All these four tax appeals are being considered and decided together by this judgment, as they arise from a common order dated 30th August 2011 passed by the Income Tax Appellate Tribunal, 'D' Branch, Ahmedabad in ITA No.2898 of 2010 to ITA No.2901 of 2010 referable to the case of Assessment Orders 19992000 to 200203 respectively. 1.1 In all the appeals, the following common question is raised by the appellant, proposing it as a substantial question of law:
“Whether the Appellate Tribunal has substantially erred in law in cancelling the penalty levied u/s.271C of the Act, when the assessee, without reasonable cause did not deduct tax as per section 194I of the Act?”
2.0 We heard learned advocate Mrs. Mauna Bhatt for the appellant Revenue, who appeared in all the four appeals.
3.0 The short issue involved is whether the assessee was justified in deducting the tax at source under Section 194C of the Income Tax Act, 1961 and could have been subjected to imposition of penalty under Section 271C of the Act for not Deducting the Tax at Source as per the Section 194I of the Act. Under Section 194C, any person responsible for paying any sum to the contractor for carrying out work in pursuance of a contract shall be required to deduct 2% of the payment made as Income tax. As against that, Section 194I of the Act provides for payment of tax at source at the rate of 20% by person who is responsible to pay income by way of rent.
3.1 The controversy as to which provision would fix the liability on the assessee to pay tax, had arisen in the context that the assessee company had made payment of rent to one M/s. Triton Trading Co. Pvt. Ltd. which was one of its group concerns. Different amount of rent were paid in the different accounting years which were treated by the assessee in the corresponding assessment years, as payments in the nature of service charges and accordingly it had deducted TDS at 2% as contemplated under Section 194C of the Act. Those payments were treated as contractual payments by the assessee.
3.2 The Assessing Officer passed an order under Section 201(1) and 201(1A) of the Act on 10.06.2002 for the Assessment Year 19992000, 200001 to 200102 and 200203. Section 201(1) provides for consequence of failure to deduct for payment of tax, whereas Section 201(IA) provides for interest. Thereafter the Additional Commissioner of Income Tax imposed penalty on the assessee under Section 271C of the Act for the different Assessment Years as under:
3.3 The explanation of the assessee was that the Assessing Officer had issued certificates under Section 197 of the Act in the Assessment Year 200203 for deduction at lower rate at 1.0% and 0.5% under Section 194C of the Act. These certificates were certificate dated 14th March 2002 in respect of payment made to M/s. Chavannese & Co. Pvt. Ltd. and the certificate dated 13.03.2002 for deducting tax at source in respect of payment to M/s. Triton Trading Co. Pvt. Ltd. From the agreement entered into with these parties, it was pointed out that the assessee had been making payment for office charges, equipments, furnitures, photocopy machine and repair and maintenance services and peon facility as well. It was submitted by the assessee that the value of property and the market rent fetchable by the property were not even 10% of the total service charges paid by it. It was further submitted that having regard to the agreement for service charges which involved number of services to be provided, the payments were of contractual nature. According to the assessee, even if it is to be assumed that most of these services were not received by it, it could not be said that such a huge amount was paid for the rent of the premises, and therefore, in respect of substantial part of the payment, the provisions of Section 194C of the Act would apply. The assessee had raised a ground also that the imposition of the penalty was time barred.
3.4 The assessee preferred the appeal before the Commissioner of Income Tax (Appeals) against the above order of imposition of penalty. The Appellate Commissioner by his orders dated 13th August 2010, passed separately for each of the Assessment Year, set aside the penalty on the ground that the assessee had shown a reasonable cause for short deduction of the tax.
3.5 The above mentioned orders passed by the Commissioner of Incometax (Appeals), all dated 13th August 2010, in respect of different Assessment Years, came to be challenged by the Revenue and culminated into the common order passed by the Tribunal dismissing all the appeals, bringing the Revenue before this Court by way of these appeals.
4.0 The question considered by the Tribunal was that whether the assessee had reasonable cause to be protected from levy of the penalty under Section 273B of the Act. Section 273B says that notwithstanding anything contained in Section inter alia of Section 271C, penalty shall not be imposed if the assessee proves that there was reasonable cause for this failure.
4.1 The Tribunal considered explanation offered by the assessee and observed;
“......the inescapable conclusion is that there was a reasonable cause within the meaning of section 273B for deducting the tax at source under section 194C of the IT Act 1961. The Addl. CIT, TDS Range, Ahmedabad rejected the explanation of the assessee on doubts and suspicion and levied the penalty under section 271C for all the four assessment years under appeal and in our opinion, the Ld. CIT(A)'s decision is legally and factually correct in cancelling the penalty levied by the AO by accepting the plea of the assessee that there was a reasonable cause within the meaning of section 273B for deducting the tax at source under section 194C.”
5.0 As noted above two certificates were issued by the tax department, for deducting tax under Section 194C of the Act. In that view, it was only reasonable for the assessee to hold a belief that the tax was deductible under Section 194C only. In the totality of the facts and circumstances, it was proper for the Tribunal to hold that the Assessee was under bona fide and honest belief that it was required to pay tax under Section 194C of the Act. The Tribunal's finding that assessee had reasonable cause to get the protection of Section 273B is a factual finding, arrived at on the basis of relevant material and applicable legal principles. We are in agreement with the findings and conclusion recorded by the Tribunal. No substantial question of law arises for consideration of this Court.
6.0 The Tribunal was correct in its course that it did not consider the aspect whether the penalty imposed was time barred in view of its factual finding that the appellant had reasonable cause for deducting the tax at source under Section 194C of the Act.
7.0 All these Tax Appeals are accordingly dismissed.
[V. M. SAHAI, J.] Amit [N. V. ANJARIA, J.]