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TMI Blog2018 (3) TMI 735X X X X Extracts X X X X X X X X Extracts X X X X ..... we are of the considered view that the assessee has failed to explain the reasons for short deduction of tax at source, hence, we up hold the order of the Ld. CIT(A) - Decided against assessee. - I.T.A.No.454-456/Viz/2017 - - - Dated:- 14-3-2018 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER For The Appellant : Shri Y.A.Rao, AR For The Respondent : Shri Deba Kumar Sonowal, DR ORDER PER D.S. SUNDER SINGH, Accountant Member: These appeals are filed by the assessee against the order of the Commissioner of Income-Tax (Appeals) [CIT(A)]-2, Visakhapatnam vide ITA No.145-147/2015-16/CIT(A)-2/JCIT(TDS)/VSP/2017-18 dated 22.05.2017 for the assessment year 2007-08 to 2009-10. 2. In this case, the assessee made short deduction of tax at source in respect of Brand fee paid to M/s United Breweries Ltd (UBL) and Millennium Breweries India Ltd (MBIL)(parent company) . The assessee is required to deduct tax at source @10% on payments made to the parent company u/s 194 J of I.T act but deducted the TDS @2% u/s194C of the I.T. Act. The assessee possessed the manufacturing facility along with license of manufacturing of beer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was a mere contract manufacturer manufacturing beers for others. It was not shown to us that the property and risk attached with the manufactured products always remained with the Contractee. Further, we notice that the assessee has claimed to have executed contract for others, whereas, on the payment of 'brand fee', it has deducted TDS u/s 194C of the Act treating the same as contract payment, as if it has entrusted the contract to the main line companies. Hence the payment made to the brand owners under brewing agreement cannot be a contract payment failing under the scope of sec. 194C of the Act. Though the Ld A.R tried to contend that the entire payment could not be considered as payment of royalty, yet no material was placed to substantiate the said contentions. If the contention of the Ld AR that the amount transferred by way of 'brand fee was actually a transfer of business profits is to be accepted, it has to be shown that the property and risk attached with the products remained with the contractee. In any case, it is a new argument raised for the first time before the Tribunal and hence we arenot inclined to appreciate the said contentions of Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Upon the condition that the beer shall be produced according to the know-how and standards prescribed by UBL including for storing and packaging. 10.2 Permitting BREWER to use the Trademarks belonging to UBL will not in any way affect the rights of UBL to use the marks by itself or permitting the use of the same mark to! by other contract bottling units; 10.3. In view of the provisions of section 48(2) of the Trademarks Act 1999, permitted use of the Trademarks of UBL by BREWER is deemed to be used by UBL itself, not only for the purpose of Trademarks Act, 1999 but for any other law. 10.4. No amount shall be payable to UBL for the permitted use of the Trademark by BREWER except for the Brand Fee as mentioned in clause 7. 10.5 BREWER will at all times recognize the validity of the Trademarks and UBL's ownership thereof as well as the exclusive right of UBL to take all appropriate measures for protection of the trademarks and will not at any time put in issue the validity of the Trademarks nor shall do any act calculated to prejudice such validity. The permitted use of the trademarks shall not confer on BREWER any ownership in the Trademarks. From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... royalty failing within the scope of sec 194J of the Act. 6.3 The legal position as to existence of reasonable cause u/s 273B was explained by the Hon'ble Delhi High Court in the case of Woodward Governor India P Ltd v CIT (253 ITR 745), as under:- the officer dealing with the matter has to consider whether the explanation offered by the assessee or the person, as the case may be, as regards the reason for failure, was on account of reasonable cause. 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, with it substance or foundation, the prescribed consequences follow. 6.4 Thus it has to be seen whether the assessee had reasonable cause. The assessee conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under bonafide belief that the impugned payments were made towards execution of contract work and not towards royalty has no factual or legal merits, and patently it is not a case of application of wrong section. In view of these, I do not find any merit in the assessee's plea of reasonable cause for the impugned default. 6.5. During the appeal proceedings, the AR raised a plea that the statutory auditors did not mention in their audit report that tax deduction was not made properly and is a case of bonafide belief by the company. In support, the AR relied on the decision of the Hon'ble Supreme Court in the case of price Water Coopers (348 JTR) 306). I have examined this plea. At the outset, it is to be noted that this is a new plea not raised before the AO. The facts in the case of Price Water Coopers are that the tax audit report remarked that certain provision towards gratuity was not allowable deduction, but the assessee wrongly claimed such deduction in the return of income, and such a wrongful claim was held to be a bonafide error, based on the report filed before the Court explaining the circumstances under which the error was committed. In these factual sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions is required. The above principles were followed by the Hon'ble ITAT Mumbai in the case of StateBank of Mauritius. (ITA No. 3139/208 dt 30 sep 2016) and the Hon'ble Tribunal went on to observe that fanciful claims under the garb of interpretation is not bonafide. Thus the judicial authorities have laid down the principle that prima facie inadmissible or patently wrong claims would not be bonafide; where the claim was exfacie wrong being contrary to fundamental / basic principles of accounts and Act, such claim cannot be said to be bonafide, whether or not supported by CA Certificate; that the pretence of legal opinion of a CA is only a smoke screen and facade. 6.9 In the light of above factual and legal position, I do not find merit in the assessee's claim of 'reasonable cause'. The Hon'ble Kerala High Court in the case of CIT Vs. Muthoot Bankers (Aryasala) 385 ITR 051 upheld levy of penalty u/s.271C where the assessee failed to establish 'reasonable cause'. In view Of the above, I find that the levy of impugned penalties u/s.271C for financial years 2007-08 to 2009-10 on this count are held justified and accordingly confirmed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of parent company and sold the same to APBCL. For using the Brand name the assessee had made the payment of Royalty which clearly indicated by the agreement and discussed in detail by the Ld.CIT(A). Therefore this argument of the assessee is not tenable. The assessee argued that short deduction of tax at source @2% instead of 10% does not put the revenue at loss, hence requested to cancel the penalty proceedings. The issue whether the revenue has sustained the loss or not is not the look out of the assessee and it is obligation on the part of the assessee to deduct the correct amount and remit the correct account before the due date. Whether the revenue gets loss or not is not a reasonable cause for not to levy the penalty. Similarly, the assessee argued that with regard to the amendment made to section 40(a)(ia) treating the assessee as not in default for imposing the penalty u/s 271C. In this case, the issue is short deduction of tax at source by treating the brand fee payable by the assessee to the parent company as a contract payment u/s 194C of I.T. Act. Both the parent company as well as the assessee has the support of legal assistance of tax experts. Therefore plain reading ..... X X X X Extracts X X X X X X X X Extracts X X X X
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