2019 (12) TMI 366 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee claimed a sum under the head underwriting commission as non-taxable and gains on the transfer of debt securities as also considered as non-taxable - case was selected for scrutiny and the AO assessed the income considering all receipts as taxable and penalty proceeding u/s 271(c) was initiated. CIT(A) has decided the matter of controversy to the fact that the underwriting commission was taxable as Fee for Technical Service @ 10% on gross basis under Article 12 of the DTAA and gains on transfer of debt securities was assessable as Capital Gains and not Business Income and the same is exempt under Article 13(6) of the DTAA. HELD THAT - Return of income was filed on 30.09.2008. The assessee filed the true nature of income as underwriting commission in sum of ₹ 15,80,80,000/- which was not taxable and gains on the transfer of debt securities of ₹ 18,86,80,359/- was not taxable as business income but the same was taxable as capital gain. According to the return of income, one claim of the assessee was accepted by the CIT(A) and on account of other claim, the nature of income was changed as capital gain in comparison to the business income and accordingly taxed. According to Section 271(1)(C) of the Act, the assessee nowhere concealed any particulars of income nor furnishing the inaccurate particulars of income. Declining the claim of the assessee nowhere attract the penalty. The facts of the present case is quite similar to the facts of the case decided by Hon ble Supreme Court in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act.
2. Taxability of underwriting commission.
3. Taxability of gains on transfer of debt securities.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c) of the Income Tax Act:
The revenue challenged the deletion of the penalty imposed under Section 271(1)(c) by the Commissioner of Income Tax (Appeals) [CIT(A)]. The penalty was initially levied by the Assessing Officer (AO) on the grounds that the assessee had concealed particulars of income or furnished inaccurate particulars. The CIT(A) deleted the penalty, and this decision was upheld by the Income Tax Appellate Tribunal (ITAT). The Tribunal found that the assessee had disclosed all relevant facts and had a bona fide belief regarding the non-taxability of certain incomes. The Tribunal cited the Supreme Court's decision in CIT Vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC), which held that merely making a claim which is not sustainable in law does not amount to furnishing inaccurate particulars.

2. Taxability of Underwriting Commission:
The assessee, a Foreign Institutional Investor registered with SEBI and a tax resident of Switzerland, claimed that underwriting commission amounting to ?15,80,80,000 was not taxable in India. The AO treated this income as business income and levied a penalty. However, the CIT(A) reclassified the underwriting commission as 'Fees for Technical Services' (FTS) taxable at 10% on a gross basis under Article 12 of the India-Switzerland DTAA. The ITAT confirmed this reclassification. The Tribunal noted that the assessee had disclosed the nature of the underwriting commission in the return of income and had a bona fide belief that it was not taxable in India. Therefore, the deletion of the penalty was justified.

3. Taxability of Gains on Transfer of Debt Securities:
The assessee also claimed that gains on the transfer of debt securities amounting to ?18,86,80,359 were not taxable. The AO treated these gains as business income, whereas the CIT(A) classified them as 'Capital Gains' exempt under Article 13(6) of the India-Switzerland DTAA. The ITAT upheld the CIT(A)'s decision, confirming that the gains were indeed capital gains and not business income. The Tribunal recognized that the assessee had disclosed all relevant facts and had a reasonable basis for its claims, further supporting the deletion of the penalty.

Conclusion:
The ITAT dismissed the revenue's appeal, affirming the CIT(A)'s decision to delete the penalty under Section 271(1)(c). The Tribunal found that the assessee had not concealed income or furnished inaccurate particulars, and had a bona fide belief regarding the taxability of underwriting commission and gains on the transfer of debt securities. The decision was pronounced in the open court on 28/11/2019.