No int. levied u/s 234B, even though assessee declared NIL income in return, HC

Facts in Brief:

1.  The assessees, non-resident companies, were manufacturing equipment relating to oil and gas, energy, transportation and aviation for supply to customers in India.

2.  After a survey under section 133A at their liaison office, reassessment proceedings were initiated against assessees. The assessees filed nil returns of income thereafter, final assessment order was issued.

3.  The Assessing Officer found that the assessees had a Permanent Establishment (PE) in India. The Assessing Officer computed taxable income of the assessees by attributing some percentage of the sale price/consideration received as profits to the PE and interest under section 234B for failure to pay advance tax was levied.

4.  On appeal, the Commissioner (Appeals) deleted the interest under section 234B.

5.  On revenue's appeal, the Tribunal upheld the order of the Commissioner (Appeals) holding that the assessees would not liable to payment of advance tax.

  On appeal, HC held as under:

6.  The view taken by Tribunal was correct; the primary liability of deducting tax (for the period concerned, since the law has undergone a change after the Finance Act, 2012) is that of the payer. The payer will be an assessee in default, on failure to discharge the obligation to deduct tax, under section 201.

7.  No interest is leviable on the assessees under section 234B, even though they filed returns declaring NIL income at the stage of reassessment. The payers were obliged to determine whether the assessees were liable to tax under section 195(1), and to what extent, by taking recourse to the mechanism provided in section 195(2). The failure of the payers to do so does not leave the revenue without remedy; the payer may be regarded an assessee-in-default under section 201, and the consequences delineated in that provision will visit the payer. The appeal of the revenue is accordingly dismissed without any order as to costs.

  RELEVANT PARAS OF THE JUDGMENT ARE AS UNDER:

8.  The implication of an absolute obligation upon the payer to deduct tax at source under Section 195(1) is that it becomes the responsibility of the payer to determine the amount it ought to deduct from the remittance to be paid to the assessee, towards tax. This determination would depend directly on the income of the assessee that is taxable in India on account of being attributable to its PE in India. That this determination is the responsibility of the payer is provided for, in the statute, in Section 195(2).

9.  The assessee's liability to tax does not depend on its own view of its PE status, or its admission or denial of tax liability. If an assessee files NIL returns at the stage of assessment, and maintains that it is not liable to tax in India, the payer is obliged to apply to the AO to determine what portion, if any, of its remittance to the assessee, is liable to be deducted at source towards tax. 

10.  The position of law itself requires that the tax be deducted at source, whatever may be the assessee's stance, failing which the payer is treated as an assessee-in-default under Section 201, and the payee is required to discharge its liability to pay the tax that was not deducted under Section 191.