1 IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 14TH DAY OF SEPTEMBER 2020 PRESENT HON BLE MR. JUSTICE ALOK ARADHE AND HON BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.171 OF 2011 C/W I.T.A. NO.34 OF 2012 I.T.A. NO.171 OF 2011 BETWEEN: 1. DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION RASHTROTHANA BHAVAN NRUPATHUNGA ROAD, BANGALORE. 2. DY. DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION CIRCLE-II(I), RASHTROTHANA BHAVAN NRUPATHUNGA ROAD, BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) AND: M/S. TEXAS INSTRUMENTS INCORPORATED C/O. BMR & ASSOCIATES 2/1, EMBASSY ICON ANNEXE INFANTRY ROAD, BANGALORE-560001. ... RESPONDENT (BY SRI. T. SURYANARAYANA, ADV.) --- 2 THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 28.10.2010 PASSED IN ITA NO.785/BANG/2010 FOR ASSESSMENT YEAR 2005-06, PRAYING THAT THIS HON BLE COURT MAY BE PLEASED TO: (I) FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (I) ALLOW APPEAL AND SET ASIDE ORDERS PASSED BY ITAT, BANGALORE IN ITA NO.785/BANG/2010 DATED 28-10-2010 AND CONFIRM ORDER OF APPELLATE COMMISSIONER CONFIRMING ORDER PASSED BY DEPUTY DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-II(I), BANGALORE IN INTEREST OF JUSTICE AND EQUITY. I.T.A. NO.34 OF 2012 BETWEEN: 1. DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION RASHTROTHANA BHAVAN NRUPATHUNGA ROAD, BANGALORE. 2. DY. DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION CIRCLE-II(I), RASHTROTHANA BHAVAN NRUPATHUNGA ROAD, BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) AND: M/S. TEXAS INSTRUMENTS INCORPORATED C/O. BMR & ASSOCIATES EMBASSY ICON ANNEXE 2/1 INFANTRY ROAD, BANGALORE-560001. ... RESPONDENT (BY SRI. T. SURYANARAYANA, ADV.) --- THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 29.09.2011 PASSED IN ITA NO.1418/BANG/2010 FOR ASSESSMENT YEAR 2006-07, PRAYING THAT THIS HON BLE COURT MAY BE PLEASED TO: 3 (I) FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (I) ALLOW APPEAL AND SET ASIDE ORDER DATED 29.09.2011 PASSED BY ITAT, BANGALORE IN ITA NO.1418/BANG/2010 AND CONFIRM ORDER PASSED BY DEPUTY DIRECTOR OF INCOME TAX OFFICER, INTERNATIONAL TAXATION, CIRCLE-11(1), BANGALORE, IN INTEREST OF JUSTICE AND EQUITY. THESE ITAs COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: COMMON JUDGMENT These appeals under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act for short) have been filed by revenue. subject matter of I.T.A.No.171/2011 pertains to Assessment year 2005-06, whereas, subject matter of I.T.A.No.34/2012 relates to Assessment Year 2006-07. I.TA.No.171/2011 was admitted by bench of this Court vide order dated 05.01.2012 on following substantial questions of law: (i) Whether Tribunal was correct in holding that assessee being anon resident is not liable to pay advance tax and consequently non interest under Section 234b of Act is leviable as only TDS can 4 be deducted by ignoring judgment of Apex Court in CIT VS.L ANJUM MH GHASWALA (2001) 252 ITR 1 (SC) where it was held that Section 234B of Act is mandatory? (ii) Whether Tribunal was correct in reading down Section 234B of Act by holding that same is applicable to Indian residents and not to non residents when validity has been upheld by this Hon ble court by holding that provisions is only compensatory in nature for depriving revenue in payment of advance tax? 2. I.T.A.No.34/2012 was admitted by bench of this court, vide order dated 05.07.2012 on following substantial questions of law: (i) Whether Tribunal was correct in holding that assessee being non resident is not liable to pay advance tax and consequently no interest under Section 234B of Act is leviable as only TDS can be deducted by ignoring judgment of Apex Court in CIT VS. ANJUM MH GHASWALA 5 (2001) 252 ITR 1 (SC) where it was held that Section 234B of Act is mandatory? (ii) Whether Tribunal was correct in reading down Section 234B of Act by holding that same is applicable to Indian residents and not to non residents when validity has been upheld by this Hon ble Court by holding that provisions is only compensatory in nature for depriving revenue in payment of advance tax? 3. On account of commonality of substantial questions of law involved in this appeal, they were heard analogously and are being decided by this common judgment. 4. For facility of reference facts from I.T.A.No.171/2011 are being referred to. assessee is foreign company engaged in manufacture of semi conductor components. For Assessment Year 2005- 06, assessee received sum of Rs.85,93,50,360/- towards EDA charges from M/s Texas Instruments 6 (India) Private Limited, which were accrued in India under Section 916 of Act. assessee filed return of income on 30.10.2005 and declared taxable income of Rs.95,19,50,282/-. return was processed under Section 143(1) and was taken up for scrutiny and notice under Section 143(2) of Act was issued. Assessing Officer by order dated 29.12.2008 computed taxable income at Rs.30,11,00,040/- and tax at 15% was levied at Rs.4,51,65,006/-. TDS amount of Rs.14,27,92,521/- was deducted and in respect of short fall in payment of advance tax, Assessing Officer levied sum of Rs.1,38,98,565/- as interest under Section 234B of Act. Thereafter, order of rectification was passed under Section 154 of Act on 12.05.2009 as there was mistake regarding returned income and computation of TDS and consequential interest. assessee thereupon approached Commissioner of Income Tax (Appeals), who by order dated 30.03.2010 inter alia held that 7 computation of interest under Section 234B is required to be re computed and matter was remitted. assessee thereupon filed appeal before Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). Tribunal by order dated 28.12.2010 inter alia held that assessee is not liable for payment of advance tax and interest under Section 234B of Act. In result, appeals preferred by assessee were allowed. In aforesaid factual background, these appeals have been filed. 5. Learned counsel for revenue has invited attention of this court to definition of expression assessee as well as person and has submitted that expression person includes company and there is no distinction between domestic company or foreign company with reference to decision of Supreme Court in PALAM GAS SERVICE VS. COMMISSIONER OF INCOME-TAX , (2017) 394 ITR 300 (SC), wherein Supreme 8 Court dealt with provisions of Section 40(a)(ia) of Act, it is argued that word payable was read in aforesaid decision by Supreme Court as paid and on same analogy expression deductible used in Section 209(1) of Act needs to be read as deducted . It is also pointed out that entire object of Section 209(1)(d) of Act is to ensure that there are no double deductions and Tribunal erred in holding that assessee being non resident, provisions of Section 234B of Act are not attracted. It is also submitted that provisions of Section 234A, 234B and 234C of Act are mandatory and compensatory. In this connection, reliance has been placed decision of Supreme Court in COMMISSIONER OF INCOME-TAX VS. ANJUM M.H.GHASWALA , (2001) 119 TAXMAN 352 (SC). It is also urged that finding recorded by Tribunal is contrary to law laid down by Supreme Court in PALAM GAS SERVICE supra. 9 6. On other hand, learned counsel for assesses submitted that proposition laid down in by Supreme Court in PALAM GAS SERVICE supra does not apply to Section 209 of Act and word deductible cannot be read as deducted . It is also pointed out that there is no charge of levy for interest and therefore, proviso to Section 209(1)(d) was inserted with effect from 01.04.2012, which is prospective in nature. It is further submitted that Tribunal has rightly relied on decisions rendered by Bombay and Uttarakhand High Courts. It is also submitted that issue involved in these appeals is extensively dealt with by Delhi High Court in DIRECTOR OF INCOME-TAX, INTERNATIONAL TAXATION VS. GE PACKAGED POWER INC. , (2015) 56 TAXMANN.COM 190 (DELHI) and therefore, substantial questions of law involved in these appeals deserves to be answered in favour of assessee. 10 7. We have considered submissions made by learned counsel for parties and have perused record. singular issue, which arises for consideration in these appeals, is that whether assessee is liable to pay interest under Section 234B of Act on ground of non payment of tax in respect of Assessment Year 2005-06 and 2006-07. Section 195(1) of Act provides for deduction of Tax at Source by any person responsible for paying to foreign company any other sum chargeable under provisions of Act at time of credit of such income to account of payee. Section 209(1)(d) of Act as it read prior to Finance Act, 2012 is reproduced below for facility of reference: 209. Compensation of advance tax: (1) amount of advance tax payable by assessee in financial year shall, subject to provisions of sub-Sections (2) and (3), be computed as follows, namely:- (a) xxxxx (b) xxxxx 11 (c) xxxxx (d) income-tax calculated under clause(a) or clause (b) or clause (c) shall, in each case, be reduced by amount of income-tax, which would be deductible (or collectible) at source during said financial year under any provision of this Act from any income (as computed before allowing any deductions admissible under this Act) which has been taken into account in computing current income or, as case may be, total income aforesaid; and amount of income-tax as so reduced shall be advance tax payable. 8. From perusal of aforesaid provision, it is axiomatic that assessee was entitled to, in its computation of its advance tax liability to take tax credit of amount, which was deductible or collectible irrespective of fact whether amount was actually deducted or collected. Under aforesaid provision, assessee was entitled to tax credit of amount that was deductible even if it was not actually deducted. 12 Therefore, in order to remove anomaly in law, parliament inserted proviso to Section 209(1) by Finance Act, 2012 with effect from 01.04.2012, which reads as under: Provided that for computing liability for advance tax, income-tax calculated under clause (a) or clause (b) or clause (c) shall not, in each case, be reduced by aforesaid amount of income-tax which would be deductible or collectible at source during said financial year under any provision of this Act from any person, if person responsible for deducting tax has paid or credited such income without deduction of tax or it has been received or debited by person responsible for collecting tax without collection of such tax. 9. In instant case, payer had approached department claiming that payments to be made to assessee are not chargeable to tax in India and to determine chargeability and after determination of tax liability by department, 13 deductor has deducted tax at source and has remitted balance to assessee. In light of legal position as it existed for relevant Assessment Years prior to insertion of proviso to Section 209(1) of Act, it is clear that if payer who was required to make payments to non resident had defaulted in deducting tax at source from such payments, non resident is not absolved from payment of taxes thereupon and non resident is liable to pay tax and question of payment of advance tax would not arise. Therefore, it would not be permissible for revenue to charge any interest under Section 243B of Act. 10. Supreme Court in PALAM GAS SERVICE supra was dealing with Section 40(a)(ia) of Act and was dealing with question as to whether provisions of Section 40(a)(ia) of Act would be attracted when amount was not payable to contractor or sub contractor but had been actually paid. In aforesaid context, Supreme Court held that 14 word payable used in Section 40(a)(ia) of Act would include word paid . aforesaid decision has no application to obtaining factual matrix of case. In view of preceding analysis, substantial questions of law are answered against revenue and in favour of assessee. In result, we do not find any merit in these appeals. same fail and are hereby dismissed. Sd/- JUDGE Sd/- JUDGE ss Director of Income-tax International Taxation, Bangalore / Dy. Director of Income-tax International Taxation Circle-II(I), Bangalore v. Texas Instruments Incorporated