2007 (6) TMI 198 - HC - Income Tax

Non deduction of TDS assessee was under bona fide belief that tax is not required to be deducted - Tribunal has given a finding that there is a reasonable cause for not deducting the tax at source - Hence, the Tribunal is justified in deleting the penalty levied u/s 271C - concurrent finding given by both the authorities below are based on valid materials and evidence - whenever there is a concurrent finding by the authorities below, no interference should be called for by the High Court

Summary

Issues:
1. Whether penalty under section 271C is leviable on the assessee-company for not deducting tax at source?
2. Whether the assessee's advertisement inducing investors to invest without tax deduction at source justifies penalty under section 271C?

Analysis:

Issue 1:
The case involved appeals by the Revenue against the order of the Income-tax Appellate Tribunal regarding the levy of penalty under section 271C of the Income-tax Act, 1961. The Tribunal upheld that the assessee, a public limited company engaged in financial services, was liable to deduct tax at source under section 194A on payments made to investors. The Tribunal also confirmed the orders under section 201 of the Act. The Revenue contended that the assessee consciously avoided section 194A obligations. However, the court noted that the assessee acted in good faith, seeking legal advice before implementing the scheme. The lower authorities accepted the bona fide nature of the assessee's actions, finding a reasonable cause for non-deduction of tax at source. The court held that the Tribunal's decision to delete the penalty was justified based on valid evidence and materials.

Issue 2:
The second issue revolved around the assessee's advertisement in newspapers, assuring investors of no tax deduction at source on their investments. The Revenue argued that the advertisement did not absolve the assessee from its obligations under section 194A. However, the court emphasized that the assessee's actions were based on a genuine belief, supported by legal opinion, that no tax deduction was required. The Tribunal's decision to delete the penalty was upheld, as it found a reasonable cause for the assessee's failure to deduct tax at source. The court further cited the Supreme Court's precedent, emphasizing non-interference with concurrent findings by lower authorities unless legally warranted.

In conclusion, the court dismissed the tax cases, affirming the Tribunal's decision to delete the penalty under section 271C. The judgment highlighted the importance of bona fide actions and reasonable causes in determining liability for tax deductions at source, ultimately upholding the Tribunal's findings based on valid evidence and legal principles.