Mumbai ITAT: No advance tax be deducted and no interest u/s 234B payable when TDS equals amount of tax payable

ADIT (International Taxation) v. Universal International Music BV, on 31^st January, 2011

ITA No.6063/M/2004; ITA No.9034/M/2004; ITA No.2304/M/2006; ITA No.5064/M/2006

Assessment Year: 2000-01, 2001-02, 2002-03, 2003-04

Question/s before the Hon’ble Tribunal: Whether the benefit of Article 12 of the Indo-Netherlands DTAA is applicable to the assessee?

Whether interest u/s 234B is liable to be charged as no advance tax was paid by the assessee?

Relevant facts: The assessee who was the tax resident of Netherlands within the meaning of Article 4 of Double Taxation Avoidance Agreement (DTAA) signed between India and Netherlands was engaged in Manufacturing of audio and visual recordings, the development, manufacture and exploitation of audio and visual carriers or combinations thereof and earning royalty on exploitation of music rights. The assessee sought benefit of article 12 of the India-Netherlands DTAA and offered to tax the royalty income @10%, while the AO sought to tax the income at 30% being that the assessee was not the beneficial owner of the intellectual property.

Dismissing the appeal of the department, the Hon’ble Tribunal held that:

Para 10.3: “In view of the foregoing decision we see no infirmity in the order of CIT(A) in coming to the conclusion that the assessee was the beneficial owner of the royalty and the same has to be taxed @ 10% for all the years.

Para 11.1: “The dispute is regarding levy of interest under section 234B. There is no dispute that entire income of the assessee was tax deductible at source under the provisions of section 195 and therefore in view of the provisions of section 209(1)(d), the advance tax payable by the assessee will be nil. This view is supported by several judgments including the judgment of Hon’ble jurisdictional High Court (313 ITR 187). We therefore see no infirmity in the order of CIT(A) deleting the interest and the same is therefore upheld.”

The decision is available here.

Supreme Court: Advance Tax payable on MAT and in default, interest u/s 234B, 234C applicable

Jt.C.I.T.,Mumbai v. M/S.Rolta India Ltd. on 7 January, 2011

Question before the Hon’ble Court: “Whether interest under Section 234B can be charged on the tax calculated on book profits under Section 115JA? In other words, whether advance tax was at all payable on book profits under Section 115JA?”

Relevant Facts: Assessee furnished a return of income on 28.11.1997 declaring total income of Rs. Nil. On 28.3.2000, an order under Section 143(3) was passed determining the total income at nil after set off of unabsorbed business loss and depreciation. The tax was levied on the book profit worked out at Rs. 1,52,61,834/- determined as per the provisions of Section 115JA. The interest under Section 234B of Rs. 39,73,167/- was charged on the tax on the book profit as worked out in the order of assessment.

Upholding the appeal of the Department, the Hon’ble Court held, inter alia that:

Para 8: “The pre-requisite condition for applicability of Section 234B is that assessee is liable to pay tax under Section 208 and the expression "assessed tax" is defined to mean the tax on the total income determined under Section 143(1) or under Section 143(3) as reduced by the amount of tax deducted or collected at source. Thus, there is no exclusion of Section 115J/115JA in the levy of interest under Section 234B. The expression "assessed tax" is defined to mean the tax assessed on regular assessment which means the tax determined on the application of Section 115J/115JA in the regular assessment.”

Para 9: “…held that Section 115JB, with which we are concerned, is a self-contained code pertaining to MAT, which imposed liability for payment of advance tax on MAT companies and, therefore, where such companies defaulted in payment of advance tax in respect of tax payable under Section 115JB, it was liable to pay interest under Sections 234B and 234C of the Act.”

The decision is available here.

CIT v. Tulsyan Nec Ltd. by Hon’ble Supreme Court of India

Date of Decision: 16th December, 2010

The question that arose before the Hon’ble Court was whether MAT credit admissible in terms of Section 115JAA has to be set off against the tax payable (assessed tax) before calculating interest under Sections 234B and 234C of the Income Tax Act, 1961?

Para 6: Thus, the tax credit allowable can be set off by the assessee while computing advance tax/ self-assessment tax payable for years 2 to 6 limited to the difference between the tax payable on the income computed under the normal provisions and tax payable on book profits in each of those years, as per assessee's own computation. Although the right to avail tax credit gets crystallized in year one, on payment of tax under Section 115JA and the set off thereof follows statutorily, the amount of credit available and the amount of set off to be actually allowed as in all cases of deductions/ allowances under Sections 30-37, is fluid/ inchoate and subject to final determination only on adjudication of assessment either under Section 143(1) or under Section 143(3). The fact that the amount of tax credit to be allowed or to be set off is not frozen and is ambulatory, does not take away/ destroy the right of the assessee to the amount of tax credit. (emphasis supplied)

Para 11: The position which emerged was that due to omission on one hand MAT credit was available for set off for five years under Section 115JAA but the same was not available for set off while calculating advance tax. This dichotomy was more spelt out because Section 115JAA did not provide for payment of interest on the MAT credit. To avoid this situation, Parliament amended Explanation 1 to Section 234B by Finance Act, 2006 w.e.f. 1.4.2007 to provide along with tax deducted or collected at source, MAT credit under Section115JAA also to be excluded while calculating assessed tax.

Para 13: It is immaterial that the relevant form prescribed under Income Tax Rules, at the relevant time (i.e. before 1.4.2007), provided for set off of MAT credit balance against the amount of tax plus interest i.e. after the computation of interest under Section 234B. This was directly contrary to a plain reading of Section 115JAA(4). Further, a form prescribed under the rules can never have any effect on the interpretation or operation of the parent statute.

The appeal of the department was dismissed.

The decision is available here.