IN HIGH COURT OF HIMACHAL PRADESH, SHIMLA ITA No.40 of 2016 a/w . ITA s No. 41,42 & 43 of 2016 .P Date of decision: 31.5.2017 H 1. ITA No.40 of 2016 Commissioner of Income Tax ...Appellant. of Versus H.P. State Electricity Board rt ...Respondent 2. ITA No.41 of 2016 Commissioner of Income Tax ...Appellant. Versus C H.P. State Electricity Board ...Respondent 3. ITA No.42 of 2016 h Commissioner of Income Tax ...Appellant. ig Versus H H.P. State Electricity Board ...Respondent 4. ITA No.43 of 2016 Commissioner of Income Tax ...Appellant. Versus H.P. State Electricity Board ...Respondent ::: Downloaded on - 01/08/2017 10:11:19 :::HCHP 2 Coram: Hon ble Mr. Justice Sanjay Karol, Acting Chief Justice Honble Mr. Justice Sandeep Sharma, Judge Whether approved for reporting? Yes. . .P For petitioner(s): Mr. Vinay Kuthiala, Senior Advocate, with Ms. Vandana Kuthiala, Advocate. H For respondent(s): Mr. Rakesh Sharma, Advocate. of Sandeep Sharma, Judge Since in all aforesaid ITAs, similar questions of rt law and fact are involved, as such, they are being taken up ou together and disposed of by common judgment. 2. By way of instant appeal(s) filed under Section C 260-A of Income Tax Act, 1961, challenge has been laid to order(s) dated 10.12.2015, passed by Income Tax h Appellant Tribunal, Division Bench, Chandigarh in ITA ig No.38/Chd.2015 A.Y.2007-8, ITA No.39/Chd.2015 A.Y. 2008- 09, ITA No.40 /Chd.2015 A.Y. 2009-10 and ITA H No.41/Chd.2015 A.Y. 2010-11, whereby appeal(s) having been preferred by assessee have been dismissed. 3. Briefly stated facts as emerge from record are that assessee is company i.e. State Electricity Board incorporated under Electricity Act, 1948, engaged in Generation, Transmission & Distribution of Power in State ::: Downloaded on - 01/08/2017 10:11:19 :::HCHP 3 of Himachal Pradesh, made certain payments on account of wheeling charges/SLDC/Transmission charges to payee company i.e. PGCIL. On 11.02.2009 TDS inspection/survey . under Section 133-A of Income Tax Act, 1961 came to be .P conducted at business premises of above mentioned H company M/s Himachal Pradesh State Electricity Board, Shimla (for short HPSEB ), where it was noticed that of assessee deductor has made payments of transmission charges to PGCIL without deduction of tax at source. Above rt named assessee deductor submitted before Income Tax ou Authority that PGCIL has filed its return of income and has paid entire amount of income tax payable by them and C as such, there was reasonable cause for deductor assessee not to deduct TDS at source. However, assessing h Officer relying upon judgment of Hon ble Supreme ig Court of India reported in 293 ITR 226(SC) in case titled Hindustan Coca Cola Beverages Private Limited and Circular H No.275/201/95-IT(B) dated January 29,1997 issued by Central Board of Direct Tax Act, wherein it has been notified that No demand visualized under Section 201(1) of Income Tax Act, should be enforced after tax deductor has satisfied office in Charge of TDS that taxes due have been paid by deductee assessee, however, same will not ::: Downloaded on - 01/08/2017 10:11:19 :::HCHP 4 alter liability to charge interest under Section 201(1A) of Act, till date of order passed under Section 201 of Income Tax Act, 1961. On 31.03.2010 case was referred for . initiation of penalty proceedings under Section 271-C of .P Income Tax Act, 1961 for not deducting tax at source under H provisions of Income Tax Act, 1961. 4. Aforesaid order passed under Section 201(1A) was of laid challenge before Commissioner Income Tax (Appeals), but fact remains that Commissioner Income Tax (Appeals) rt came to conclusion that deductor/assessee was not ou prevented by any sufficient and reasonable cause for non- complying with provisions of Section 194-C of Income C Tax Act, 1961 and thus made itself liable for penalty under Section 271C of Income Tax Act, 1961 and accordingly h deductor assessee was held in default and penalty ig amounting to `1,36,00,187/-, `2,48,13,453/-, `2,76,67,625/- and `5,71,017/- for financial years 2006-07, 2007-08, H 2008-09 and 2009-10 respectively came to be imposed against assessee. 5. Being aggrieved and dissatisfied with aforesaid order having been passed by learned Commissioner Income Tax(Appeals), assessee preferred appeal before Income Tax Appellate Tribunal( Chandigarh) ( for short ::: Downloaded on - 01/08/2017 10:11:19 :::HCHP 5 ITAT), who vide order dated 28.2.2012 upheld order of assessing Officer made under Section 201(1A) with direction to re-compute amount of interest under Section . 201(IA) till date of payment of taxes by payee in .P accordance with contents laid down in circular H No.275/201/95-IT(B), dated 29.1.1997, wherein it was clarified that payments of due taxes by payee, will not of alter liability for payment of interest under Section 201(1A) or liability for penalty under Section 271C of rt income Tax Act. ou 6. Pursuant to aforesaid order, show cause notice under Section 271-C read with Section 274 of Income Tax C Act, came to be issued against assessee on 16.5.2012. However, assessee at assessment stage pleaded that since h deductee i.e. PGCIL has already paid tax, he cannot ig be held as assessee in default under Section 201 & 201(1A) and as such, no penalty is imposable on assessee. H assessing Officer imposed penalty of `1,36,00,187/-, `2,48,13,453/-, `2,76,67,625/- & ` 5,71,017/- for financial year 2006-07, 2007-08, 2008-09 and 2009-10 respectively after arriving at conclusion that there was no reasonable cause for deductor assessee not to deduct tax. ::: Downloaded on - 01/08/2017 10:11:19 :::HCHP 6 7. Aggrieved with aforesaid order passed by assessing Officer, appeal came to be preferred before Commissioner Income Tax(Appeals), wherein Commissioner . Income Tax (Appeals) held that mere non violation of Section .P 201 does not exonerate assessee as deductor to deduct H tax within specific provisions of Sections 192, 194, 194A etc. Commissioner Income Tax(A) further held that of failure to deduct tax invokes two types of sections, one section like 201, where assessee deductor is treated as rt assessee in default on behalf of tax liability of deductee and ou second penal provisions such as section 271-C, wherein failure to deduct tax is liable for penalty independently. Thus, C interlinking of two sections 201 and 271-C is violation of separate provisions of Act. Plea having been made by h assessee that it was under honest belief that since ig transmission charge are regulated by CERC and it was not to deduct TDS on transmission charges was not accepted by H Commissioner Income Tax (A) as reasonable cause for failure to deduct tax and as such, appeal of assessee was dismissed by Commissioner Income Tax (A) upholding levy of penalty under Section 271 of Income Tax Act. 8. Aforesaid order passed by Commissioner Income Tax (Appeals) came to be adjudicated by Income Tax ::: Downloaded on - 01/08/2017 10:11:19 :::HCHP 7 Appellate Tribunal (Chandigarh) in appeal having been preferred by assessee. Learned Income Tax Appellate Tribunal (Chandigarh) taking note of order passed by . ITAT Hyderabad in case of ACIT Vs. M/s Good Health Plan .P Limited in MA No.155/Hyd/2013, held that since assessee H has not been treated as assessee in default in terms of section 201 of Act and as such, it is neither liable to of deduct nor pay any tax as per Chapter XVIIB of Act. Learned tribunal further concluded that there was rt reasonable cause for not deducting TDS on payment ou made by assessee and as such, penalty imposed by assessing Officer was ordered to be deleted. In aforesaid C background, Income Tax Department preferred instant appeal (s) laying therein challenge to order dated h 10.12.2015, passed by Income Tax Appellate Tribunal, ig Chandigarh on ground that provisions contained under Sections 201 and 271-C of Income Tax Act, 1961 are H independent of each other and they operate in two different fields and apart from this it is matter of fact that assessee failed to deduct tax at source and as such, penalty under Section 271-C of Income Tax Act, 1961 was rightly imposed by Additional Commissioner, Income Tax, Shimla. ::: Downloaded on - 01/08/2017 10:11:19 :::HCHP 8 9. While laying challenge to aforesaid order(s) dated 10.12.2015, passed by Income Tax Appellate Tribunal, Chandigarh, appellant-department stated that . following substantial questions of law arise for .P determination of this Court:- H i). Whether in facts and circumstances of this case Ld. ITAT was right in law in deleting penalties imposed U/s 271C for non deduction of tax at source u/s 194C even though assessee of has committed default to deduct tax at source. ii). rt Whether Ld. ITAT disregarded/ misinterpreted provisions of Section 271C and 201 of Income Tax Act. ou 10. Mr. Vinay Kuthiala, learned Senior Advocate, duly assisted by Ms. Vandana Kuthiala, Advocate, while referring C to impugned order(s), contended that learned income Tax Tribunal has grossly erred in deleting penalty under h Section 271C of Income Tax Act, 1961 by accepting plea ig of assessee because assessee failed to fulfill its statutory H duty to deduct and deposit tax at source and pay to Central Government, as required under provisions of Chapter XVII-B. He further contended that provisions as contained under Section 201 & section 271-C of Income Tax, 1961 are independent and as such, findings returned by Appellate Tribunal that assessee has not been treated as ::: Downloaded on - 01/08/2017 10:11:19 :::HCHP 9 assessee in default as per Section 201 of Act and as such, it is not liable to deduct nor pay any tax as per Chapter XVII B deserves to be quashed and set-aside being erroneous and . contrary to aforesaid provisions of law. Learned counsel .P further contended that assessee did not have H reasonable cause for not deducting tax at source and learned tribunal without going into factual aspect of matter of could not have adjudicated on sufficiency of reasonable cause and as such, impugned order(s) deserve to rt be quashed and set-aside. ou 11. Learned counsel further contended that learned tribunal has failed to appreciate legal position that C section 271C is independent of condition whether assessee was held to be in default or not because h interpretation given by learned Tribunal is upheld in that ig eventuality section 201 of Income Tax Act will have restricted meaning, which could never be intention of H legislature. 12. Mr. R.K.Sharma, learned counsel representing respondent(s), while referring to impugned order(s) passed by learned tribunal contended that there is no illegality and infirmity in same and as such, same deserves to be upheld. Learned counsel further contended ::: Downloaded on - 01/08/2017 10:11:19 :::HCHP 10 that since PGCIL was found to have paid taxes on its income received from assessee, assessee was not treated as assessee in default under Section 201 of Act by ITO . (TDS) vide his order dated 30.03.2010, which was further .P upheld by learned tribunal in its order dated 28.2.2012 H and as such, no penalty, if any, could be levied against assessee under Section 271C of Income Tax Act. While of referring to first proviso to Section 201 of Act, learned counsel stated that returns have been filed by recipient rt of income and it has computed tax liability and has paid ou tax and that person referred to under Section 201 of Act shall not be treated as assessee in default, meaning thereby C that prayer would not be liable for payment of tax or deduction of tax. While supporting impugned order h passed by learned Tribunal, learned counsel representing ig respondent contended that admittedly in instant case assessee has not been treated as assessee in default in H terms of Section 201 of Act and as such, learned tribunal rightly arrived at conclusion that it is neither liable to deduct nor pay any tax as per Chapter XVII B. With aforesaid submissions, learned counsel representing respondent prayed for dismissal of present appeal(s). ::: Downloaded on - 01/08/2017 10:11:19 :::HCHP 11 13. We have heard learned counsel for parties and have carefully gone through record. 14. Before ascertaining correctness of aforesaid . submissions having been made by learned counsel .P representing parties viz-a-viz impugned order(s) passed H by learned tribunal, it would be profitable to take note of Section 271C of Income Tax Act, 1961::- of 271 C.(1) if any person fails to- (a) deduct whole or any part of tax as rt required by or under provisions of Chapter XVII-B; or (b) pay whole or any part of tax as ou required by or under- (i) sub-section(2) of section 115-O; or C (ii) second proviso to section 194B then, such person shall be liable to pay, by way h of penalty, sum equal to amount of tax which such person failed to deduct or pay as ig aforesaid. H (2) Any penalty imposable under sub-section (1) shall be imposed by joint Commissioner. 15. Undisputedly, aforesaid provisions of law provides that penalty under Section 271C is leviable for failure to deduct as tax, as required by provisions of Chapter XVII-B of Income Tax Act, 1961. Vide aforesaid provisions of law ::: Downloaded on - 01/08/2017 10:11:19 :::HCHP 12 penalty has been also quantified as being equal to amount of tax which such person fails to deduct or pay in terms of aforesaid provisions. Chapter XVII B specifically . deals with provisions relating to tax deduction at source .P and specifically provide that in case of default in deduction of H tax at source or payment of same, person responsible shall be treated as assessee in default. At this stage, it of would be apt to take note of Section 201 of Income Tax Act:- rt Consequences of failure to deduct or pay ou Section 201:- (1) Where any person, including principal Officer of company,- C (a) Who is required to deduct any sum in accordance with provisions of this Act; or h (b) Referred to in sub-section (1A) of Section 192, being employer, does not deduct, ig or does not pay, or after so deducting fails to pay, whole or any part of tax, as required by or under this Act, then, such H person, shall, without prejudice to any other consequences which he may incur, be deemed to be assessee in default in respect of such tax. [Provided that any person, including principal officer of company, who fails to deduct whole or any part of tax in accordance with provisions of this Chapter on sum paid to resident or on ::: Downloaded on - 01/08/2017 10:11:19 :::HCHP 13 cum credited to account of resident shall not be deemed to be assessee in default in respect of such tax if such resident:- . i) has furnished his return of income under .P section 139; ii) has taken into account such sum for computing income in such return of H income; and iii) has paid tax due on income of declared by him in such return of income, and person furnishes certificate to this effect from accountant in such form as may be prescribed;] rt Provided [further] that no penalty shall be charged under Section 221 from such person, unless Assessing ou Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax] C (1A). Without prejudice to provisions of sub- section(1), if any such person, principal officer or company as is referred to in that sub-section does not h deduct whole or any part of tax or after deducting fails to pay tax as required by or under ig this Act, he or it shall be liable to pay simple interest, (i) at once per cent for every month or part H of month on amount of such tax from date on which such tax was deductible to date on which such tax is deducted; and (ii) at once and one half per cent for every month or part of month on amount of such tax from date on which such tax was deducted to date on which such tax is actually paid ::: Downloaded on - 01/08/2017 10:11:19 :::HCHP 14 and such interest shall be paid before furnishing statement in accordance with provisions of sub section (3) of section 200;] [Provided that in case any person, including . principal officer of company fails to deduct whole .P or any part of tax in accordance with provisions of this Chapter on sum paid to H resident or on sum credited to account of resident but is not deemed to be assessee in default under first proviso to sub-section(1), of interest under clause(I) shall be payable from date on which such tax was deductible to date of furnishing of return of income by such resident]. rt (2) Where tax has not been paid as aforesaid after it is deducted, [the amount ou of tax together with amount of simple interest thereon referred to in sub- section (1A) shall be charge upon all assets of person, or company, as case may be, referred to in sub-section C (1). (3) No order shall be made under sub-section h (1) deeming person to be assessee in default for failure to deduct whole or any part of tax from person resident ig in India, at any time after expiry of seven years from end of financial year in which payment is made or credit is H given]. (4) provisions of sub-clause(ii) of sub section(3) of section 153 and of Explanation 1 to section 153 shall, so far as may, apply to time limit prescribed in sub-section (3).] [Explanation:- For purpose of this section, expression accountant shall have meaning assigned to it in Explanation to sub-Section(2) of section 288.} ::: Downloaded on - 01/08/2017 10:11:19 :::HCHP 15 16. first proviso to aforesaid section clearly provides that if returns have been filed by recipient of income and he has computed tax liability and he has paid . .P tax, person referred to under section 201 of Act shall not be treated as assessee in default. It clearly emerge on H record from reading of aforesaid provisions of law that in of case recipient of income computed tax liability and paid tax on same, person would not be liable for payment of tax or deduction of tax. rt 17. In instant case, assessee deductor specifically ou submitted before authorities that PGCIL i.e. recipient of income has filed its return of income and has paid entire C amount of income tax payable by them and as such, there was no occasion to it to deduct tax at source. In present h case, it clearly emerge from order passed by income ig tax authorities that assessee was not treated as assessee H in default in terms of section 201 of Act, and such he could not be held liable to deduct or pay any tax in terms of provisions contained in Chapter XVII B. Since, assessee was not treated assessee in default in terms of Section 201 of Act, learned tribunal below rightly held that there is no question of levy of penalty under Section 271-C. It also ::: Downloaded on - 01/08/2017 10:11:19 :::HCHP 16 emerge from record that impugned sums stood reimbursed to PGCIL i.e. recipient of company and in these circumstances, learned tribunal rightly held that . deducing TDS further by assessee would tantamount to .P double taxation. Section 273-B clearly provides that no H penalty would be levied in case reasonable cause for default committed is proved on record. Section 271-C of provides that if any person fails to deduct whole or any part of tax, as required by provisions of Chapter rt XVII-B, person shall be liable to pay, by way of penalty, sum ou equal to amount of tax which such person failed to deduct. But, aforesaid provision cannot be read in isolation C because, as has been observed above, section 273-B specifically provides that no penalty shall be leviable in cases h where reasonable cause for default committed is proved on ig record, meaning thereby penalty under Section 271-C can only be levied in case assessee fails to place on record H reasonable cause for default in deducting tax under Section 201 of Income Tax Act. 18. In instant case, as is clearly borne out from record that assessee has not been treated as assessee in default in terms of Section 201 of Act, and as such, it is neither liable to deduct nor pay any tax as per Chapter XVII B ::: Downloaded on - 01/08/2017 10:11:19 :::HCHP 17 and as such, learned tribunal rightly held that there is no question of levying penalty under Section 271-C of Act. Leaving everything aside, reasonable cause has been shown . by assessee for not deducing TDS on payment. .P 19. Reliance is placed upon judgment of Hon ble H Apex Court in CIT Vs. Eli Lilly & Co. Pvt. Ltd. 312 ITR 225(SC); wherein it has been held that since assessee was under of genuine and bona fide belief that it was not under any obligation to deduct tax at source from home salary paid rt by foreign company, penalty under Section 271-C was not ou leviable as reasonable cause was shown for not deducting tax at source. It would be profitable to reproduce relevant C para of judgment herein: Section 271C, inter alia, states that if any person fails to deduct whole or any part of tax as required h by provisions of Chapter XVII-B then such person shall be liable to pay, by way of penalty, sum equal to ig amount of tax which such person failed to deduct. In these cases we are concerned with Section 271C(1)(a). Thus, section 271C(1)(a) makes it clear that penalty leviable shall be equal to amount of tax H which such personal failed to deduct. We cannot held this provisions to mandatory or compensatory or automatic because under section 273B Parliament has enacted that penalty shall not be imposed in cases falling thereunder. Section 271C falls in category of such cases. Section 273B states that notwithstanding anything contained in section 271C, no penalty shall be imposed on person or assessee proves that there was reasonable cause for said failure. Therefore, liability to levy of penalty can be fastened only on persons who do not have good and sufficient reason or not deducting tax at source. Only those persons will be liable to penalty who do not have ::: Downloaded on - 01/08/2017 10:11:20 :::HCHP 18 good and sufficient reason for not deducting tax. burden, of course, is on persons to prove such good and sufficient reason. In each of 104 cases before us, we find that non-deduction of tax at source took place on account of controversial addition. concept of aggregation or consolidation of entire . income chargeable under head Salaries being .P eligible to deduction of tax at source under Section 192 was nascent issue. It has not been considered by this Court before. Further, in most of these cases, tax deductor-assessee has not claimed deduction under H Section 40(a)(iii) in computation of its business income. This is one more reason for not imposing penalty under section 271C because by not claiming deduction under of Section 40(a)(iii), in some cases, higher corporate tax has been paid to extent of `906.52 lakhs( See Civil Appeal No.1778 of 2006 titled CIT v. Bank of Tokyo- Mitsubishi Ltd). In some of cases, it is undisputed that each of expatriate employees have paid rt directly taxes due on foreign salary by way of advance tax/self-assessment tax. tax deductor- assessee was under genuine and bona fide belief that ou it was not under any obligation to deduct tax at source from home salary paid by foreign company/head office and, consequently, we are of view that in none of 104 cases penalty was leviable C under section 271C as respondent in each case has discharged its burden of showing reasonable cause for failure to deduct tax at source. h 20. It is ample clear from aforesaid law laid down ig by Hon ble Apex Court that provisions contained in Section 271-C are not mandatory or compensatory or H automatic because under Section 273-B parliament has enacted that penalty shall not be imposed in cases falling thereunder. Hon ble Apex Court has categorically held in aforesaid judgment that Section 271-C falls in category of such cases. Section 273-B states that notwithstanding anything contained in Section 271-C, no ::: Downloaded on - 01/08/2017 10:11:20 :::HCHP 19 penalty shall be imposed on person or assessee for failure to deduct tax at source if such person or assessee proves that there was reasonable cause for said failure. . liability to levy of penalty can be fastened only on .P person, who do not have good and sufficient reason for not H deducting tax at source. In instant case, assessee has/had good sufficient reason for not deducting tax at of source and as such, penalty proceedings initiated by income tax department were rightly quashed by learned rt appellate Tribunal. ou 21. After having carefully gone through aforesaid relevant provisions of law as well as impugned order(s) C passed by learned Tribunal, this Court sees no illegality in order(s) of learned tribunal that no penalty can be h imposed under Section 271-C to assessee for non ig deduction of tax at source because admittedly petitioner has rendered plausible/ genuine explanation for not deducing tax H at source. Similarly, this Court sees no force in arguments/ submissions made on behalf of learned counsel representing appellant-department that learned appellate Tribunal misinterpreted provision of Section 271-C and 201 of Income Tax Act, because once assessee was not treated as assessee in default in terms of Section ::: Downloaded on - 01/08/2017 10:11:20 :::HCHP 20 201 of Act, he was not liable to deduct or pay any tax in terms of provisions contained in Chapter XVII-B. On top above everything, as has been discussed above, no . penalty can be levied under Section 271(C), if reasonable .P cause is shown by assessee for not deducting TDS. H 22. Substantial questions of law are answered accordingly. of 23. Consequently, in view of detailed discussion made hereinabove, impugned order(s) is well reasoned rt and legal one, needs no interference. Accordingly, ou impugned order(s) passed by learned tribunal are upheld and present appeal(s) stands dismissed. Pending C application(s), if any, shall also stand(s) disposed of. h ( Sanjay Karol ) Acting Chief Justice ig H 31st May, 2017 ( Sandeep Sharma) (shankar) Judge ::: Downloaded on - 01/08/2017 10:11:20 :::HCHP Commissioner of Income-tax v. H.P. State Electricity Board