The Supreme Court has held that the amount of income tax which is deductible or collectible at source can be reduced by the assessee while calculating advance tax before 2012-2013 Financial Year.
Therefore, the assessee cannot be held liable for interest under Section 234B of Income Tax for short-fall of advance tax which arises due to reducing the income tax deductible or collectible at source from the advance tax. In other words, the assessee cannot be held liable to pay interest on the short-payment of advance tax due to the default of the payer in deducting TDS. However, the Court also noted that this scenario changed after the amendment made to the Income Tax Act 1961 by the Finance Act 2012. After the said amendment, a proviso was added to Section 209(1)(d) of the Income Tax Act to provide that where a person has received any income without deduction or collection of tax, he shall be liable to pay advance tax in respect of such income.
A bench comprising Justices L Nageswara Rao and Aniruddha Bose pronounced the judgment in a batch of appeals filed by the Director of Income Tax, New Delhi against the Mitsubishi Corporation. At the outset, the Court observed that the conundrum before it concerns the liability of 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 provisions of the Income-tax Act, 1961
Referring to Section 209 of the Act, the Court noted that the calculation of the advance tax is to be reduced by the amount of income-tax which would be deductible or collectible at source during the said financial year. Referring to the proviso introduced by the 2012 amendment, the judgment authored by Justice Rao observed:
"...the proviso makes it clear that the assessee cannot reduce the amounts of income-tax paid to it by the payer without deduction, while computing liability for advance tax. The memorandum explaining the provisions of the Finance Bill, 2012 provides necessary context that the amendment was warranted due to the judgements of courts, interpreting Section 209 (1) (d) of the Act to permit computation of advance tax by the assessee by reducing the amount of income-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 Section 209 (1) (d) by insertion of the proviso would be meaningless and an exercise in futility. To give the intended effect to the proviso, Section 209 (1) (d) of the Act has to be understood to entitle the assessee, for all assessments prior to the financial year 2012-13, to reduce the amount of income- tax which would be deductible or collectible, in computation of its advance tax liability, notwithstanding the fact that the assessee has received the full amount without deduction".
There is no 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 assessee receives any amount, including the tax deductible at source on such amount, the assessee cannot reduce such tax while computing its advance tax liability".
Case Title: Director of Income Tax, New Delhi v. M/s Mitsubishi Corporation