Itxa/1171/2017 Of Pr. Commissioner Of Income Tax-7 v. National Stock Exchange

Priya Soparkar 1 1-2 itxa 1171-17-o IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL (IT) NO.1171 OF 2017 Pr.Commissioner of Income Tax-7… AppellantV/s. National Stock Exchange… Respondent --- Mr.Suresh Kumar with Ms.Priyanka Tiwary andMs.Sumandevi Yadav, Advocate for the Appellant.Mr.J.D.Mistri, Senior Advocate with Mr.Atul K. Jasani forthe Respondent. --- CORAM : UJJAL BHUYAN & MILIND N. JADHAV, JJ. DATE : FEBRUARY 3, 2020 P.C.:- 1.Heard Mr.Suresh Kumar, learned standing counsel,Revenue for the appellant; and Mr.J.D.Mistri learnedsenior counsel assisted by Mr.Atul K. Jasani, learnedcounsel for the respondent. 2.This appeal has been preferred by the Revenue under Section 260A of the Income Tax Act, 1961 (briefly“the Act” hereinafter) against the order dated 4[th] April,2016 passed by the Income Tax Appellate Tribunal, Priya Soparkar 21-2 itxa 1171-17-o Mumbai Bench “B”, Mumbai (briefly “the Tribunal”hereinafter) in Security Tax Appeal No.01/Mum/2013 forthe financial year 2006-07. 3.In this appeal the appellant has proposed thefollowing two questions as substantial questions of law:- (i) Whether in the facts and in thecircumstances of the case and in law theTribunal erred in deleting the penalty leviedunder Section 105(a) of the SecuritiesTransaction Tax (STT) falling under Chapter VIIof Finance (No.2) Act, 2004? (ii) Whether in the facts and in thecircumstances of the case and in law theTribunal erred in deleting the penalty leviedunder Section 105(a) of the SecuritiesTransaction Tax (STT) falling under Chapter VIIof Finance (No.2 ) Act, 2004 in view of thefailure of the assessee to discharge itsstatutory liability to collect the STT atprescribed rates under section 100(4) of theSecurities Transaction Tax (STT) falling underChapter VII of Finance (No.2) Act, 2004? 4.In Income Tax Appeal No.1187 of 2017, we havealready set aside the order of the Tribunal dated 4[th]April, 2016 to the extent of deletion of the additionmade by the Assessing Officer and limited by the Priya Soparkar Commissioner of Income Tax (Appeals) Rs.2,80,78,444.00. 5.Ordinarily once the court holds that the respondent is not liable for the short deduction of STT, the penaltyimposed thereon would not survive as in such a case therespondent cannot be construed to be an assessee indefault. However, in addition to the above, we find thatthere are good grounds for interfering with the penaltyimposed. 6.Section 105 of Chapter VII of Finance (No.2) Act,2004 dealing with Securities Transaction Tax (STT)provides for penalty for failure to collect or pay STT. Asper Section 105 any assessee who fails to collect thewhole or any part of the STT as required under Section100 or having collected the STT fails to pay such tax tothe credit of the Central Government in accordance withsub-section (3) of Section 100, he shall be liable to paypenalty in addition to interest. The quantum of penalty isprovided in that section itself. Priya Soparkar 41-2 itxa 1171-17-o 7.However, as per Section 108, notwithstandinganything contained in the provisions of Section 105 orSection 106 or Section 107, no penalty shall be imposablefor any failure referred to in the said provisions if theassessee proves that there was reasonable cause forthe said failure and as per the proviso no order imposinga penalty shall be made unless the assessee had beengiven a reasonable opportunity of being heard. Priya Soparkar 41-2 itxa 1171-17-o 7.However, as per Section 108, notwithstandinganything contained in the provisions of Section 105 orSection 106 or Section 107, no penalty shall be imposablefor any failure referred to in the said provisions if theassessee proves that there was reasonable cause forthe said failure and as per the proviso no order imposinga penalty shall be made unless the assessee had beengiven a reasonable opportunity of being heard. 8.If Section 105 is read in isolation, it would appearthat failure to pay the tax by the assessee i.e., eitherfailure to collect the STT or failure to deposit the STTso collected to the credit of the Central Governmentwould automatically lead to imposition of penalty. This isso because of the use of the word “shall” in that section.However, Section 108 starts with a non-obstante clauseby use of the expression “notwithstanding”. It is furtherclarified that Section 108 would have effectnotwithstanding anything contained in Section 105 orthe other two sections mentioned therein. In otherwords, Section 108 would have overriding effect over Priya Soparkar 51-2 itxa 1171-17-o Section 105. Section 108 makes it abundantly clear thatmerely because there is infraction of Section 105imposition of penalty is not automatic. For that theassessee would have to be given a reasonableopportunity of being heard and in the process of suchhearing if the assessee proves that there was reasonablecause for such failure, then in such a case the AssessingOfficer shall not impose any penalty. 9.A careful and conjoint reading of the two provisionsi.e. Sections 105 and 108 would therefore make itclear that imposition of penalty is to be proceededseparately as a separate proceeding. Merely because inthe assessment order the Assessing Officer comes to aconclusion that the assessee had failed to collect theSTT or had failed to pay such STT to the credit of theCentral Government, it would not ipso-facto lead toimposition of penalty. Once such a conclusion is reached,the assessee is required to be provided reasonableopportunity of hearing and during the hearing if the Priya Soparkar 61-2 itxa 1171-17-o assessee can prove that there was reasonable cause forsuch failure, no penalty shall be imposed. 10.Though, as observed by the Supreme Court, theexpression ‘penalty’ is a word of wide significance, but insubstance penalty is in the nature of punishment.Therefore, before imposing penalty the Assessing Officermust come to the conclusion that there was deliberatedefiance of the law or wilful contravention of the law bythe assessee. 11.Reverting back to the facts of the present case, wefind the Assessing Officer had passed a compositeassessment order dated 30[th] March, 2011. In appellateproceedings, Tribunal had already held the respondent tobe not liable for any alleged short deduction of STT whichfinding we have affirmed. 12.Thus in the facts and circumstances of the caseand having regard to the discussions made above, we areof the firm view that the Tribunal was justified in Priya Soparkar deleting the penalty imposed on the respondent by theAssessing Officer. 13.Consequently, we find no merit in the appeal. Appealis accordingly dismissed. No cost. (MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.) ….