Assistant Commissioner Of Income ... vs U. P. National Manufacturing Ltd.

ORDER I. S. Verma, J.M.

The common issue involved in all these appeals by the revenue of 3 different appellants of the same group relates to the imposition of penalties under section 271C of the Income Tax Act for failure to deduct and pay the tax at source as required by the provisions of section 194H of the Income Tax Act. For the sake of convenience, we proceed to decide these appeals by this consolidated order. The common ground, except the quantum of penalty, for all these 3 cases, as taken by the revenue , runs as under :

"That the Commissioner (Appeals) erred in law and facts in cancelling the penalty under section 271C of Rs. 9,99,513 in spite of the clear-cut provision as laid down in section 271C that the person failing to deduct the tax as required by section 194H shall be liable for penalty under section 271C. Further the Commissioner (Appeals) order in A. No. 41/TDS/VNS/1992-93 dated 12-3-1993, on similar issue has not been accepted by the department and the matter is still sub judice before the Tribunal."

2. We have heard the learned Departmental Representative as well as the assessee's counsel. Before divulging to their respective submissions, we consider it necessary to record the undisputed facts, as borne out from the records before us, which, are, in the following terms :

2.1. As a result of newly inserted provisions of section 194H of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), as a result of Finance Act, 1991, which received the assent of the President of India on 27-9-1991, all these respondents were under an obligation to deduct and pay the tax at source @ 10 per cent from all payments or payables on account of commission after 1-10-1991.

2.2. All these respondents, taking shelter under the provisions of sub-section (2) of section 194H according to which the Central Government has retained the power to exempt any person or class or classes of persons from the applicability of provisions of section 194H(1), moved their respective petitions for exemption to the Central Board of Direct Taxes on 4-11-1991 (copy of the first respondent placed at pp. 5 and 6 of the assessee's paper book), which was decided by the Central Board of Direct Taxes as per its order placed at pp 8 to 11 of the paper-book, only after the directions of the Hon'ble High Court of Allahabad dated 23-7-1992, given in writ petitions filed by these respondents. The order of the Central Board of Direct Taxes dated 30-9-1992, has been claimed by the assessee to have been received in the second week of October, 1992.

Respondent-assessees had also requested the Hon'ble Finance Minister, Government of India on 30-3-1992, for disposal of their petition furnished under section 194H(2) of the Act.

3. Since the Central Board of Direct Taxes rejected the respondent's petitions for exemptions, these respondents have claimed to have deducted the tax at source on 27-10-1992, and deposited the same into Government Account on 29-10-1992. In the meantime, on 18-8-1992, the Assistant Commissioner (TDS), Varanasi, called upon the respondents to furnish their annual return of commission as required under section 206C of the Act. The first respondent complied with the requirement of the Assistant Commissioner (TDS) by way of letter, dated 5-9-1992 (copy placed at p. 58 of the assessee's paper-book), which reads as under :

"The Assistant Commissioner (TDS) Varanasi.

Filing of Annual Return under section 206C of the Income Tax Act, 1961, for the financial year 1991-92.

Sir, We write with reference to your letter No. TDS/Annual/1991-92 dated 18-8-1992, served on 3-9-1992, we submit as under :

(a) Annual return of salary under section 192 has already been submitted to your office on 1-6-1992 June, 1992, photocopy of the acknowledgment No. 36651 is enclosed for your perusal.

(b) Annual return of payment of contractors under section 194C has already been submitted to your office on 26-6-1992, photostat copy of acknowledgment No. 37540 is enclosed for your perusal.

(c) Annual return of payment of commission of brokerage under section 194H enclosed herewith and request your honour to condone the delay. As regards our remarks is Form No. 26-I we like to add that we are not liable to deduct and pay TDS on commission under section 194H as the matter is being agitated both before the Government of India in the Ministry of Finance as well as before the Hon'ble High Court of Judicature at Allahabad and is still sub judice before both the authorities.

The Government having exempted large number of units e.g,. tea brokers under Notification 8989, dated 6-2-1994, air travel agents under Notification No.9006 dated 3-3-1992, and commission agents and dealers in food grains trade under Notification No. 9007, dated 3-3-1992, our case stands on a much higher and stronger footing for exemption and we have every reasonable expectation that we shall be granted similar exemption by the Government.

Moreover, the exemption is not detrimental to the interest of the revenue . On the contrary its consequences on us are very grave. We cannot keep out capital which has a marginal profit looked in the department. Thereafter it is a cumbersome exercise to claim and obtain refund. In this connection, our bona fide stand in the writ petition may kindly be looked into.

It is, therefore, requested that no action in the matter has been taken until the matter is finally decided by the Ministry of Finance as well as till the disposal of our writ petition before the High Court of Judicature at Allahabad.

Thanking you, Yours faithfully, for UP National Mfrs. Ltd., Sd/-

(Sharad Kumar Sah) Managing Director.

(It is not considered necessary to reproduce the reply of other two assessees.) 3.1. The first respondent furnished the details of commission paid as per letter dated 11-9-1992 (copy placed at p. 60 of the assessee's paper book). Form No. 26-I were also filed on 7 Sept and 30-9-1992 (copies placed at pp. 69 to 70 of the assessee's paper-book).

3.1. The first respondent furnished the details of commission paid as per letter dated 11-9-1992 (copy placed at p. 60 of the assessee's paper book). Form No. 26-I were also filed on 7 Sept and 30-9-1992 (copies placed at pp. 69 to 70 of the assessee's paper-book).

3.2. The Assistant Commissioner (TDS) passed order under section 201 of the Act on 14-10-1992, whereby demand on account of liability of TDS and interest under section 201(1A) was created against all these three respondents and the orders were served upon the assessee on 4-11-1992, by which date they have deducted and paid the tax at source.

3.3. During penalty proceedings, the respondents had taken the plea that since their petitions under section 194H(2) made on 4-11-1991 were pending before the Central Board of Direct Taxes they had entertained a belief that they shall be granted exemption from the liability to deduct the tax at source and also entertained a belief that during the pendency of their petitions it was not necessary to deduct and pay the tax at source and the same was bona fide. It was this belief that they did not deduct the tax at source as required under section 194H. According to the respondents the belief so entertained, being a bona fide one, was a reasonable cause from not deducting and paying the tax at source and consequently the respondents were entitled to benefits of provisions of section 273B, according to which no penalty was to be imposed for failure referred to in the relevant penalty provisions including penalty provisions of section 271C if the assessee proves that there was reasonable cause for the said failure.

3.4. The Deputy Commissioner rejected the respondents plea of bona fide belief and imposed the penalty after relying on the observations of the assessing officer in order under section 201 3.4. The Deputy Commissioner rejected the respondents plea of bona fide belief and imposed the penalty after relying on the observations of the assessing officer in order under section 201 The order of the Deputy Commissioner in case of first respondent is in the following terms :

"3. Since the person responsible deliberately violated the provisions of section 194H of the Income Tax Act for which he could not give and satisfactory reply, the Assistant Commissioner (TDS), Varanasi, referred this case to the undersigned for the imposition of penalty under section 271C of the Income Tax Act. Accordingly, a show-cause notice under section 271C of the Income Tax Act was issued by the undersigned on 28-12-1992, which was duly served on 30-12-1992, fixing the date of hearing on 12-1-1993. On the written application the case for hearing was adjourned on 19-1-1993, and later on 29-1-1993. On 29-1-1993, neither the person responsible for any authorised representative appeared in person to explain his case, except filing a written submission which reads as under :

1. As stated in detail vide our reply of date in compliance to show cause notice under section 272A(2)(c) our petition to the Board seeking exemption from applicability of the newly introduced provision under section 194H filed on 4-11-1991, was decided on 30-9-1992, and the order of the Board communicated to us shortly after in October, 1992.

2. Immediately hereafter and prior to the receipt of the order under section 201, we deposited the tax payable under section 194H on 29-10-1992, and also filed the return in Form No. 26-I within 30 days of the communication of the Board's order .

3. In the facts and circumstances of the case there was no default on our part in this behalf attracting provisions of section 271C of the Act.

4. It is, therefore, requested that the impugned proceeding initiated in the matter be dropped and filed and justice be done."

The above reply has got no meaning at all to denote any cognizable reason so that the assessee may be exculpated under the law. The company and its directors wanted to give an exemption for itself to the general provisions of law as introduced by the Finance (No. 2) Act, 1991, with effect from 1-10-1991, which provides for TDS in respect of payment of commission to the various parties with effect from 1-10-1991. Thereby it has tried to escape the liability to deduct the tax at source by making an application, (when the provision was already in force) the fate of which was well within its knowledge. All this exercise was to appropriate the Government fund to its own advantage and also to the advantage of its sister concerns which otherwise would have amounted to criminal breach of trust. The person responsible is very well aware of the provisions of law and its consequences and he also knew very well that no one can be exonerated from the consequences of the failure merely on the basis of a representation that he is not convinced with the said provision as it does not suit him. The default of non-deduction of tax at source at the time of payment/credit of commission has clearly been acknowledged by the above person responsible by his written submission filed from time to time before the Assistant Commissioner (TDS) Varanasi, and before the undersigned as well."

3.5. The Commissioner (Appeals) cancelled the penalty after considering the submissions advanced by the respondents and the main order being in the case of first respondent, we would like to extract the same which runs as under :

"2. Apilarthi company ne M/s Sahu Agencies, Hemant Vidyut pratisthan and M/s Cinni Tullo sales service centre ki dinank 1-10-1991 se 31-3-1992, ki abadhi me bikari par commission dia he. Uparokth Avadhi Dhara 194H ke prabdhan ke anusar commission ki jama ya bhugthan ki rashi par ayakar ki kathothi Karni thi, Jinki avhab me karan kathoi notice di gia thi. Company se prapth 26-I kin anthargata commission ki rashi and aun par ayakar ki kathothi ka bibaran dia gya tha. Ysh Samamdha Company ne anapna prarup dated 7-9-1992 ki dhakil kia jabki awo dinank 30-4-1992, ki dhakil tha.

3. Appellant ne batha ki yos par ayakar katothi ke samandha me chut ke lie kendriya sarkar ki anusar 1991 ki abedan patra dia tha, Jiska nistaran dated 30-9-1992, ki hua, Yo bhi Hon'ble High Court ke direction ke patrachat ho kia gia. Abedan patra Kharij hone ki bad appellant ne 20-10-1992, ki ayakar ki kathothi karke jama kar dia.

4. Nirdharit Adhikari ke anusar 89,24,231 rupee ki commission bhugthan kia, jin par 9,99,513 rupee ki ayakar ki money hothi hai, Atha Utnai rupaia ki sasthi adhiroth kia gia hai.

5. Appellant ki bidhan adhubakta ne bateya ki dhara 271C ke antargatha karan batho notice dated 28-12-1992, ki jari and spastikaran ki lia sunahi ki tarikh 19-1-1993, nishchit ki gia thi. Santhi adesh dated 11-3-1993, ki parith kia gia, jabki uparokth ayakar dated 20-10-1992 ki hi jama kar di gia thi. Tadanusar sansodith pararup 26-I dinank 30-11-1992 ki dhakil kia gia. Sasthi ki kai bhi karan nahi kartha hai.

6. Iski Athariktha appellant ke adhibakta ne company ki appeal adesh section 41/TDS/Varanasi/1992-93 adesh dinank 12-3-1992 ka ullekh kia, jinke anusar dhara 201 ki mang nirastha kar dia gia tha. Atha : Un adhar par uparokth sasthi Uchit Nahi Hai. Unke atirikthyea bhi batha gia ki yea barsha ki karar ki bajah ki samay par ayakar ki katothi nahi kia. Yea katothi kebal 29-10-1992 ki gia. Yeske athirikth M/s Sha Agencies ki adhirotith karna uchit nahi hai.Yish Sambandh me Appeal Adesh M/s Chinni Tullo Sales and Service Appeal No. 44/Ayakar upa Ayukta/Range/Varanasi/1993-94 Adesh dinank 5-10-1993 Ka ullekh Kia jiske antargatha Dhara 271C ki sasthi nirasth kar di gie hai.

7. Mane Apilarthi ki kathan par bichar kia. Ayakar ki kathothi karan batho notice jari karne ke purb ho chuki thi and jama bhi ho gia thi. Atha: Sasthi ka koi bhi adhar nahi banta. Uparokth appeal adesh me bhiyn samandha me kafi bichar bimarsh ke paschat sasthi nirasth kia gia tha. Apilarthi ke laksha ek hi jaise hai. Aishe ki me mere bichar se sasthi uchit nahi hai. Une nirastha kia jata hai. "

3.6. The facts in the case of other two cases are the same and similar, and the parties have advanced their arguments on the basis of facts and findings in the case of U.P. National Manufacturing Ltd. after agreeing with the facts and circumstances in other two cases, are same and similar.

4. The learned Departmental Representative has submitted that since the provisions relating to TDS and assessees liabilities thereunder were well within the knowledge of the respondents - assessees the failure to deduct and pay the tax at source as required under section 194H of the Act was deliberate and on account of negligence and inaction on the part of the respondent - assessees. According to him the liability under section 194H is mandatory because the word used in the provisions for making liability to deduct the tax at source is 'shall' and not directory. The learned Departmental Representative, however, submitted that the respondent - assessees had no intention to comply with the provisions of the Act because had they intended to comply with or had its intention been bona fide, they should have filed their annual return of TDS as required under section 206C by 30-4-1992, which has not been in these cases. The non-furnishing of annual return has resulted in suppression of facts from the knowledge of the department. According to him the failure to furnish the annual return was with a view to defy the legal provisions deliberately and not due to bona fide belief or reasonable cause as pleaded by the respondents. The learned Departmental Representative has heavily relied on the circumstantial evidence such as not furnishing of annual return, the failure to deduct and pay the tax at source and also the decision of Hon'ble Patria High Court in the case CWT v. Jagdish Pd. Choudhary (1995) 211 ITR 472 (Pat) (FB), wherein the doctrine of reasonable cause has been dealt with. The learned Departmental Representative has relied on the observations of the Hon'ble High Court in paras C, D and E of the headnotes which run'as under :

"Fairness in action in the context of the penalty proceedings would demand that the assessee who is charged with the levy of penalty is given a reasonable opportunity of oral hearing. It is only by means of an oral hearing that the assessee can have an opportunity of persuading the officer concerned that he has a reasonable cause for the default. The words "reasonable cause" have not been defined under the Act but they could receive the same interpretation which is given to the expression "sufficient cause". Therefore, in the context which is beyond the control of the assessee. "Reasonable cause" means cause which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fide from furnishing their turn in time."

5. Concluding his submissions, the learned Departmental Representative emphasised that furnishing of a petition for exemption cannot be considered as a ground for entertaining a belief which in turn can be said to be bona fide, that the respondents were not liable to deduct the tax at source.

6. The assessee's counsel, on the other hand, in addition to supporting the orders of the Commissioner (Appeals) submitted that tax at source was deducted on 22-9-1992, and deducted on 29-9-1992, whereas order under section 201 was received on 4-11-1992, and, therefore, the revenue 's claim that TDS was paid as a result of demand created by the department is not correct.

6.1. The assessee's counsel further submitted that penalty under section 271C is subject to the provisions of section 273B, according to which if an assessee can establish the non-compliance as due to a reasonable cause, the penalty cannot be levied and since the petitions of these assessees for exemption as provided under section 194H(2) were pending before the Central Board of Direct Taxes since 4-11-1992, they remained under a belief that during the pendency of such petition they are not liable to deduct and pay the tax at source. According to the assessee's counsel, the belief so entertained was bona fide one and amounted to reasonable cause for not deducting and paying the tax at source. Elaborating the sequence of events from the date of introduction of IT (Second Amendment) Bill, 1991, in the Parliament and till the date of deduction and payment of tax at source, the assessee's counsel submitted that all these 3 assessees were honest and diligent throughout the period-so far as the compliance to provision., of section 194H were concerned; because sub-section (2) of section 194H had given a right to approach the Government or Central Board of Direct Taxes for seeking exemption for the obligation envisaged under the provisions of section 194H. According to him the assessee had the statutory right and it was in exercise of this right that they furnished their petitions for exemption to the Central Board of Direct Taxes on 4-11-1991, but the Central Board of Direct Taxes remained silent on their petitions, till the directions to dispose of their petitions were issued the Hon'ble High Court of Allahabad while deciding their writ petitions. The assessee's counsel further submitted that the order of the Central Board of Direct Taxes were received in second week of October, 1992, and tax was deducted on 27-10-1992, which was paid on 29-10-1992. According to him, the law of equity and justice and fair play weighs in favour of the assessee because they had no intention to defy the sanction of law. It was, on the other hand, Central Board of Direct Taxes which acted in complete defiance to the principle of natural justice and fairplay. The assessee's counsel, therefore, submitted that as the failure to deduct and pay the tax at source was due to the bona fide belief which in turn amounted to a reasonable cause, the penalty under section 271C was not justified.

7. As regards the decisions relied upon by the learned Departmental Representative the assessee's counsel submitted that the decision is in favour of the assessee and not the revenue because all the three ingredients, mentioned in the legal proposition laid down in this decision were absent in the present cases.

7.1. Concluding his submissions, the assessee's counsel submitted that the delay was due to bona fide belief that due to petitions under section 194H(2) it was not liable to comply with the provisions of section 194H(1). Accordingly to him it was right also because had the assessee deducted and paid the tax at source then there was no fun in making the provisions of exemption and, therefore, the purpose of granting right to seek exemption would have got defeated and also because the Central Board of Direct Taxes has granted such exemption to such other assessee as per Notification dated 6-2 and 3-3-1992, which in turn was a reasonable cause as envisaged in the provisions of section 273B and consequently the assessee were not liable to pay any penalty under section 271C. Another plea advanced by the assessee's counsel was that in view of levy of interest under section 201(1A), the imposition of penalty equal to 100 per cent of the tax at source is not justified.

8. We have considered the rival submissions, facts and circumstances of the case, provisions of law and the decision relied upon by the learned Departmental Representative.

8.1. After careful consideration of the facts and circumstances we are of the opinion that the decisions in these cases rests on the interpretation of provisions of section 194H of the Act with respect to the obligations and the right of an assessee and also on the decision on the point that can an assessee be said to have a right to entertain a bona fide belief that during the pendency of a petition for exemption from such liability furnished to the Central Government by exercising statutory right or the right conferred by the statute that the person is not liable to discharge the obligation and for this purpose we consider it necessary to consider the provisions of section 194H of the Act which were operative only during the period 1-10-1991 to 30-5-1992, and were in the following terms :

"194H-(1), Any person, not being an individual or an HUF, who is responsible for paying on or after the 1-10-1991 but before the 1-6-1992, to a resident, any income by way of commission not being insurance commission referred to in section 194D or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent.

(2) The provisions of sub-section (1) shall not apply-

(a) to such persons or class or classes of persons as the Central Government may, having regard to the extent of inconvenience caused or likely to be caused to them and being satisfied that it will not be prejudicial to the interest of the revenue , by notification in the Official Gazette, specify in this behalf;

(b) where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to the payee, does not exceed two thousand five hundred rupees."

8.2. From the aforesaid provision what we have been able to understand is that the provision of sub-section (1) cast an obligation on the person responsible for paying commission or brokerage for deducting and paying the tax at source, whereas the provisions of sub-section (2) grants a right to such person either not to deduct and pay the tax at source if the income so paid does not exceed Rs. 2,500 or, if exceeds, then approach the Central Government for seeking exemption from the application of provisions of sub-section (1) of section 194H. In other words, if on one hand the obligation to deduct and pay the tax at source were absolute, then on the other hand, the right to seek exemption were absolute.

8.3. Coming to the nature of right granted by sub-section (2) of section 194H we are of the opinion that granting of such a right to the assessee by the legislature is not a mere formality. When the same provisions of law have provided an obligation and also have granted a right then the exercise of such a right should be seen in the light of principles of natural justice and since, as observed by the Lord Bridge in the case of Lloyd v. Mcmahan, a decision of House of Lords reported as (1987) 1 All ER 1118, the principles of natural justice are not "engraved on tables of stone", the compliance to the same should be seen in the light of fairplay and fairness, The fairplay and the fairness in taxing statute, in our opinion, requires that when anybody, Government or administrative or judicial authority, is called upon to take a decision on the issue affecting the rights of the subject, the principles of fairplay or theory of fairness demands that such orders should be passed at least within such a reasonable time, so that the very purpose of right is not defeated.

8.4. Further the well known statutory construction is that while construing a provision, which creates a right, the court should always to in favour of the construction which saves the right rather than one which may defeat it. This proposition of law relating to the interpretation of provisions granting right to the subject, has been stated by Francies Bennion in his Treatise "Statutory Interpretation" Second Edition (Butter Worths) in section 198 p. 411, in the following words :

'It is a rule of law that the legislature intends the interpreter of an enactment to observe the maxim 'ut res magis valeat quam pareat; so that he must construe the enactment in such a way as to implement, rather than defeat, the legislative purpose. "

8.5. In the above circumstances, if a person prefers to exercise such right, then to meet the obligation, he cannot be said to have done so to thwart the provisions of law casting obligation, provided, it is established that exercise of such a right, in the facts and circumstances of a given case, was bona fide or honest and the person was not only diligent but was careful also in exercising such a right. On the contrary and in the fairness of things, the Central Board of Direct Taxes should have decided the petition at once and if not at once then at least within a reasonable time so that the purpose of granting such a right was not defeated.

9. As far as the present cases are concerned, we are of the opinion that in view of the fact that a petition under section 194H(2) was moved before the Central Board of Direct Taxes by exercising the right granted by the statute on 4-11-1991, itself as against the fact that provisions of section 194H were introduced with effect from 1-10-1991, by the Finance (No. 2) Act, 1991, Bill for which was introduced in the Parliament on 24-7-1991, and assent of the President of India was accorded on 27-9-1991; it is quite clear that the petitioners were not only very diligent and quick enough in exercising the right but were diligent and careful and serious even after furnishing the petitions and that is why when it was found that the Central Board of Direct Taxes was not taking any action on their petition, they approached the Hon'ble High Court of Allahabad in July, 1992, by way of writ petition. It was, therefore, on the directions of the Hon'ble High Court of Allahabad, dated 23-7-1992, given while deciding the writ petitions of respondent - assessees, that the Central Board of Direct Taxes decided their petitions by its order, dated 30-9-1992, whereby the request for grant of exemption was denied. In our opinion and under these circumstances it cannot be said that exercise of right by the respondent assessees for seeking exemption under section 194H(2) was either to thwart the provisions of section 194H(1) to delay the compliance to the legal provisions or was with mala fide intention.

10. After having held as above the next question for our decision is that can a person under the circumstances, as are before us, be said to have a right to entertain or can entertain a bona fide belief that he is not liable to discharge the obligation during the pendency of the petition furnished before the Central Board of Direct Taxes by exercising the statutory "absolute right".

10.1. As the very dictionary meaning of the word "belief" and the word "bona fide" suggest, one can be said to have entertained a bona fide belief only if it is established that under the given circumstances every prudent person could have or would have entertained such a belief. Bona fide belief is not hanging on the trees or remain here and there in the atmosphere or in universe, and, therefore, it is not such a matter which can be pocketed by anybody for making a claim to have entertained a bona fide belief. As far as the bona fide belief in relation to the obligations/duties under a statute is concerned, we are of the opinion that before one can be said to have such a belief, it should be established that the belief so entertained was either on the basis of advice of an expert in that field or on the basis of reasonable interpretation of the concerned provisions or the circumstances were such that on the honest appreciation of the same every prudent person could have or would have entertained such a belief. Once the existence of any of the aforesaid ingredients is established, then, however, or whatever mistake the belief may be one can be said to have a bona fide belief.

11. As far as the present cases are concerned, we are of the opinion that under the given circumstances there were only two options available with the assessees, namely, (1) to deduct and pay the tax at source and wait for the orders of the Central Board of Direct Taxes, or (2) not to deduct and pay the tax at source and to wait for the order of the Central Board of Direct Taxes.

11.1. Had the assessee opted for the first, then, in our opinion, the provisions for granting right to seek exemption would have been rendered redundant insofar as the assessees were concerned and the very purpose of exercising of the right or seeking exemption would have got defeated. Since the legislature also does not seem to have intended so, the only option, in our opinion, which could be said to be fair and justifiable under the law was the second one i.e., not to deduct and pay the tax at source and wait for the order of the Central Board of Direct Taxes. In view of this discussion, we are of the opinion that the assessee's preference of the second option can in noway be said to be with an intention to defy the provisions of law.

11.2. Since we have already held that the petitions moved by the assessees were in honest exercise of "absolute right" granted by the statute and the delay was on the part of the Central Board of Direct Taxes not only the present assessees, but everybody else also would have entertained a relief that during the pendency of the petition he is not to comply with the provisions of section 194H(1).

11.3 We are, therefore, of the opinion that even if there can be two possibilities then also the entertainment of such a belief being one of the possibilities and being an honest posssibility, the assessees were neither wrong nor had defied any settled principles of law by entertaining a belief that during the pendency of the petition before the Central Board of Direct Taxes they were not to comply with the provisions of section 194H(1). Even otherwise, if it was not so, then had the assessee deducted and paid the tax then existence of provisions for granting an absolute right for seeking exemption from such obligation would have no meaning for the assessee, i.e. would have been rendered redundant a situation which could have not been intended by the legislature itself.

12. Viewing the present cases in the totality of the circumstances and legal provisions as discussed above, we are of opinion that the assessees could entertain one and only one belief that they were not liable to deduct tax at source during the pendency of their petition before the Central Board of Direct Taxes which in turn was a reasonable cause for not deducting and paying the tax at source. The assessee's bona fide is further established by the fact that the tax at source was deducted on 27th October and paid on 29th October at once just after receipt of order of the Central Board of Direct Taxes in the second week of October, 1992.

13. The Departmental Representative's plea that payment of tax at source was made after the demand was created by order under section 201 seems to be incorrect because the submission of the assessee's counsel that order under section 201 was received on 4-11-1992, has not been disputed by the learned Departmental Representative. This fact also gets confirmed from para 9 of the statement of facts furnished by the assessee before the Commissioner (Appeals).

14. As far as the reliance of the learned Departmental Representative on the decision in the case of CWT v. Jagdish Prasad Chowdhury (supra) is concerned, we, after going through the decision, are of the opinion that the proposition of law held in this case that in the context of penalty provisions "reasonable cause" would mean a cause which is beyond the control of the assessee and means a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fide, advances the assessee's case rather than the revenue 's case because in the present cases the assessees were neither negligent nor remained inactive either at the initial stage of furnishing the petition or subsequent to it. On the other hand, the present assessees, after finding that Central Board of Direct Taxes was not taking any decision on their petition, moved the Hon'ble High Court of Allahabad. Similarly, the belief entertained by these assessees during the pendency of the petition for exemption was on the correct and honest interpretation of the provisions and was a bona fide one. In other word's all the three ingredients stated by the Hon'ble High Court in the decision relied upon by the learned Departmental Representative (supra) have been found to be absent in the present cases and consequently the decision is not in revenue 's favour.

15. In view of the aforesaid facts and circumstances, we are of the opinion that failure to deduct and pay the tax in time i.e,. in accordance with the provisions of section 194H(1) was due to sufficient and reasonable cause of bona fide belief entertained by the assessees due to pendency of petition furnished in exercise of absolute right granted by the statute and consequently requirement of section 273B were fully satisfied-meaning thereby that the present assessees have succeeded in establishing that failure to deduct and pay the tax at source in accordance with the provisions of section 194H(1) was due to reasonable cause which debars the applicability of penal provisions of section 271C. The order of the Commissioner (Appeals) is, therefore, confirmed.

16. In the result, revenue 's appeal is dismissed.

ITA Nos. 431 and 482/(All)/1994

17. Since the facts and circumstances of these cases are the same and similar to the facts and circumstances in the case of M/s UP. National Mfg. Ltd. (ITA No. 480 (All)/94) and the parties have advanced their arguments on the basis of facts and circumstances in ITA No. 480 (All)/1994 we, confirm the orders of the Commissioner (Appeals) in these cases also.

18. In the result, the revenue 's appeals in these cases are also dismissed.