2015 (11) TMI 636 - AT - Income Tax

Penalty under section 271(1)(c) - difference between the reported and the assessed income on account of Non-compete fees - Held that - The only point of difference between the assessee and the Revenue is the relevant head of income under which the receipt from M/s. Termo Electron LLS India Pvt. Ltd. is liable to be taxed. Therefore, it is a case where a claim made in the return of income of taxing the receipt from M/s. Termo Electron LLS India Pvt. Ltd. under the head capital gain has been found to be not sustainable in law. As per the authoritative pronouncement of the Hon ble Supreme Court in the case of Reliance Petro Products Ltd. (2010 (3) TMI 80 - SUPREME COURT), such a fact-situation does not amount to furnishing of inaccurate particulars regarding income within the meaning of section under 271(1)(c) of the Act. Thus, on this aspect itself the penalty is unsustainable. The entire fact-situation of the dispute reveals that difference between the assessee and the Revenue revolves around the head of income under which the impugned receipt from M/s. Termo Electron LLS India Pvt. Ltd. is liable to be taxed. The Hon ble Bombay High Court in the case of M/s. Bennett Coleman & Co. Ltd.(2013 (3) TMI 373 - BOMBAY HIGH COURT) held that where there is only a change of head of income and in the absence of facts to show that the claim of the assessee was not bonafide, penalty under section 271(1)(c) of the Act is not maintainable. On this count also, we find that the penalty imposed under section 271(1)(c) in the present case is unsustainable. - Decided in favour of assessee.

Issues Involved:
1. Legitimacy of the penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Classification of 'Non-Compete fee' as either 'long term capital gain' or 'profits and gains of business or profession'.
3. Determination of whether the assessee's claim was bona fide or an attempt to avoid taxability.

Detailed Analysis:

1. Legitimacy of the Penalty under Section 271(1)(c):
The core issue revolves around the penalty imposed by the Assessing Officer (AO) under section 271(1)(c) for concealment or furnishing inaccurate particulars of income. The AO levied a penalty equivalent to 100% of the tax sought to be evaded, amounting to Rs. 1.50 crores, on the grounds that the assessee willfully claimed the 'Non-Compete fee' as long-term capital gain to avoid taxability of business income. This penalty was upheld by the CIT(A).

2. Classification of 'Non-Compete Fee':
The assessee received Rs. 5.00 crores as 'Non-Compete fee' from M/s. Termo Electron LLS India Pvt. Ltd. and declared it as a long-term capital gain, claiming deductions under section 54EC. However, the AO classified this receipt as 'profits or gains from business or profession' under section 28(va) of the Act. This classification was upheld by the CIT(A) and the Tribunal in earlier proceedings.

3. Determination of Bona Fide Claim:
The assessee argued that the claim was bona fide, supported by the then-prevailing decision of the Mumbai Bench of the Tribunal in the case of Mrs. Hami Aspi Balsara, which treated Non-Compete fees as capital gains. The assessee contended that there was full disclosure in the return, and the difference in interpretation of law should not attract penalty. The assessee also cited the Supreme Court judgment in CIT vs. Reliance Petro Products Ltd., which states that merely making a wrong claim does not amount to furnishing inaccurate particulars.

Judgment Analysis:

Bona Fide Nature of Claim:
The Tribunal noted that at the time of filing the return, the assessee's claim was supported by the decision in Mrs. Hami Aspi Balsara's case. The Special Bench ruling in Dr. B.V. Raju, which contradicted this view, was delivered much later. Therefore, the assessee's claim was considered bona fide and not an attempt to avoid taxability.

Absence of Concealment:
The Tribunal emphasized that there was no concealment or furnishing of inaccurate particulars by the assessee. The dispute was merely about the correct head of income under which the receipt should be taxed. The Tribunal referred to the Supreme Court's ruling in Reliance Petro Products, which clarified that making a wrong claim does not tantamount to furnishing inaccurate particulars.

Applicability of Mak Data P. Ltd. Case:
The Tribunal distinguished the present case from the Supreme Court's judgment in Mak Data P. Ltd., noting that in Mak Data, the penalty was justified because the assessee had surrendered income to settle a dispute. In the current case, the assessee had a bona fide claim supported by prevailing legal interpretations at the time of filing the return.

Conclusion:
The Tribunal concluded that the penalty under section 271(1)(c) was not justified, as the assessee's claim was bona fide and supported by existing legal precedent. The order of the CIT(A) was set aside, and the AO was directed to delete the penalty. This decision applied mutatis mutandis to the other related appeal.

Result:
The appeals were allowed, and the penalties imposed under section 271(1)(c) were ordered to be deleted. The judgment was pronounced in the open court on 30.9.2015.

← Previous Next →