INCOME TAX ACT, 1961

Section 234B

Interest under section 234B - Non-residents - Tax deductable but not deducted -

Assessee was a foreign company engaged in manufacturing of semi-conductor components. It received a sum towards EDA charges. AO by an Order, computed the taxable income at Rs. 30,11,00,040 and tax at 15% was levied. TDS was deducted and in respect of short fall in payment of advance tax, AO levied a sum as interest under section 234B. Thereafter, an order of rectification was passed under section 154 as there was a mistake regarding the returned income and computation of TDS and consequential interest. CIT(A) held that computation of interest under section 234B was required to be re computed and the matter was remitted. Held: Section 195(1) provides for deduction of Tax at Source by any person responsible for paying to a foreign company any other sum chargeable under the provisions of the Act at the time of credit of such income to the account of payee. Assessee was entitled to, in its computation of its advance tax liability to take a tax credit of the amount, which was deductible or collectible irrespective of fact whether the amount was actually deducted or collected. Assessee was entitled to tax credit of an amount that was deductible even if it was not actually deducted. In the light of legal position as it existed for the relevant Assessment years prior to insertion of proviso to section 209(1), it was clear that if payer who was required to make payments to non resident had defaulted in deducting the tax at source from such payments, non resident was not absolved from payment of taxes thereupon and non resident was liable to pay tax and the question of payment of advance tax would not arise. Therefore, it would not be permissible for the revenue to charge any interest under section 243B.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2005-06

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