2020 (3) TMI 498 - HC - Income Tax

Penalty levied u/s 105(a) of the Securities Transaction Tax (STT) falling under Chapter VII of Finance (No.2) Act, 2004 - failure of the assessee to discharge its statutory liability to collect the STT at prescribed rates under section 100(4) of the Securities Transaction Tax (STT) falling under Chapter VII of Finance (No.2) Act, 2004 - HELD THAT - A careful and conjoint reading of the two provisions i.e. Sections 105 and 108 would therefore make it clear that imposition of penalty is to be proceeded separately as a separate proceeding. Merely because in the assessment order the AO comes to a conclusion that the assessee had failed to collect the STT or had failed to pay such STT to the credit of the Central Government, it would not ipso-facto lead to imposition of penalty. Once such a conclusion is reached, the assessee is required to be provided reasonable opportunity of hearing and during the hearing if the assessee can prove that there was reasonable cause for such failure, no penalty shall be imposed. Though, as observed by the Supreme Court, the expression penalty is a word of wide significance, but in substance penalty is in the nature of punishment. Therefore, before imposing penalty the Assessing Officer must come to the conclusion that there was deliberate defiance of the law or wilful contravention of the law by the assessee. Reverting back to the facts of the present case, we find the Assessing Officer had passed a composite assessment order dated 30th March, 2011. In appellate proceedings, Tribunal had already held the respondent to be not liable for any alleged short deduction of STT which finding we have affirmed. Thus in the facts and circumstances of the case and having regard to the discussions made above, we are of the firm view that the Tribunal was justified in deleting the penalty imposed on the respondent by the Assessing Officer.

Summary

Issues:
1. Appeal against the order passed by the Income Tax Appellate Tribunal regarding the penalty levied under Section 105(a) of the Securities Transaction Tax (STT) for the financial year 2006-07.
2. Interpretation of Sections 105 and 108 of Chapter VII of Finance (No.2) Act, 2004 regarding the imposition of penalty for failure to collect or pay STT.
3. Determining the circumstances under which penalty under Section 105 can be imposed and the applicability of Section 108 in providing relief from penalty.

Analysis:

Issue 1: Appeal against Tribunal's Order
The High Court heard the appeal by the Revenue against the Tribunal's order dated 4th April, 2016, which deleted the penalty levied under Section 105(a) of the Securities Transaction Tax (STT) for the financial year 2006-07. The appellant raised two substantial questions of law regarding the deletion of the penalty. The Court had previously set aside part of the Tribunal's order in another case.

Issue 2: Interpretation of Sections 105 and 108
Section 105 of Chapter VII of Finance (No.2) Act, 2004 deals with penalty for failure to collect or pay STT. It imposes a penalty if an assessee fails to collect or pay the STT as required. However, Section 108 provides relief from penalty if the assessee proves a reasonable cause for the failure. Section 108 clarifies that the imposition of penalty is not automatic and requires a separate proceeding with a reasonable opportunity for the assessee to be heard.

Issue 3: Circumstances for Imposing Penalty
The Court emphasized that the imposition of a penalty is akin to punishment and must be based on deliberate defiance or wilful contravention of the law by the assessee. In the present case, the Assessing Officer had passed an assessment order, but the Tribunal had already held the respondent not liable for the alleged short deduction of STT. The Court found no merit in the appeal and upheld the Tribunal's decision to delete the penalty imposed by the Assessing Officer.

In conclusion, the High Court dismissed the appeal, highlighting the importance of providing a reasonable opportunity for the assessee to be heard before imposing a penalty under Section 105 of the Securities Transaction Tax (STT) provisions. The judgment clarified the interplay between Sections 105 and 108 in determining the imposition of penalties for failure to collect or pay STT and the conditions under which relief from penalty can be granted.