2019 (4) TMI 1371 - AT - Income Tax

Penalty under section 271C - TDS u/s 194H not deducted - allegation that assessee has paid commission to M/s AD Educational Research for services provided in respect of procurement of students - expert services of the service provider to run certain academic courses of study under distance education mode - sharing of revenue - HELD THAT - There is sharing of revenues by the assessee with the service provider to the extent of 50% of association fees and 20% of course fees. In the MOU, there is reference to scope of services to be rendered by the service provider and prima facie, it gives an impression of rendering of services - through the MOU, there is pooling of academic resources of the University with the marketing resources of the service provider whereby the virtual footprint of the University has been envisaged to be expanded through distance education programmes and setting up of IAACs in close association with the service provider. Looking at the terms of the MOU whereby the assessee has agreed to share fees as high as 50% of association fees and 20% of course fees with the service provider, the said payment seems to be more in the nature of revenue sharing rather than payment of commission for services rendered by the service provider. Therefore, it cannot be held conclusively that such payments would surely fall in the definition of commission so defined in section 194H It is clearly a debatable issue and on such issue, levy of penalty for non- deduction of TDS cannot be justified. Therefore, the explanation of the assessee that it was under a bonafide belief that such payments doesn t call for TDS thus cannot be disputed. It is also noted that subsequent to TDS verification by the Department when such matter was pointed out to the assessee, the latter has complied with the same by depositing appropriate TDS along with interest. As held by the Hon ble Supreme Court in case of Nova Scotia 2016 (1) TMI 583 - SUPREME COURT , for levy of penalty u/s 271-C what is necessary is to establish that there was contumacious conduct on the part of the assessee which, we find, is not present in the case of the assessee. In light of above discussions and keeping in view the provisions of section 273B of the Act, the penalty so levied u/s 271C is hereby directed to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the order passed under sections 250/271C.
2. Justification of the penalty levied under section 271C for non-deduction of TDS.
3. Classification of revenue shared as commission and its liability for TDS under section 194H.

Issue-wise Detailed Analysis:

1. Legality of the Order Passed under Sections 250/271C:

The appellant contended that the order passed by the JCIT, TDS, was barred by limitation. According to the appellant, the penalty order should have been passed by 30.04.2013, whereas it was actually passed on 29.08.2013. The Revenue argued that the DCIT (TDS) made a reference to the JCIT (TDS) for initiation of penalty proceedings on 22.01.2013, and the penalty proceedings were initiated by a notice dated 11.02.2013. Therefore, the penalty order passed on 29.08.2013 was within the limitation period prescribed under section 275(1)(C). The Tribunal held that the initiation of penalty proceedings should be reckoned from the date of issuance of notice to the assessee, not from the date of reference by the AO to the JCIT (TDS). Hence, the order was not barred by limitation.

2. Justification of the Penalty Levied under Section 271C for Non-Deduction of TDS:

The appellant argued that the non-deduction of TDS was due to a bona fide belief that the payment was not subject to TDS. The appellant had paid the TDS along with interest after the TDS verification proceedings. The Tribunal referred to the Hon’ble Supreme Court’s decision in the case of CIT vs. Bank of Nova Scotia, which emphasized that for the levy of penalty under section 271C, it is necessary to establish that there was contumacious conduct on the part of the assessee. The Tribunal found that the appellant acted under a bona fide belief and there was no contumacious conduct. Therefore, the penalty under section 271C was not justified.

3. Classification of Revenue Shared as Commission and Its Liability for TDS under Section 194H:

The Revenue argued that the payment made by the appellant to M/s AD Educational & Research was in the nature of commission for services provided in procuring students, and hence, liable for TDS under section 194H. The appellant contended that the payment was part of revenue sharing under a collaboration agreement and not commission. The Tribunal examined the Memorandum of Understanding (MOU) and found that the payment was more in the nature of revenue sharing rather than commission. The Tribunal concluded that it was a debatable issue and on such an issue, the levy of penalty for non-deduction of TDS could not be justified. The explanation of the appellant that it was under a bona fide belief that such payments did not call for TDS was accepted.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the penalty under section 271C was not justified due to the bona fide belief of the appellant regarding the nature of the payment and the absence of contumacious conduct. The order was pronounced in the open Court on 06/02/2019.