Salary: Interest u/s.234B: Employee is not liable to pay interest u/s.234B for failure to pay advance tax on salary.

Pursuant
to an agreement with ONGC, the assessee, a foreign company, had
supplied technicians to ONGC. The Assessing Officer treated the assessee
as an agent of the technician-employees and assessed their income under
the head salaries. Interest u/s.234B, was levied on the ground that the
employees had not paid advance tax. The Tribunal allowed the assessee’s
claim that employees were not liable to pay advance tax as the tax was
deductible at source u/s.192, and accordingly set aside the levy of
interest.

On appeal by the Revenue, the issue was referred to
the Full Bench. The Full Bench of the Uttarakhand High Court upheld the
decision of the Tribunal and held as under:

“(i) Advance tax on
the salary of an employee is not payable u/s.208 of the Act by the said
assessee inasmuch as the obligation to deduct tax at source is upon the
employer u/s.192 of the Act. The assessee cannot foresee that the tax
deductible under a statutory duty imposed upon the employer would not be
so deducted. The employee-assessee proceeds on an assumption that the
deduction of tax at source has statutorily been made or would be made
and a certificate to that effect would be issued to him. Consequently,
the liability to pay interest in respect of such deductible amount is
therefore clearly excluded to that extent.

(ii) The statute has
taken care of the liability to pay tax by the assessee u/s.191 of the
Act directly if the tax has not been deducted at source. The assessee
only became liable to pay the tax directly u/s.191 of the Act since it
was not deducted at source. The stage of making payment of tax could
only arise at the stage of self-assessment which is to be made in a
later assessment year.

(iii) The liability to pay interest
u/s.234B of the Act is different and distinct inasmuch as the interest
could only be imposed on the person who had defaulted, which in the
present case is the employer for not making deduction of tax at source
as required u/s.192 of the Act.

(iv) The assessee-employee would
not be liable to pay interest u/s.234B of the Act since he was not
liable to pay advance tax u/s.208 of the Act.”