Dit 1 International Taxation v. Alcatel Lucent World Services Inc

Judgment delivered on: November, 2013 + ITA 330/2012, ITA 338/2012 & ITA 339/2012 DIT-I, INTERNATIONAL TAXATION Petitioner versus ALCATEL LUCENT USA, INC. •Respondent + ITA 328/2012, ITA 329/2012, ITA 336/2012, ITA 337/2012 & ITA 340/2012 DIT-I,INTERNATI®M%jcATiON •Petitioner versus ALCAT|LLUCENTWORLDSERVICESINC ....Respondent Advocates who appeared in this case: ' ' ForthePetitioner. : MrN. P/Sahni, Advocate. f FortheResponded : MrM. S. Syali, AdvocatewithMrMayan^Nagi,Ms \ Husnai;Syali,lAd^cates. J-CORAM:- HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE R.V.EASWAR JUDGMENT R.V.EASWAR. J For orders see ITA 327/2012. R.V.EASWAR, J BADAR DURREZ AHMED, J NOVEMBER 7, 2013/hs ITA'Nos.328-330 & 336-340/2012 Page 1 of I r ; • 1'-. ' !• '1. . I-f PE HIGHCOURT.OF DELHIAT NEWDELHI Judgmentdeliveredon: f' November,2013 •H- , ITA327/2012,ITA|30/2012,ITA 338/2'012&ITA339/2012 , : DIT-I,INTEm4TiONALtaxation:- Petitioner versus ALCATELLUCENTUSA, INC. Respondent •+ ITA 328/2012,ITA 329/;20iav'IT'A^;>336/2012,ITA 337/2012 & , ' BITJ, "•••I Ht ALCAfElL,LUCENTW.pmpjSfRVICESIINC ....Respondent j;. j r'r"' f: >j *)"-•. kI Advocateswho appeared in this case: ji p « Forto PetitionerI ; MtN. P;!sSil)l%.S«:cgSate. ' ' r\ TV/f-T\/T.'i.'O iCi/oVt^-^.Qr'. t'A nirrSrci For the Respondent.|, . HON'BLE MR JUSTICE • .TUPGMENT la.V.VASWAR, J • • •

¶1Theseai-enine appealsfiledby theRevenueunderSection260Aof th(? IncomeTax Act, 1961 (hereinafterrefenedto as 'the Act').They are directedagainstthe coiimionorderpassedby the IncomeTax Appellate Paze 1 of33 ITA NVS.327-330&336-340/2012 ^ ' I \ ^ -. Tribunal on 21.10.2011 in ITA Nos. 3821 to 3824/del/2011 and ITA Nos. 3825 to 3829/de1/2011. There are two respondents in these appeals

(i) Alcatel Lucent USA, INC. and (ii) Alcatel Lucent World Services INC! In respect of the first assessee, the assessment years involved are 2004-05 to 2007-08 and in respect of the second assessee, the assessment years involved are 2004-05 to 2008-09. 2; 1nth On lO^'^ July, 2Q;]#'^th^^c^pt'|&a^ substantial question-oflaw,cojfliiijnWalltte|g'g|i|ls:- • ''Whetherjin^^ cf%i^^S^ethe 1pi f was taken4a#..ii4tladvmatter by consent. The facts is ^eajyiSaybe ^e]^a^|e^q|pe^catelLucent USA, INC., is atax-resid^'ofUSA and^s p^bfjrfe-AlcatelLucent Group. It supphedteleconi'equipments^to customersin India in the year under consideration,which is the FYE 31.03:2006, relevant to the assessment year 2007-08. It would appear that the aforesaid group startedits bperationsin Indiain 19.82 in terms ofan agreementwith ITI Limited,, a. public sector undertaking-which was engaged in the • manufactureof telephones.Thereaftera jk)int venture was established J -i / ^ r'j>^ \ •' " '% • Tribuhapegmtoerror in J:ioldtng'the asses^&w^not liabletipaymterestin terms ofiSMjion234B ofthe Iricome TaxAcp" I, ITANo.327c42012 relating to this Ir !'( ^ ITA Nos.327-330& 336-340/2012 Page 2 of33 ' !: 'i • with C-DOT at Chemiai, besides establishing a research centre at Bangalore. On 27.02.2009; a survey under Section 133 A of the Act was conducted in the premises-of Alcatel Lucent India Ltd., which is the Indian subsidiary and which according to the income tax authorities constituted the permanent establishment (PE) of the assessee in India. The Indian subsidiary provided marketing support services to the assessees.Basedon the^.rhaf|i;ml^ the assessing .sJ?"' S, officer in charge alsessmeffifc^Alcater'^^^ France, which • r, % r. was another nggshiiJ^tompan^^i^ngirMI^ same^^&or concluded e Taxation e to tax in r^&ms of the Doub US and was liab AvoidanceAgreementbetweemlndiaj'jM'd u • • I? India-on the ilpome earnedithereiiiA''B,'asM,.Qn\thesefuellings of the •1^ # assessing officercharge of ..the-as'sejs^meht of Alcatel - Lucent France, the assessing^omcerjj^ m charge of the assessment of the present assessee issued notices under Section 148 of the Act for the assessment years 2004-05 to 2007-08. It may be added that similar reassessment notices under Section 148 were also issued to the other assessee concerned in the present appeals, i.e. Alcatel Lucent World ServicesING, for the very same assessmerityears; in addition,for ' the assessmentyear 2008-09, a notice under Section 142 (1) was also -,. ITA Nos.327-330 & 336-340/2012 Page 3 of33 issued to that company. Apparently, these notices were issued, on the groundthat income chargeableto tax in India hEid escaped assessment.

¶4In response, both the assessees herein filed returns of income for all the assessment years declaring "nil" income. In the returns, the following note was appended, explaining why the assesses took the position that it was not liable to tax in India:. "a) Alcatel-Lu^nt^Si^AM^.IlC'MffatelJ%cent Inc." or the C^.^ak)0J is u^g^mpariy j,^^o^rpqratedin USA0^'lt^ii'^'atax'ftsi&dm df'USA to be/^qV'&rned by ' the proyisipns "J^ouble Taxation Avoidance^Agrepnent betw0.n\India • ' • aidUSACtheDTAA'):\^^h^' ' b) c) I • • ''hi'VPP Alcatel Lucent InS^^^^not have any office, Remises or othM^^fjf^^^^business in J^adia. D^nng th&^-ye(^';'imd^M:^^ Mcatel Lu&^nt to 'kiS£j§r^hustotners en^fgec0^jielecom. businSs^^%ke^,^Bs^^.ofi^^Jf§^g^yw made from for the same were af^osS^^^^^ffgym^sideof India. In view of above, the Company does not have any taxable presence in India and hence no portion of its businessprofits is taxable in India. The present return of income is being filed under protest and in pursuance to the notice " issued under section 148 of the Indian Income-tax Act,. 1961 ("the ;Act") by the Assistant Director of Income-tax, Circle -1(1), International Taxation, Drum Shape Building, I.P. Estate, New Delhi. The return is beingfiled ITANos.327-330 & 336-340/2012 Page 4 of33 only with a view to comply with the said notice. The act of such compliance is not an admission of any sorts that Alcatel Lucent Inc. had any taxable income in India for the year under consideration. The return is being filed without •prejudice to the Company's contention that the notice issued to it is without jurisdiction and bad in law. The return is being filed without : prejudice to the legal rights the Company-has under law to contest the above notice, including the right to challenge the extra territorial application of the Act in the present case. The • act of filing^^&^-fMf^^irB'-.c^plianceto the 'k' rt7n W/ /-Wl1 ^ Tyj C !/y/! /TO A1^ /l fO1 Indian <t^!Tax whdtsomer." / v u a i \ %

¶5The asslssiiigofficerhowever,did)not acceptth^"'assissee'sstand !}}- and in the assessmentorder pasqed^oi^S^!i03.2010-attributedjS.5% ofthe I| ' 1 ' f sale proceedsIf tlie hardware^'as,profita^^^ to the|PE in India, which came to ?24,0£f6j&52-38/-for the assessmentyear^2p07-08. Similai re-assessments.were of both the assessees.In the re-assessmentorder,in additionto the aforesaidincome, the assessing officer also directed that interest under Sections 234A, 234B and 234C shall be charged. Demand notices were accordingly issued.... ITA Nos.327^330d 336-340/2012 ^ .1 .! ?•

¶6Appeals were taken-by the assessee in respect of all the assessmentyears.beforethe CIT (Appeals).Threegroundswere takenin the appeals. The first ground was that the'assessing officer en'ed in computingthe income of the assesseeas was done in the re-assessment orders;the secondgroundwas that onthe facts and in the circumstances ' of the case Eind in law, the assessing officer erred in levying interest under Section234B that the^ej^ireconsiderationin the hands ofappe0ii}:0^s source under .Section 195 offiieMt";th^®]|^eoundwas againstfjh|^initiationof "• • ilfiiiit.1 js! "i/- penaltyproce^ingsfor allegedi;GQife]||ll^ntofincome. . I • §!|trail I I i;|ij 5 y!, 6% j

¶7Beforelie CIT (Appeal^J&|a^J|edid not presst|e appealsin % .,'5, / respectofthe fistgrq^d^^ellll^r^ ofthe •%, . income attributabll^tj^fc' Jndiai^0hly g]:ou^'No.2which was ^ \ ,r XV' ^ ^ ^ directedagainstthe levy of%ie||sggidg3p^^^ 234B of the Act,was , pressed,the contentionbeingthat it was the liabilityofthe purchasersof the telecomequipmentin India to deduct income tax at the applicable rates from the remittancemade to the assesseeunder Section195 ofthe , Act, that in view of the language employed in Section 209(l)(d)the assesseewas entitledto take creditfor the tax whichwas "deductible"at ITANOS.327-330&336-340/2012 Page6of33 •' i \ nA source while computing its liability for paying advance tax and if the amount of tax so "deductible" by the payer in India is given credit, there was ho amount of advance tax payable by the assessee, and if that is so there was no question of the assessee being liable to pay any interest under Section 234B. Several authorities were cited before the CIT (Appeals) in support of the above contention including the judgment of a Division Bench of this'-courti inSBmectm.. • ... rpj .r- 'i • • Civil IncQiworatedFandsMitsubisMBjitf^i It was submitted b^re the'^glllil,^^ courtheldth^ Section195 plapil^||||Jationon the pay|rto deduct II.. 330 ITR 578, •% l^'that in 'this,j'^dgment,this tax at sourceIkt the rates in fDidilroialthe payments I # payer has defailltedin dMucMgmeKlaifiitdiwas';^^^ to the'Income Tax mad^ and if the i j ^ 1, '1 . 5 -x h. Departmentto ta%^'^<^'''Bgainstthe p^pi. uMea ^%etion 201 of the Act, but no action can be taKen foi iecoveEy«t)X.the''mterest under Section 234B from the non-resident a.ssessee. It was further held in this decision that the non-resident Avill, no doubt, be liable to pay the income tax on the incomeassessedupon it, but it cannotbe held liable for paymentof any advance tax thereon if the tax deductibleby the, payer in India exceedsthe amount'of advancetax payable on the estimatedincome.It was furtherheld that the positionwould be so even if the income tax ITANos.327-330 & 336-340/2012 Page 7 of33 was not in fact deducted from the remittance because Section •(l)(d) of the Act permitted the non-resident assessee to take credit, while computing its advance tax liability, for the amount of income tax that was "deductible" from the remittance, though not actually deducted. It was furthermore held in the judgrnent that once it was found that the liability was that of the payer under Section 201 of the Income Tax Act, whichrpermittedptlvery^pf thfe^ax froi^^the payer by 'treatinghim as a#a,sses'^e ixi de!Mt and, alSGC^r^pdy^ryof interest # i;- • f i' sr i f %• under Section2'ai««|:l'A)for the.default,in not deductdpg%e tax, there l -E'- ^ 'I • can be no liability fastened'u]iioji|M^|ion-residentassessee to pay I I I I interestunde]|section234B. | • \ ^ • I • '4 "

¶8The CIT (|Lppeai'0tHfi.®P^®d assesseebased on the languageem|;lo^si-inSectiona^^ lead ^^ylth Section195 of the Act and on the basisofthe5juB:gmgi||gied-aboveand held as follows: "In this case, it is undisputed that .the tax on the entire 'income received by the appellant ^yas required to he deductedat appropriate rates by the respective payers u/s 195(2) of the Income-taxAct. Had the payer made the deduction of tax at the appropriaterate,,the net tax payable by the appellant would have been Nil. Therefore, it is clear that there wqs no liabilityto pay advance tax by the appellant.I have carefully gone through the various judgments relied upon by the appellant in-this regard. The • ITANOS.327-330&336-340/2012 ' P<^ge8of33 jurisdictional High court i.e. Hon'ble Delhi High Court, in recentjudgmentdated 30^'^ August 2010 in the case of Director of Income-ta^ vs. Jacabs Civil Incorporated/' Corporation i (2010) 330 ITR 578 (Del has Held that section 195 puts an obligation on the ' payer, i.e., any person responsible for paying any tax resident, to deduct tax at source at the rates in force from such payments and if payer has defaulted in deducting tax at source, the department can, take action against the payer under the provisions of section

¶201In.such a case, the non-resident is liable • to pay tax but there of payment of advance-tax liable to pay interestji/!s 23'^ "^01^ hecotirii^dfd^f^ of the payer in deMictin^axsow cefrom the^^B^higtsmade to the app^laS^" ''i , %.• # I' ^ i 'I

¶9The Refenue' carried the mattei,m appeal before the fncome Tax I . " I o AppellateTnbiinal.Allthe nine apl)eks?if0urin the caseofAlcatelLucent I • I Before the Tribunal thS^ccmt^i&i®t^efflj^i^b^alf of the Revenue was thatatthe time ofthereceiptofmoniesfrom India,the assesseehad taken the pleathat it did not have a PE in India and thereforethe paymentwas not chargeableto tax in India and consequentlythe provisionsofSection 195 werenot apphcable,whereasin the appealsbeforethe CIT (Appeals) acontradictorystandwas takenby the assessee,by acceptingthe factthat it had a PE in India and admittingthat the income earned in India was • ITANOS.327-330&336-340/2012 Page9of33 =4= chargeable to tax. Nevertheless, it was pointed out by the revenue, the assessee still (iontended that no interest under Section 234 B can be levied because if the entire income was subject to tax in India the consequence would be that it was the responsibility of the payer to deduct tax and if he has not done so, the remedy of the Income Tax Department lies against him in terms of Section 201 and not against the assessee under Section 234B. The Revenue seriously'contested4his,. contradictory stand taken by C1 ^ ^ , •%. the assessee beforeithe?; "" that the assess.efe pointed out md taken by tlie assessee originallyintiereturnfiledin i;b^J)4nSi4.thenoticeunderSection148, •it wouldhave told the MiariMa^t-Afe not have ai^ PE in India andthereforeno t&liiMdle^deductedJfeomtherf^iMnce;and having said so and-ledthe payefedBgndiato-mag^^e'entirepaymentofthe purchaseprice ofthe equipmentswithoutany deductionoftax in terms of Section195, it is nov^ not opento the assessee,merelybecauseatthe first appellatestage it did not choose to contestthe assessmentofthe income attributableto the Indian PE, to turn around and say that now that it has acceptedthe liabilityto pay tax on its Indianincome,it wa§ lTANos.327-330&336-340/2012 , >'. Page 10 of33 for the Indian payers to have deducted the tax and if they had not done so, the assessee cannot be held liable for the interest. It was further pointed out by the Revenuethat consequentto the amendmentmade to Section 201 by the Finance Act, 2012 with effect from 01.04.2012, time limit of four years was set for taking action under' Section 201 and therefore iio action can be taken against the payers for the years under considerationsincethe afof^sajd^tim^tmi^.'fi^^lreadyexpired.Itwas submitted that wheno^diiis''courtssd^cadedthe-<p|sf\f Jacabs Civil fW .-ir. V ^ % "n t;n,« tsllf no time limit for takiilg action agains®e|E^ijfNowthat the acfion against I •« is 'PiU ji f: ' I J of the interest under. Ser.tion'23,4B. -ryfh-^i T|( A-' .,-W" '10. These.submissionsofigie Repniie^JJs^OffBtfind favour with the •ft S «" fl «• • "I i| II 1[| If. |i j. the payerhas|becometime baq^S^lf^ljIasisof the judgmJithas been i| - |f removed,with'^eresuIt..ihatikS|s^s||^w^l^ payment Tribunal.If held that undisputedlythe tax on the incomereceivedby the assessee was requiredto be deducted at source at the applicable rates by the respectivepayers under Section 195 of the Act. In terms of Section 209(l)(d), the income tax calculated on the estimated incomeofthe assessee'is to be reducedby the amountoftaxwhichwould ITA NOS.327-S30& 336-340/2012 Page 11 of33 be deductible at source. No tax was deducted by the payers, for which the assessees cannot be faulted. However, the assessee can take credit for the tax which ought to have been deducted by the payers because the requirementof Section209(l)(d)was that the tax "deductible"could be talbn credit for and it was not necessary that the tax should have been actuallydeducted;In additionto this reasoningbased on the languageof Section209(l)(d),the Trp3uiM,^phe|d,;^th1^ei^enceto the argument of the Revenuethaftheks&ssee jjatepresenteC^pApayersthat the 'V \ • incomewas nOtMiabJenodeduclionof M: at source(EtMhefewasno PE), §i tsifcC"'' \ \ |\ 1' ^ I that "no suchMaterialin suppoitofthisplea has beenplacMbefore us ft' Ik %S:5\ '4, I ' t! If 'L IVl' nor any sucJ^facts and circuyi$t&JicM,erii.ergedfrom tJ^ impugjied orders ". .4 7';r S' •r yfl'' • 11. The ariswer^fthe,.T:.iibunalto the^igmnpnt^,pfthe Revenuebased oil the time limit set by the. amendment-madeto Section201 with effect from 01.04.2010was thatin terms ofSection40(a)(i),insertedwitheffect from 01.04.1989, certain types of payments which are claimed as a deductionby the payer wouldnot get the benefitof deductionifthe tax was not deductedat source,if such paymentswere made outside-India. Accordingto the Tribunalthis provisionensuredeffectivecomplianceof ITA Nos.327-330 & 336-340/2012 Section 195 of the Act relating to tax deduction at source. The Tribunal eventually fO'Und that the controversywas covered by the judgment of this court in Jacabs Civil Incorporated- (supra) and accordingly confirmed the decision of the CIT (Appeals) that the assessee was not liable to pay any interest under Section 234B of the Act.

¶12According to the learned standing counsel for the income tax department,the approach,ofIhe,Tiib^^ is,,sOTouslyflawed. According to him the legal position that the non-rfesidetitasCe'lsee^lsentitledto take O r^j. ^ t r ^ •% credit,while colng^ingits advancet|x liability,for^\th|t|x which was "deductible"tioughnot actuallydeducted/iivithinthe meaniii^ofSection i ' 1 li \ i • the present 209(l)(d) I • is ntt applicableto lhi ia#M%e presentcase. M ''w: /.y •iv, . ,•••4 ooooo^o taxsrii case, the assessfeeinitially''dispute^ils'^ft^il^^ India and ^ f' ••^^rnismkrnt^ . ailiculatedits staiilmthe noLe,a|)pende4^t0^'€ie€etuins^^ in response to notices issued under Section^148:;;;.andeveu filed appeals againstthe reassessments;but beforethe CIT (Appeals)it gave up the claim that it was notliabletotaxinIndiaand pressedits claimonlyto the extentofits liability to pay intkest under Section 234B; It is submittedthat this factual positionis in completecontrastto the facts before this Court in Jacabs(supra)wherethe assesseeadmittedits liabilityto pay tax on the ITANOS.327-330&336-340/20J2 ' Page 13 of33 Indian income in the return filed by it and the payer was, therefore, found clearly liable to deduct tax. It was in those circumstances that this Court . held that the tax was "deductible" and the non-resident assessee can rightly take credit for the same, even though the tax was not actually deducted, while computing its advance tax liability, According to the learnedstandingcounsel,it is notopento the'non-residentassesseeinthe •present case to say that thdti|h it, was inot liahfeto pay tax on its Indian I) fjM?- :• .A income, but still the Indian telecom equipmeritide,ai%. ought to have •t, ^ deducted the tax uifd'CT Section;:195;,of'the^Act. Acc&rdiri|,to him, this wouldbe acontradictorystand\tSich\caiinotbe acceptedat all. I HlKiUu f Iff VV'h ('I .

¶13The learned counsel for tlie','asse^sdfeinter alia made the following

(a) The h^pif^'ofthe^^eroft^^^ deduct tax from tlie'payiHenfcunder-''^^^^ 195(1) is absolute and does not depend on the stand taken by the non-residentassessee with regard to the question whether or not the amount remitted gives rise to tax liabilityunder the Act in India.In case the payer has any doubt about the taxabilityof the sum remittedby him in r the hands of the non-resident assessee, it is open to him to make an % submissions:\ « fjh.; M :,t5 the non-resident to ITANos.327-330 & 336-340/2012 Page 14 of33 'v • , / - applicEitionunder Section 195(2) to the appropriateauthority to have 'the income portion of the sum determined for the pm-poseof deduction of tax; i

(b) If the payer fails to deductthe tax, his liabilityto make good, the pa^^mentalong with interestis governedby Section201(1)and

(lA). This liability is absolute and exhaustive of the remedy " ^ oses the4illail .#• . "V % available to the revenuief

(c) Sectioif201(1ti^)whichsiffiposesthe€i^i]%upon the payer \ ' I % to pay int&est''6n the amount which'Ought to Bafe d;eductedfrom the sunlpaid to the rion-iesident and Section 234B i?5 ^ interestlDnthe non-resideii)i|al^fessfeefor non-paymen tax are mkuallyexclusiveanljpperafl^iSlfeentftct-situations. They axe nd' alternativecourses in,,ttt"e^senMlh^the department •'..-Jill'' i '-1 «:| %;ri can choose to pioreed underAhe^one-'or^he'other; f. . ^

(d) Thereis no concessiongivenby Section201 in the sensethat no pleaofreasonablecausefor the failureto deductthe tax canbe entertained under that Section;

(e) The provisoto Section209(1) insertedby the FinanceAct, 2012 amending the sub-sectionto provide that the non-resident 'hich levies fof advance •-.^1 ITANOS.327-330&336-340/2012 ^ Page15 of33 . assessee can take credit only for the amount of tax actually deducted by the payer while computinghis advance tax liability was inserted only w. e. f. 01.04.2012 and would apply only from the assessmentyear 2012-13.The amendmentis not clarificatoryor explanatoryand has been made expresslyprospective. 14, In his rejoinder, the learned standing counsel for the income tax departmeritsiibmittedJiSt tlie%ci|fiiMQnof'l|ig;»expression"assessedtax" appearingin Sectfon®2jM(5) is diffcientfrpm thedefjriitionof the said • ' ~ 'h I. "*•€'. '% . expression apDtearing in Explanation, 1 ^below SectiQil;^^2MB and this • I*• • "'"I makes a cruqikl difference in the assessee's case. He pointed out that I •• ,|| under the aforesaid Explanation, as it stob.d both before being amended I , . I by the Finance B.ct, 2Q06"#;,.e:.^f;'D,l;;.04.2007and thereaftef, only the tax actuallydeductedat^^lbMceil'''p.ermitted^^ deducted'from the tax on the total income determined;iMer«the^=Te|m^i€ssessment and if no tax is deducted at source, no such adjustment from the tax on the total income assessed is permissible. In other words, his contention was that • the ExplanationbelowSection234B overridesthe provisionsofSection \ 209(l)(d)and, therefore,the benefitofreducingthe tax onthe estimated income by the tax which was "deductible",but not actually deducted, was not available to the non-resident assessee. , He further pointed out . . ITANOS.327-330&336-340/2012 Page16of33 .a- "h thatmthe presentcasethe payerImewthatno incomewas chargeableto tax in the hands of the non-residentassessee as the sum remitted representedthe purchasepriceofthe telecomequipmentsand, therefore, advisedlydid not deductany tax from the remittance..When the assessee acceptedits tax liabilityin India,itfollowsthat it would also be liableto pay interestunder Section234B for failure to pay the advance tax and suchaconsequencecamjof ^•^tE^liability is admitted. He furthersubmitt^ffte^e dedsWBfthis (supra)did not deal with all th$factual^sit|Si;i#sposspe, becaug|,.m|thatcase the "assesseeadmiledthetaxable'idc^Mfevenillthe returnandtllbpayerwas f 'f' i ,ir I y 1,4 w!>f j;'i. (/ j.f also foundnal|eto deducttax. Aliprdialitohim, the presen|casestands % f a on a completel^idifferentfooting % .,4 . . ' ' ^

¶15Both the sH#^ filed wiitten submissions^^^te'havealso been '" . ' ,, , .1 ,4 r " Z'"' takeninto considerationv^'hiledisposingofthe appeals.

¶16• In the light of the judgmentof this Couit in Jacabs (supia)^tlie inteipretationto be placed on Section 209(l)(d) in juxtapositionwitl, Section 195(1) is that which is canvassedbefore us on behalfof the assessee. However, we find merit in the submission of tlie, learned standingcounselfor the mcoine tax departmenttliat on the facts of the presentcase, the aforesaidlegal positioncajmotbe applied.As pointed ITA Nos.327-^330&336-340/2012 li r,-. GUt by him, in the case of Jacabs (supra) the assessee filed its return of income admitting tax hability on income of ?296,83,278/-. On this income it did not pay advance tax on the due dates. The assessing officer proceeded to charge interest under Section 234B, oVeiTulingthe assessees objection that'tax was "deductible" by the National Highway Authority of India for whom the assessee was executing tile projects. The plea was, however,acceptedby |Aj|f||a|s).p{1.8!B^comeTax Appellate Tribunal. It was int^ftiQsefacts 'that^ffl^jCourt hSld^tha^ince it was the # ' •> V t'"- ^lv ' XV •'% #'.17 £ V ^ J ^ % duty of NH/J[ to deduct tax itSf"195(1) fr&i'the payments I J V made to the assessee, and even though no 'lax was actually deducted and ' I ie NHAL the assessee(^aslrelidtledto take creditffor the tax \ • ^ which was '"deluctible'ifbystheMTAJt 'advancetax liability.In the ffl;|l|^ic^q^^J;hefactual^posgi|<^^ different. %!- "j;. >(#" .rf#' Herein the assessee didtnot admit any.,me%ipi«m the returns. In the note appended to the return (which we have extracted earlier) the assessee denied its liability to be taxed in India on the ground that it had no PE in India. The assessee also pointed out that no income from the supply of telecom equipmentto the Indian dealers arose in India since all sales were made from outside India (in the USA). The assessingofficerdid not accept the claim made in the note and ITANOS.327-330&336-340/2012• Page 18 of33 • proceededto assessthe assesseein respectofthe incomearisingin India from the supply of the telecom equipment on estimate basis. The assessmentwas not acceptedand appeals were filed but in the appeals the assesseedid not press the ground of appeal againstthe computation of the income, but pressedthe appeals only againstthe levy of interest under Section234B. Thus it was at the stage of the CIT (Appeals)that the assesseeacceptedits.^0iabiIipihTndia..'1fe^ be incongruous, f l %J 1=^,15? ""'V as pointed out oi^^qh^lf'Stthe leyenue, to' hold/Jih^l^enthough the •fe. • •^1.&- •Si' /p. ,#'• "^'1' '1 ' •'I- '/ assesseedidnoi^dmifany taxliabilitym\Iiicffawhilellifig the returnand f ^ a- • rici ' "••i,.!'.'.- •even up to thefstageof first appeal, and con'espondinglythesj r, (V I U I. M. I ayers were also not liableslto deduct tax und^1S,e|ti:d;|i195(1),still it ca| t for the tax "deductible"^'though,not dedudte^,by the India take credit I' Indiaa payers from the remittance made. makes a crucial difference .|c bfenefitof the decision of this Court m Jacabs (supra) cannot be extended to the assessee. '

¶17The learned counsel for the assessee, however, put forth two •arguments in rebuttal.The first is thatthis Courtalso decidedthe case of MitsubishiCorporationin the samejudgmentdated30^''August,2010by which Jacabs'(supra) was decided.In this behalf,he drew our attention ITA Nos.327-330 & 336-340/2012 Page 19 of33 • A to the first paragraph of the judgment in which this Court observed that except in ITA No.491/2008, in all other appeals, M/s. Mitsubishi Corporationwas the assessee-respondent.However, the issue in all the cases was the same i.e. chargeability of interest under Section 234B. AA^ile naiTatingthe facts, this Court took note of the facts appearingin ITA No.491/2008whichrelatedto Jacabs (supra). The Courtproceeded orders Mitsubishi •# ry c f V- - V" % Corporation,ir^er^fchargedufider Section 234B ^§^%ct has been i

¶1deletedby th^IribunoF.Oh the basis'of^itheseobservations|thelearned i • • • i • counsel for th| assessee submitted-tnatlthe facts of Jacabs ana Mitsubishi I It' i •K'S; ••i-'t; t > I CorporationweSethe sam;e;;K 'l|. i '• suhunoned the file of

¶18In order to ascertain.the^,correct position, w©»surnj V ' 'is, ITA No.229/2010 vs Coruoration. The order of the Tribunal is dated 23.06.2009. Paragraph 2 of the said order reads as under: - "2. The appellant Mitsubishi Corporation is a Japanese non-resident company and it had been carrying on its activities through its liaison office in New Delhi and offices in other cities called "divisions". It claimed that it has no income taxable in India. The department, however, carried survey and recorded statement of General Managers in India and, on the basis of documents recovered in survey, ITA Nos.327-330 & 336-340/2012 Page 20 of33 held that a portion of income ofthe assessee attributable to Indian activities was liable, to be taxed in India under. Article 4, 5 and 6 ofDTAA betweenIndia and Japan and under provisions ofthe Indian Income Tax Act. Initially, the assessee resisted such assessment but ultimately accepted that income taken by the AO was rightly taxed. The quantum of assessments was not challensed before the Id CITfA). The challenge was restj-icted to the levy of interest u/s 234B of the Act. Before the Id. CITfA), assessee placed reliance on decision oflTAT in assessee's own case for AY 2005-06 wherein similar interest u/s 234B imposed on the assessee was deleted vide,MrdmsimfIA No.848/D/08 dated

08.08.2008 after a/d^ailedfdisfus^gri: matter of judicialdisciplMe,fhe^j^JClT(A) %]iguid^nav^^.followed order ofITAVpiveh-ihidenticMssircim^stamesjgjMi.deleted themterestmeyi0d, moi^ewaxptP^t^fy:^ whemaecis'ion of Hon'ble-Supj^te UnidW^fIi^dia and oth^rs^i^. Kamalc^^^^p^ieCorporai'ioh^fd.,' [1992Ar 711 (SC)J JurisdictionalAgh Court (pel) in case ofNdkia ^Cpfppration v. Directors of irri /r J. ^ • Ti) _ _ were oro.usni to ms nuLLcein-anusipiace^u on riicoru.mne. r -•:••• Si; also noted th0^^^fu^idl^mis(^^ subordmSk,,a(^:i^Hiveslf^^ iiec\&^&^;00iigher authorities.^Ei^onevMi^actedjust^eo^poA^" 4,1'' r '"j

¶19It is thus noticed that the facts of Mitsubishi Corporation are different from the facts of Jacabs and are akin to the facts of the present case. Therefore, the observation of this Court in Jacabs case (supra) that in the case of Mitsubishi Corporation, interest was charged under .Section 234B. under circumstances similar to those obtaining in Jacabs case appears, with respect, to be inaccurate.The facts of the present ITA NosJ27-330 & 336-340/2012 case being.similar to those of Mitsubishi Corporation^have'to be, therefore, dealt with separately. This Court would appear to have proceededon the assumptionthat the facts of MitsubishiCorporaiion were similar to those of Jacabs (supra). Since it is not so, different ,considerationswill have to be applied and the legal position laid down in Jacabs case cannot automatically be invoked and applied to the present case. • '% %14 fi }

¶20. The other .SrgviMehton behSlf6f tlft asiess^'thalvthe liability of : . • # '€,'%/ the payer under S'^dion201 is^®sSml|^ froM«t^ liabilityof f the non-resident assessee under 234B need not be ej^amined and •I • f ;fjif I for the purposiofthe presentc^sfei notmake any difference,on % I' M ^ / account of the p,eculiafMfei;s>6fthe presehfWse!llltHn.ayb'e recalled that • the argumentput foitfivbytherevenue.hef6fe..tH'e"Mc0meTax Appellate • • 1-:^ ^355^5=^""' ^ Tribimalwas that at the timea5£the"fgceipts^^^ firohi India, the assessee took the plea that it did not have any PE in India and, therefore, the payment was not chargeable to tax in India, with the consequence that Section 195(1) was not applicable, whereas in the appealsbeforethe CIT (Appeals),a contradictorystandwas adoptedby the assessee, by accepting the fact that it had a PE in India and by 1TANOS.327-330&336-340/2012 Page 22 of33 admitting tliat the income earned in India was chargeable to tax. It was further argued by.the revenue that such a contradictory plea cannot be permitted to be taken by the assessee. It was'pointed out that consistent with the stand taken in the return, the assessee would have told the Indian payer that no tax should be deducted from the remittance and it was, therefore, not open to the assessee, merely because at the first appeal stage it chose .not to SiCOiltegFthe^jassessment of the income • I VI "• 'X attributable to the;iIndianTE, to tuin aiound ahd/say''that since it has now accepted il(s'Ifafellityto payHaXon theIndian inc0i!le,%was for the •' '-S • Indianpayers|tohave deducted^the|ax and ifthey had notiponeso the assessee canAt be held liable|f|]||tfciiinterest.This argumentof the I " I revenue was r^ectedbyitbc 'tribunaloh tlie ground that,|iherewas no materialin''suppoft^ffle:;pieaKthatthe assesseerepresentedto the-Indian payersnotto deducttaxfiioitdicJ^)^^ emerged from the irnpugned orders.

¶21We are unableto upholdthis part of the decisionof the Tribunal. It must be remembered that in the note appended to the return the assesseewas quite categoricalin denying its liabilityto be assessedin India. It relied on the double taxation avoidance agreement between 1TANOS.327-330&336-340/2012 Page23 of33 India-and USA and pointed out•that there was no permanent •establishmentin India.It furtherstatedthatthe telecomequipmentswere sold outside India and the payments were alsb received outside India and thus the assesseedid not have any taxable presence in India so as to be liablefor tax on its Indianincome.If this was the standofthe assessee,it is not impermissibleor mireasonableto visualise a situationwhere, the assessee would have represented itp. Its Indiaii'^elecom dealers not to • • •• f I /I-' fr /f%. deducttax from tl^-ipmift^ces. nia» it. On llid#pi!kary it would be .. . , surprismg if the-ass-gsseedidtoafcmake anyFsuch representation; such a . } representatioi|would only bipyc;M|istent v/ith the asse|see's stand I I • regarding its lax liabilityin In&ia..|]|[%^over,no purposeivould have % I been servedby^e assess'eet^in^^jii^'fel^egoricalstandf'regardingits tax liability in India 'and at the same time suffering tff:|^ldeductionunder Section 195(1). Therefore',;,||ioui opinion',even though there may not be i-i any positive or direct evidence to show that the assessee did make a representation to its Indian telecom dealers not to deduct tax from the remittances, such a representation or informal communication of the request can be reasonably inferred or presumed. The Tribunal ought to have accorded due weightage to the strong possibility or probability of such a request having been made by the assessee to the Indian payers ITA Nos.327-330& 336-340/2012 Page 24 of33 since otherwise the denial of its tax liability on its Indian income would have served little purpose for the assessee.

¶22.In Esthuri Aswathiah vs. CIT, Mysore i (1967) 66 ITR 478, a three Judge bench of the Supreme Court, while expounding on the functions of the Tribunal and its duties while disposing of the appeals, had this .to say: . s,T proof oj act uvin probabilities,fuM&rf&mvtionsmay sunUv gaps iriMie evidencewhidHih^^iU,on accountofdMav . or the Matureofthe tramiict&^MMbr other reasoni! be suDpliechfrom B^kj^he. Tri^hnal Between the''Uai^J-of^pt^^ of the taxpayers, the a judicial ' balance.' (underlining ours).

¶23The Tribunal,keepingin mind the above observations,underlined by us, ought to have drawn the inferencethat the Indianpayers did not deductthe tax under Section195(1)becauseofthe requestmade by the ITA Nos.327-330&336-340/2012 25 of33 ;; assessee, consistent with its stand that it was not hable to be taxed in India.

¶24The learned counsel for the assessee submitted in the course of his arguments that the assessee and the Indian telecom equipment dealers cannot contract out of the statute and, therefore, even if such an arrangementhad been made between-theffl.it cannot be given effect to andthe liabilityofthe^ifiSiEmfpH^yriu^^ %pt^n'has to be strictly 4/,n, enforced. In othef wf)r3s, it was his contention tlat,.th%Indian payers #' . k ^ -C" .'<1, ' j I I ^ ought not to ifaVeSpaid any heed, and should haveftacteU strictly in I . f I accordancev/fh Sections195(l|.^even^a4^ but not admittingthat view of the there I ^ . • j was sucllarequestfromth|ffese!^|^||rakingapracticd ... J, matter,it is difficultto/se,e'.hQ\^^,,$h6an^iam^Jpayprs> have resistedthe vV^./ requestwhich, acc6rdilig'tb,6ttrinferenoefwasmade^bythe assesseeto ""•W i rr ill'* them not to deduct tax fiom the remittances ?Plie Indian payers have to keep in mindthe foture businessprospectsand itwas necessaryfor them to keep the assessee in good humour so that the business relationship remains profitablefor them.' They would have been in no position to resistthe request.Moreover,since the sales were claimedto have been •concludedoutsideIndia, againitwouldbe a fair,and reasonableinference •to be drawnthatthe Indiandealerswouldhave had an interfacewith the ITANOS.327-330&336-340/2012 Page26 of33 i• assessee in USA v/hile concluding the sale contracts and on such an occasion it is normal for the parties to finalise all aspects touching on their relationship including the tax compliances. It should also be remembered that no reason whatsoever has been given by the assessee as to why. it did not press its appeals before the CIT (Appeals) on the question of liability to tax on its Indian income.

¶25In the lightofth^^evft^ehfe^ixs dnfthe^fatftsvofthe presentcase, af iff % we do not consider, cited by both flie^siEes.It is/fioly^^^^essary to juSt highHghtone' , I • HiPSf I aspect of thelmatter.This wa|'"'inff||S|)omtedout on b&alf of the , I revenuealso. It is opento the a^slsfeSm-kenyits liabilityt^tax inIndia on whatever gr|unds,4|ffiin%A Ila^gJenied its tax ^ % % .fsP'- .# liability,it seems lihfaif'ontH&-part,4^£Jae^ssess|^yexpectthe Indian , < ,. n "iA pavers to deduct tax fiom thcjemittanceOfaiS-'^also open to the assessee to change its stand at the first appellate stage and submit to the assessmentof the income. When it does so, all consequencesunder the Act follow, includingits liabilityto pay interestunder Section 234B since it would not have paid any advance t£LX. Such liabilitieswould ariserightfrom the timewhenthe incomewas earned.Advancetax was introducedas a PAYE Scheme- "pay as you earn". It is not open to ITA Nos.327-330 & 336-340/2012 • P' the assessee, after acceptmg the assessment-at the first appellate stage to claim that the Indian payers ought to have dedudted the tax irrespective of the fact that the assessee itself claimed the Indian income to be not taxable. We can understand an assessee who admits its tax liability right from the beginning to contend that it was the responsibility of the payers to deduct the tax and if they did not, even then-the tax which oughtyto'have teeff'^de^uciiedsi^bythem'should be set off against the assgssee's MvanceitaMiabilities.^CDhat i%the type of case dealt with in thS decision of®l'''Cbui^%i'Jacabs %We were not with in thS depision of this Cpurtin'J • ••• ,f fw f jk .ill "referred to alsingle case whjercmn, facts similar to the vfcase of the I ^ I . .1 assessee before us, the Court tp^ok ,the, view that no interest under Section 234B was chargeabj|,-ihliSa^f^j^mbiskUCc decided along wfthMie^^^^ of Jacabs, "syiai on factl" similar to the assessee's case." Howe^er;%^Aoinle'd olitliy-^i^s^earlier, this Court' in I i'l"* '5 Jacabs case proceeded on the assumptionthat the facts in Mitsubishi CorporatiojLwere similar to those in Jacabs. That assumption,as we have earlier demonstrated, with respect, is not borne out by the facts. '26. It further seems to, us inequitablethat the assessee,who accepted the tax liabilityafter initiallydenyingit, shouldbe permittedto shiftthe responsibilityto the Indian payers for not deductingthe tax at source .ITANOS.327-330&336-340/2012 Page28 of33 . 'V d from the remittances, after leading them to believe that no tax was . deductible. The assessee must take responsibility for its volte face. Once liability to tax is accepted, all consequences follow; they camiot be avoided. After having accepted the liability to tax at the first appellate stage, it .is unfair on the. part of the assessee to invoke section 201 and point fingers at the Indian payers. The argument advanced by the learned counsel for the assessee thafthe^ndiahfpayers failed to .#r is ,-,W' "s •" "'ii deduct tax at their of^dnyeinience or despair. own risk seems to-4s to. fe-onlyan^ppgumentof^qnv^eni As we have poiitedfout eailiei, itus difficultto ima|-iile.that the Indian telecom equipfaentdealers ^ Via^^P' fmlfsvi tr» rlpTlnr.t I tax.at sourceIxcept on bei thatthe generalkuleis th^'i:equ|g\lM mthe interfrffetationoftax laws But we .are1oMie.^#iew that when the facts particular case justifyit, it is opento'^isjb^ pnnoiplesofequityeven in the interpretEitionof tax laws. Tax laws and equity need not be sworn enemies at all times. The rule of strict interpretationmay be relaxed Where mischiefcan result because of the inconsistentor contradictory stands taken by the assesseeor even the revenue.Moreover,interestis, inter alia, compensationfor the use of the money. The assesseehas had-the use ofthe money,whichwouldotherwisehave been paid as advance would have fail^jd to deduct filfll • • ITA Nos.327-330d 336-340/2012 Page 29 of33 r tax, iintil it accepted the assessments at the first appellate stage. Wliere the revenue has been deprived of the use of the monies and thereby put to loss for no fault on its part and where the loss arose as a result of vacillating stands taken by the assessee, it is not expected of the assessee to shift the responsibility to the Indian payers. We are not to be understood as passing a value-judgment on the assessee's conduct. We are only saying that the assessee, shouldvtake<rresp%nsibility for its actions. i*!. I'i ••U'-v' ' '-ty,.

¶27It even while

¶0^ ^'7 Hegde, J:^]dl||aSuiis; "It is true thht equitable f ]!'fesyi'- i W W .irn'M retim considerations consideration^areirrelevantinliJ^if^jp^^ingtax laws. But,^thoselaws, like all other lAvs, have to be intSme:tM'ieasonablyand i$ consonance withjustice". InWv: JM. Gotla i (19p 156'ITR/'23(SC), it was held by the Supreme Court tKa!'''tHoug@i;'el^^^ i;ah^ taxation are often 'TV. ' a strangers,,attempts should be made (to ensure) that they do not always .remain so and if a constructionresults in equity rather than injustice,that shouldbe preferredto the literal or strictconstruction.In CalcuttaJute Manufacturins Co. v. CommercialTax Officer i- (AIR 1997 SC 2920) the SupremeCourtheld that ifthere is aprovisionin ataxingstatute'to• compensatethe state by charging interest, that provisionneed not be ITA Nos.327-330cJ: 336-340/2012 30 of33 strictly construedbut may be so construedas to effectuMeits pmpose. The Court held: ''10. The State is empowered by the legislature to raise revenue through the mode prescribed in the Act so the State should not be the sufferer on account of the delay caused by the taxpayer in payment of the tax due. The provision for charging interest .would have been inti-oduced in order, to compensate the State (or the Revenue) for the loss occasioned due to delay in pa^ing^ihe^tax,(^ide Cdmmr. ofIncome-tax AP. V. M. Ckanim^SSicMrf9l5 ; (AIR 1985 ~ — ^ ^^ Commr. of 461 iSilMi ' 438). WMn^i}iterpretin^MS^i00^0f^in ataxing. ...f \ taxjirig.statute a construction"'which 'the-purpose 'of the ,.,^77 provision must be '!! It T ?«• 'S3 « / f&k U is well-settled that in interpre^ngataxingstati^^c^^lly,there is no scSpefor 'considei%tion of li/wcis so ^tid by Rowlatt in C&is?0MMd:^^viSMGMeA^ Revenue I KB 04 at pase'TJks^^- ^ "/« a taxingAdtfm^^nd^ioflpdkmerelyat what is clearly said. "''There^'Hs^no room for any intendment. There is no equity about a tax. There is, no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only lookfairly at the language used." The above obsei^ation has been quoted with approval by a BenchofthreeJudgesofthis Courtin Commissionerof Income-tax Madras k Amx Products Ltd. i 55 (AIR'1965SC 1358). In another decision rendered by a ITA Nos.327-330 & 336-340/2012 •Page 31 of33 Bench ofthree Judges ofthis Court in State of Tamil Nadu K M..K Kandaswamii 36STC 191 : '-(AIR 1975SC1871) It has been observed thus: •| '7?2 interpi^^tingsuch a provision,a construction which would defeat its purpose and, in effect, obliterate jt from the statute book should be eschewed. If more than one construction is possible, that which preserves its workability and efficacy is to be preferred to f,he one which would render it.oti&SeWfteni§^i:i^, --- •

¶11%IH if ^ ^ aSom0d^onwhich would Up^'^tfto^t^ SVen/^^J^pdir-i'iSl:h'i^ii-hf/vr)n'!c>''iTn'' ivifv/^rli Section IpAs^ the Act. thefull^nd"Sbrrectretur§^^^^,.^^ .^ failurekp furnish such liabilityto pay interest '• )i i' ifj'• }/ jlll from the prescribed datd '^^M^^ise when assessment is m. .'f*'"vS

¶28We think that-l|he' present case is one^';#liAMoH' considerations shouldprevailin the iiiierpretaticirf^fi it will not merely result in injustice but the purpose of the provision would not have been achieved. In any case, the facts of the present case are different, as we have earlier pointed out, from the facts obtaining in Jacabs (supra) and therefore the said decision cannot be applied. ITA Nos.327-330 & 336-340/2012 Page 32 of33

¶29Forthe aforesaidreasonswe answerthe substantialquestionoflaw framed by us in the affirmative, against the assessee and in favour of the revenue. The appeals axe allowed. Z AHMED, J ' 'F '''''"if ITANos.327-330 & 336-340/2012 Page 33 of33

r THE HIGH COURT OF DELHI AT NEW DELHI %