ORDER
K.C. Singhal, J.M.
1. Since common issue is involved in all these appeals, the same are being disposed of by the common order for the sake of convenience. The issue involved in these appeals is whether levy of interest under Section 201(1A) was justified.
2. The brief facts giving rise to these appeals are these. The assessee is a nonresident company incorporated in U.K. having a project office in India. It entered into a contract with GEC Turbines for setting up a coal-based thermal power plant at Korba. For execution of the contract, the assessee engaged foreign technicians, who were deputed to the Indian project office. They were on the payroll of the U.K. office of the assessee and were paid salaries in foreign currency by U.K. office which were credited directly to their bank accounts. These contracts of employment were approved by the Ministry of Mines for the purposes of Section 10(6). However, the assessee did not deduct the tax at source while paying the salaries to these persons on the ground that provisions of Section 192 were not applicable. All taxes due on the salaries were paid by such employees by way of advance tax and self-assessment tax. On the contrary, the assessee complied with the provisions of Section 192 in respect of salaries paid to the resident employees and annual return under Section 206 was duly filed by the assessee which did not reflect the particulars of the foreign technicians. Since the tax was not deducted at source by the assessee, the concerned IT authority
created the demand of the tax under Section 201(1), according to him, which ought to have been deducted by the assessee under Section 192 of the Act and also levied interest on account of non-payment of such tax under Section 201(1A). The matter was carried before the CIT(A), who deleted the demand created under Section 201(1) and confirmed the levy of interest under Section 201(1A), for all the three years. The Revenue authorities preferred appeals to the Tribunal against the order of CIT(A) deleting the demand created under Section 201(1). The Tribunal upheld the order of CIT(A) deleting the said demand after following the various decisions of the High Courts and the decision of the Tribunal in the case of ITO v. Sood Enterprises (1992) 41 ITD 234 (Del). On the other hand, the assessee has preferred the appeals before the Tribunal against the confirmation of the interest under Section 201(1A) by the CIT(A).
3. The learned counsel for the assessee has assailed the orders of the CIT(A) by raising various contentions. The first contention of the counsel is that the provisions of Section 192 were not applicable inasmuch as (i) the assessee as well as the foreign technicians were non-residents; (ii) the remuneration was paid outside India; (iii) the contract of employment was also outside India. This contention of the assessee has been opposed seriously by the learned Senior Departmental Representative by contending that the provisions of Section 192 were clearly applicable inasmuch as the salary paid to the foreign technicians was chargeable to tax in India under the head ‘salaries’ in view of the provisions of Explanation to Section 9(l)(ii).
4. After going through the relevant provisions of Section 192 and Section 9, we do not find merit in the contention of the learned counsel for the assessee. Section 192 provides that any person responsible for payment of any income chargeable under the head ‘salaries’ shall at the time of payment deduct income-tax on the basis of rates in force for the financial year. Section 5(2) provides that the total income of a non-resident includes all income from all sources which is received in India or accrues or arise or is deemed to accrue or arises in India. Section 9(l)(ii)provides that the income which falls under the head ‘salaries’ shall be deemed to accrue or arise in India if it is earned in India. The Explanation added to this sub-clause clarifies that the income of the nature referred to in this clause payable for the services rendered in India shall be regarded as income earned in India. Therefore, it follows that if the salary is paid for the services rendered in India then such payment becomes chargeable to tax in India under the head ‘salaries’ and consequently, the provisions of Section 192 become applicable. The fact that the employees as well as employer were non-resident, the fact that the payment was made outside India and the fact that contract of employment was ‘also out of India, are not relevant for deciding the issue before us. What is relevant is the place where the services are rendered. In the present case, it is undisputed fact that services by the foreign technicians were rendered in India. Therefore, in view of the provisions of Section 9(l)(ii) r/w Explanation thereto, it is held that salary paid to the foreign technicians was chargeable to tax in India and consequently, the provisions of Section 192 were applicable. Accordingly, the contention of the assessee’s counsel in this regard is hereby rejected.
5. The next contention of the assessee’s counsel is that assessee was under the bona fide belief that provisions of Section 192 were not applicable to them. In this
connection, the counsel for the assessee has relied on the opinion of the learned author and jurist, Mr. N.A. Palkhiwala in the Law and Practice of Income-tax, Eighth Edition, Volume I, p. 1391, on the applicability of Section 195 of the Act on the payments made by non-resident to a non-resident. She has also relied on the decision of the Hon’ble Supreme Court in the case of Electronics Corporation of India v. CIT (1990) 183 ITR 43 (SC), wherein the issue whether the deeming provisions of Section 9 could be applied to payments made outside India by non-resident to non-resident was referred to larger Bench. Further reliance was placed on the Tribunal decision in the case of Shrikumar Poddar v. Dy. CIT (1997) 59 TTJ (Mumbai) 304.
6. In our opinion, this contention of the assessee’s counsel is also without force. The decision of the Hon’ble Supreme Court is dt. 2nd May, 1989, while the financial years involved in the present appeals are 1986-87 to 1988-89. So the above judgment of the Supreme Court was not in, existence at the time when the obligation to deduct the tax at source was on the assessee. For the similar reason, reliance placed on the decision of the Tribunal is misplaced since that decision was rendered in 1997. On the contrary, it appears that the judgment of the Supreme Court in the case relied upon by the assessee’s counsel arose from the decision of the Andhra Pradesh High Court dt. 24th March, 1987, wherein it was held that in view of Art. 245(2) of the Constitution of India, the provisions of Section 195 were applicable to non-resident assessees where the payment was made outside India. It is pertinent to note that this judgment was given after considering the opinion of the jurist Mr. N.A. Palkiwala. So the only material available to the assessee before 31st March, 1989, was the judgment of the Andhra Pradesh High Court which was against the assessee and there was no other material on the basis of which the assessee could form belief much less a bona fide belief that the provisions of Section 192 were not applicable to its case. Accordingly, this contention of the assessee’s counsel is rejected and it is not necessary for us to express any opinion as to whether the concept of reasonable cause could be imported while deciding the issue of the levy of interest under Section 201(1A). Before parting with this contention, it is mentioned that assessee’s counsel had relied on certain decisions in support of the proposition that no interest can be levied for not deducting the tax at source where there is a bona fide belief. Since we have held that there could not be any such bona fide belief, it is not necessary for us to discuss about such decisions.
7. The next contention of the learned counsel for the assessee is that no interest can be levied since the demand of tax itself has been deleted by the Tribunal. This contention of the assessee’s counsel has been seriously opposed by the learned Senior Departmental Representative by contending that the provisions of Section 201(1A) are without prejudice to the provisions of Sub-section (1) of Section 201 and, therefore, the levy of interest is not dependent upon the existence of demand of tax under Section 201(1). It was further stated by him that Sub-section (1) only declares the assessee-in-default where it fails to deduct the tax at source and the recovery of such tax is only consequential. It was further submitted by him that the demand was deleted on the ground that necessary tax had already been paid by the concerned foreign technicians by way of advance tax and
self-assessment tax and, therefore, there could not be recovery of tax again. According to him, the levy of interest is not for non-payment of the demand under Section 201 but it is in the nature of compensation for the delayed period of tax payment. Since levy of interest is mandatory, it was argued by him that action of the concerned IT authority was justified. In reply, the counsel for the assessee has relied on the decision of the Tribunal Delhi Bench in the case of Sood Enterprises (supra) for the proposition that no interest can be levied where the tax has already been paid by the concerned employees.
8. Rival submissions of the parties have been considered carefully. We have also gone through the relevant provisions of Section 201. The perusal of this section shows that provisions of Sub-sections (1) and (1A) are without prejudice to each other. According to the dictionary meaning “without prejudice” means “without dismissing, damage or affecting any legal right”. That means the provisions of both sub-sections are to be considered independently without affecting the rights in either of the sub-sections. The concept of interest is based on the theory that the person who has been deprived of his funds should be compensated for the same. It is on the basis of this theory that various provisions are enacted in the IT Act providing the levy of interest where the legitimate amount of tax due to the exchequer is delayed by the assessee as well as allowing interest on the refunds due to the assessee. Further, the legislature has used the word “shall” in Sub-section (1A) of Section 201 which makes such provisions mandatory. This view is fortified by the recent judgment of the Constitution Bench of the Supreme Court in the case of CIT v. Anjum M.H. Ghaswala and Ors. (2001) 252 1TR 1 (SC) wherein the provisions of ss. 234A, 234B and 234C have been held to be mandatory because of the expression “shall” employed by the legislature in these sections. This view is further fortified by the recent judgment of the Hon’ble Delhi High Court in the case of CTT v. Premnath Motors (P) Ltd. wherein it has been held that interest under Section 201(1A) is compensatory measure for withholding the tax which ought to have gone to the exchequer. Further, the levy is mandatory and automatic and the absence of liability for tax does not dilute the default. Accordingly it cannot be said that no interest can be levied where the tax has been paid by the concerned employee irrespective of the date of payment. The exchequer is entitled to be compensated for the period for which it was deprived of its legitimate dues. This view is also fortified by the decision of Rajasthan High Court in the case of CIT v. Rathi Gum Industries (1995) 213 ITR 98 (Raj) which is directly on the issue before us. As far as the period of default is concerned, the issue is covered by the decision of the Tribunal in the case of Sood Enterprises (supra), relied upon by the learned counsel for the assessee wherein it has been held that it starts from the date of deducibility till the date of actual payment of tax. Further, the date of payment by the concerned employee has been held to be the date of actual payment. Therefore, it has also to be held that levy of interest has to be restricted for the above stated period only.
9. In the present case, it is found that interest has been levied for the period commencing from the first day of April following the end of the financial year till the date of order levying interest under Section 201(1A). This approach of the concerned IT authority appears to be erroneous and cannot be sustained.
Admittedly, the concerned foreign technicians had paid the tax by way of advance tax as well as self-assessment tax. Therefore, the dates of actual payment would be the dates of payment of advance tax and self-assessment tax and levy of interest cannot be for period beyond such dates. Since the AO himself has not levied interest for the period commencing from the date of deducibility of tax till the end of the financial year, we cannot enlarge the issue by directing the AO to levy interest in respect of this period.
10. In view of above discussion, we confirm the levy of interest in principle. However, on facts, the orders of CIT(A) are modified and the AO is directed to recompute the levy of interest for the period commencing from the first day of the April, following the end of the relevant financial year till the date of actual payment i.e., date, of payment of self-assessment tax by the concerned employees. Further, no interest will be payable in respect of the amount of advance tax paid by the respective foreign technicians.
11. In the result, appeals are partly allowed.