Itta/15/2001 Of Commr.of Income Tax Vsp v. M/S Kanchana Ganga Sea Foods Ltd. V.wada

IN THE HIGH COURT OF JUDICATURE, ANDHRAPRADESH AT HYDERABAD THURSDAY, THE TWENTY SEVENTH DAY OFJUNE TWO THOUSAND AND THIRTEEN PRESENT THE HON’BLE THE CHIEF JUSTICESRI KALYAN JYOTI SEN GUPTA AND THE HON'BLE MS. JUSTICE G.ROHINI I.T.T.A. Nos.13 & 15 OF 2001 Between: The Commissioner of Income Tax,Visakhapatnam ..... Appellant in both the appeals AND M/s. Manchanganga Seas Foods Limited,Kasturibaipet, Vijayawada .....Respondent in both the appeals The Court made the following : COMMON JUDGMENT:(per the Hon’ble the Chief Justice Sri K.J.Sengupta) In each of these matters, at the time of admission,no substantial questions of law were formulated. As no one appeared for the respondent – assessee, afterhearing Mr. S.R. Ashok, learned Senior Counselappearing for the appellant, we formulate the followingsubstantial questions of law in these matters. 1.Whether on facts and in the circumstancesof the case, the learned Tribunal wasjustified in holding that the failure of theassessee – respondent to deduct tax wasnot deliberate or on account of bonafidebelief that the provisions of Sec.195 of theAct was not attractable until it was decidedfinally by the Tribunal?of the case, the learned Tribunal wasjustified in holding that the failure of theassessee – respondent to deduct tax wasnot deliberate or on account of bonafidebelief that the provisions of Sec.195 of theAct was not attractable until it was decidedfinally by the Tribunal? 2.Whether the learned Tribunal is justified inlaw, in the facts and circumstances of thecase, to waive the amount of penalty inother words, whether the Tribunal has gotany power under law to waive the penaltyeven after the factum of deliberate failure isestablished?law, in the facts and circumstances of thecase, to waive the amount of penalty inother words, whether the Tribunal has gotany power under law to waive the penaltyeven after the factum of deliberate failure isestablished? These appeals have been preferred by the Revenueagainst the judgment and order of the learned Tribunaldated 16.02.2000 in relation to the assessment years1991-1992 and 1994-1995 respectively. Both theseappeals are clubbed together and are being disposed ofby this common judgment, as common questions of laware involved in both these appeals. The facts leading to the filing of these appeals areas follows: The appellant is a company engaged in the business of processing and export of sea-foods. Theappellant company on 07.03.1990 has entered into acontract with M/s. East Wide Shipping Company,Kowloon, Hong Kong, a non-resident company, forchartering of two fishing vessels to be delivered atMadras. As per the agreement dated 25.6.1993, theywere to be delivered and operated from Goa Port and theassessee company has to pay 85% of the gross value ofthe catch towards hire charges to the foreign companyand all these operations, payments and adjustments weremade in India only. For the assessment years 1993-94and 1994-95, the assessee company paid hire charges tothe tune of 1,08,11,941/- and Rs.1,33,86,486/-, inadjustment of the dues. Later as per the agreement, thetrawlers were delivered to the assessee company with fullequipment. As per the Rules framed by the Governmentof India, the catch made on high seas was brought toMadras and Goa Ports and the surveyors assessed thevalue of the catch and the taxes levied on the goods werealso paid. Thus, the foreign company earned hire chargesin India and the income was chargeable to tax. In terms ofSec. 195, the assessee was under an obligation to deductthe tax at source, which was not done and as such theassessee company is in default under the provisions ofSec.201 read with Sec.195 of the Act. Therefore,consequent upon the orders passed by the AssessingOfficer, cases were referred to the Deputy Commissioner, Vijayawada, for imposing penalty, as stipulated underSec. 271C(2). Thereupon, the Deputy Commissioner,Vijayawada, issued show cause notice proposingpenalties under Sec.271C of the Act for the last four yearsin question, to which the appellant company submittedreply to the effect that it is not liable to deduct tax atsource under Sec.195 as the payments were made inkind, being a portion of the catch, towards hire chargesand the hire charges accrued to the non-residentcompany outside the taxable territories of India, that theappellant company was not obliged to deduct tax atsource from the non-resident company in view of thestatement made by the Finance Minister on the floor of theParliament to the effect that the question of assessing andcollecting income tax in respect of income derived by non-residents from the operation of trawlers in the continentalshelf of India, does not arise. In view of this explanation,the assessee company submitted that it was not liable tobe penalized under Sec. 271C of the Act. But the DeputyCommissioner held that the pleas taken by the assesseecompany are not tenable in law or on facts and, therefore,levied penalty for the last four years. Thereafter, the assessee company had taken thematter in appeal to the Commissioner of Income Tax(Appeals), which found that Sec.195 of the Act casts anobligation on the assessee company to deduct the tax atthe time of payment and also at the time of credit to the account of the payee, whichever is earlier and that thepayments contemplated under Sec. 195 not only includescash payment or payment by cheque or draft, but alsopayment made by any other mode. The Commissioner(Appeals) further held that in view of the confirmation ofthe levy of interest under Sec.201(A), the DeputyCommissioner, Vijayawada was justified in imposingpenalty under Sec. 271C of the Act for the past four years.Thus the appeal was dismissed. Against the aforesaid order of dismissal, therespondent company preferred an appeal before theAppellate Tribunal. The Tribunal, after interpreting the lawand on appreciating the facts, came to the conclusion thatin the facts and circumstances of the case, it is not a fitcase for levy of penalties. Learned counsel for the appellant submitted thatboth the Deputy Commissioner, Vijayawada, as well asthe Commissioner of Income Tax (Appeals) have correctlyheld that once the tax is deductible, penalty amount isautomatically liable to be levied and, there is neither anydiscretion nor power to waive the same. He also submitsthat under Sec. 271C of the Act, there is no provisionunlike prior to 1986, in case of a sufficient cause, penaltyis not leviable. After hearing the learned counsel for the appellant and on perusing the judgment and order of the learnedTribunal, we are of the view that that there is no discretionleft with the officer concerned to waive the penalty. Evenfor this, sufficient cause has to be established. In thiscontext, the provision of law requires to be reproduced.Therefore, Sec.271C is reproduced hereunder: 271C. Penalty for failure to deduct tax at source. (1). If any person fails to- (a)deduct the whole or any part of the tax asrequired by or under the provisions of ChapterXVII-B; orrequired by or under the provisions of ChapterXVII-B; or (b)pay the whole or any part of the tax asrequired by or under,-required by or under,- i)sub-section (2) of Section 115-O; or ii)second proviso to Section 194B, then such person shall be liable to pay, by way of penalty, a sumequal to the amount of tax which such person failed to deduct orpay as aforesaid (2) Any penalty imposable under sub-section (1) shall beimposed by the Joint Commissioner. 271C. Penalty for failure to deduct tax at source. (1). If any person fails to- (a)deduct the whole or any part of the tax asrequired by or under the provisions of ChapterXVII-B; orrequired by or under the provisions of ChapterXVII-B; or (b)pay the whole or any part of the tax asrequired by or under,-required by or under,- i)sub-section (2) of Section 115-O; or ii)second proviso to Section 194B, then such person shall be liable to pay, by way of penalty, a sumequal to the amount of tax which such person failed to deduct orpay as aforesaid (2) Any penalty imposable under sub-section (1) shall beimposed by the Joint Commissioner. Therefore, from a reading of the aforesaid section, inisolation of other provisions, it is thus clear that the penaltyis automatically liable to be imposed the moment there isviolation or lapse. But if any one reads the provision ofSec.273A of Income Tax Act, it would appear that theaforesaid provision has overriding effect of provisionunder Sec. 271C. Section 273A is set out hereunder: 273A. Power to reduce or waive penalty, etc. in certain cases: 1.Notwithstanding anything contained in this Act, theCommissioner may, in his discretion, whether on his ownmotion or otherwise,-Commissioner may, in his discretion, whether on his ownmotion or otherwise,- (i)……. (ii) reduce or waive the amount of penalty imposed orimposable on a person under clause (iii) of sub-section (1) ofSec. 271 or Thus it is clear that the Commissioner has discretionto reduce or waive the penalty in certain situations andone such situation is contemplated under Sec. 273B, ifgood faith is established for such failure. If good faith forindeliberate failure is established, this power can beexercised. The learned Tribunal, after taking note ofundisputed facts held that the respondent assessee wasunder bonafide belief that the aforesaid tax was notdeductible at source, as there was no payment to the non-resident company and there was consideration of handingover a part of the catch for the vessels. His belief was alsostrengthened by the statement made by the FinanceMinister on the floor of the Parliament at the time of budgetfor the relevant years. Even the case was very doubtfuland it was referred by the Tribunal to the High Court for itsopinion and then it was finalized that the tax wasdeductible. Therefore, we are of the view that when thereis debatable issue, such debatable issue itself is asufficient cause and/or indeliberate failure in good faith.We are, therefore, of the view that the learned Tribunal has appropriately exercised its discretion under Sec.273Bof the Act and we do not find any reason to interfere withthe said fact-finding arrived at by application of law. We accordingly dismissed the appeals. No order asto costs. ______________________ Kalyan Jyoti Sengupta, CJ. June 27, 2013MAS __________G.Rohini, J.