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TMI Blog2002 (11) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... ittee (hereinafter referred to as PILCOM), organisers of 1996 World Cup Cricket Tournament, for sponsoring the said tournament. In consideration of being granted the sponsorship, ITC was required to make payment of UK 8 million out of which 55 per cent was to be paid in British pounds and the balance 45 per cent was to be paid in Indian rupees. It was under these arrangements that the ITC made, besides other payments, following four payments to PILCOM which are subject-matter of this litigation before us. July 1995 Rs. 7,86,55,500 Paid in Indian rupees July 1995 Rs. 9,62,88,500 Paid in pound sterling November 1995 Rs. 6,78,51,000 Paid in Indian rupees November 1995 Rs. 8,21,95,800 Paid in pound sterling However, before we come to the core issue regarding tax deductions from these payments, and Revenue's objections in the matter, we may briefly explain certain relevant developments which took place before these payments were made. It appears that on 9th May, 1995, the assessee tax deductor, with a view to ascertain its withholding tax liability from payments under the sponsorship arrange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er further stated that it has been observed that the assessee tax deductor has paid a total sum of Rs. 32,49,90,800 to PILCOM without any deduction of tax at source and required the assessee to show cause why penalty proceedings should also not be initiated against the assessee tax deductor. 6. Unable to reconcile conflicting stand taken by different officers of the Revenue, on 9th Feb., 1996, the assessee tax deductor approached the Chief CIT-II Kolkata, explaining the admitted facts of the case and making inter alia, the following request: "We request you to advise us the tax, if any, to be deposited on the above payments once the event is over. We are making this request to avoid any future dispute on the TDS. This has assumed importance as only one payment is due to PILCOM from us that is in April 1996 for 1.7 million pounds and any tax that we have to deduct can be out of this amount only." The reply to the aforesaid letter is reproduced below, in entirety, for ready reference: "No CC-II/Misc. Corres/95-96/3165 9th Feb., 1996 Executive Vice President (Taxation) ITC Ltd. 37, Chowringhee, Calcutta 71 Sub: TDS on payments to PILCOM Ref: Your letter, dt. 9t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents. The CIT(A) directed that the demand under s. 201(1A) is to be recomputed on that basis. As far as penalty demand under s. 221(1) Is concerned, the CIT(A) held that "although the appellant (assessee) was under the obligation to deduct tax of Rs. 32,49,908 under s. 194C from the payments made to PILCOM, it had good and sufficient reasons for not depositing the amount in time", and, on that basis, deleted the penalty under s. 221(1). The assessee is aggrieved of CIT(A)'s upholding, in principle, liability under s. 201(1A) and the Revenue is aggrieved of CIT(A)'s restricting the s. 201(1A) demand on the basis of TDS liability @ 1 per cent, as against the TDS liability of 10 per cent on sterling pounds and TDS liability of 2 per cent on Indian rupees payments, and of CIT(A)'s deleting the penalty of Rs. 1 crore under s. 221(1). Both the parties are thus in appeal before us. 9. We have had the benefit of hearing Shri Singh, learned Departmental Representative, and Shri Mitra, learned counsel for the assessee. We have also had the benefit of carefully perusing the orders to the authorities below, as indeed the elaborate paper book filed by the assessee, and deliberating upon the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce that the person being subjected to penalty proceedings is able to demonstrate bona fides of his conduct, the very basis of such proceedings is laid to rest. In view of these discussions, we support the conclusions arrived at by the CIT(A) so far as cancellation of penalty under s. 221(1) is concerned, and decline to interfere in the matter. 12. Let us now move on to the controversy regarding levy of penal interest under s. 201(1A). 13. The question of interest liability under s. 201(1A) can only arise in a situation in which liability for deduction of tax at source under s. 201(1) is already established. In fact, s. 201(1A), for that purpose, is consequential in nature. In the present case, the assessee has sought advice from the Chief CIT about his views on assessee TDS liability, and, in deference to the views so expressed by the Chief CIT, deducted the tax at source. Such an obliging conduct by the assessee does not, however, necessarily lead to the conclusion that the tax deduction liability so accepted by the assessee was in fact his statutory liability to deduct tax at source. A concession by the assessee, for example, cannot clothe the same as an exposition of legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee tax deductor is not under any obligation to deduct the tax at source. 16. In the present case, the assessee approached the authorities for ascertainment of TDS liability from payments to PILCOM and the assessee, vide letter dt. 22nd June, 1995, was advised that the assessee tax deductor being "remitter (in his capacity as representative assessee) and the person to whom money is remitted has no liabilities for the remittance referred to above......". It was only on 9th Feb., 1996, that the assessee was advised by way of a non-statutory communication from the Chief CIT-II, Kolkata, that the above, and such other certificate were issued by mistake by the AO, Special Range 6, Kolkata. Even if the above communication from Chief CIT-II, Kolkata, is treated as cancellation of earlier certificate, which categorically stated that the assessee tax deductor (i.e. ITC Ltd.) and the recipient of the said sum (i.e., PILCOM) had no income-tax liabilities in respect of the said payments, the assessee cannot be held responsible for not deducting the tax at source during the period when the Revenue's advice, extracted above, was not withdrawn. The assessee tax deductor cannot be expected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the full amount of salary. The interest that is payable under s. 201(1A) is only up to the date on which such tax is actually paid. The interest will stop running when the amount of tax which should have been deducted at source is actually paid by the employer or by the employee." It would thus appear that the interest liability under s. 201(1A) has been treated as compensatory for delay in realization of taxes. As soon as the taxes due to the State are realised, as per law laid down by Hon'ble jurisdictiorial High Court, the levy of interest under s. 201(1A) will come to a halt. As a corollary to this proposition, when no taxes are ultimately due to the State, as in the case of the payments to tax exempt entities, levy of interest under s. 201(1A) does not come to the play at all. 19. In the present case, PILCOM was a tax, exempt entity and, therefore, in the light of the school, of thought emerging from discussions in foregoing paragraph, levy of interest under s. 201(1A) did not at all come to the play. For this reason also, levy of interest under s. 201(1A) was vitiated in law. 20. In the light of the above discussions we support the conclusions arrived at by the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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