2014 (2) TMI 235 - AT - Income Tax

Assessee in default u/s 201 Non-deduction of TDS on consultancy work Penalty u/s 201(1A) of the Act Held that - The actual payment of the amount was dependent on certain regulatory compliances and approvals which were ultimately not received - The payment had also not been made - Therefore in such a situation no income on account of such payment could said to have been accrued to the non-resident - only on the basis of entry in the books of accounts, the assessee could not be held liable for deduction of tax at source when ultimately the amount was found not payable nor it was paid, income therefore had not accrued to the Overseas Shipbuilding Cooperation Centre - There is no material placed on record to controvert the claim of the assessee that the assessee had no PE in India nor any business connection in India thus, no tax was required to be deducted the order of the CIT(A) upheld Decided against Revenue. Penalty u/s 271C of the Act Held that - The penalty had been levied for failure to deduct TDS in respect of amount payable to M/s Overseas Shipbuilding Cooperation Centre - The AO had held that the assessee was liable to deduct tax in respect of the amount payable to the said concern and since there had been failure, the AO treated the assessee in default u/s 201(1) and levied interest u/s 201(1A). In addition penalty had also been levied u/s 271C for said default it is already held that the assessee was not liable to deduct tax and thus upheld the order of CIT(A) canceling the order of AO u/s 201(1) and 201(1A) - The penalty levied by the AO cannot survive thus, the order of the CIT(A) upheld Decided against Revenue.

Summary

Issues Involved:
- Dispute over treating the assessee as in default under section 201 and consequential levy of interest under section 201(1A) for non-deduction of tax at source.
- Appeal against the penalty imposed under section 271C for failure to deduct TDS.

Analysis:

Issue 1: Dispute over treating the assessee as in default under section 201 and consequential levy of interest under section 201(1A) for non-deduction of tax at source:

The case involved the appellant disputing the decision of the Assessing Officer (AO) regarding treating the assessee as in default under section 201 and levying interest under section 201(1A) for not deducting tax at source. The AO noted that the assessee had remitted a sum for consulting fees without deducting tax. The appellant argued that the payment was dependent on regulatory approvals and no income had accrued to the recipient. The appellant cited legal precedents and the absence of Permanent Establishment (PE) in India for the recipient to support their case. The Commissioner of Income Tax (Appeals) [CIT(A)] held in favor of the appellant, stating that no tax deduction was required and the order was barred by limitation. The Tribunal upheld the CIT(A)'s decision, emphasizing that no income had accrued, and the recipient had no PE in India.

Issue 2: Appeal against the penalty imposed under section 271C for failure to deduct TDS:

The second issue involved the appeal against the penalty imposed under section 271C for the failure to deduct TDS in connection with the same payment. The AO had levied the penalty based on the default in deducting tax at source. However, the Tribunal had already ruled that the appellant was not liable to deduct tax in this case. Therefore, the penalty imposed by the AO was deemed invalid, and the Tribunal confirmed the CIT(A)'s decision to cancel the penalty. Consequently, both appeals by the revenue were dismissed.

In conclusion, the Tribunal's judgment favored the assessee by ruling that no tax deduction was required due to the specific circumstances of the payment and the absence of taxable income. The decision highlighted the importance of regulatory approvals and the lack of taxable presence in India for the recipient. The Tribunal upheld the CIT(A)'s decision to cancel the orders passed by the AO and dismissed the appeals by the revenue.