Itta/80/2010 Of M/S Bio-Technology Venture Fund v. Addl. Commissioner Income Tax

THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI RAMESH RANGANATHAN INCOME TAX TRIBUNAL APPEAL Nos.80, 95 and 101 of 2010 30.08.2010 Between: M/s.Bio-Technology Venture Fund. AND …. Appellant Addl.Commissioner Income Tax,Range-15, Hyderabad. … Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOAND THE HON’BLE SRI RAMESH RANGANATHAN INCOME TAX TRIBUNAL APPEAL Nos.80, 95 and 101 of 2010 COMMON JUDGMENT: (Per Hon’ble Sri Justice V.V.S.Rao) These three appeals under Section 260A of the Income TaxAct, 1961 (the Act) are by assessee against the common order of theIncome Tax Appellate Tribunal, Hyderabad, in I.T.A.Nos.369, 370,371/Hyd/08, dated 26.12.2008. The dispute arises out of penaltyproceedings under Section 271C of the Act for failure of the assesseeto deduct tax at source under Section 194J of the Act during the threeassessment years viz., 2004-‘05, 2005-’06 and 2006-’07. The admitted fact of the matter is that the appellant is a VentureCapital Fund registered with the Securities Exchange Board of India. During the three assessment years, the appellant paid managerial feeto APIDC Venture Capital Private Limited (APIDC) for managing theirassets. During the survey under Section 133A of the Act by thejurisdictional Income Tax Officer, it was noticed that the appellantfailed to deduct tax at source on payment of managerial fee to APIDC. Therefore, the notice under Section 271C of the Act was issued for failure to deduct whole of the tax. The appellant submitted explanationpleading that they were under genuine belief that the tax is notrequired to be deducted, that the tax was not deducted on the plea thatprovisions of Section 194J of the Act are not attracted to managerialfee, that there was no intention to violate the provisions of the Act andthat they had reasonable cause for non-compliance with TDSprovisions. The Additional Commissioner of Income Tax rejected thegrounds of defence and by proceedings dated 28.3.2007 levied thepenalty under Section 271C of the Act. Being aggrieved, the appellantunsuccessfully preferred the appeals. The Commissioner of IncomeTax (Appeals), by common order dated 15.1.2008 dismissed the threeappeals. As noticed supra, the appellant was unsuccessful in theirsecond appeal before the learned Tribunal. The learned Counsel submits that appellant’s accounts weremandatorily audited under Section 44A(b) of the Act and that whilefurnishing the audited report in Form3CA, the auditors did not point outin column No.27 thereof that any tax had been deducted at source onpayment of managerial fee. It is nextly urged that the appellant wasnot treated as “assessee in default” as contemplated under Section201(1A) of the Act and, therefore, the question of applying Section271C of the Act does not arise. Lastly he contends that the assessingofficer erroneously relied on the precedents, which are in relation toSection 271(1)(c) of the Act, which have no application to the casesarising under Section 271C of the Act. The Counsel relied on thedecision in CIT v Eli Lilly & Co (India) (P) Ltd.[[1]]in support of thecontention that in every case of non-compliance with provisions ofSection 194J of the Act, levy of penalty is not mandatory and thepenalty can be waived if it is proved that the assessee had reasonablecause. Indisputably under the explanation (b) to Section 194J(3) of theAct read with explanation (2) to clause (vii) of subsection (1) of Section9 of the Act, the appellant is required to deduct tax while paying the feefor managerial services. Therefore the issue before learned Tribunalwas whether the appellant had reasonable cause for failure to deducttax under Section 194J of the Act as provided for under Section 273Bof the Act. The onus is always on the assessee to do so. Theappellant satisfactorily discharged the burden of showing that therewas reasonable cause for failure to deduct tax, penalty shall not beimposable under Section 271C of the Act. In Eli Lilly & Co., the apexCourt considered this aspect of the matter and held that, “the liability tolevy penalty can be fastened only on the person who does not havegood and sufficient reason for not deducting tax at source.” We may usefully excerpt the following. Section 271-C inter alia states that if any person fails todeduct the whole or any part of the tax as required by theprovisions of Chapter XVII-B then such person shall be liableto pay, by way of penalty, a sum equal to the amount of taxwhich such person failed to deduct. In these cases we areconcerned with Section 271-C(1)(a). Thus Section 271-C(1)(a) makes it clear that the penalty leviable shall be equal to theamount of tax which such person failed to deduct. We cannothold this provision to be mandatory or compensatory orautomatic because under Section 273-B Parliament hasenacted that penalty shall not be imposed in cases fallingthereunder. Section 271-C falls in the category of such cases.… Section 273-B states that notwithstanding anythingcontained in Section 271-C, no penalty shall be imposed onthe person or the assessee for failure to deduct tax at sourceif such person or the assessee proves that there was areasonable cause for the said failure. Therefore, the liability tolevy of penalty can be fastened only on the person who doesnot have good and sufficient reason for not deducting tax atsource. Only those persons will be liable to penalty who donot have good and sufficient reason for not deducting the tax.The burden, of course, is on the person to prove such goodand sufficient reason. In each of the cases before the Supreme Court, non deductiontook place on account of controversial addition. Their Lordships heldthat, “all the assesses were under bona fide belief that they were notunder obligation to deduct tax at source from the home salary paid bythe foreign company” concluded that the assessee discharged burdenfor failure to deduct tax at source. Whether the appellant was shown reasonable cause? It is aquestion of fact. The first and second appellate authorities haverecorded valid reasons for rejecting the plea of the appellant. Afterperusing the orders to which our attention has been invited, we do notfind any question of law in these appeals. The learned Tribunal hasappreciated factual matrix and made the following observations. If assessee bona fide believes on the basis of some advicefrom a professional that tax need not be deducted, then theremay be a reasonable cause for the assessee for non-deduction of tax. If there is any ambiguity in the provisions ofthe Act, then also the assessee may be justified in claimingthat it was under a bona fide belief, which was the cause fornon-deduction of tax. It is not the case of the assessee thatthe belief was nursed on the basis of any advice rendered byany professional. It is also not the case of the assessee thatthere is any ambiguity or confusion in the provisions of theAct. As we have already observed S.194J clearly says thatany payment for technical services has to be subject todeduction of tax, while making or crediting payment. Fee fortechnical services means the fees paid for managerialservices also. Therefore, there is no ambiguity in the provisions of law. Moreover, there is not even a confusion inthe provisions of the Act. Therefore, this Tribunal is not in aposition to accept the contention of the assessee that it wasunder a bona fide and genuine belief with regard to non-deduction of tax at source. In the absence of any material tosupport, the contention of the assessee in this behalf cannotbe accepted. The learned Tribunal has also correctly applied principles oflaw. The appeals do not involve any substantial question of law. The appeals are therefore dismissed. _______________ (V.V.S.RAO, J) 30.08.2010YS ______________________________ (RAMESH RANGANATHAN, J) [1](2009) 15 SCC 1 : (2009) 312 ITR 225