2015 (1) TMI 424 - HC - Income Tax

TDS u/s 192 - Gift coupons were given to employees - perquisites - Penalty u/s 271C - Short deduction of tax - revenue contended that Gift coupons were given to employees for performance of their duty and not as mementos - Held that - Assessee acted under the bona fide belief that the gift coupons, being in the nature of mementos to commemorate conferment of awards, were not in the nature of payment of salary. The salary of employees comes from the revenue of the PSU and when huge amount of TDS is made from regular salary, we see no reasons as to why, a Central Government PSU, will commit default to pay TDS on such small payment. - no penalty - Decided against Revenue.

Summary

Issues:
Appeal against penalty under section 271C of the Income Tax Act for short deduction of tax on gift coupons distributed to employees.

Detailed Analysis:

1. Facts of the Case:
- The respondent, a Public Sector Undertaking, distributed gift coupons to employees without disclosing it in the income tax return, leading to short deduction of tax.
- The Assessing Officer passed an order under section 201(1) of the Income Tax Act, 1961, followed by penalties under section 271C.

2. Appeals and Tribunal's Decision:
- The respondent appealed to the CIT(A) and later to the Tribunal against the penalties imposed.
- The Tribunal allowed the appeal of the assessee, leading to the Revenue filing further appeals.
- The common substantial question of law was whether the Tribunal was correct in canceling the penalty for short deduction of tax on gift coupons.

3. Arguments Presented:
- The Revenue argued that the gift coupons were perquisites and subject to tax under specific sections of the Act, which the Tribunal failed to consider.
- The assessee contended that the gift coupons were not part of the salary and were given as mementos, hence not liable for TDS.

4. Court's Analysis:
- The Court noted that the assessee, a Public Sector Undertaking, undergoes various audits and regulatory checks, making intentional tax avoidance unlikely.
- Emphasized the bona fide belief of the assessee that the gift coupons were not salary but mementos linked to safety awards, supported by past incidents and company's actions.

5. Precedent and Decision:
- Referenced a prior case where penalties were not levied due to a genuine belief in not deducting tax at source.
- Concluded that the assessee acted in good faith regarding the nature of the gift coupons and was not intentionally avoiding tax.
- Answered the question of law in favor of the assessee, dismissing the appeals against the cancellation of the penalty under section 271C.

This detailed analysis of the judgment highlights the key issues, arguments presented, court's analysis, and the precedent used to arrive at the decision favoring the assessee in the case of short deduction of tax on gift coupons distributed to employees.