Ita/147/2016 Of The Commissioner Of Income Tax (Tds) Kochi v. Eurotech Maritime Academy Pvt.ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY ,THE 25TH DAY OF SEPTEMBER 2018 / 3RD ASWINA, 1940 ITA.No. 137 of 2016 AGAINST THE ORDER/JUDGMENT IN ITA 352/2015 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 01-06-2016 APPELLANT/S: THE COMMISSIONER OF INCOME TAX (TDS)KOCHI, C.R BUILDINGS, I.S PRESS ROAD, KOCHI 682 018 BY ADVS.SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPT.SRI.K.M.V.PANDALAI, INCOME TAX DEPT. RESPONDENT/S:EUROTECH MARITIME ACADEMY PVT. LTD.XXXVII/3492, VAKILS BUILDING, KALOOR, KOCHI - 682 017. BY ADVS.SRI.ANIL D. NAIRKUM.MEKHALA M.BENNYKUM.SOUMYA PRAKASHSRI.JOSEPH GOPURANSRI.R.SREEJITH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 25.09.2018, ALONG WITH ITA.147/2016, ITA.148/2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY ,THE 25TH DAY OF SEPTEMBER 2018 / 3RD ASWINA, 1940 ITA.No. 147 of 2016 AGAINST THE ORDER/JUDGMENT IN ITA 353/2015 ofI.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: THE COMMISSIONER OF INCOME TAX (TDS) KOCHIC.R.BUILDINGS, I.S.PRESS ROAD,KOCHI - 682 018. BY ADVS.SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPSRI.K.M.V.PANDALAI, INCOME TAX DEPARTMENT RESPONDENT/S: EUROTECH MARITIME ACADEMY PVT.LTD.XXXVII/3492, VAKILS BUILDING, KALOOR, KOCHI - 682 017. BY ADVS.SRI.ANIL D. NAIRKUM.MEKHALA M.BENNYKUM.SOUMYA PRAKASHSRI.JOSEPH GOPURANSRI.R.SREEJITH OTHER PRESENT: CHRISTOPHER ABRAHAM,SC FOR APPELLANT THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 25.09.2018, ALONG WITH ITA.137/2016, ITA.148/2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY ,THE 25TH DAY OF SEPTEMBER 2018 / 3RD ASWINA, 1940 ITA.No. 148 of 2016 AGAINST THE ORDER/JUDGMENT IN ITA 354/2015 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 01-06-2016 APPELLANT/S: THE COMMISSIONER OF INCOME TAX (TDS)KOCHI, C.R.BUILDINGS, I.S.PRESS ROAD,KOCHI - 682 018. BY ADVS.SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPSRI.K.M.V.PANDALAI, INCOME TAX DEPARTMENT RESPONDENT/S: EUROTECH MARITIME ACADEMY PVT. LTD.XXXVII/3492, VAKILS BUILDING,KALOOR, KOCHI - 682 017. BY ADVS.SRI.ANIL D. NAIRKUM.MEKHALA M.BENNYKUM.SOUMYA PRAKASHSRI.JOSEPH GOPURANSRI.R.SREEJITH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 25.09.2018, ALONG WITH ITA.137/2016, ITA.147/2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: JUDGMENT [ ITA 137/2016 ,ITA.147/2016 ,ITA.148/2016 ] Ashok Menon, J. These three appeals are filed by the Revenue aggrieved by the common order of the Income Tax AppellateTribunal, Cochin, pertaining to the assessment years2010-11, 2011-12 and 2012-13. Penalty was imposed on the assessee by the Assessing Officer, which confirmed by theAppellate Authority, was reversed by the Tribunal andhence these appeals. 2.The questions of law that arises for consideration in these three appeals re-framed by us areas follows: 1) Whether the Tribunal was justified in cancellingthe penalty levied under Section 271(c) of theIncome Tax Act holding that the assessee hadreasonable cause within the meaning of Section273(B) of the Act.the penalty levied under Section 271(c) of theIncome Tax Act holding that the assessee hadreasonable cause within the meaning of Section273(B) of the Act. 2) Whether the assessee is entitled to the exemptionunder Section 194-I in view of Section 44AB ofthe Act ?under Section 194-I in view of Section 44AB ofthe Act ?3.The facts in brief are that the assessee-company is a trust registered under Section 12A of the Income TaxAct, 1961 and runs an educational institution, namely, consideration in these three appeals re-framed by us areas follows: 1) Whether the Tribunal was justified in cancellingthe penalty levied under Section 271(c) of theIncome Tax Act holding that the assessee hadreasonable cause within the meaning of Section273(B) of the Act.the penalty levied under Section 271(c) of theIncome Tax Act holding that the assessee hadreasonable cause within the meaning of Section273(B) of the Act. 2) Whether the assessee is entitled to the exemptionunder Section 194-I in view of Section 44AB ofthe Act ?under Section 194-I in view of Section 44AB ofthe Act ?3.The facts in brief are that the assessee-company is a trust registered under Section 12A of the Income TaxAct, 1961 and runs an educational institution, namely, Eurotech Maritime Academy Pvt.Ltd. The assessee ispaying rent for the building occupied by them and alsohas a responsibility, statutorily mandated, to deduct taxat source. It was found that the tax deducted at sourcewas deposited belatedly to the Central Government accountfor the assessment years 2010-11, 2011-12 and 2012-13.The assessee has been defaulting such payment even priorto this. Hence, notice under Section 271C of the Act wasissued by the Assessing Officer and penalty equal to theamount of tax payable was imposed. Aggrieved by this,appeals were filed before the Additional Commissioner ofIncome Tax and vide orders dated 27.02.2015 all the threeappeals were rejected and action taken by the AssessingOfficer was confirmed. 4.The learned Counsel for the assessee argues thatthe assessee being a registered trust, it would comewithin the exception under Section 194-I and 44AB of theAct and therefore, has no liability to deduct tax atsource. The relevant portion of Section 194-I and thesecond proviso reads as follows:- “194-I. Any person,not being an individual ora Hindu undivided family, who is responsible forpaying to a resident any income by way of rent,shall,at the time of credit of such incometo the account of the payee or at the time ofpayment thereof in cash or by the issue of acheque or draft or by any other mode whicheveris earlier, deduct income-tax thereon at therate of- (a)--- (b)--- Provided---- Provided further that an individual or aHindu undivided family, whose total sales, grossreceipts or turnover from the business orprofession carried on by him exceed the monetarylimits specified under clause (a) or clause (b)of section 44AB during the financial yearimmediately preceding the financial year inwhich such income by way of rent is credited orpaid, shall be liable to deduct income-tax underthis section:” According to the learned Counsel, the assessee is a trustregistered under Section 12A, and therefore, not obligedto carry out an audit as provided under Section 44AB. Only those persons covered under Section 44AB would haveto discharge the statutory obligation under Section 194-Iis the submission. 5.The second proviso of Section194-I cannot be applicable to the assessee in this case,because a trust cannot be included within the definitionof “an individual or a Hindu undivided family” andtherefore, the monetary rules specified in clause (a) or(b) of Section 44AB also is not relevant. It is also pertinent that the second proviso to Section 194-I speaksof Section 44AB, to include individuals and HinduUndivided Families, whose income exceeds the limitsspecified in clauses (a) & (b) of Section 44AB within theambit of Section 194-I; and makes it obligatory to deducttax on any rent paid by them. There is no exemption assuch for those not coming under Section 44AB, and Section44AB is referred only to specify the monetary limit.Hence, the argument of the learned Counsel appearing forthe assessee does not appear to be very impressive to usand is not acceptable. pertinent that the second proviso to Section 194-I speaksof Section 44AB, to include individuals and HinduUndivided Families, whose income exceeds the limitsspecified in clauses (a) & (b) of Section 44AB within theambit of Section 194-I; and makes it obligatory to deducttax on any rent paid by them. There is no exemption assuch for those not coming under Section 44AB, and Section44AB is referred only to specify the monetary limit.Hence, the argument of the learned Counsel appearing forthe assessee does not appear to be very impressive to usand is not acceptable. 6.The Tribunal has accepted the explanation ofthe assessee in not making the deductions on time. Eventhat, according to us is not acceptable because there isabsolutely no reason why the assessee had refrained fromdepositing the deductions on time. From 2009-10 onwardthere has been delay in making the payments as is borneout from the records and the reasons supplied for suchdelay is not at all acceptable to us. The onlyexplanation offered by the assessee is the failure of theClerk who failed to discharge her duties properly. Apartfrom the fact that such explanation cannot be countenanced it is also to be noticed that the assesseehad been making the payments piece-meal through out theyear and not deducting the tax on its payment in therespective months. Hence, it is not a case of thoroughignorance and there is deliberate laxity on the part ofthe assessee. Court in US Technologies International (P) Ltd. v. Commissioner of income Tax, [2010] 195 Taxman 323 (Ker), it is held thus in paragraph 3 of the judgment: “..... We are unable to accept thiscontention because the first part of clause (b)of Section 271C(1) i.e. failure to pay whole orany part of tax as required, takes in the taxdeducted under clause (a) under any of theprovisions of Chapter XVIIB. So much so, in ourview, failure to deduct or failure to remitrecovered tax, both will attract penalty underSection 271C of the Act. So much so, thecontention of the appellant fails and we upholdthe finding of the Tribunal dismissing thechallenge against levy of penalty.” In Classic Concepts Home India Pvt.Ltd. v. Commissioner of Income Tax, [2016] 383 ITR 626 (Ker.) relying on the decision reported in US Technologies International (P) Ltd., another Division Bench of this Court held thus:- “So far as failure on the part of the assessee toremit the tax recovered at source is concerned, we do not think there can be any justifyingcircumstance for delay in remittance becauseassessee cannot divert tax recovered for theGovernment towards working capital or any otherpurpose. So much so, in our view, defenceavailable under Section 273B does not coverfailure in payment of recovered tax.” 8.In a case where the assessee is liable to deducttax at source and fails to do so, penalty under Section271(1)(c) is liable to be imposed. The learned Counselappearing for the assessee has pointed out a decision inCommissioner of Income Tax v. Bank of Nova Scotia, [2016]380 ITR 550 (SC), wherein the Hon'ble Supreme Court hadconsidered the question regarding deletion of penaltyunder Section 271(1)(c) of the Act. Going through thatdecision, it is seen that the Tribunal had allowed theassessee's appeal and cancelled the penalty levied underSection 271(1)(c) on the specific finding that it isnecessary to establish that there was contumaciousconduct on the part of the assessee to attract penaltyunder Section 271(1)(c) of the Act. The Hon'ble SupremeCourt agreed with the High Court that there was nosubstantial question of law raised and rejected thechallenge. We find that the Hon'ble Supreme Court inUnion of India v. Dharmendra Textile Processors, [2008] 306 ITR 277 (SC) heldthat mens rea is not an essentialelement for imposing penalty for breach of civilobligations. Imposition of penalty for non-compliance ofstatutory provision, is not a criminal liability, but isonly a civil liability and therefore, bad motive on thepart of the assessee is not essential to be proved. 9.Taking the entire facts and circumstances ofthis case, we are of the considered opinion that theassessee is liable to pay penalty under Section 271(1)(c)of the Act, and therefore, the impugned order of theTribunal deleting the penalty is not sustainable andhence, set aside. The questions of law are answered infavour of the Revenue and against the assessee. Theappeal is allowed, setting aside the order of Tribunaland restoring those of the Assessing Authority and theAppellate Authority. No order as to costs. dkr Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON JUDGE The words “Section 271(c)” occurring in the 3[rd] lineof sub paragraph (1) of 2[nd] paragraph of the operativeportion at page 1 and the words “Section 271(1)(c)”occurring in the 1[st], 7[th], 10[th] and 13[th] lines of the 8[th]paragraph (7[th] page) and in the 4[th] line of 9[th] paragraph(8[th] page) of the common judgment dated 25.09.2018 inI.T.A.Nos.137, 147 & 148 of 2016 are corrected andsubstituted as “Section 271C” as per order dated01.11.2018 in I.T.A.Nos.137, 147 & 148 of 2016. Sd/- Registrar (Judicial) APPENDIX OF ITA 137/2016 APPELLANT'S/S ANNEXURES: ANNEXURE-AA TRUE COPY OF THE PENALTY ORDER DATED 26/09/2013.ANNEXURE-BTRUE COPY OF THE APPELLATE ORDER DATED 26/09/2013 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-III, KOCHI. ANNEXURE-CTRUE COPY OF THE COMMON ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL ON 01/06/2016. APPENDIX OF ITA 147/2016 PETITIONER'S/S EXHIBITS: