In DIT Vs Mitsubishi Corporation [CIVIL APPEAL NO.1262 OF 2016 dated September 17, 2021],
The issue before the Hon’ble Supreme Court was whether there is a liability on an assessee to pay interest on short payment of advance tax due to default of the payer in not deducting tax at the time of payment, under the provision of the Income-tax Act, 1961(“Act”).
The Hon’ble High Court of Delhi on the issue had held that tax deductible at source should be excluded from consideration while estimation of income for the payment of advance of tax. It further observed that interest under section 234B of the Act cannot be imposed on an assessee for failure on the part of the payer in deducting tax at source, when section 201of the Act provides for consequences of failure to deduct tax at source or failure to pay the tax after making deduction.
However, the Hon’ble Supreme Court, held that section 234B of the Act cannot be read in isolation and must be read along with section 209(1) of the Act. Section 209(1)(d) of the Act, specifies that while calculating the advance tax, an amount of income-tax which would be deductible or collectible at source during the said financial year should be reduced.
Further the proviso to section 209 of the Act which was introduced by the Finance Act, 2012 specifies that in case the person responsible for deducting tax at source has paid or credited the entire sums of money without deduction of tax, the tax which is otherwise deductible on such amount cannot be arbitrarily reduced while computing the advance tax liability. However, this proviso was effective from the 1st April, 2012 and not applicable to the assessee as this case pertained to A.Y 1998-99 to 2004-05.
Since, the case of the assessee pertains to a period prior to 1st April, 2012, therefore, it cannot be held that assessee defaulted in the payment of its advance tax and the court dismissed the appeal filed by the revenue.
