Key Takeaways: - Facts of the case - Issues and Orders - Contention of the parties - Observations of Honourable Supreme Court - Conclusion and way forward

1. ADVANCE TAX LIABILITY WHEN TDS NOT
DEDUCTED BY PAYER
DIRECTOR OF INCOME-TAX, NEW DELHI
V.
MITSUBISHI CORPORATION
[2021] 130 TAXMANN.COM 276 (SC)
.

2. LEGENDS USED
AO Assessing Officer
CIT Commissioner of Income Tax
CIT(A) Commissioner of Income Tax (Appeals)
HC High Court
ITAT Income Tax Appellate Tribunal
NR Non-resident
TDS Tax Deducted at Source
SC Supreme Court

3. PRESENTATION SCHEMA
Facts of the Case Issues & Orders of the Case Contention of the Parties
Observations by Honourable
SC
Conclusion

4. FACTS OF THE CASE

5. GENERAL FACTS
Assessee
• Non-resident company incorporated in Japan, having operations in India
• Engaged in trading activities of carbon crude oil, LPG, ferrous products, mineral, industrial
machinery, automobiles, etc.
Subject
mater
• For A Y 2004-05, the assessee has received income for activities carried out in India on
which TDS has to be deducted.
• TDS has not been deducted by the payer and whole amount was paid to the assessee.
Facts
• Assessee has not paid advance tax claiming that it had no income that is taxable in India in
AY 2004-05 as no tax was deducted.
• The AO rejected the contention and charged interest u/s 234B of the Act for non payment
of Advance Tax.

6. ISSUES AND ORDERS OF THE
CASE

7. ISSUES
Whether the appellant is liable
to pay advance tax on the whole
of income or on the amount
excluding TDS (not deducted by
payer)
Whether the appellant is
liable to pay interest u/s 234B
of the Act, in case tax which
was deductible at source has
not been deducted

8. ORDERS
• Dismissed appeal
stating that assessee is
liable to interest u/s
234B
CIT(A)
• Assessee is not liable
for interest u/s 234B
ITAT
• Dismissed the appeal
and upheld the
judgement of ITAT.
High Court

9. CONTENTIONS OF THE
PARTIES

10. CONTENTIONS OF REVENUE
Obligation of deducting TDS by payer is separate from the obligation of payment of advance tax by
assessee.
Section 234B is compensatory in nature as the interest component is meant to compensate
the Government for the loss accrued.
The choice on the mode of recovery of the tax by the revenue cannot be restricted and it
would refund the excess amounts to either of parties if it recovers the amount due.
Even if TDS is liable to be deducted and not deducted, obligation of the assessee to pay
advance tax continues to be prevalent.
Section 234B is a standalone provision and a complete code in itself, the words used in
Section 209(1)(d) of the Act (mentioned subsequently) cannot be imported into Section 234B.
Hence the failure to pay advance tax on part of the assessee would attract interest u/s 234B.

11. CONTENTIONS OF THE ASSESSEE
Provisions relating to computation of interest u/s 234B should
not be read in isolation with provisions relating to computation
of advance tax liability
Preconditions for levy of interest
- Liability to pay advance tax
-Nonpayment or short payment of the same.
Tax payer cannot be punished for default in deduction of tax by
the payer (Ian Peter Morris vs ACIT (2020) 15 SCC 123)

12. OBSERVATIONS BY
HONOURABLE SC

13. AMENDMENT VIA FINANCE ACT, 2012
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 the aforesaid amount of income-
tax which would be deductible or collectible at source during the said financial year under any
provision of this Act from any income, if the person responsible for deducting tax has paid or
credited such income without deduction of tax or it has been received or debited by the
person responsible for collecting tax without collection of such tax.
Proviso to Section 209(1)(d)
A proviso to section 209(1)(d) was inserted by the Finance Act, 2012.
The memorandum stated that following
• The courts have held that the assessee is not liable to pay advance tax if any amount is paid without
deduction of tax.
• In order to make the assessee liable for payment of advance tax in respect of amount received
without deduction of tax, the following proviso is inserted

14. OBSERVATIONS
In case the
earlier act is
obscure or
ambiguous,
the
subsequent
legislation may
be looked into
for proper
interpretation
of the earlier
act.
Only the
amended
legislation
mandates
payment of
advance tax
even if tax is
not deducted
and there
were no such
mandate in
the earlier law
Prior to FY
2012-13, even
courts have
ruled that
there is no
requirement to
pay advance
tax if tax is not
deducted on
the same.
If the
contention of
the
department is
accepted, the
amendment
made vide
Finance Act,
2012 would
become
meaningless
The pre-
conditions for
attracting
interest have
to necessarily
be satisfied for
levy of interest
and should not
be read in
isolation.
For levy of
interest, the
preconditions
are firstly
there should
be a liability to
pay advance
tax and
secondly, non
payment or
short payment
of advance tax.

15. FINAL RULING
The proviso to Section
209(1)(d) came into
force after the Finance
Act, 2012.
As this case pertains
to AY 2004-05, the
said proviso would not
be applicable for the
assessee
Therefore the
Honourable SC
concluded that the
asssesee cannot be
concluded to have
defaulted in payment
of advance tax.

16. CONCLUSION

17. KEY TAKEAWAYS
Owing to the amendment made vide Finance Act, 2012, this Honourable SC ruling might not have much
significance for case pertaining for FY 2012-13 onwards, however this ruling will provide a much-needed
clarity for existing disputes prior to FY 2012-13

18. Thank You!
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