Facts of the Case

The Revenue filed multiple appeals before the Delhi High Court challenging orders of the Income Tax Appellate Tribunal (ITAT). The central issue across all appeals was the levy of interest under Section 234B on non-resident entities (GE group companies).

The ITAT had ruled in favor of the assessees by following an earlier Delhi High Court judgment, holding that non-residents are not liable for interest under Section 234B where tax is deductible at source.

The Revenue challenged this position before the High Court.

Issues Involved

  1. Whether non-resident assessees are liable to pay interest under Section 234B of the Income Tax Act, 1961?
  2. Whether the ITAT erred in relying on earlier High Court judgments favoring the assessee?

Petitioner’s (Revenue’s) Arguments

  • The Revenue contended that interest under Section 234B is mandatory where there is default in payment of advance tax.
  • It argued that even non-residents should be liable where there is failure to discharge advance tax obligations.
  • The Revenue further submitted that the issue is pending before the Supreme Court, and thus reconsideration is warranted.

Respondent’s (Assessee’s) Arguments

  • The assessees argued that as non-residents, their income was subject to tax deduction at source (TDS).
  • Therefore, the primary obligation to deduct tax lies on the payer, not on the assessee.
  • They relied on the Delhi High Court judgment in:
    • Director of Income Tax (International Taxation) vs. GE Packaged Power Inc. (2015) 373 ITR 65 (Delhi)
  • It was contended that where TDS provisions apply, Section 234B interest cannot be imposed on the non-resident assessee.

Court’s Findings / Order

  • The Delhi High Court held that the issue is squarely covered in favor of the assessee by its earlier judgment in GE Packaged Power Inc..
  • The Court observed that:
    • The ITAT correctly followed binding precedent.
    • There was no error in the ITAT’s decision.
  • Accordingly, all appeals filed by the Revenue were dismissed.

 Important Clarification by the Court

  • The Court clarified that:
    • The matter is pending before the Supreme Court, where leave has already been granted.
    • The final outcome will depend on the Supreme Court’s ruling in the pending batch of appeals.
  • Thus, while the High Court followed existing precedent, the issue remains subject to final adjudication by the Supreme Court.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:8725-DB/SRB21052018ITA6052018_144505.pdf

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