2017 (8) TMI 233 - AT - Income Tax

Penalty under section 271(1)(c) - taxability of the assessee in India partially - DTAA effect - Held that - The explanation of the assessee was that being a tax resident of UK it had opted to be taxed in India under the provisions of the India-UK Double Taxation Avoidance Agreement (Tax Treaty) for the previous year relevant to the assessment year under consideration. It was explained that under the provisions of the Tax Treaty, income derived by it from supply of network equipment to Indian customers qualify as business profits and, therefore, not liable to taxation in India under the provisions of article 7(1) of the Tax Treaty in the absence of a permanent establishment of the assessee in India. The assessee did not offer the revenue from supply of network equipment to tax in India. It was a debatable issue hence failure to voluntarily file return of income under the above bona fide belief cannot be construed to be concealment of income and furnishing inaccurate particulars of income by the taxpayer. Also because the learned Commissioner of Income-tax (Appeals) and the Tribunal upheld the taxability of the assessee in India partially cannot lead to an inference that the assessee had furnished inaccurate particulars of income. - Decided in favour of assessee.

Summary

Issues:
- Impugning deletion of penalty under section 271(1)(c) of the Act

Analysis:
The case involved the Revenue challenging the deletion of a penalty of ?18,02,291 under section 271(1)(c) of the Act by the learned Commissioner of Income-tax (Appeals). The assessee, a tax resident of the UK, opted to be taxed in India under the India-UK Double Taxation Avoidance Agreement. The dispute arose regarding the taxability of income derived from the supply of network equipment to Indian customers. The Revenue contended that the penalty was justified as the assessee allegedly furnished inaccurate particulars of income by claiming the income as "business profits" not liable to taxation in India due to the absence of a "permanent establishment" in India.

The Revenue argued that the penalty was warranted as the assessee failed to file its return of income voluntarily and only did so upon receiving notices under section 142(1) of the Act. However, the assessee maintained that its explanation for not filing the return was bona fide, based on its understanding of the Tax Treaty provisions. The Tribunal emphasized that penalty under section 271(1)(c) is invoked when there is clear evidence of concealment or furnishing inaccurate particulars of income. In this case, the explanation provided by the assessee was considered genuine, as the issue of taxability was debatable, and the assessee disclosed all material facts relevant to the computation of income.

The Tribunal noted that the Revenue's disagreement with the taxability of the assessee in India did not automatically imply concealment of income. It was crucial that the assessee's explanation was bona fide and all relevant facts were disclosed. Since there was no evidence of false explanations or non-disclosure of material facts, the Tribunal upheld the deletion of the penalty by the learned Commissioner of Income-tax (Appeals). Consequently, the appeal by the Revenue was dismissed, affirming the decision to delete the penalty under section 271(1)(c) of the Act.

In conclusion, the Tribunal found that the assessee's explanation for not filing the return of income was genuine and based on a bona fide belief regarding the taxability of income under the Tax Treaty provisions. As there was no evidence of concealment or furnishing inaccurate particulars of income, the deletion of the penalty was upheld. The decision highlighted the importance of assessing the genuineness of explanations provided by the assessee in penalty proceedings, especially in cases involving debatable tax issues.