2016 (4) TMI 1097 - AT - Income Tax

Penalty under section 271C - Non deduction of TDS u/s 195 - DTAA between India U.S.A. - Held that - When the C.A. issued a certificate opining that there is no requirement for deduction of tax at source, assessee under a bonafide belief that withholding of tax is not required did not deduct tax at source on the remittances made. Though, this fact was brought to the notice of the Departmental Authorities in course of the penalty proceedings but due weightage has not been given to such contention of the assessee. In our view, the explanation submitted by the assessee is a valid explanation and cannot be brushed aside with some general observations. Only because the assessee before the Tribunal had accepted her liability for deduction of tax at source, cannot be the sole basis for imposition of penalty completely ignoring the primary and fundamental reason shown by the assessee for failure to deduct such tax. Proceedings under sections 201 and 271C, are two independent and separate proceedings. While imposing penalty, the authority concerned is duty bound to examine assessee s explanation to find out whether there was reasonable cause for failure to deduct tax at source. As is evident, the assessee being advised by a professional well acquainted with provisions of the Act had not deducted tax at source. Therefore, no malafide intention can be imputed to the assessee for failure to deduct tax. More so, when the issue whether tax was required to be deducted at source, on payments to a non resident for services rendered is a complex and debatable issue requiring interpretation of statutory provisions vis a vis relevant DTAA between the countries. Therefore, in our considered opinion, failure on the part of the assessee to deduct tax at source was due to a reasonable cause. The decisions relied upon by the learned Authorised Representative also support this view. Accordingly, we delete the penalty imposed under section 271C. - Decided in favour of assessee.

Summary

Issues:
Imposition of penalty under section 271C for failure to deduct tax at source under section 195.

Analysis:
The appeal was against the penalty imposed for not deducting tax under section 195 for remitting an amount to a non-resident. The Assessing Officer held the assessee as an assessee in default under section 201(1) and imposed a penalty. The assessee argued that the payment was for services rendered outside India and thus not subject to section 195. The Assessing Officer disagreed, stating the payment was for website design services and fell under "fees for technical services." The penalty under section 271C was imposed as the assessee failed to deduct tax at source despite admitting liability. The Commissioner (Appeals) upheld the penalty, leading to the appeal.

The Authorized Representative argued that the penalty under section 271C requires a reasonable cause for failure to deduct tax at source. The Chartered Accountant advised against deduction based on DTAA provisions, leading the assessee to believe no tax was required. The Authorized Representative contended that the penalty was unjustified due to the reasonable cause. Additionally, the penalty order was challenged on grounds of limitation.

The Tribunal noted that while the assessee accepted liability for tax deduction under section 195, it does not automatically lead to penalty under section 271C. The imposition of penalty is subject to the condition of reasonable cause under section 273B. The Tribunal found that the Chartered Accountant's certificate provided a valid reason for the assessee's failure to deduct tax at source. The Tribunal emphasized that the failure was due to a reasonable cause, as the assessee relied on professional advice and the complex nature of tax deduction for non-resident payments. The penalty under section 271C was deemed unjustified and was deleted.

The Tribunal refrained from adjudicating on the limitation issue as the penalty was deleted based on the reasonable cause. Consequently, the appeal was allowed, and the penalty under section 271C was removed.

This detailed analysis showcases the legal intricacies involved in the judgment, focusing on the imposition of penalty for failure to deduct tax at source under section 195 and the subsequent considerations regarding reasonable cause and professional advice in tax compliance.