The relevant provisions of the Income Tax Act, 196, for the sake of having a better understanding of the subject matter have been provided below for reference purpose-
Section 209
(1) The amount of advance tax payable by an assessee in the financial year shall, subject to the provisions of sub- sections (2) and (3), be computed as follows, namely:-
(a) where the calculation is made by the assessee for the purposes of payment of advance tax under subsection (1) or sub-section (2) or sub-section (5) or subsection (6) of section 210, he shall first estimate his current income and income-tax thereon shall be calculated at the rates in force in the financial year;
(b)……
(c)………
(d) the income- tax calculated under clause (a) or clause (b) or clause (c) shall, in each case, be reduced by the amount of income- tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income (as computed before allowing any deductions admissible under this Act) which has been taken into account in computing the current income or, as the case may be, the total income aforesaid; and the amount of income-tax as so reduced shall be the advance tax payable.
Section 234B
(1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent. of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one per cent. for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax.
From the cojoint reading of the above provisions it is apparent that the interest under Section 234B should not be determined without any reference being made to Section 209. This is so as Section 234B makes reference to “advance tax” which is computed in accordance with the method provided under Section 209.
As per clauses (a) and (d) of Section 209, advance tax is computed by calculating the total estimated income and thereafter, the amount of income tax thereon which is to be reduced by the amount of tax deductible/ collectible at source during the financial year.
In respect of the expression “amount of income-tax which would be deductible/ collectible at source”, various arguments have been put forth in the past. It has been argued whether the amount which was supposed to be deducted by the payer of income but wasn’t so deducted could be reduced from the income tax on estimated income in order to arrive at the amount of advance tax. However, such arguments were put to an end back in Financial year 2012-13. A proviso to Section 209(1)(d) was inserted by the Finance Act, 2012, thereby explicitly providing for non reduction of TDS deductible but not deducted for the purpose of computing Advance Tax. The same reads as —
“Provided that for computing liability for advance tax, income-tax calculated under clause (a) or clause (b) or clause (c) shall not, in each case, be reduced by the aforesaid amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income, if the person responsible for deducting tax has paid or credited such income without deduction of tax or it has been received or debited by the person responsible for collecting tax without collection of such tax.“
The memorandum thereto explained that such amendment to the Section was made in order to make the assessees liable to pay advance tax in respect of income which is received without deduction/ collection of tax at source.
The proviso was made effective from Financial year 2012-13 onwards. The very intention was that the assessee should not get the benefit of escaping the liability to pay advance tax and the resultant interest under Section 234B since the assessee happens to be aware of the very fact of non-deduction of TDS by the payer.
Further, for the purpose of Section 234B, “assessed tax” is the tax reduced by tax deducted/ collected at source whereas default in payment of “advance tax” is a pre-condition for levy of interest under section 234B.
In relation to the periods prior to financial year 2012-13, it has been held by the Supreme Court in the case of DIRECTOR OF INCOME TAX, NEW DELHI VERSUS M/S. MITSUBISHI CORPORATION that the amount of tax deductible at source but not so deducted should be reduced while computing the advance tax liability. Moreover, had the expression “would be deductible or collectible” in Section 209(1)(d) of the Act to be interpreted in a manner that it only meant the amount of tax which was actually deducted then the proviso inserted by Finance Act, 2012, would be rendered useless. Hence, for the periods prior to the aforementioned financial year, any amount of tax which is deductible but wasn’t deducted by the payer will not form part of the advance tax liability and be reduced. But, for financial year 12-13 and thereafter, such amount of tax will not be reduced while computing advance tax liability.
