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July 2009

Advance Tax : Interest u/s. 234B : Failure by payer to deduct tax at source : Interest cannot be imposed on assessee.

By K. B. Bhujle, Advocate
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  1. Advance Tax : Interest u/s. 234B : Failure by payer to deduct tax at source : Interest cannot be imposed on assessee.

[DI(International Taxation) vs. NGC Network Asia LLC, 313 ITR 187 (Bom.)]

In this case there was short payment of advance tax on account of the non-deduction of tax by the payer which it was required by law to deduct u/s. 195 of the Income-tax Act, 1961. The Assessing Officer levied interest u/s. 234B on account of short payment of advance tax due to such non-deduction. It is the case of the Revenue that on failure of the payer to deduct tax at source, it is the liability of the assessee to pay the advance tax even on the amount which had not been deducted u/s. 195 of the Act. The Tribunal held that the assessee was not liable to advance tax and cancelled the levy of interest.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under :

“When duty was cast on the payer to deduct tax at source, on failure of the payer to do so, no interest could be imposed on the assessee”.

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