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TMI Blog2014 (10) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... uct tax at source on the interest paid by them to the partnership firm in which they are partners, can be considered as a "reasonable cause" in view of the legal position existing between a partner and the partnership firm - the partners and partnership firm are not two different legal entities, though they are two different taxable entities - the partnership firm, which received interest from the assessees have duly included the same in its return of income filed before the department and the said partnership firm was not liable to pay any tax, since it declared loss - no loss is caused to the revenue - the explanation offered by the assessee fits in the category of "reasonable cause" in terms of sec.273B of the Act – thus, the order of the CIT(A) is set aside and the AO is directed to delete the penalty levied u/s 271C of the Act in the hands of both the assessees – Decided in favour of assessee. - I.T.A No. 30 & 32/Coch/2013, I.T.A No. 31/Coch/2013, I.T.A No. 163 & 164 & 220/Coch/2013 - - - Dated:- 24-9-2014 - Shri N. R. S. Ganesan (JM) And Shri Chandra Poojari (AM),JJ. For the Appellants : Shri R. Srinivasan For the Respondent : Smt. Latha V. Kumar, Jr DR ORD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction of tax, according to the ld.DR, results in levy of penalty u/s 271C and interest u/s 201(1A) of the Act. On a query from the bench, how section 194A is applicable for individual assessees, the ld.DR, after reading the provisions of section 194A submitted that she would leave the matter to the discretion of the Court. 5. We have considered the rival submissions on either side and also perused the material available on record. The case of the department is that the assessee had to deduct tax u/s 194A in respect of interest paid to the partnership firm in which the assessee is a partner. For the purpose of convenience, we are reproducing the provisions of section 194A of the Act below: 194A. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: Provided that an individual or a Hindu undivide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. 9. The next contention of the assessee is that the recipient of the amount has already paid the tax and surcharge. This contention of the assessee needs to be examined in the light of the judgment of the Apex Court in Hindustan Coca Cola Beverage P Ltd vs CIT (2007) 293 ITR 226 (SC). Moreover, the decision of this Tribunal in assessee's own case in ITA 383, 384 386/Coch/2011 order dated 12-10-2012 is also applicable to the facts of this case. Accordingly, this Tribunal is of the considered opinion that the assessing officer needs to reconsider the matter. Therefore, the order of the lower authorities are set aside and the issue of non deduction of tax is remitted back to the file of the assessing officer to verify whether the recipient of the amount has already paid taxes or not including surcharge and thereafter decide the same in accordance with law after giving reasonable opportunity of hearing to the assessee in the light of the decision of this Tribunal in assessee's own case in ITA 383, 384 386 391/Coch/2011 order dated 12-10-2012. 10. Now coming to the remaining appeals which are in respect of levy of penalty u/s 271C, the ld.representative for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver and above their respective capital. There is no dispute with regard to the fact that the provisions of sec.194A has provided exemption from deduction of tax at source only in respect of interest credited or paid by a partnership firm to its partners. The provisions of sec.194A do not provide such kind of exemption to the interest paid by a partner to the partnership firm in which he is a partner. 7. The rigours of provisions of sec.271C is softened by the provisions of sec.273B, which provide that the penalty under that section shall not be imposable of the person, if he proves that there was reasonable cause for the said failure. Now, the question that arises is whether the explanation given by the assessee can be considered as a reasonable cause in terms of sec.273B of the Act. The explanation of the assessees was that they were under the bonafide belief that they need not deduct tax at source on the interest paid by them to the partnership firm, as the firm is only a compendious expression for its partners and is not a legal entity though it is a separate taxable entity. 8. The tax authorities have dismissed the said explanation on the ground that these assessees were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also in the following cases:- (a) Saurashtra Cement Chemical Industries Ltd (1215 ITR 27)(Guj) (b) Nemichand Ganeshmal Vs CIT (124 ITR 438)(MP) (c) CIT Vs. Patram Dass Raja Ram Beri (1981)(132 ITR 671)(P H) 11. The Hon'ble Delhi High Court has explained the term 'reasonable cause as under in the case of Woodward Governor India P Ltd Vs. CIT (253 ITR 745) as under:- Reasonable cause as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead any ordinarily prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do. The cause shown has to be considered and only if it is found to be frivolous, without substance or foundation, the prescribed consequences follow . 12. In the case of Muthoot Financiers (supra), the Tribunal had taken a view that the penalty should be avoided, if there is no loss to Revenue. In the instant case als ..... X X X X Extracts X X X X X X X X Extracts X X X X
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