WS Industries (India) Ltd., Visakhapatnam V. THE ITO (TDS), Visakhapatnam

CO 10/VIZ/2015

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4185 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 05-05-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bonafide belief; Reasonable cause; Capital receipt; TDS
• Section: 12A; 201(1); 201; 27; 11

Judgement Text

ITA NO.648/VIZAG/2014 & CO NO.10/VIZAG/2015 M/S. W.S. INDUSTRIES (INDIA) LTD., VISAKHAPATNAM 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.648/VIZAG/2014 ( / ASSESSMENT YEAR: 2008-09) ITO (TDS), WARD - 1, VISAKHAPATNAM VS. M/S. W.S. INDUSTRIES (INDIA) LTD. VISAKHAPATNAM [PAN: VPNZO0072C ] ( % / APPELLANT) ( &'% / RESPONDENT) C.O. NO.10/VIZAG/2015 (ARISING OUT OF I.T.A.NO.648/VIZAG/2014) ( / ASSESSMENT YEAR: 2008-09) M/S. W.S. INDUSTRIES (INDIA) LTD. VISAKHAPATNAM VS. ITO (TDS), WARD - 1, VISAKHAPATNAM ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI M.N. MURTHY NAIK, DR / RESPONDENT BY : SHRI G.V.N. HARI, AR / DATE OF HEARING : 20.06.2016 / DATE OF PRONOUNCEMENT : 22.07.2016 ITA NO.648/VIZAG/2014 & CO NO.10/VIZAG/2015 M/S. W.S. INDUSTRIES (INDIA) LTD., VISAKHAPATNAM 2 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A), VISAKHAPATNAM DATED 24.9.2014 FOR THE ASSES SMENT YEAR 2008- 09 AND THE CROSS APPEAL FILED BY THE ASSESSEE IS IN SUPPORT OF THE ORDER OF CIT(A). 2. FACTS ARE IN BRIEF THAT THE ASSESSEE IS A COMPAN Y ENGAGED IN THE MANUFACTURE OF ELECTRICAL INSTALLATION. THE ASSESS EE COMPANY HAS TAKEN ON LEASE LANDS FROM ANDHRA PRADESH INDUSTRIAL INFRA STRUCTURE CORPORATION (APIIC) FOR SETTING UP OF A MANUFACTURI NG UNIT AT SPECIAL ECONOMIC ZONE, VISAKHAPATNAM. FOR THAT PURPOSE, TH E ASSESSEE HAS ENTERED INTO A LEASE AGREEMENT ON 16.5.2007. AS PE R THE TERMS OF THE LEASE AGREEMENT, THE ASSESSEE IS REQUIRED TO MAKE A PAYMENT OF RS.10.50 LAKHS PER ACRE IN RESPECT OF 47.77 ACRES A S UPFRONT PAYMENT AND ALSO REQUIRED TO PAY ONLY RENT OF RS.10,050/- P ER ACRE YEAR ON YEAR. THE ASSESSEE HAS DEDUCTED TDS ON THE ANNUAL LEASE R ENT BUT DID NOT DEDUCT TDS ON THE UPFRONT PAYMENT. DURING THE COUR SE OF THE SURVEY BY THE TDS WING ON 13.3.2013 IT HAD COME TO THE NOTICE OF THE DEPARTMENT THAT THE ASSESSEE DID NOT DEDUCT TDS ON LEASE/UPFRO NT PAYMENT OF RS.4,80,08,850/- TO APIIC ON 16.5.2007, IN VIOLATIO N OF SECTION 194 OF ITA NO.648/VIZAG/2014 & CO NO.10/VIZAG/2015 M/S. W.S. INDUSTRIES (INDIA) LTD., VISAKHAPATNAM 3 THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS TH E ACT). ACCORDINGLY, THE A.O. HAS INITIATED THE PROCEEDINGS U/S 201(1) A ND 201(1A) OF THE ACT. DURING THE PROCEEDINGS, THE ASSESSEE HAS SUBM ITTED THAT THE DEDUCTEE WAS EXEMPT FROM TAX U/S 11 OF THE ACT IN V IEW OF ITS REGISTRATION U/S 12A OF THE ACT. IT WAS ALSO REPRE SENTED THAT THE DEDUCTEE HAS ADMITTED THE SAID AMOUNT IN ITS BOOKS OF ACCOUNTS AS A CAPITAL RECEIPT AND FILED THE CONFIRMATION LETTER I N THIS REGARD. IN THE CONFIRMATION LETTER, IT WAS ALSO CLARIFIED THAT THE DEDUCTEE DID NOT HAVE ANY NON-DEDUCTION CERTIFICATE. ON CONSIDERATION OF SUCH DETAILS FILED, THE ASSESSING OFFICER DID NOT RAISE ANY PAYMENT U/S 201 (1) OF THE ACT. HOWEVER, THE ASSESSING OFFICER LEVIED AN INTEREST U /S 201(1A) OF THE ACT OF RS.8,16,150/- AND THE INTEREST WAS CHARGED FOR T HE PERIOD FROM 16.5.2007 TO 30.9.2008. ON THE INFORMATION PROVIDE D BY THE A.O. (TDS), THE JCIT (TDS) INITIATED THE PROCEEDINGS U/S 271C OF THE ACT. IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED U/S 271C O F THE ACT, THE ASSESSEE FILED A REPLY ON 10.6.2013 CONTENDING THAT INCOME OF THE APIIC WAS EXEMPT FROM THE TAX U/S 11 OF THE ACT. THEREFO RE, THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE. IT WAS ALSO CO NTENDED THAT AS THE INCOME OF THE DEDUCTEE IS EXEMPT FROM THE TAX, THER E IS NO LOSS TO THE REVENUE AND EVEN INTEREST U/S 201(1A) CANNOT BE CHA RGED. THE ASSESSEE HAS RELIED ON THE DECISION OF THE HONBLE ITAT COCHIN IN THE ITA NO.648/VIZAG/2014 & CO NO.10/VIZAG/2015 M/S. W.S. INDUSTRIES (INDIA) LTD., VISAKHAPATNAM 4 CASE OF THOMAS MUTHOOT VS. DCIT AND SUBMITTED THAT IT HAD A BONAFIDE BELIEF THAT THE PAYMENT OF LEASE RENT TO THE APIIC NEED NOT BE SUBJECT TO DEDUCTION OF TAX AT SOURCE IN AS MUCH AS THE SAID C OMPANY IS EXEMPT U/S 11 OF THE ACT AND SUBMITTED THAT THE FAILURE TO DEDUCT THE TAX IS NEITHER INTENTIONAL NOR DELIBERATE AND WAS ONLY ON ACCOUNT OF BONAFIDE BELIEF EXERCISED BY THE ASSESSEE THAT TAX NEED NOT BE DEDUCTED AT SOURCE. THE JCIT HAS CONSIDERED THE EXPLANATION GI VEN BY THE ASSESSEE AND HE HAS OBSERVED THAT THE PROCEEDINGS U/S 271C O F THE ACT ARE INDEPENDENT OF LIABILITY U/S 201(1) OF THE ACT. HE ALSO HELD THAT THE EXISTENCE OF LIABILITY U/S 201(1) OF THE ACT OR THE LACK OF IT WILL NOT IN ANY WAY ALTER THE FACT OF SECTION 271C OF THE ACT, THER EFORE, HELD THE EXISTENCE OF LIABILITY U/S 201(1) OF THE ACT SHOULD NOT BE A DEFENCE AGAINST THE PENALTY U/S 271C OF THE ACT. AS REGARD S THE ASSESSEES CONTENTION THAT IT WAS UNDER BONAFIDE BELIEF THAT T HE TAX NEED NOT BE DEDUCTED ON THE SUBJECT PAYMENT, THE JCIT (TDS) FEL T THAT SUCH A BELIEF IS UNFOUNDED AND HE ALSO TOOK A VIEW THAT THE DEDUC TOR NEED NOT DEDUCT THE TDS IF AND ONLY IF THE CONCERNED ASSESSING OFFI CER-TDS HAD ISSUED A CERTIFICATE TO THIS EFFECT U/S 197 OF THE ACT. IN THE ABSENCE OF ANY SUCH NON-DEDUCTION CERTIFICATE, THE DEDUCTORS STATUTORY OBLIGATION REMAINS UNALTERED AND ACCORDINGLY PENALTY WAS LEVIED U/S 27 1C OF THE ACT. ITA NO.648/VIZAG/2014 & CO NO.10/VIZAG/2015 M/S. W.S. INDUSTRIES (INDIA) LTD., VISAKHAPATNAM 5 3. ASSESSEE CARRIED MATTER IN APPEAL BEFORE THE CIT (A). HE REITERATED HIS SUBMISSIONS BEFORE THE LD. CIT(A). THE LD. CIT(A) AFTER CONSIDERING THE EXPLANATIONS OF THE ASSESSEE AND AL SO CERTAIN CASE LAWS RELIED UPON BY THE ASSESSEE, HE HAS DELETED THE PEN ALTY LEVIED BY THE A.O. BY OBSERVING AS UNDER: 5. I HAVE CONSIDERED THE SUBMISSIONS MADE AND THE DETAILS FILED. THE ONLY ISSUE TO BE RESOLVED IS WHETHER THE ASSESSEE CAN BE SAID TO HAVE REASONABLE CAUSE FOR NOT DEDUCTING TAX SO AS TO CLA IM IMMUNITY FROM PENALTY U/S271C OF THE IT.ACT. A PERUSAL OF THE LEA SE AGREEMENT ENTERED BY THE ASSESSEE WITH APIIC SHOWS THAT THE L EASE IS FOR A PERIOD OF 35 YEARS, WITH PROVISION TO RENEW THEREAFTER. TH E LESSEE IS ENTITLED TO CONSTRUCT BUILDINGS / STRUCTURE ON THE LEASE AND EN TITLED TO CERTAIN ADDITIONAL FACILITIES. IT IS NOT A SIMPLE CASE OF M ERE LEASE OF LAND. THE LESSOR / DEDUCTEE HAS SHOWN THE ONE TIME PAYMENT AS CAPITAL RECEIPT. THE ABOVE JUDICIAL DECISIONS RELIED ON BY THE ASSES SEE HAS TAKEN THE VIEW THAT SUCH PAYMENTS CANNOT BE CHARACTERIZED AS 'ADVANCE RENT. THEREFORE, IT IS POSSIBLE TO TAKE A VIEW THAT THE T DS NEED NOT BE EFFECTED ON SUCH A ONE TIME PAYMENT AS SUCH PAYMENT WOULD NOT HAVE THE CHARACTERISTICS OF RENT WITHIN THE MEANING OF SEC194I OF THE ACT. THE HONBLE DELHI HIGH COURT EXPLAINED WHAT WOULD C AUSE 'REASONABLE CAUSE' IN WOODWARDS GOVERNOR INDIA PVT. LTD. (253 J TR 745) AS UNDER: REASONABLE CAUSE AS APPLIED TO HUMAN ACTION IS TH AT WHICH WOULD CONSTRAIN A PERSON OF AVERAGE INTELLIGENCE AN D ORDINARY PRUDENCE. IT CAN BE DESCRIBED AS PROBABLE CAUSE. IT MEANS AN HONEST BELIEF FOUNDED UPON REASONABLE GROUNDS, OF T HE EXISTENCE OF A STATE OF CIRCUMSTANCES, WHICH ASSUMING THEM TO BE TRUE, WOULD REASONABLY LEAD ANY ORDINARILY PRUDENT AND CA UTIOUS 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 FOUND TO BE FRIVOLOUS, WITHOUT SUBSTANCE OR FOUNDATION, THE PRESCRIBED CON SEQUENCES FOLLOW. IN THESE FACTUAL AND LEGAL SCENARIO, IT CAN BE SAID THAT THE ASSESSEE HAD A REASONABLE BELIEF AND CAUSE THAT TDS NEED NOT BE DE DUCTED ON THE UPFRONT PAYMENT. BESIDES, THE DEDUCTEE IS EXEMPT FROM TAXAT ION ON ITS INCOME IN VIEW OF SEC 11. THE HON'BE SUPREME COURT IN THE CAS E OF CIT VS. ELI LILY & ITA NO.648/VIZAG/2014 & CO NO.10/VIZAG/2015 M/S. W.S. INDUSTRIES (INDIA) LTD., VISAKHAPATNAM 6 CO. INDIA PVT. LTD (312 ITR 225) HELD THAT PENALTY U/S 271C IS NOT AUTOMATIC AND WHEREVER THERE IS A REASONABLE CAUSE FOR NOT DE DUCTING THE TAX AT SOURCE PENALTY U/S.271C CANNOT BE LEVIED. THE HON'B LE SUPREME COURT OBSERVED AS UNDER: 'SEC.271C INTER ALIA STATES THAT IF ANY PERSON FAIL S TO DEDUCT THE WHOLE OR ANY PART OF THE TAX AS REQUIRED BY THE PROVISIONS OF CHAPTER XVII-B THEN SUCH PERSON SHALL BE LIABLE T O PAY, BY WAY OF PENALTY, A SUM EQUAL TO THE AMOUNT OF TAX WH ICH SUCH PERSON FAILED TO DEDUCT. THUS, S.271C(1)(A) MAKES I T CLEAR THAT THE PENALTY LEVIABLE SHALL BE EQUAL TO THE AMO UNT OF TAX WHICH SUCH PERSON FAILED TO DEDUCT. THIS PROVISION CANNOT BE HELD TO BE MANDATORY OR COMPENSATORY OR AUTOMATIC B ECAUSE UNDER S.273B PARLIAMENT HAS ENACTED THAT PENALTY SH ALL NOT BE IMPOSED IN CASES FALLING THERE UNDER. SEC. 271C FALLS IN THE CATEGORY OF SUCH CASES. THEREFORE, THE LIABILITY TO LEVY OF PENALTY CAN BE FASTENED ONLY ON THE PERSONS WHO DO NOT HAVE GOOD AND SUFFICIENT REASON FOR NOT DEDUCTING T AX AT SOURCE. ONLY THOSE PERSONS WILL BE LIABLE TO PENALT Y WHO DO NOT HAVE GOOD AND SUFFICIENT REASON FOR NOT DEDUCTI NG THE TAX. THE BURDEN, OF COURSE, IS ON THE PERSON TO PRO VE SUCH GOOD AND SUFFICIENT REASON.' CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, I FIND THAT THE ASSESSEE HAD REASONABLE CAUSE AND BELIEF FOR NOT DE DUCTING TAX ON THE IMPUGNED ONE TIME PAYMENT. THE AO IS NOT JUSTIFIED IN TAKING THE VIEW THAT PENALTY IS LEVIABLE U/S.271C EVEN IF THERE IS NO LI ABILITY U/S201(1) OF THE I.T. ACT IN THE LIGHT OF THE DECISION OF THE HON'BLE ITA T, HYDERABAD IN THE CASE OF CIT(TDS) VS. M/S.GOOD HEALTH PLAN LTD., WHICH HA S BEEN UPHELD BY THE JURISDICTIONAL HIGH COURT. THEREFORE, THE A.O.IS DI RECTED TO CANCEL THE IMPUGNED PENALTY. 4. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE LD. CIT(A) HAS CONSIDERED ALL THE FACTUAL MATRIX OF THE CASE AND ALSO CASE LAWS RELIED UPON BY THE LD. COUNSEL FOR THE AS SESSEE AND HE CAME TO A CONCLUSION THAT THE ASSESSEE HAD A REASONABLE CAUSE AND BELIEF FOR NOT DEDUCTING THE TAX ON IMPUGNED ONE TIME PAYMENT. FURTHER, THE LD. CIT(A) BY RELYING ON THE DECISION OF ITAT, HYDERABA D IN THE CASE OF CIT(TDS) VS. M/S. GOOD HEALTH PLAN LIMITED IT HAS B EEN UPHELD BY THE ITA NO.648/VIZAG/2014 & CO NO.10/VIZAG/2015 M/S. W.S. INDUSTRIES (INDIA) LTD., VISAKHAPATNAM 7 JURISDICTIONAL HIGH COURT AND DIRECTED THE A.O. TO CANCEL THE PENALTY. WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED B Y THE LD. CIT(A). THIS APPEAL FILED BY THE DEPARTMENT IS DISMISSED. 5. THE CROSS APPEAL FILED BY THE ASSESSEE IS ONLY S UPPORTIVE AND IN VIEW OF THE ABOVE, C.O. FILED BY THE ASSESSEE IS AL SO DISMISSED. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED AND CROSS APPEAL FILED BY THE ASSESSEE IS ALSO DISMISSE D. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22 ND JUL16. SD/- SD/- ( . ) ( . ) (G. MANJUNATHA) (V. DURGA RAO) /ACCOUNTANT MEMBER /JUDICIAL MEMBER ! /VISAKHAPATNAM: % /DATED : 22.07.2016 VG/SPS '! (! /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ITO (TDS), VISAKHAPATNAM 2. / THE RESPONDENT M/S. W.S. INDUSTRIES (INDIA) LTD ., ECONOMIC ZONE, DUPPITURU VILLAGE, ATCHUTAPURAM, VISAKHAPATNAM 3. ) / THE CIT(TDS), HYDERABAD 4. ) ( ) / THE CIT(A),VISAKHAPATNAM 5. ! , , , , ! / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // /0 , (SR.PRIVATE SECRETARY) , , ! / ITAT, VISAKHAPATNAM