returned income, but in the present case, it is done on assessed income. Thus, when there is no default on the part of the assessee in payment of advance tax as per returned income, such interest levied is not justified by the Assessing Officer. The interest u/s 234C of the Act is levied only when the assessee fails to deposit the tax based upon its return of income.
However, the court said that in the present case, as per the return of income tax payable aggregated to Rs. 6,92,78,828 which was duly discharged by TDS.
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