Priya Soparkar 1 1-2 itxa 1171-17-o IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL (IT) NO.1171 OF 2017 Pr.Commissioner of Income Tax-7 Appellant V/s. National Stock Exchange Respondent --- Mr.Suresh Kumar with Ms.Priyanka Tiwary and Ms.Sumandevi Yadav, Advocate for Appellant. Mr.J.D.Mistri, Senior Advocate with Mr.Atul K. Jasani for Respondent. --- CORAM : UJJAL BHUYAN & MILIND N. JADHAV, JJ. DATE : FEBRUARY 3, 2020 P.C.:- 1. Heard Mr.Suresh Kumar, learned standing counsel, Revenue for appellant; and Mr.J.D.Mistri learned senior counsel assisted by Mr.Atul K. Jasani, learned counsel for respondent. 2. This appeal has been preferred by Revenue under Section 260A of Income Tax Act, 1961 (briefly Act hereinafter) against order dated 4 th April, 2016 passed by Income Tax Appellate Tribunal, ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:33:48 ::: Priya Soparkar 2 1-2 itxa 1171-17-o Mumbai Bench B , Mumbai (briefly Tribunal hereinafter) in Security Tax Appeal No.01/Mum/2013 for financial year 2006-07. 3. In this appeal appellant has proposed following two questions as substantial questions of law:- (i) Whether in facts and in circumstances of case and in law Tribunal erred in deleting penalty levied under Section 105(a) of Securities Transaction Tax (STT) falling under Chapter VII of Finance (No.2) Act, 2004? (ii) Whether in facts and in circumstances of case and in law Tribunal erred in deleting penalty levied under Section 105(a) of Securities Transaction Tax (STT) falling under Chapter VII of Finance (No.2 ) Act, 2004 in view of failure of assessee to discharge its statutory liability to collect STT at prescribed rates under section 100(4) of Securities Transaction Tax (STT) falling under Chapter VII of Finance (No.2) Act, 2004? 4. In Income Tax Appeal No.1187 of 2017, we have already set aside order of Tribunal dated 4 th April, 2016 to extent of deletion of addition made by Assessing Officer and limited by ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:33:48 ::: Priya Soparkar 3 1-2 itxa 1171-17-o Commissioner of Income Tax (Appeals) to Rs.2,80,78,444.00. 5. Ordinarily once court holds that respondent is not liable for short deduction of STT, penalty imposed thereon would not survive as in such case respondent cannot be construed to be assessee in default. However, in addition to above, we find that there are good grounds for interfering with penalty imposed. 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. As per Section 105 any assessee who fails to collect whole or any part of STT as required under Section 100 or having collected STT fails to pay such tax to credit of Central Government in accordance with sub-section (3) of Section 100, he shall be liable to pay penalty in addition to interest. quantum of penalty is provided in that section itself. ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:33:48 ::: Priya Soparkar 4 1-2 itxa 1171-17-o 7. However, as per Section 108, notwithstanding anything contained in provisions of Section 105 or Section 106 or Section 107, no penalty shall be imposable for any failure referred to in said provisions if assessee proves that there was reasonable cause for said failure and as per proviso no order imposing penalty shall be made unless assessee had been given reasonable opportunity of being heard. 8. If Section 105 is read in isolation, it would appear that failure to pay tax by assessee i.e., either failure to collect STT or failure to deposit STT so collected to credit of Central Government would automatically lead to imposition of penalty. This is so because of use of word shall in that section. However, Section 108 starts with non-obstante clause by use of expression notwithstanding . It is further clarified that Section 108 would have effect notwithstanding anything contained in Section 105 or other two sections mentioned therein. In other words, Section 108 would have overriding effect over ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:33:48 ::: Priya Soparkar 5 1-2 itxa 1171-17-o Section 105. Section 108 makes it abundantly clear that merely because there is infraction of Section 105 imposition of penalty is not automatic. For that assessee would have to be given reasonable opportunity of being heard and in process of such hearing if assessee proves that there was reasonable cause for such failure, then in such case Assessing Officer shall not impose any penalty. 9. careful and conjoint reading of two provisions i.e. Sections 105 and 108 would therefore make it clear that imposition of penalty is to be proceeded separately as separate proceeding. Merely because in assessment order Assessing Officer comes to conclusion that assessee had failed to collect STT or had failed to pay such STT to credit of Central Government, it would not ipso-facto lead to imposition of penalty. Once such conclusion is reached, assessee is required to be provided reasonable opportunity of hearing and during hearing if ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:33:48 ::: Priya Soparkar 6 1-2 itxa 1171-17-o assessee can prove that there was reasonable cause for such failure, no penalty shall be imposed. 10. Though, as observed by Supreme Court, expression penalty is word of wide significance, but in substance penalty is in nature of punishment. Therefore, before imposing penalty Assessing Officer must come to conclusion that there was deliberate defiance of law or wilful contravention of law by assessee. 11. Reverting back to facts of present case, we find Assessing Officer had passed composite assessment order dated 30 th March, 2011. In appellate proceedings, Tribunal had already held respondent to be not liable for any alleged short deduction of STT which finding we have affirmed. 12. Thus in facts and circumstances of case and having regard to discussions made above, we are of firm view that Tribunal was justified in ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:33:48 ::: Priya Soparkar 7 1-2 itxa 1171-17-o deleting penalty imposed on respondent by Assessing Officer. 13. Consequently, we find no merit in appeal. Appeal is accordingly dismissed. No cost. (MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.) . ::: Uploaded on - 03/03/2020 ::: Downloaded on - 04/09/2020 11:33:48 ::: Pr. Commissioner of Income-tax-7 v. National Stock Exchange