This appeal, preferred by assessee, is directed against CIT(A) s order dt. 25th Sept., 2002 relating to asst. yr. 1997-98. appellant has taken only two grounds in this appeal out of which ground No. 1 is effective ground which challenges sustenance of penalty of Rs. 1,65,78,889 imposed by Addl. CIT, Range 49, New Delhi under s. 271C of IT Act, 1961. Shri Prakash Narain Advocate along with Shri S.K. Chaturvedi FCA appeared for assessee whereas Shri B.P. Mishra senior Departmental Representative represented Revenue. assessee, M/s Aeroflot Russian International Airlines, has been operating between India and Russia. It is official and Government airlines of then USSR and now belongs to Federation of Russia. survey operation under s. 133A of IT Act, 1961 was carried out on 12th Jan., 1999 and it was found that assessee was not deducting TDS on various payments including rent, salary, contractual payments etc., as required by provisions of Chapter XVII of IT Act. assessee had not filed any return of TDS in previous years and in response to notice from AO, it filed return in Form No. 26J in respect of rental payments on 29th July, 1999. AO passed order under s. 201(1A) and required assessee-company to file proof o f payment of taxes before 30th May, 2000. While passing order under s. 201(1A), AO appended Annex. A4, detailing therein default in respect of non- deduction of tax totalling to Rs. 1,65,78,899. In view of non-deduction of tax, show-cause notice was sent to assessee to show cause as to why penalty under s. 271C be not imposed for default in non-deduction of TDS. In response to this notice, assessee filed reply dt. 10th April, 2001, 4th May, 2001 and 24th Sept., 2001. In particular following submissions were made on behalf of assessee. assessee was under bona fide and reasonable belief that TDS provisions were not applicable in his case due to operation of DTAA between India and Russia. Government was already compensated for period of default by charge of interest under s. 201(1A). tax has already been paid by recipients. Department never responded to assessee s queries regarding non-applicability of TDS provision. Immediately after survey, assessee started deducting TDS which shows that omission on part of assessee was not deliberate; and assessee had reasonable cause for non-deduction of TDS. In support of above mentioned submissions, assessee also placed reliance on certain decisions. Addl. CIT rejected all these grounds and held that due to non- deduction of TDS assessee was held to be assessee in default. He, therefore, imposed penalty of Rs. 1,65,78,899 under s. 271C vide order dt. 27th Sept., 2001. assessee challenged imposition of penalty before learned CIT(A). It was specifically pleaded that Addl. CIT was not justified in rejecting explanation of assessee. In this regard following ground was taken: "That action of Addl. CIT Range-49, New Delhi by rejecting explanations, evidence etc. to cover case for not imposition of penalty under s. 273B of IT Act, 1961 is unjust, arbitrary and against facts and circumstances of case." Before learned CIT(A) it was contended that there was bona fide belief regarding non-applicability of TDS provision because IT Department did not respond to queries of assessee-company. However, learned CIT(A) could not be convinced with plea of assessee and after ejecting same he confirmed penalty. Before us, learned counsel for assessee Shri Prakash Narain, advocate made detailed submissions. learned counsel explained that assessee-company was converted into joint stock company w.e.f. June 1996 with all entire share capital of assessee-company. learned counsel, after making reference to provisions of s. 273B submitted that since there w s DTAA agreement between Governments of India and Russia, assessee was under impression that its entire income was exempt from tax. He further pointed out that assessee-company was operating since 1957 and never in past any notice was sent by IT Department nor assessee was asked to deduct tax from payment of rent to Airport Authority of India. learned counsel invited our attention to p. 29 of paper book which is order of learned CIT(A) dt. 8th April, 1991 for asst. yr. 1986-87 in which it has observed that there existed reciprocal arrangement between India and Russia for not taxing employees of Air India and Aeroflot in respective country under s. 10(6)(iv) of IT Act. learned counsel also made reference to no objection certificate issued by CIT dt. 20th July, 1994 which is available at p. 31 of paper book. Further, learned counsel also made reference to letter dt. 22nd May, 1995 written by assessee-company to Asstt. CIT in which it was clearly mentioned that no TDS is being deducted because Airport Authority of India is Government of India organization and secondly Aeroflot is exempt from income-tax as per DTAA between India and Russia. He further pointed out that letter dt. 23rd March, 1996 was written by assessee to Asstt. CIT for seeking specific instructions of Department whether to deduct tax on payments made to International Airport Authority of India or not. But despite this request, no instruction was given to assessee by Department. In this regard learned counsel invited our attention to pp. 38 & 39 of paper book also to observations of learned CIT(A) to effect that he could not locate letter of assessee and reply of Department. In support of his arguments, learned counsel placed reliance on ratio of decisions in following cases: ITR 53 (sic) CIT vs. Mitsui & Co. Ltd. (2004) 190 CTR (Del) 38: (2004) 272 ITR 545 (Del); Rajkot Engg. Association vs. Union of India (1986) 54 CTR (Guj) 272: (1986) 162 ITR 28 (Guj). Motilal Padampat Sugar Mills Co. Ltd. vs. State of U.P. (1979) 118 ITR 326 (SC). learned Departmental Representative, on other hand, placed reliance on order of learned CIT(A). We have carefully considered facts and circumstances relating to this matter and find force in contentions raised on behalf of assessee before us. On going through material it is found that Revenue has never required assessee to deduct tax on rentals paid by it. As assessee was Russian Government company and further since there was DTAA between two countries, assessee had genuine belief that it was not required to deduct tax. This faith was also based on no objection certificate dt. 20th July, 1994 which is as under: No objection certificate It is certified that as per agreement between Government of Republic of India and Government of USSR for avoidance of double taxation and prevention of Fiscal Evasion with respect to taxes on income, Aeroflot Airlines is exempt from payment of income-tax in India. This is subject to M/s Aeroflot Airlines obtaining necessary permission from Reserve Bank of India. This certificate shall remain valid for financial year 1994-95. Sd/- (R.K. Tanwar) Asstt. CIT Non-resident Ward, Non-resident Ward, New Delhi." Not only this assessee had himself made request to Department t o know about its liability. Hence, query was made by assessee through letter dt. 23rd March, 1996. Paras 4 & 5 of this letter are as under: "4. We are also enclosing herewith statement for payment of RNFC and other Navigational charges paid to Government Deptt. National Airport Authority, IGI Airport, New Delhi for period from 1st June, 1994 to 31st March, 1995. In this connection, we would like to inform you that we have been informed b y General Director of both IAAI and NAA that these are Government payments and no TDS is to be deducted on these payments. Further, they have referred matter to their Ministry as well as Ministry of Finance and they are awaiting official reply from them in this regard at which time they will inform us accordingly. detailed statement of payment of amount to Hotel Maurya Sheraton for period from 1st June, 1994 to 31st March, 1995 is enclosed herewith. In this connection, we would like to bring it to your kind notice that as per bilateral agreement between two Governments, Aeroflot is exempt for payment of income-tax under double taxation avoidance treaty, as such No TDS was deducted by us. In view of above, we seek your specific instructions whether to deduct TDS on above mentioned payments or not. On receipt of your instructions, we will proceed further in this matter." It is to be pointed out that even before learned CIT(A) it was submitted that there was no fault on part of assessee because assessee wanted to seek instruction from Department but same was not given. As assessee had made query in year 1996, it was obligatory on part o f Department to have issued required instructions and as Department could not supply any instruction to assessee it was very natural and reasonable that assessee might be under impression that it was not required to deduct any tax at source. Thus, in view of these circumstances it can be safely inferred that assessee was prevented by reasonable cause in not deducting TDS from payments made by it. It may be pointed out that as soon as assessee came to know about his liability, it started to comply with provisions of Chapter XVII and deducted tax. information in this regard was conveyed to Department through letter dt. 25th Feb., 1999, which is available at p. 49 of paper book. It was intimated that TDS of Rs. 91,60,140 had been deducted. On going through correspondence on record, it is found that assessee had advanced plea of reasonable cause. It is to be pointed out that in instant case assessee also deposited entire tax as well as interest and no action under s. 221 was taken against assessee. In case of Mitsui & Co. Ltd. (supra), Hon ble Delhi High Court has held that payment of amount of short tax deduction and interest thereon was mitigating factor for not taking action under s. 221 and when no action was taken by Revenue for levy of penalty under s. 221 and delay in payment of tax had been fully compensated by payment of interest, no further action was justified under s. 271C. In that case also non-resident company incorporated in Japan was charged with liability for non-deduction of TDS. company had paid interest as required under s. 201(1 A) for delayed payment. On this basis it was inferred by Tribunal that there existed good and sufficient reason for non-deduction of tax at source from amount paid in Japan. finding of Tribunal was upheld by Hon ble Delhi High Court. Similarly, Tribunal in case of Marubeni Corpn. (Liaison Office) vs. Jt. CIT (2003) 78 TTJ (Del) 297: (2002) 83 ITD 577 (Del) has accepted plea of bona fide belief and reasonable cause. In that case of non-resident company, fault was for non-deduction of tax at source on certain amount of emoluments paid by assessee-company to expatriate Japanese company. In case of CIT vs. Itochu Corpn. (2004) 190 CTR (Del) 31: (2004) 268 ITR 172 (Del) Hon ble Delhi High Court has upheld finding of Tribunal wherein it was held that assessee had paid tax along with interest voluntarily and thus there existed bona fide belief that tax was not deductible at source. So far as plea of reasonable cause is concerned, same is to be examined in context of circumstances of each case. In case of (Woodward Governor India (P) Ltd. vs. CIT (2001) 168 CTR (Del) 394: (2002) 253 ITR 745 (Del) Hon ble Delhi High Court in that case considered plea of reasonable cause and has observed as under: "Levy of penalty under s. 271C of IT Act, 1961, for failure to deduct tax at source, is not automatic. In order to bring application of s. 271C, in backdrop of overriding non obstante clause in s. 273B, absence of reasonable cause, existence of which has to be established, is sine qua non. Before levying penalty, concerned officer is required to find out that even if there was any failure to deduct tax at source, same was without reasonable cause. initial burden is on assessee to show that there exists reasonable cause which was reason for failure. Thereafter, officer has to consider whether explanation offered by assessee or other person as regards reason for failure, was on account of reasonable cause. clause beginning with "notwithstanding anything" is sometimes appended to section in beginning with view to give enacting part of section, in case of conflict, overriding effect over provisions of Act mentioned in non obstante clause. non obstante clause may be used as legislature device to modify ambit of provision of law mentioned in non obstante clause or to override it in specified circumstances. true effect of non obstante clause is that in spite of provision or Act mentioned therein enactment following it will have full operation or that provisions embraced in non obstante clause will not be impediment for operation of enactment." In instant case, from circumstances narrated by assessee in its explanations submitted to AO, it is clear that assessee was having no idea that it was required to deduct tax at source. belief of assessee in not deducting tax was, therefore, bona fide belief particularly in absence of any specific direction in this regard by AO. Under circumstances, it cannot be said that conduct of assessee was mala fide and payment made without deduction of tax at source was with ulterior motive. plea of learned Departmental Representative that assessee was expected to know liability and provisions of IT Act applicable in India, cannot be accepted because assessee was foreign company and was not aware of Indian laws. This aspect is further substantiated by fact that assessee itself sought instructions from Department on this issue. In case of Motilal Padampat Sugar Mills Co. Ltd. (supra), Hon ble Supreme Court has observed that there is no presumption that every person knows law. It has been further observed that it is often said that every one is presumed to know law, but that is not correct statement and there is no such maxim known to law. This observation of Hon ble Supreme Court is fully applicable to assessee s case. In any case, and particularly in absence of any formal legal advice it cannot be assumed that assessee was aware about its legal obligation cast upon it under IT Act relating to deduction of tax and therefore, it cannot be held that assessee consciously disregarded its obligation. In instant case Department has also failed to discharge its obligation in properly instructing assessee at time when instructions were sought by assessee from it. In view of above and in totality of circumstances pertaining to this matter we are of considered opinion that assessee had fully established reasonable cause on its part for not being able to discharge its legal obligation. plea of assessee in our opinion justifies reasonable cause, which is available in view of provisions contained in s. 273B of IT Act. This plea has been fully substantiated by assessee and explanation of assessee deserved to have been accepted. Departmental authorities were, therefore, not justified in rejecting such plea, in imposing penalty under s. 271C. It may be observed that imposition of penalty is not mandatory and in cases, like present case, there is no justification for imposing penalty particularly when entire tax had been deposited and interest has also been paid by assessee for delay in deducting tax. Thus, on consideration of totality of circumstances and relevant material on record, we set aside finding of learned CIT(A) and cancel penalty imposed by AO under s. 271C and so sustained by learned CIT(A). Consequently, penalty stands cancelled. In result, assessee s appeal is allowed. *** AEROFLOT RUSSIAN INTERNATIONAL AIRLINES v. ADDITIONAL COMMISSIONER OF INCOME TAX