Facts of the Case

The present appeal was filed by the Revenue challenging the order dated 20th September 2021 passed by the Income Tax Appellate Tribunal (ITAT) in ITA No. 1882/Del/2017 for Assessment Year 2013–14.

The primary contention of the Revenue was against the finding of the ITAT that no interest under Section 234B of the Income Tax Act, 1961 is leviable where income is subject to withholding tax.

During the course of proceedings, it was brought on record that a subsequent assessment order dated 19th March 2022 under Section 254 read with Section 143(3) of the Act had been passed, wherein the income of the assessee was assessed at NIL.

Issues Involved

  1. Whether interest under Section 234B of the Income Tax Act, 1961 is leviable where income is subject to tax deduction at source (TDS).
  2. Whether the obligation to pay advance tax is independent of the obligation of the payer to deduct tax at source under Sections 190 and 191 of the Act.
  3. Whether the issue survives when the final assessed income of the assessee is NIL. 

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the ITAT erred in holding that no interest under Section 234B is leviable.
  • It was argued that the liability to pay advance tax is independent of the obligation of the payer to deduct tax at source.
  • Even in cases of non-deduction of tax at source, the assessee continues to be liable under Sections 190 and 191 of the Act.

Respondent’s Arguments (Assessee – NetApp B.V.)

  • The assessee relied upon the subsequent assessment order dated 19th March 2022.
  • It was submitted that in light of consistent findings and Supreme Court decisions in its own case for earlier assessment years, the income declared had been accepted.
  • The final assessment resulted in NIL income, thereby eliminating any tax liability.

Court’s Findings / Order

  • The Delhi High Court took note of the subsequent development where the assessee’s income had been assessed at NIL.
  • In view of this, the Court held that the issue relating to levy of interest under Section 234B had become infructuous.
  • Consequently, the Court held that no substantial question of law arises for consideration.
  • The appeal filed by the Revenue was dismissed.

Important Clarification

  • Where the final assessed income is NIL, any issue relating to interest under Section 234B becomes academic and does not survive.
  • The judgment reinforces that subsequent assessment outcomes can render legal issues infructuous, even if substantial questions were originally raised.
  • The case also indirectly aligns with the principles laid down by the Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd. vs CIT, regarding taxation of certain cross-border payments.

Sections Involved

  • Section 234B – Interest for default in payment of advance tax
  • Section 190 – Deduction of tax at source
  • Section 191 – Direct payment of tax
  • Section 143(3) – Assessment
  • Section 254 – Orders of ITAT

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:3747-DB/MMH19092022ITA3382022_183345.pdf

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