My Indian payer did not deduct tax at source and paid me gross. The Assessing Officer says I should have paid advance tax and has charged s.234B interest. Which years can he do that for?
Only from financial year 2012-13 onwards. The Supreme Court held that for every assessment up to and including financial year 2011-12, s.209(1)(d) entitled the assessee to reduce, in computing its advance tax, the income-tax that WOULD BE deductible at source, even though it had in fact received the full amount without deduction — so no s.234B interest could be charged. The proviso to s.209(1)(d) inserted by the Finance Act 2012 with effect from 1 April 2012 reverses that, and from financial year 2012-13 the assessee cannot reduce tax that the payer failed to deduct.
Decided by the Supreme Court (L. Nageswara Rao J and Aniruddha Bose J) on 2021-09-17, reported as Civil Appeal No. 1262 of 2016 with Civil Appeal Nos. 1256, 1268, 1271, 1272 and 1301 of 2016, Civil Appeal Nos. 5734, 5735, 4766 and 5737 of 2021 and Civil Appeal No. 3884 of 2014 (Supreme Court of India). It bears on section 209, section 209(1)(d), section 234B, section 208, section 210, section 190, section 191, section 195, section 200, section 201, section 143(2) of the Income Tax Act 1961, in TDS Defaults, Demand, Recovery & Stay, Assessment & Scrutiny and How Tax Law Is Read matters.
This is the date line that decides a very large class of non-resident s.234B disputes, and it cuts both ways. For older years — reassessments, s.153A assessments, appeals still running on pre-2012 years — the taxpayer wins outright, and the Delhi High Court line in Alcatel Lucent that had gone the other way was displaced when the Supreme Court allowed those appeals. For financial year 2012-13 onwards the taxpayer loses that argument entirely, and the s.234B exposure on gross receipts is real. Two limits matter. The proviso bites only where the payer 'has paid or credited such income without deduction of tax' — where tax was in fact deducted, s.209(1)(d) still allows the reduction. And the Court reaffirmed that the Revenue is not remediless for the payer's default: ss.201 and the related machinery run against the payer.
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The respondent was a non-resident company incorporated in Japan carrying on trading activities through liaison offices in India in crude oil, LPG, ferrous products, industrial machinery, minerals, non-ferrous metals, textiles and automobiles. Notice under s.143(2) was issued on 12 October 2004 and the Assessing Officer passed an assessment order on 24 March 2006 for assessment years 1998-99 to 2004-05, holding part of the income attributable to Indian activities and taxable under Articles 4, 5 and 6 of the India-Japan Double Taxation Avoidance Agreement read with the Act, and charging interest. The assessee appealed only against the levy of interest under s.234B. The Commissioner (Appeals), on remand, framed the question whether interest under s.234B is payable where tax that was deductible at source was not deducted, and held on 10 February 2009 that the assessee remained liable to pay advance tax under s.191 and so was liable to interest. The Tribunal allowed the assessee's appeals on 23 June 2009 and the Delhi High Court dismissed the Revenue's appeals on 30 August 2010. In the connected batch, assessment orders on Alcatel Lucent USA Inc. for assessment years 2004-05 to 2007-08 and Alcatel Lucent World Services Inc. for 2004-05 to 2008-09 had charged interest under ss.234A, 234B and 234C; the Tribunal deleted the s.234B interest following the Delhi High Court in Mitsubishi, but a Division Bench of the Delhi High Court by judgment dated 7 November 2013 reversed that, holding that assessees who had denied liability could not later shift responsibility to the Indian payers, and a further Delhi High Court decision of 8 September 2014 followed it.
The Revenue's appeals in the lead batch were dismissed and the assessees' appeals in the Alcatel Lucent batch were allowed. For all assessments prior to financial year 2012-13 an assessee is entitled, under s.209(1)(d), to reduce from its advance tax computation the amount of income-tax which would be deductible or collectible at source, notwithstanding that it received the full amount without deduction; it therefore cannot be said to have defaulted in payment of advance tax and no interest under s.234B arises. From financial year 2012-13 the position has changed by reason of the proviso to s.209(1)(d) inserted by the Finance Act 2012 (paras 19, 20, 22 and 25).
The Court set out ss.209(1) and 234B as they stood before the Finance Act 2012, and the proviso inserted by that Act together with the Notes on Clauses in the Memorandum to the Finance Bill 2012, which state in terms that because courts had held an assessee not liable to advance tax to the extent tax was deductible or collectible from an amount received without deduction, the section was being amended to make him liable, with effect from 1 April 2012 and applicable to advance tax payable for financial year 2012-13 and subsequent years (paras 11, 14 and 15). Applying Cape Brandy Syndicate v. I.R.C. and this Court's decisions in State of Bihar v. S.K. Roy and Gem Granites, the Court held that subsequent legislation may be looked at to fix the construction of an ambiguous earlier provision, and reasoned that if the Revenue's reading of "would be deductible or collectible" were right the 2012 proviso would be meaningless and an exercise in futility (paras 17 to 19). It rejected the Revenue's argument that s.234B is a standalone complete code to be read without reference to the rest of Chapter XVII: the liability under s.234B is for default in payment of advance tax, its pre-conditions are a liability to pay advance tax and non-payment or short payment, and s.209, which governs the computation of advance tax, cannot be ignored in construing s.234B (para 20). It upheld the Delhi High Court's view and the Madras High Court's view in Madras Fertilizers that the Revenue is not remediless, there being provisions enabling it to proceed against the payer who defaulted in deducting tax at source (para 20).
There is no doubt that the position has changed since the financial year 2012-13, in view of the proviso to Section 209 (1) (d), pursuant to which if the assessee receives any amount, including the tax deductible at source on such amount, the assessee cannot reduce such tax while computing its advance tax liability.
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Handle my notice → Ask a CA on WhatsAppOnly from financial year 2012-13 onwards. The Supreme Court held that for every assessment up to and including financial year 2011-12, s.209(1)(d) entitled the assessee to reduce, in computing its advance tax, the income-tax that WOULD BE deductible at source, even though it had in fact received the full amount without deduction — so no s.234B interest could be charged. The proviso to s.209(1)(d) inserted by the Finance Act 2012 with effect from 1 April 2012 reverses that, and from financial year 2012-13 the assessee cannot reduce tax that the payer failed to deduct. This was decided by the Supreme Court (L. Nageswara Rao J and Aniruddha Bose J) and bears on section 209, section 209(1)(d), section 234B, section 208, section 210, section 190, section 191, section 195, section 200, section 201, section 143(2) of the Income Tax Act 1961. It is reported as Civil Appeal No. 1262 of 2016 with Civil Appeal Nos. 1256, 1268, 1271, 1272 and 1301 of 2016, Civil Appeal Nos. 5734, 5735, 4766 and 5737 of 2021 and Civil Appeal No. 3884 of 2014 (Supreme Court of India). This is the date line that decides a very large class of non-resident s.234B disputes, and it cuts both ways. For older years — reassessments, s.153A assessments, appeals still running on pre-2012 years — the taxpayer wins outright, and the Delhi High Court line in Alcatel Lucent that had gone the other way was displaced when the Supreme Court allowed those appeals. For financial year 2012-13 onwards the taxpayer loses that argument entirely, and the s.234B exposure on gross receipts is real. Two limits matter. The proviso bites only where the payer 'has paid or credited such income without deduction of tax' — where tax was in fact deducted, s.209(1)(d) still allows the reduction. And the Court reaffirmed that the Revenue is not remediless for the payer's default: ss.201 and the related machinery run against the payer. If it applies to you, the first step is this: Fix the financial year, not the assessment year — the cut-off is FY 2012-13, so an assessment year 2012-13 dispute (FY 2011-12) is still on the taxpayer's side of the line.
The respondent was a non-resident company incorporated in Japan carrying on trading activities through liaison offices in India in crude oil, LPG, ferrous products, industrial machinery, minerals, non-ferrous metals, textiles and automobiles. Notice under s.143(2) was issued on 12 October 2004 and the Assessing Officer passed an assessment order on 24 March 2006 for assessment years 1998-99 to 2004-05, holding part of the income attributable to Indian activities and taxable under Articles 4, 5 and 6 of the India-Japan Double Taxation Avoidance Agreement read with the Act, and charging interest. The assessee appealed only against the levy of interest under s.234B. The Commissioner (Appeals), on remand, framed the question whether interest under s.234B is payable where tax that was deductible at source was not deducted, and held on 10 February 2009 that the assessee remained liable to pay advance tax under s.191 and so was liable to interest. The Tribunal allowed the assessee's appeals on 23 June 2009 and the Delhi High Court dismissed the Revenue's appeals on 30 August 2010. In the connected batch, assessment orders on Alcatel Lucent USA Inc. for assessment years 2004-05 to 2007-08 and Alcatel Lucent World Services Inc. for 2004-05 to 2008-09 had charged interest under ss.234A, 234B and 234C; the Tribunal deleted the s.234B interest following the Delhi High Court in Mitsubishi, but a Division Bench of the Delhi High Court by judgment dated 7 November 2013 reversed that, holding that assessees who had denied liability could not later shift responsibility to the Indian payers, and a further Delhi High Court decision of 8 September 2014 followed it. The matter was decided on 2021-09-17 by the Supreme Court (L. Nageswara Rao J and Aniruddha Bose J). On those facts the Supreme Court held as follows. The Revenue's appeals in the lead batch were dismissed and the assessees' appeals in the Alcatel Lucent batch were allowed. For all assessments prior to financial year 2012-13 an assessee is entitled, under s.209(1)(d), to reduce from its advance tax computation the amount of income-tax which would be deductible or collectible at source, notwithstanding that it received the full amount without deduction; it therefore cannot be said to have defaulted in payment of advance tax and no interest under s.234B arises. From financial year 2012-13 the position has changed by reason of the proviso to s.209(1)(d) inserted by the Finance Act 2012 (paras 19, 20, 22 and 25).
The Court set out ss.209(1) and 234B as they stood before the Finance Act 2012, and the proviso inserted by that Act together with the Notes on Clauses in the Memorandum to the Finance Bill 2012, which state in terms that because courts had held an assessee not liable to advance tax to the extent tax was deductible or collectible from an amount received without deduction, the section was being amended to make him liable, with effect from 1 April 2012 and applicable to advance tax payable for financial year 2012-13 and subsequent years (paras 11, 14 and 15). Applying Cape Brandy Syndicate v. I.R.C. and this Court's decisions in State of Bihar v. S.K. Roy and Gem Granites, the Court held that subsequent legislation may be looked at to fix the construction of an ambiguous earlier provision, and reasoned that if the Revenue's reading of "would be deductible or collectible" were right the 2012 proviso would be meaningless and an exercise in futility (paras 17 to 19). It rejected the Revenue's argument that s.234B is a standalone complete code to be read without reference to the rest of Chapter XVII: the liability under s.234B is for default in payment of advance tax, its pre-conditions are a liability to pay advance tax and non-payment or short payment, and s.209, which governs the computation of advance tax, cannot be ignored in construing s.234B (para 20). It upheld the Delhi High Court's view and the Madras High Court's view in Madras Fertilizers that the Revenue is not remediless, there being provisions enabling it to proceed against the payer who defaulted in deducting tax at source (para 20). In the words reproduced by the source cited on this page: "There is no doubt that the position has changed since the financial year 2012-13, in view of the proviso to Section 209 (1) (d), pursuant to which if the assessee receives any amount, including the tax deductible at source on such amount, the assessee cannot reduce such tax while computing its advance tax liability." The decision followed or applied CIT v. Sedco Forex International Drilling Co. Ltd. [2003] 264 ITR 320 (Uttarakhand) — referred to and approved in effect; DIT (International Taxation) v. NGC Network Asia LLC [2009] 313 ITR 187 (Bombay) — referred to and approved in effect; CIT v. Madras Fertilizers Ltd. [1984] 149 ITR 703 (Madras) — expressly upheld; CIT v. Tide Water Marine International Inc. [2009] 309 ITR 85 (Uttarakhand) — relied on below; Ian Peter Morris v. ACIT — relied on by the assessee; Cape Brandy Syndicate v. I.R.C. [1921] 2 K.B. 403 — applied; Gem Granites v. CIT (2005) 1 SCC 289 — applied; Delhi High Court judgments dated 7 November 2013 and 8 September 2014 in the Alcatel Lucent matters — set aside by the allowing of those appeals.
It was decided by the Supreme Court on 2021-09-17 and is reported as Civil Appeal No. 1262 of 2016 with Civil Appeal Nos. 1256, 1268, 1271, 1272 and 1301 of 2016, Civil Appeal Nos. 5734, 5735, 4766 and 5737 of 2021 and Civil Appeal No. 3884 of 2014 (Supreme Court of India). Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 209, section 209(1)(d), section 234B, section 208, section 210, section 190, section 191, section 195, section 200, section 201, section 143(2), 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 cuts both ways and is cited by both sides. The Revenue's appeals in the lead batch were dismissed and the assessees' appeals in the Alcatel Lucent batch were allowed. For all assessments prior to financial year 2012-13 an assessee is entitled, under s.209(1)(d), to reduce from its advance tax computation the amount of income-tax which would be deductible or collectible at source, notwithstanding that it received the full amount without deduction; it therefore cannot be said to have defaulted in payment of advance tax and no interest under s.234B arises. From financial year 2012-13 the position has changed by reason of the proviso to s.209(1)(d) inserted by the Finance Act 2012 (paras 19, 20, 22 and 25). It arises in TDS Defaults, Demand, Recovery & Stay, Assessment & Scrutiny and How Tax Law Is Read matters, on section 209, section 209(1)(d), section 234B, section 208, section 210, section 190, section 191, section 195, section 200, section 201, section 143(2) of the Income Tax Act 1961, and was decided by L. Nageswara Rao J and Aniruddha Bose 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. For any year up to FY 2011-12, take the point squarely under s.209(1)(d): the advance tax computation stands reduced by tax that WOULD have been deductible, so there was no advance tax liability and s.234B is not attracted at all. For FY 2012-13 onwards, check whether tax was in fact deducted on each receipt; the proviso applies only to income paid or credited WITHOUT deduction, so a receipt on which TDS was actually deducted is still reduced under s.209(1)(d). Run the argument through s.208 first — s.234B presupposes a liability to pay advance tax; if s.209 leaves no advance tax payable, the pre-conditions of s.234B are not met. Where the Revenue presses for post-2012 years, ask what action was taken against the payer under s.201; the Court expressly recorded that the Revenue has that route.
Still good law. No decision doubting or distinguishing this judgment was located, and none was searched for systematically, so the label rests on the fact that it is a Supreme Court judgment of 2021 construing a provision unchanged since 2012. It was applied by the Delhi Bench of the Tribunal in Computer Modelling Group Limited v. ACIT (ITA Nos. 2090/Del/2023 and connected, order dated 3 May 2024), which was read on this pass at paragraphs 19 to 19.4 and which reproduces the proviso to s.209(1)(d) verbatim. Note the boundary: the judgment settles years up to FY 2011-12 in the taxpayer's favour and expressly leaves the post-2012 position against him. Entries in this library resting on the pre-2012 position for a non-resident (for example DIT v. Ericsson AB and Nortel Networks India International Inc. v. DIT) should be read as confined to years before FY 2012-13. 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 batch is large and the reported title on the source page spells the respondent "Mitsubhishi". The lead matter is Civil Appeal No. 1262 of 2016; the judgment lists ten further appeals of 2014, 2016 and 2021 in its cause title and names a second, larger batch (including Civil Appeal Nos. 1338-1341 of 2016 and others) at paragraph 22 relating to Alcatel Lucent USA Inc. and Alcatel Lucent World Services Inc. The disposal is split: the Revenue's appeals in the lead batch are DISMISSED (para 22) and the assessees' appeals in the Alcatel Lucent batch are ALLOWED (para 25). The version of s.209(1) and s.234B reproduced at paragraph 11 is expressly the pre-Finance Act 2012 text and must not be used as current statutory text. The Court did not deal with the facts of each individual case (para 21). 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 Revenue's appeals in the lead batch were dismissed and the assessees' appeals in the Alcatel Lucent batch were allowed. For all assessments prior to financial year 2012-13 an assessee is entitled, under s.209(1)(d), to reduce from its advance tax computation the amount of income-tax which would be deductible or collectible at source, notwithstanding that it received the full amount without deduction; it therefore cannot be said to have defaulted in payment of advance tax and no interest under s.234B arises. From financial year 2012-13 the position has changed by reason of the proviso to s.209(1)(d) inserted by the Finance Act 2012 (paras 19, 20, 22 and 25).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
Is a notice under s.143(2) a jurisdictional precondition, or merely a procedural step the Assessing Officer can skip?
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