SUPREME COURT'S NOTICE To Price Waterhouse Coopers On Advance Tax

Nagendra Goel*

In an appeal filed by the Income Tax department in the Supreme Court of India, a bench headed by Hon'ble Justice S H Kapadia has issued a notice to Price Waterhouse Coopers (PWC), a non-resident company which is a US based accountancy and consultancy firm, to explain why it should not pay advance tax on fees charged by it for services rendered in India.

The matter was earlier ruled upon by the Income Tax Appellate Tribunal (ITAT) in favour of the assessee, PWC stating that PWC which had receipts though subject to tax deducted at source (TDS) under section 195 of the Income Tax Act was not liable to pay advance tax.

The department was just and right in approaching the Hon'ble Supreme Court of India to correct what under the Income Tax Act, 1961 appears to be an aberration on the part of the Hon'ble ITAT.

The Act, defines advance tax to mean the advance tax payable in accordance with the provisions of Chapter XVII- C.

All tax payers are required to pay advance tax in spite of the fact that most income is subject to TDS or is tax free. As per section 208 of the Act if the tax payable is Rupees five thousand or more, advance tax is payable in three installments during each financial year.

Section 209 of the Act prescribes how advance tax shall be computed and section 211 provides for the installments of advance tax and the due dates for the payment of the same.

Also, if an assessee, liable to pay advance tax for income earned, does not pay advance tax under section 208, or where advance tax paid by the assessee under provisions of section 210 is less than the specified percentage under the said section, the assessee shall be liable to pay simple interest at the rate and for the time specified under sections 234B and 234C of the Act.

On a plain reading of the above provisions of the Income Tax Act and mainly the provisions for advance tax as under Chapter XVII-C of the Act, it appears that the Hon'ble Tribunal has erred in ruling that PWC is not liable to payment of advance tax. The Hon'ble Supreme Court of India has rightly sought an explanation from the assessee on its liability both for advance tax payment and interest thereon as per sections 234A, 234B and 234C of the Act.

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*The writer is a Supreme Court Advocate and also a qualified Chartered Accountant.