2016 (11) TMI 538 - HC - Income Tax

Penalty u/s 271(1)(c) - non offering of Income to tax on interpretation placed upon the DTAA - fees received in respect of CICT Services and for Corporate Services from its affiliated companies - Held that - Two authorities have concurrently come to a finding of fact that the conduct of the Respondent Assessee was bonafide and its claim that amount received from its affiliated companies on account of CICT and Corporate Services is not taxable was based on an interpretation of DTAA. It is a settled position of law that where the issue is debatable then mere making of a claim on the basis of a particular interpretation would not lead to an imposition of penalty. Bearing in mind that for the earlier assessment years the Respondent Assessee had claimed and been granted refund of taxes deducted at source by the affiliated companies in respect of the payment received by it for Corporate Services and CICT Services would also establish that the claim made by the Respondent Assessee that the income received is not chargeable to tax was a bonafide claim. On facts there is a concurrent finding of there being no concealment of income or furnishing an inaccurate claim of income. - Decided in favour of assessee

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding penalty under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment year 2006-07.

Detailed Analysis:

1. Question of Law: The primary issue in this case was whether the Tribunal was justified in holding that no penalty is imposable under Section 271(1)(c) of the Act without considering the fact that the assessee had not offered its income during the regular Assessment proceedings. The Respondent, a company based in Netherlands, had received income from its Indian affiliates for Corporate Services and CICT Charges. The Assessing Officer brought this income to tax under Section 143(3) of the Act, leading to a penalty notice under Section 271(1)(c).

2. Assessee's Contentions: The Respondent argued that it had not concealed income or furnished inaccurate particulars, as the nature of the receipts and the basis of non-taxability were disclosed in the notes to its Accounts. The Respondent believed that the income was not chargeable to tax based on its interpretation of the Double Taxation Avoidance Agreement (DTAA) between India and Netherlands. The Commissioner of Income Tax (Appeals) noted the bonafide belief of the Respondent and deleted the penalty.

3. Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, emphasizing that the Respondent's non-offering of income was bonafide, especially considering the past practice and the refund of tax deducted by the affiliated companies. The Tribunal found that the claim made by the Assessee was bonafide, even though the Assessing Officer had a different interpretation based on the DTAA. The Tribunal also cited the decision in CIT vs. Reliance Petroproducts Pvt. Ltd. to support the conclusion that a bonafide claim not accepted by the Assessing Officer does not warrant a penalty.

4. Concurrent Findings: Both the CIT(A) and the Tribunal concurred that the Respondent's conduct was bonafide, and its claim regarding the non-taxability of income was based on a debatable interpretation of the DTAA. The authorities found no concealment of income or furnishing of inaccurate particulars. The Court held that the proposed question did not raise any substantial question of law, leading to the dismissal of the appeal.

In conclusion, the judgment highlights the importance of bonafide beliefs and interpretations in tax matters, especially when there is a debatable issue involved. The case underscores the significance of disclosing relevant details and the basis of claims to avoid penalties under the Income Tax Act.