The Commissioner Of Income-Tax (Tds)-I, Chandigarh v. State Bank Of Patiala, Sco 3-A, Sector 7-C, Chandigarh

ITA No. 400 of 2015 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 400 of 2015 Date of Decision: 4.2.2016 The Commissioner of Income-tax (TDS)-I, Chandigarh ....Appellant. Versus State Bank of Patiala, SCO 3-A, Sector 7-C, Chandigarh ...Respondent. 1.Whether the Reporters of the local papers may be allowed to see the judgment?the judgment? 2.To be referred to the Reporters or not? YES 3.Whether the judgment should be reported in the Digest? CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MRS. JUSTICE RAJ RAHUL GARG. PRESENT: Mr. Denesh Goyal, Advocate for the appellant. AJAY KUMAR MITTAL, J. 1.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (in short “the Act”) against theorder dated 27.2.2015 (Annexure A-4) passed by the Income TaxAppellate Tribunal, Chandigarh Bench “A”, Chandigarh (hereinafterreferred to as “the Tribunal”) in ITA No. 1129/CHD/2014, for theassessment year 2011-12, claiming the following substantial questions oflaw:- (i)Whether the ITAT was right in law in deletingthe penalty imposed by the AO u/s 271C readwith Section 274 of the Income Tax Act for failure to deduct tax at source out of interestpaid/credited to four deductees as required u/s194A of the Income Tax Act, 1961? (ii)Whether on the facts and circumstances of thepresent case and in law, the Hon'ble ITAT isright in holding that the assessee was not liableto deduct tax at source, as required u/s 194A ofthe Income Tax Act, 1961? (iii)Whether in the facts and circumstances of thecase and in law the Hon'ble ITAT is right inholding that assessee has a genuine belief thatit was not required to deduct tax at source, asrequired u/s 194A of the Income Tax Act, 1961? 2.Briefly stated, the facts necessary for adjudication of theinstant appeal as narrated therein may be noticed. A TDS Inspection/Survey under Section 133A of the Act was carried out at the businesspremises of the assessee on 27.2.2013. During the course of saidsurvey, it was noticed that the assessee had not deducted tax on interestpaid to different parties who claimed to be exempt from the income taxunder Sections 12A and 10(23C) of the Act. The Person Responsible(PR) of the Bank admitted the default on his part and deposited the TaxDeducted at Source (TDS) along with interest on 1.3.2013. On askingto furnish the details and proof of deposit of TDS into Governmentaccount, the PR furnished the same vide letter dated 1.3.2013 and asper the details, the total TDS of ` 22,58,086/- along with interest underSection 201(1A) of the Act amounting to ` 2,14,732/-, thus, totalling` 24,72,818/- was deposited. The assessee had filed its e-TDS ITA No. 400 of 2015 ITA No. 400 of 2015 statements late for the financial year 2010-11. The matter regardinginitiation of penalty proceedings under Section 272A(2)(k) of the Act wasreferred to the Joint Commissioner of Income Tax (TDS), Range,Chandigarh. Since the PR had failed to deduct tax at source underSection 194A of the Act @ 10% on the payments made on account ofinterest paid to different parties and deposit the same in the CentralGovernment account, the Deputy Commissioner of Income Tax (TDS),Chandigarh vide order dated 28.3.2013 (Annexure A-1) under Section201(1)/201(1A) of the Act separately referred to the office of JointCommissioner of Income Tax (TDS), Range, Chandigarh regardinginitiation of penalty proceedings under Section 271C of the Act.Accordingly, a notice dated 15.4.2013 was issued to the PR to showcause as to why penalty under Section 271C read with Section 274 ofthe Act be not levied for failing to pay the amount of TDS. The JointCommissioner of Income Tax (TDS), Range, Chandigarh vide orderdated 16.8.2013 (Annexure A-2) imposed a penalty of ` 22,58,086/-under Section 271C of the Act which was equal to the amount of TDS.Feeling aggrieved, the assessee filed an appeal before theCommissioner of Income Tax (Appeals) [for brevity “the CIT(A)”]. TheCIT(A) vide order dated 30.10.2014 (Annexure A-3) allowed the appealof the assessee and deleted the penalty. Against the order, Annexure A-3, the revenue filed an appeal before the Tribunal who vide order dated27.2.2015 (Annexure A-4) upheld the order of the CIT(A) and dismissed the appeal. Hence, the present appeal. 3.We have heard learned counsel for the revenue and are notimpressed with the argument raised by him. impressed with the argument raised by him. 4.Section 194A of the Act relates to deduction of tax at source on interest other than “interest on securities”. Sub-section (3) of Section194A of the Act provides where the provisions of sub-section (1) relatingto deduction of tax at source do not apply. According to sub clause (f) ofClause (iii) thereunder, the provisions of tax deducted at source are notapplicable to such income credited or paid to any institution, associationor body or class by institutions, associations or bodies where the CentralGovernment after recording the reasons in writing notifies them in theOfficial Gazette. Section 194A(3)(iii)(f) of the Act reads thus:- “194A. Interest other than “interest on securities”. (3)The provisions of sub-section (1) shall notapply- XXXXXX XXXXXX (iii)to such income credited or paid to- XXXXXX XXXXXX (f)such other institution, association or body orclass of institutions, associations or bodies which theCentral Government may, for reasons to be recordedin writing, notify in this behalf in the Official Gazette.” 5.The Central Government had issued notification no.S.O.3489 [No. 170 (F.No. 12/164/68-ITCC/ITJ).] dated 22.10.1970 underSection 194A(3)(iii)(f) of the Act notifying Corporations, Undertakings,Societies etc. thereunder which reads thus:- “In pursuance of sub-clause (f) of clause (iii) of sub-section (3) of section 194A of the Income Tax Act,1961 (43 of 1961), the Central Government hereby notify the following for the purposes of the said sub-clause:- (i)any corporation established by a Central, Stateor Provincial Act;or Provincial Act; (ii)any company in which all the shares are held(whether singly or taken together) by theGovernment or the Reserve Bank of India or aCorporation owned by that Bank; and(whether singly or taken together) by theGovernment or the Reserve Bank of India or aCorporation owned by that Bank; and (iii)any undertaking or body, including a societyregistered under the Societies Registration Act,1860 (21 of 1860), financed wholly by theGovernment.”registered under the Societies Registration Act,1860 (21 of 1860), financed wholly by theGovernment.” 6.The CIT(A) had noticed that the action was initiated for levy notify the following for the purposes of the said sub-clause:- (i)any corporation established by a Central, Stateor Provincial Act;or Provincial Act; (ii)any company in which all the shares are held(whether singly or taken together) by theGovernment or the Reserve Bank of India or aCorporation owned by that Bank; and(whether singly or taken together) by theGovernment or the Reserve Bank of India or aCorporation owned by that Bank; and (iii)any undertaking or body, including a societyregistered under the Societies Registration Act,1860 (21 of 1860), financed wholly by theGovernment.”registered under the Societies Registration Act,1860 (21 of 1860), financed wholly by theGovernment.” 6.The CIT(A) had noticed that the action was initiated for levy of penalty under Section 271C of the Act for not deducting tax at sourcein respect of the following four societies:- “1.Haryana Rural Roads and InfrastructureDevelopment Agency (HARRIDA);Development Agency (HARRIDA); 2.Punjab ICT Education Society (Director General School Education Punjab); 3.Haryana State Council for Science & Technology; 4.Shri Aurobindo Society. 7.It was observed that in the case of three societies, i.e. Haryana Rural Roads and Infrastructure Development Agency, PunjabICT Education Society and Haryana State Council for Science andTechnology, the assessee was not liable to deduct TDS on interest paidto the said parties in view of the provisions of Section 194A(3)(iii)(f) of the Act read with notification No. S.O.3489 dated 22.10.1970 since theywere registered under the Societies Registration Act, 1860 and financedby the Government. Further, it was recorded that in the similar matter inIncome Tax Officer v. State Bank of Patiala, Kusumpti, Shimla, ITA No.271/CHD/2014, the Tribunal had dismissed the appeal of the revenueand confirmed the ordered of the CIT(A) in cancelling the penalty underSection 271C of the Act on the ground that in such circumstances theassessee would have genuine belief that it was not required to deducttax at source. In the case of Shri Aurobindo Society, the CIT(A) againnoticed that the exemption certificate under Section 80G(5)(vi) of the Actvalid for assessment year 2011-12 and a copy of return of income of ShriAurobindo Society where total income declared was 'nil', was also filedand, therefore, the assessee had a reasonable cause for failure todeduct tax at source under Section 201(1) of the Act. Accordingly, theCIT(A) cancelled the penalty levied by the department under Section271C of the Act . 8.On appeal the said findings were affirmed by the Tribunalholding that the assessee had a genuine belief that it was not required todeduct TDS. Further, the Tribunal observed that the penalty was notleviable as the case of the assessee fell under Section 273B of the Actand it had been able to prove that there was a reasonable cause for thesaid failure. The relevant findings recorded by the Tribunal read us:- “4.We have heard ld. Representative of both theparties and perused the findings of authorities below.The ld. DR relied upon order of the Assessing Officer.On the other hand, ld. Counsel for the assesseereiterated the submission made before authorities below. He has relied upon order of ITAT ChandigarhBench in ITA No. 267 to 271/CHD/2014 in the case ofITO Vs. State Bank of atiala, Kusumpti, Shimla(supra) and relied upon judgment of Hon'ble HimachalPradesh in the case of CIT(TDS) Chandigarh Vs.State Bank of Patiala, Shimla in ITA No. 17/2014dated 31.12.2014. “4.We have heard ld. Representative of both theparties and perused the findings of authorities below.The ld. DR relied upon order of the Assessing Officer.On the other hand, ld. Counsel for the assesseereiterated the submission made before authorities below. He has relied upon order of ITAT ChandigarhBench in ITA No. 267 to 271/CHD/2014 in the case ofITO Vs. State Bank of atiala, Kusumpti, Shimla(supra) and relied upon judgment of Hon'ble HimachalPradesh in the case of CIT(TDS) Chandigarh Vs.State Bank of Patiala, Shimla in ITA No. 17/2014dated 31.12.2014. 5.On consideration of the facts of the case, in thelight of the findings of ld. CIT (Appeals) and the abovedecisions, we do not find any merit in the appeal ofrevenue. The ld. CIT(Appeals) found that in case ofthree of the societies, the assessee was not liable todeduct tax at source. In the case of Shri AurobindoSociety, the exemption certificate under section 80G(5)(vi) was also filed. It would, therefore, prove thatassessee had a reasonable cause for failure to deducttax at source under section 201(1) of the Act. In thecase of State Bank of Patiala, Kunsumpti, Shimla(supra), ITAT Chandigarh Bench dismissed thedepartment appeal confirming the order of the ld. CIT(Appeals) in canceling the penalty under section 271Cof the Act. The facts are identical in the case of StateBank of Patiala, Shimla (supra). Hon'ble HimachalPradesh High Court dismissed departmental appealfinding no substantial question of law. These factswould clearly support the findings of ld. CIT(Appeals)that assessee had a genuine belief that it would not require to deduct tax at source. The case of theassessee, therefore, squarely falls under theprovisions of Section 273B of the Act and penalty isnot leviable because assessee is able to prove thatthere was a reasonable cause for the said failure.” 9.The CIT(A) and the Tribunal on appreciation of material onrecord have concurrently recorded that the penalty under Section 271Cof the Act was not leviable upon the assessee and cancelled the saidpenalty. Further, the Himachal Pradesh High Court in ITA No. 17 of2014 (Commissioner of Income Tax (TDS), Chandigarh v. StateBank of Patiala Sectt. Shimla) decided on 31.12.2014 had held that notax at source is required to be deducted in view of Section 194A(3)(iii)(f)of the Act in respect of payments made to any societies which arewholly financed by the Government and the Central Government hadissued notification exempting those societies. Learned counsel for therevenue was not able to demonstrate that the approach of the CIT(A)and the Tribunal was erroneous or perverse or that the findings of factrecorded were based on misreading or misappreciation of evidence onrecord warranting interference by this Court. 10.In view of the above, no substantial question of law arises inthis appeal. Accordingly, the instant appeal is dismissed. (AJAY KUMAR MITTAL) JUDGE February 4, 2016 gbs (RAJ RAHUL GARG) JUDGE