2018 (12) TMI 215 - HC - Income Tax

Penalty levied u/s 271(c) - entitled to the exemption under Section 194-I in view of Section 44AB - reasonable cause within the meaning of Section 273(B) - Held that - In a case where the assessee is liable to deduct tax at source and fails to do so, penalty under Section 271(1)(c) is liable to be imposed. The learned Counsel appearing for the assessee has pointed out a decision in Commissioner of Income Tax v. Bank of Nova Scotia, 2016 (1) TMI 583 - SUPREME COURT wherein had considered the question regarding deletion of penalty under Section 271(1)(c). Going through that decision, it is seen that the Tribunal had allowed the assessee's appeal and cancelled the penalty levied under Section 271(1)(c) on the specific finding that it is necessary to establish that there was contumacious conduct on the part of the assessee to attract penalty under Section 271(1)(c) of the Act. The Hon'ble Supreme Court agreed with the High Court that there was no substantial question of law raised and rejected the challenge. We find that in Union of India v. Dharmendra Textile Processors, 2008 (9) TMI 52 - SUPREME COURT held that mens rea is not an essential element for imposing penalty for breach of civil obligations. Imposition of penalty for non-compliance of statutory provision, is not a criminal liability, but is only a civil liability and therefore, bad motive on the part of the assessee is not essential to be proved. We are of the considered opinion that the assessee is liable to pay penalty under Section 271(1)(c) of the Act, and therefore, the impugned order of the Tribunal deleting the penalty is not sustainable and hence, set aside. The questions of law are answered in favour of the Revenue

Summary

Issues:
1) Justification of cancelling penalty under Section 271(c) of the Income Tax Act based on reasonable cause within Section 273(B).
2) Entitlement of the assessee to exemption under Section 194-I in view of Section 44AB.

Analysis:

Issue 1:
The three appeals filed by the Revenue challenged the order of the Income Tax Appellate Tribunal regarding penalty imposition on the assessee. The Tribunal had reversed the penalty imposed by the Assessing Officer, leading to the appeals. The primary question was whether the Tribunal was correct in canceling the penalty under Section 271(c) by finding that the assessee had a reasonable cause under Section 273(B) of the Act.

Issue 2:
The assessee, a trust registered under Section 12A of the Income Tax Act, operates an educational institution and pays rent for the building it occupies. The dispute arose from the delayed deposit of tax deducted at source for the assessment years 2010-11, 2011-12, and 2012-13. The Assessing Officer imposed penalties, which were confirmed by the Appellate Authority. The assessee argued that as a registered trust, it falls under exceptions in Section 194-I and Section 44AB, thus not obligated to deduct tax at source. However, the Court disagreed, stating that the trust did not qualify as an individual or Hindu undivided family under Section 194-I. The Court found the explanation for delayed deductions unsatisfactory, noting deliberate laxity on the part of the assessee.

Precedents:
The Court cited precedents like US Technologies International (P) Ltd. and Classic Concepts Home India Pvt.Ltd., emphasizing that failure to deduct or remit tax recovered attracts penalties under Section 271(c). The Court also referred to the decision in Commissioner of Income Tax v. Bank of Nova Scotia, highlighting that mens rea is not essential for imposing penalties for non-compliance with statutory provisions.

Judgment:
After considering the facts and legal precedents, the Court held that the assessee was liable to pay penalties under Section 271(1)(c) of the Act. The Tribunal's decision to delete the penalty was deemed unsustainable, and the order was set aside. The questions of law were answered in favor of the Revenue, allowing the appeal and restoring the orders of the Assessing Authority and the Appellate Authority. No costs were awarded in the case.