2019 (5) TMI 1601 - AT - Income Tax

Penalty u/s 271(1)(c) - income for taxation in India - income accrued in India - payments received by the appellant from Prasar Bharti were in nature of fees for technical services - DTAA between India and Singapore - debatable issue - Whether the payments received by the appellant from Prasar Bharti be treated as business receipts? - CIT-A deleted the penalty levied - HELD THAT - On looking at the assessment order passed u/s 143 (3) of the income tax act the assessing officer has treated the same income as fees for technical services as per page number 7 of the assessment order. The total income accrued to the assessee of INR 5 2626383/ is taxable at the rate of 20% as held by the assessing officer. Nothing in the assessment order itself that AO has recorded any satisfaction with regard to the fact that the assessee has furnished inaccurate particulars of income or has concealed the income. The learned assessing officer has merely stated that the penalty proceedings u/s 271 (1)( c) may be initiated separately. Therefore, there is no specific charge in the assessment order with respect to the satisfaction about the fault committed by the assessee. The quantum appeals have been admitted by the honourable Delhi High Court 2013 (8) TMI 1108 - DELHI HIGH COURT , therefore even if the lower authorities have concurrently decided an issue taking same view, the issue becomes debatable. On such a debatable issue penalty cannot be levied. We also found that the ld CIT (A) has correctly relied up on the decision of Honourable supreme court in case of Reliance petro products Limited 2010 (3) TMI 80 - SUPREME COURT in deleting the penalty as held that otherwise it would be that in every case of return where the claim made by the assessee is not accepted by the assessing officer for any reason it will invite the penalty u/s 271 (1) (C) which is not the intention of the legislature. Therefore we confirm the order of the learned CIT A in deleting the penalty levied u/s 271 (1) ( C ) - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Characterization of income as "fees for technical services" or "business income."
3. Existence of a Permanent Establishment (PE) in India under the Double Taxation Avoidance Agreement (DTAA) between India and Singapore.
4. Whether the issue is debatable and if penalty can be levied on such debatable issues.

Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c):
The primary issue revolves around whether the penalty imposed under section 271(1)(c) for furnishing inaccurate particulars of income should be upheld or deleted. The CIT(A) deleted the penalty, stating that the assessee disclosed all material facts necessary for assessment and that the characterization of income and existence of PE were contentious issues. The CIT(A) noted that the penalty could not be imposed merely because the claim made by the assessee was not accepted by the AO. The Tribunal upheld this view, emphasizing that the AO did not record specific satisfaction regarding the concealment or furnishing of inaccurate particulars in the assessment order.

2. Characterization of Income:
The income received by the assessee from Prasar Bharti was characterized by the AO as "fees for technical services" (FTS) and taxed at 20%. However, the Tribunal held that such income should be taxed at 10% under Article 12 of the DTAA between India and Singapore. The characterization of income as FTS or business income was a significant point of contention, with the Tribunal ultimately ruling in favor of the assessee, stating that the income was indeed FTS but should be taxed at the lower rate as per the DTAA.

3. Existence of Permanent Establishment (PE):
The AO contended that the assessee had a PE in India, making the income taxable as business profits. However, the Tribunal found that the assessee did not have a PE in India during the relevant years. This finding was crucial as it determined the applicability of higher tax rates and the attribution of income to the PE in India. The Tribunal's decision was based on the interpretation of Article 5 of the DTAA, which defines the criteria for establishing a PE.

4. Debatable Issue and Penalty:
The Tribunal noted that the Delhi High Court had admitted substantial questions of law on the issues of characterization of income and existence of PE, making these issues debatable. The Tribunal referenced the Delhi High Court's decision in "CIT vs Liquid Investment Ltd," which held that when substantial questions of law are admitted, the issue becomes debatable, and penalty cannot be levied on such debatable issues. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the penalty, aligning with the Supreme Court's ruling in "Reliance Petroproducts Ltd," which stated that penalty under section 271(1)(c) is not automatic and should not be imposed merely because a claim is not accepted by the AO.

Conclusion:
The Tribunal dismissed the revenue's appeals for all three assessment years, confirming the CIT(A)'s order to delete the penalties levied under section 271(1)(c). The Tribunal emphasized that the issues were debatable and that the assessee had disclosed all material facts, making the imposition of penalty unjustified. The decision underscores the principle that penalties should not be levied on contentious and debatable issues, particularly when substantial questions of law are pending before higher judicial authorities.