1999 (4) TMI 105 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalties under section 271C of the Income Tax Act for failure to deduct and pay tax at source as required by section 194H.
2. Whether the respondents had a bona fide belief that they were not required to deduct tax at source during the pendency of their exemption petitions under section 194H(2).
3. Whether the respondents' actions constituted reasonable cause under section 273B, thereby exempting them from penalties under section 271C.

Detailed Analysis:

Issue 1: Imposition of Penalties Under Section 271C
The common issue in all appeals was the imposition of penalties under section 271C of the Income Tax Act for failing to deduct and pay tax at source as mandated by section 194H. The Revenue contended that the CIT(A) erred in canceling the penalties despite clear provisions under section 271C that mandate penalties for such failures. The respondents argued that they had filed petitions for exemption under section 194H(2) and believed they were not required to deduct tax at source during the pendency of these petitions.

Issue 2: Bona Fide Belief of Non-liability During Pendency of Exemption Petitions
The respondents filed petitions for exemption on 4th November 1991, which were decided by the CBDT only after the Allahabad High Court's directions on 23rd July 1992. The respondents deducted tax on 27th October 1992 and deposited it on 29th October 1992. They argued that they had a bona fide belief that they were not required to deduct tax during the pendency of their petitions, which was a reasonable cause under section 273B.

Issue 3: Reasonable Cause Under Section 273B
The CIT(A) accepted the respondents' argument, noting that the respondents had exercised their statutory right to seek exemption and had acted diligently throughout the process. The CIT(A) found that the delay in deducting and paying tax was due to the pendency of their exemption petitions and not due to any negligence or inaction. The Tribunal agreed, stating that the respondents had a reasonable cause for their failure to deduct and pay tax at source, thus satisfying the requirements of section 273B.

Tribunal's Findings:
1. Statutory Right and Fair Play: The Tribunal emphasized that the respondents had a statutory right under section 194H(2) to seek exemption from the obligation to deduct tax. The CBDT's delay in deciding the petitions constituted a reasonable cause for the respondents' failure to deduct tax.

2. Bona Fide Belief: The Tribunal found that the respondents' belief that they were not required to deduct tax during the pendency of their petitions was bona fide and reasonable. The respondents acted diligently by filing their petitions promptly and approaching the High Court when the CBDT delayed its decision.

3. Reasonable Cause Under Section 273B: The Tribunal concluded that the respondents had established a reasonable cause for their failure to deduct and pay tax at source, as required under section 273B. The respondents' actions were not negligent or mala fide, and they complied with the tax deduction requirement promptly after the CBDT's decision.

4. Confirmation of CIT(A)'s Order: The Tribunal confirmed the CIT(A)'s order canceling the penalties, noting that the respondents had acted in good faith and had a reasonable cause for their actions.

Conclusion:
The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decision to cancel the penalties under section 271C. The Tribunal found that the respondents had a bona fide belief and reasonable cause for their failure to deduct and pay tax at source due to the pendency of their exemption petitions under section 194H(2). The respondents' actions were diligent and in compliance with the statutory provisions, thereby exempting them from penalties under section 271C as per section 273B.