The Assessing Officer is relying on the Delhi High Court's Alcatel Lucent judgment to charge my non-resident client s.234B interest because it first denied a permanent establishment and then accepted the assessment. Is that judgment still good?
It is not. The Delhi High Court did hold, on 7 November 2013, that where a non-resident first denies that it has a permanent establishment and then accepts its tax liability at the first appellate stage, it must take responsibility for its volte face and cannot shift the blame for non-deduction to the Indian payers, so s.234B interest was payable; it answered the question of law in favour of the Revenue and allowed the appeals. But the assessees' special leave petitions were entertained, and in the Supreme Court's judgment of 17 September 2021 in the Mitsubishi Corporation batch the Court, having set out the Alcatel Lucent history at paragraph 23, recorded at paragraph 25: 'Accordingly, these Civil Appeals are allowed.'
Decided by the High Court (Badar Durrez Ahmed J and R.V. Easwar J) on 2013-11-07, reported as ITA Nos. 327-330 and 336-340 of 2012 (Delhi High Court); assessment years 2004-05 to 2007-08 (Alcatel Lucent USA, Inc.) and 2004-05 to 2008-09 (Alcatel Lucent World Services Inc.). It bears on section 234B, section 209, section 209(1)(d), section 195, section 201, section 201(1A), section 215(5), section 148, section 133A, section 260A of the Income Tax Act 1961, in TDS Defaults, Reassessment & Reopening and Assessment & Scrutiny matters.
The Delhi High Court's reasoning is unusually quotable — it invoked equity in the interpretation of a taxing statute, said that 'tax laws and equity need not be sworn enemies at all times', and treated interest as compensation for the Revenue's loss of the use of money — and it is still produced in assessment orders and departmental appeals as authority for charging s.234B interest on a non-resident who changed its stand. Anyone met with it has to be able to show what happened to it. Two things should be said precisely. First, the reversal did not turn on any view about the equities: at paragraph 24 the Supreme Court recorded that the subject-matter of those appeals was the Division Bench judgment of 07.11.2013 and a later Delhi High Court decision of 08.09.2014 following it, and that "The point that arises for consideration in these Appeals is covered by our judgement in Civil Appeal No.1262 of 2016" — the Mitsubishi Corporation appeal, in which the Court held that prior to the financial year 2012-13 the tax deductible or collectible at source could be reduced in computing advance tax and the Revenue is not remediless because it may proceed against the payer. The volte face reasoning was therefore displaced by the construction of s.209(1)(d) and s.234B, not merely confined to its facts. Second, the reversal is consistent with the rest of that judgment: the Supreme Court dismissed the Revenue's appeals in the Mitsubishi Corporation matters at paragraph 22, holding that for years before the Finance Act, 2012 proviso a payee could reduce its advance tax by tax that was deductible at source whether or not deducted. The practical consequence is that the volte face reasoning cannot be used to defeat that construction for a pre-2012 year. It says nothing about a financial year from 2012-13 onwards, where the proviso to s.209(1)(d) supplies the Revenue with a textual answer and the equities are not needed.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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Alcatel Lucent USA, Inc., a tax resident of the United States, supplied telecom equipment to customers in India. A survey under s.133A was conducted on 27 February 2009 at the premises of Alcatel Lucent India Ltd., the Indian subsidiary, which the Department treated as the assessee's permanent establishment; the subsidiary provided marketing support services. On the basis of findings made in the assessment of another group company, notices under s.148 were issued to the assessee for assessment years 2004-05 to 2007-08, and to Alcatel Lucent World Services Inc. for the same years and, for 2008-09, a notice under s.142(1). The assessees maintained that they had no permanent establishment and were not taxable in India. Before the Commissioner (Appeals) they did not press the ground against the computation of income attributable to the permanent establishment, pressing only the ground against the levy of interest under s.234B, on the footing that the whole remittance was liable to deduction under s.195 and that s.209(1)(d) allowed credit for tax 'deductible' whether or not deducted, following DIT v. Jacabs Civil Incorporated and Mitsubishi Corporation, (2010) 330 ITR 578. The Commissioner (Appeals) deleted the interest and the Tribunal, by a common order dated 21 October 2011 disposing of nine appeals, confirmed that view. The Revenue appealed under s.260A. On 10 July 2012 the High Court framed the common substantial question of law: 'Whether in the facts and circumstances of this case the Tribunal fell into error in holding that the assessee was not liable to pay interest in terms of Section 234B of the Income Tax Act?' Before the Tribunal the Revenue had argued that the assessee had taken contradictory stands, and that the four-year limit introduced in s.201 by the Finance Act, 2012 with effect from 1 April 2012 had by then removed the Revenue's remedy against the payers.
The High Court answered the substantial question of law in the affirmative, against the assessee and in favour of the Revenue, and allowed the appeals (paragraph 29). It held that an assessee which accepted its tax liability after initially denying it cannot be permitted to shift the responsibility to the Indian payers for not deducting tax at source, after leading them to believe that no tax was deductible, and that it must take responsibility for its volte face; once liability to tax is accepted, all consequences follow (paragraph 26). This holding did not survive: in the Supreme Court's judgment of 17 September 2021, after setting out at paragraph 23 the history of these very matters and the Delhi High Court's judgment of 7 November 2013, the Court recorded at paragraph 25 that 'Accordingly, these Civil Appeals are allowed.'
The Court declined to examine the general argument that the payer's liability under s.201 is distinct from the payee's under s.234B, holding that it would make no difference on the peculiar facts (paragraph 20). It rested instead on the assessees' change of stand: they had told the Department at the outset that they had no permanent establishment and no tax liability, which meant the Indian payers would have been told that no tax should be deducted; having accepted the assessment at the first appellate stage they could not turn round and put the blame on the payers (paragraphs 20 and 26). The Court added that it was difficult to imagine that Indian telecom equipment dealers would have failed to deduct except on being prompted by the assessee; that although equity generally has no place in the interpretation of tax laws, the rule of strict interpretation may be relaxed where mischief results from inconsistent or contradictory stands; and that interest is compensation for the use of money, the assessee having had the use of money that would otherwise have been paid as advance tax (paragraph 26). The Revenue had also relied, in the definition of 'assessed tax', on the difference between s.215(5) and Explanation 1 to s.234B (paragraph 14).
The assessee must take responsibility for its volte face. Once liability to tax is accepted, all consequences follow; they cannot be avoided.
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Handle my notice → Ask a CA on WhatsAppIt is not. The Delhi High Court did hold, on 7 November 2013, that where a non-resident first denies that it has a permanent establishment and then accepts its tax liability at the first appellate stage, it must take responsibility for its volte face and cannot shift the blame for non-deduction to the Indian payers, so s.234B interest was payable; it answered the question of law in favour of the Revenue and allowed the appeals. But the assessees' special leave petitions were entertained, and in the Supreme Court's judgment of 17 September 2021 in the Mitsubishi Corporation batch the Court, having set out the Alcatel Lucent history at paragraph 23, recorded at paragraph 25: 'Accordingly, these Civil Appeals are allowed.' This was decided by the High Court (Badar Durrez Ahmed J and R.V. Easwar J) and bears on section 234B, section 209, section 209(1)(d), section 195, section 201, section 201(1A), section 215(5), section 148, section 133A, section 260A of the Income Tax Act 1961. It is reported as ITA Nos. 327-330 and 336-340 of 2012 (Delhi High Court); assessment years 2004-05 to 2007-08 (Alcatel Lucent USA, Inc.) and 2004-05 to 2008-09 (Alcatel Lucent World Services Inc.). The Delhi High Court's reasoning is unusually quotable — it invoked equity in the interpretation of a taxing statute, said that 'tax laws and equity need not be sworn enemies at all times', and treated interest as compensation for the Revenue's loss of the use of money — and it is still produced in assessment orders and departmental appeals as authority for charging s.234B interest on a non-resident who changed its stand. Anyone met with it has to be able to show what happened to it. Two things should be said precisely. First, the reversal did not turn on any view about the equities: at paragraph 24 the Supreme Court recorded that the subject-matter of those appeals was the Division Bench judgment of 07.11.2013 and a later Delhi High Court decision of 08.09.2014 following it, and that "The point that arises for consideration in these Appeals is covered by our judgement in Civil Appeal No.1262 of 2016" — the Mitsubishi Corporation appeal, in which the Court held that prior to the financial year 2012-13 the tax deductible or collectible at source could be reduced in computing advance tax and the Revenue is not remediless because it may proceed against the payer. The volte face reasoning was therefore displaced by the construction of s.209(1)(d) and s.234B, not merely confined to its facts. Second, the reversal is consistent with the rest of that judgment: the Supreme Court dismissed the Revenue's appeals in the Mitsubishi Corporation matters at paragraph 22, holding that for years before the Finance Act, 2012 proviso a payee could reduce its advance tax by tax that was deductible at source whether or not deducted. The practical consequence is that the volte face reasoning cannot be used to defeat that construction for a pre-2012 year. It says nothing about a financial year from 2012-13 onwards, where the proviso to s.209(1)(d) supplies the Revenue with a textual answer and the equities are not needed. If it applies to you, the first step is this: When the Alcatel Lucent judgment is cited against you, take the reversal first: the assessees' civil appeals were allowed by the Supreme Court on 17 September 2021 in the judgment reported as the Mitsubishi Corporation batch, at paragraph 25.
Alcatel Lucent USA, Inc., a tax resident of the United States, supplied telecom equipment to customers in India. A survey under s.133A was conducted on 27 February 2009 at the premises of Alcatel Lucent India Ltd., the Indian subsidiary, which the Department treated as the assessee's permanent establishment; the subsidiary provided marketing support services. On the basis of findings made in the assessment of another group company, notices under s.148 were issued to the assessee for assessment years 2004-05 to 2007-08, and to Alcatel Lucent World Services Inc. for the same years and, for 2008-09, a notice under s.142(1). The assessees maintained that they had no permanent establishment and were not taxable in India. Before the Commissioner (Appeals) they did not press the ground against the computation of income attributable to the permanent establishment, pressing only the ground against the levy of interest under s.234B, on the footing that the whole remittance was liable to deduction under s.195 and that s.209(1)(d) allowed credit for tax 'deductible' whether or not deducted, following DIT v. Jacabs Civil Incorporated and Mitsubishi Corporation, (2010) 330 ITR 578. The Commissioner (Appeals) deleted the interest and the Tribunal, by a common order dated 21 October 2011 disposing of nine appeals, confirmed that view. The Revenue appealed under s.260A. On 10 July 2012 the High Court framed the common substantial question of law: 'Whether in the facts and circumstances of this case the Tribunal fell into error in holding that the assessee was not liable to pay interest in terms of Section 234B of the Income Tax Act?' Before the Tribunal the Revenue had argued that the assessee had taken contradictory stands, and that the four-year limit introduced in s.201 by the Finance Act, 2012 with effect from 1 April 2012 had by then removed the Revenue's remedy against the payers. The matter was decided on 2013-11-07 by the High Court (Badar Durrez Ahmed J and R.V. Easwar J). On those facts the High Court held as follows. The High Court answered the substantial question of law in the affirmative, against the assessee and in favour of the Revenue, and allowed the appeals (paragraph 29). It held that an assessee which accepted its tax liability after initially denying it cannot be permitted to shift the responsibility to the Indian payers for not deducting tax at source, after leading them to believe that no tax was deductible, and that it must take responsibility for its volte face; once liability to tax is accepted, all consequences follow (paragraph 26). This holding did not survive: in the Supreme Court's judgment of 17 September 2021, after setting out at paragraph 23 the history of these very matters and the Delhi High Court's judgment of 7 November 2013, the Court recorded at paragraph 25 that 'Accordingly, these Civil Appeals are allowed.'
The Court declined to examine the general argument that the payer's liability under s.201 is distinct from the payee's under s.234B, holding that it would make no difference on the peculiar facts (paragraph 20). It rested instead on the assessees' change of stand: they had told the Department at the outset that they had no permanent establishment and no tax liability, which meant the Indian payers would have been told that no tax should be deducted; having accepted the assessment at the first appellate stage they could not turn round and put the blame on the payers (paragraphs 20 and 26). The Court added that it was difficult to imagine that Indian telecom equipment dealers would have failed to deduct except on being prompted by the assessee; that although equity generally has no place in the interpretation of tax laws, the rule of strict interpretation may be relaxed where mischief results from inconsistent or contradictory stands; and that interest is compensation for the use of money, the assessee having had the use of money that would otherwise have been paid as advance tax (paragraph 26). The Revenue had also relied, in the definition of 'assessed tax', on the difference between s.215(5) and Explanation 1 to s.234B (paragraph 14). In the words reproduced by the source cited on this page: "The assessee must take responsibility for its volte face. Once liability to tax is accepted, all consequences follow; they cannot be avoided." The decision followed or applied DIT v. Jacabs Civil Incorporated and Mitsubishi Corporation, (2010) 330 ITR 578 (Delhi) — relied on by the assessees and departed from on the facts; Distinguished in DIT v. GE Packaged Power Inc., ITA 352/2014 and connected matters (Delhi, 12 January 2015).
It was decided by the High Court on 2013-11-07 and is reported as ITA Nos. 327-330 and 336-340 of 2012 (Delhi High Court); assessment years 2004-05 to 2007-08 (Alcatel Lucent USA, Inc.) and 2004-05 to 2008-09 (Alcatel Lucent World Services Inc.). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 234B, section 209, section 209(1)(d), section 195, section 201, section 201(1A), section 215(5), section 148, section 133A, section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The High Court answered the substantial question of law in the affirmative, against the assessee and in favour of the Revenue, and allowed the appeals (paragraph 29). It held that an assessee which accepted its tax liability after initially denying it cannot be permitted to shift the responsibility to the Indian payers for not deducting tax at source, after leading them to believe that no tax was deductible, and that it must take responsibility for its volte face; once liability to tax is accepted, all consequences follow (paragraph 26). This holding did not survive: in the Supreme Court's judgment of 17 September 2021, after setting out at paragraph 23 the history of these very matters and the Delhi High Court's judgment of 7 November 2013, the Court recorded at paragraph 25 that 'Accordingly, these Civil Appeals are allowed.' It arises in TDS Defaults, Reassessment & Reopening and Assessment & Scrutiny matters, on section 234B, section 209, section 209(1)(d), section 195, section 201, section 201(1A), section 215(5), section 148, section 133A, section 260A of the Income Tax Act 1961, and was decided by Badar Durrez Ahmed J and R.V. Easwar J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show the Assessing Officer or the appellate authority paragraphs 23, 24 and 25 of the Supreme Court's judgment together: paragraph 23 recites the Delhi High Court's reasoning in terms so there is no doubt these were the matters before the Court, paragraph 24 records that the point is covered by the Court's judgment in Civil Appeal No. 1262 of 2016, and paragraph 25 allows the appeals. For a pre-2012 year, run the substantive point alongside the reversal: under s.209(1)(d) as it then stood the tax deductible at source reduced the advance tax whether or not it was deducted, and the Revenue's remedy against a defaulting payer lies in s.201 and s.201(1A). Do not carry the volte face argument across the 2012 line in the other direction either. For a financial year from 2012-13 the Revenue does not need it: the proviso to s.209(1)(d) does the work wherever the payer paid or credited without deducting. Where the file shows that the assessee positively represented to the payer that no tax was deductible, keep the point separate from advance tax: that may bear on s.195, s.197 and s.201 proceedings against the payer and on penalty, which this line of authority does not address.
Overruled. Set aside on appeal. The assessees' special leave petitions, SLP(C) Nos. 7715-7718 of 2014 and 7722-7726 of 2014, were entertained on 15 April 2014 (Anil R. Dave and Shiva Kirti Singh JJ), the order recording 'Issue notice on the Special Leave Petitions as well as on the prayer for interim relief. Tag with SLP (C) 16952 of 2011' — read at https://indiankanoon.org/doc/176677362/. In the Supreme Court's judgment of 17 September 2021 (L. Nageswara Rao and Aniruddha Bose JJ) in the Mitsubishi Corporation batch, paragraph 23 sets out the assessment years of Alcatel Lucent USA, Inc. and Alcatel Lucent World Services Inc. and the Delhi High Court's judgment of 07.11.2013 in terms, and paragraph 25 records: 'Accordingly, these Civil Appeals are allowed.' Both paragraphs were transcribed verbatim. Paragraph 24, transcribed on verification, records that the point arising in these appeals 'is covered by our judgement in Civil Appeal No.1262 of 2016' — the Mitsubishi Corporation appeal, in which the Court held at paragraph 20 that prior to the financial year 2012-13 the amount of income-tax deductible or collectible at source could be reduced by the assessee while calculating advance tax, so that there was no default, and that the Revenue is not remediless because it may proceed against the payer. Both the disposal and the ratio of the reversal are therefore established. The label 'overruled' is used because the controlled vocabulary has no value for 'reversed on appeal'. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The plain document URL https://indiankanoon.org/doc/15371458/ returned HTTP 403, and so did the ?type=print variant, so the judgment was read through https://indiankanoon.org/docfragment/15371458/ with five different search phrases. Paragraphs 2, 3, 7, 9, 14, 20, 26 and 29 were transcribed that way; paragraph 29 carries the disposal, the judges' names and the date, and the footer printed with it reads 'ITA Nos.327-330 & 336-340/2012 Page 33 of 33', so paragraph 29 is the last paragraph of the judgment. I did NOT obtain a full paragraph inventory, so no statement is made about which numbers between 1 and 29 exist. The key quote from paragraph 26 was obtained twice from this judgment on different queries and a third time, independently, from the Delhi High Court's later judgment in DIT v. GE Packaged Power Inc., which reproduces the whole of paragraph 26 inside its own paragraph 19 — three routes, identical words. On the Supreme Court side: paragraph 23 and paragraph 25 of the judgment at https://indiankanoon.org/doc/13936258/ were transcribed verbatim through separate /docfragment/ queries, paragraph 25 coming back with the signature block of L. Nageswara Rao J and Aniruddha Bose J and the date 17 September 2021. Paragraph 24 was retrieved on verification: the plain document URL https://indiankanoon.org/doc/13936258/ returned paragraphs 20 to 25 and the signature block in one continuous transcription, and paragraph 24 reads 'The subject-matter of the aforementioned Appeals is the judgement of the Division Bench of the High Court dated 07.11.2013 as well as a subsequent decision of the Delhi High Court dated 08.09.2014, which ruled on the issue of interest under Section 234B in favour of the Revenue, relying on the Division Bench judgement dated 07.11.2013. The point that arises for consideration in these Appeals is covered by our judgement in Civil Appeal No.1262 of 2016.' The ratio of the reversal is therefore established and is stated in this entry: the appeals were allowed as covered by the Court's judgment in Civil Appeal No. 1262 of 2016, the Mitsubishi Corporation appeal, and not on any view about the equities. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The High Court answered the substantial question of law in the affirmative, against the assessee and in favour of the Revenue, and allowed the appeals (paragraph 29). It held that an assessee which accepted its tax liability after initially denying it cannot be permitted to shift the responsibility to the Indian payers for not deducting tax at source, after leading them to believe that no tax was deductible, and that it must take responsibility for its volte face; once liability to tax is accepted, all consequences follow (paragraph 26). This holding did not survive: in the Supreme Court's judgment of 17 September 2021, after setting out at paragraph 23 the history of these very matters and the Delhi High Court's judgment of 7 November 2013, the Court recorded at paragraph 25 that 'Accordingly, these Civil Appeals are allowed.'
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