Joint Commissioner of Income-tax, V. Eaton technologies Ltd., Pune

ITA 1078/PUN/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9475 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-01-2018
• Assessment Year: 2007-2008
• Appeal Filed On: 06-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR VIVEK AGGARWAL
• Keywords: Bonafide belief; Reasonable cause
• Section: 273B; 201(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.1078/PUN/2015 / ASSESSMENT YEAR : 2007-08 JCIT (INTERNATIONAL TAXATION), PUNE . /APPELLANT VS. EATON TECHNOLOGIES LTD., (FORMERLY PATNI COMPUTER SYSTEMS LTD.), CLUSTER C, WING 1, EON FREE ZONE, PLOT NO.1, SURVEY NO.77, MIDC KHARADI, KNOWLEDGE PARK, KHARADI, PUNE 411 014 PAN : AABCE4323Q . / RESPONDENT / APPELLANT BY : DR. VIVEK AGGARWAL, CIT-DR / RESPONDENT BY : SHRI VISHAL KALRA / DATE OF HEARING : 09.01.2018 / DATE OF PRONOUNCEMENT: 12.01.2018 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF CI T(A)-13, PUNE DATED 15-05-2015 FOR THE ASSESSMENT YEAR 2007-08. 2. THE ISSUE RAISED IN THIS APPEAL IS IN CONNECTION WITH LEVY OF PENALTY U/S.271C OF THE ACT RELATING TO THE DEFAULT OF FAILURE TO MAK E TDS AND LEVY OF PENALTY U/S.201(1) AND 201(1A) OF THE ACT. 3. GROUNDS RAISED BY THE ASSESSEE READ AS UNDER : 1. ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, TH E LD.CIT(A) ERRED IN HOLDING THAT NO PENALTY U/S.271C IS LEVIABLE. ITA NO.1078/PUN/2015 EATON TECHNOLOGIES LTD., 2 2. ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, THE LD.CIT(A) ERRED IN HOLDING THAT NO PENALTY U/S.271C IS LEVIABLE DESPIT E HOLDING THAT TAX AND INTEREST U/S.201(1) AND 201(1A) WAS CORRECTLY LEVIE D BY THE AO. 3. ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, THE LD.CIT(A) ERRED IN APPLYING THE SECTION OF 273B DESPITE THE FACT THAT THE RECOURSE WAS AVAILABLE TO THE ASSESSEE U/S.248 OF THE ACT. 4. BRIEFLY STATED RELEVANT FACTS ARE THAT DURING THE YEA R ASSESSEE MADE CERTAIN PAYMENTS TO EATON LTD., UK AS ORACLE IMPLEMENTAT ION CHARGES WITHOUT MAKING TDS AT THE TIME OF PAYMENT. FOR FAILURE TO COMPLY WITH THE PROVISIONS OF SECTION 195 OF THE ACT, THE INCOME-TAX A UTHORITIES INVOKED THE PROVISIONS OF SECTION 201(1) AND 201(1A) OF THE A CT AND PASSED AN ORDER UNDER THE SAID SECTION DATED 25-03-2013. THE PENALTY U/S.271C OF THE ACT WAS INITIATED AND LEVIED AS PER THE ORDER DATE D 11-06-2014. THE ASSESSEE WAS DIRECTED TO PAY A SUM OF RS.1,11,02,488/- AS PENALTY. 5. LD.CIT(A) DELETED THE SAID PENALTY AS PER THE DISCUSSIO N GIVEN IN PARA NOS. 2.8 TO 2.10 OF HIS ORDER. CIT(A) HELD THAT PENALTY IS NOT SUSTAINABLE WHEN IT IS CONNECTED TO THE DEBATABLE ISSUES. IN THE SAID PARAGRAPHS, THE CIT(A) DISCUSSED THE ISSUE OF APPLICABILITY OF SECTION 195 TO THE PAYMENTS MADE BY THE ASSESSEE TO EATON LTD. U K BASED COMPANY. ASSESSEE RELIED ON SERIES OF DECISIONS WHICH ARE EXTRACTED IN PARA NOS. 2.5 TO 2.6 OF THE ORDER OF CIT(A). CONTENTS OF PARA NO.2.9 CON STITUTES OPERATIONAL PARA IN THIS REGARD WHICH CONTAINS THE CONCLUS ION OF THE CIT(A) AGAINST THE REVENUE. 6. AGGRIEVED WITH THE ORDER OF CIT(A) THE REVENUE IS IN AP PEAL BEFORE US. 7. BEFORE US, LD. DR FOR THE REVENUE MENTIONED THAT TH ERE ARE NUMBER OF DECISIONS IN FAVOUR OF THE REVENUE REQUIRING THE ASSESS EE TO MAKE TDS WHEN PAYMENTS ARE MADE BY THE ASSESSEE TO THE GROUP CONCERNS ABROAD. ITA NO.1078/PUN/2015 EATON TECHNOLOGIES LTD., 3 FURTHER, HE RELIED ON THE ORDERS OF THE AO AND REQUEST ED FOR REVERSING THE ORDER OF CIT(A). 8. PER CONTRA, LD. AR FOR THE ASSESSEE SUBMITTED THAT THE REQUIREMENT OF MAKING TDS ON THE PAYMENTS MADE FOR PURCHASE OF SOFTW ARE AND THE ORACLE IMPLEMENTATION CHARGES DOES NOT CONSTITUTE INCOME CHARGEABLE TO TAX/ROYALTY. THEREFORE, THE PROVISIONS OF SECTION 195 HAS NO APPLICATION. FOR THIS PROPOSITION, HE RELIED ON THE DECISIONS DISCUSSED IN PARA NO.2.6 OF THE ORDER OF CIT(A). RELYING ON HONBLE SUPREME COURT JU DGMENT IN THE CASE OF TATA CONSULTANCY SERVICES VS. STATE OF AP 271 I TR 401, LD. AR SUBMITTED IN PARA NO.2.2 OF HIS WRITTEN SUBMISSION THAT SALE OF OFF THE SHELF SOFTWARE CONSTITUTES SALE OF GOODS AND THE SAME IS NOT EXIGIBLE TO SALES TAX. BY DEFAULT, TDS NEED NOT BE DONE AT THE TIME OF PAYMENT AS THE SALES DOES NOT CONSTITUTE ASSESSABLE ROYALTY. FOR THIS, H E RELIED ON THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MOTO ROLA INC VS. DCIT 95 ITD 269 (DEL. SB). RELYING ON THE DELHI HIGH COURT AND OTHERS, LD. AR SUBMITTED THAT NO TAX IS REQUIRED TO BE DEDUCTED FROM PAYMENTS MADE TO THE NON-RESIDENTS FOR SUCH SOFTWARE PURCHASE A S THE SAME IS BEYOND THE SCOPE OF THE ROYALTY. IN SUCH CASE, WHEN TH E DISPUTE IS IN EXISTENCE ON THE ISSUE OF TAXABILITY OF SUCH PAYMENTS, NO PENALTY IS LEVIABLE U/S.271C OF THE ACT CONSIDERING THE BONAFIDE BELIEF AS SESSEE HAD AT THE TIME OF PAYMENT OF MONEY WITHOUT MAKING ANY TDS. FURTHER, LD. AR FOR THE ASSESSEE RELIED ON APEX COURT JUDGMENT IN TH E CASE OF CIT VS. ELI LILLY & CO, INDIA PVT. LTD. AND OTHERS 312 ITR 225 WHER E IT IS HELD THAT THE LIABILITY TO LEVY PENALTY WILL ARISE ONLY ON THE REASON WH O DO NOT HAVE GOOD AND SUFFICIENT REASON FOR NOT DEDUCTING THE TAX AT S OURCE. CONSIDERING THE ABOVE DISPUTE, ASSESSEE HAS BONAFIDE BELIEF FOR NOT EFFECTING TDS AND THEREFORE PENALTY U/S.271C DOES NOT ARISE. ITA NO.1078/PUN/2015 EATON TECHNOLOGIES LTD., 4 9. REFERRING TO THE LD. DRS ARGUMENT THAT REVOLVES AROU ND THE JUDGMENT OF HONBLE AP HIGH COURT IN THE CASE OF TRANSMIS SION CORPORATION OF AP LTD. VS. CIT 152 ITR 753. LD. AR FOR TH E ASSESSEE MENTIONED THAT APPROACHING THE AO FOR SHORT OR NON DED UCTION IN RESPECT OF ANY PAYMENTS MADE TO THE NON-RESIDENTS, WHEN THE ISS UE IS DEBATABLE AND WHEN TWO VIEWS ARE POSSIBLE, THE PENALTY DOES NOT AR ISE AND THE REQUIREMENT OF GOING TO THE AO HAS NO EFFECT ON THE SAID LEGAL PRINCIPLE. FURTHER, HE RELIED ON THE JUDGMENT OF APEX COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE PRIVATE LIMITED VS. CIT 327 ITR 456 WH ERE IT IS HELD THAT THERE IS NO REQUIREMENT TO MAKE TDS FROM ANY PAYM ENTS MADE TO THE NON-RESIDENTS IN CASE SUCH PAYMENT IS NOT TAXABLE IN IND IA. THE APEX COURT HAS CONSIDERED THE ABOVE REFERRED JUDGMENT OF HO NBLE AP HIGH COURT IN THE CASE OF TRANSMISSION CORPORATION OF AP LTD. V S. CIT (SUPRA) AND EXPLAINED THE INTENT OF THE JUDGMENT. FURTHER, HE G AVE A WRITTEN SUBMISSION FOR DELETION OF THE PENALTY ON THE LEGAL ISSUE AND THE SAME IS EXTRACTED AS UNDER : IN VIEW OF THE ABOVE, IT IS RESPECTFULLY SUBMITTED THAT THE ASSESSEE WAS NOT LIABLE TO PENALTY ON ACCOUNT OF NON-DEDUCTION OF TA XES FROM PAYMENTS MADE TO EATON UK FOR ORACLE SOFTWARE AND ITS IMPLEMENTAT ION FOR THE REASONS (A) THERE WAS EXISTENCE OF REASONABLE CAUSE AND BONAFID E BELIEF, THAT NO TAXES ARE REQUIRED TO BE DEDUCTED AND LAW WAS FAIRLY CLEA R ON THIS ASPECT AND (B) THE HON'BLE TRIBUNAL IN ASSESSEE'S OWN CASE HAS REM ANDED THE MATTER BACK TO THE CIT(A) FOR DE NOVO ADJUDICATION. RELIANCE IN THIS REGARD WAS ALSO PLACED ON THE DECISION OF THE HON'BLE PUNE BENCHES IN THE CASE OF ADDL. DIT VS AMDOCS DEVELOPMENT CENTRE INDIA PVT LTD: ITA NOS . 1679 TO 1681/PUN/2014 FOR AYS 2008-09 TO 2010-11, WHICH ON ALL FOURS IN APPLICABLE TO ASSESSEE'S CASE AND WHEREIN UNDER SIM ILAR FACTS, THE PENALTY UNDER SECTION 271C DELETED BY THE CIT(A) WAS UPHELD BY THE HON'BLE BENCH. 10. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED THE VIEW POINTS OF THE PARTIES AS WELL AS THE ORDERS OF THE REVENUE. FROM THE ABOVE CITED DECISIONS AND THE SUBMISSIONS OF THE LD. AR FOR THE ASSES SEE, IT IS EVIDENT THAT THE REQUIREMENT OF MAKING TDS OUT OF THE PAYMENTS MADE BY THE ASSESSEE TOWARDS PURCHASE OF SOFTWARE AND ITS IMPLEMENTA TION CHARGES ARE ITA NO.1078/PUN/2015 EATON TECHNOLOGIES LTD., 5 NOT ATTRACTED BY THE PROVISIONS OF SECTION 195 IN VIEW OF VARIOUS JUDGMENTS OF HIGH COURTS. THERE ARE ALSO DECISIONS AGAINST THE ASSE SSEE. THEREFORE, THE DISPUTE IS EVIDENT. THE DATES MENTIONED ABOVE INDICA TE THE EXISTENCE OF DEBATE AT THE RELEVANT POINT OF TIME. THEREFORE, WITHOU T GOING INTO THE MERITS OF THE PENALTY, WE ARE OF THE OPINION THAT THE PRELIM INARY OBJECTIONS RAISED BY THE ASSESSEE THAT REVOLVES AROUND UNSUSTAINABILITY OF THE PENALTY ON THE INCOME RELATING TO THE DISPUTES, ARE REQUIRED TO BE ALLOWED IN FAV OUR OF THE ASSESSEE. FOR THIS REASON, THE DISCUSSION GIVEN BY THE CIT(A) IN PARA NO.2.9 IS RELEVANT. THEREFORE, THE SAME IS EXTRACTED HERE AS UN DER: 2.9 I DO NOT AGREE WITH THE LEARNED AO THAT THIS I S FIT CASE FOR LEVYING PENALTY U/S.271C. THE APPELLANT HAS STATED THAT TH ERE ARE NUMBER OF DECISIONS FAVOURING ASSESSEE. OUT OF WHICH, SOME O F THE DECISIONS WERE RENDERED BEFORE THE AY UNDER CONSIDERATION. THE LE ARNED AO HAS STATED THAT THE APPELLANT WAS WELL AWARE OF THE DEPARTMENT S CONSISTENT POSITION ON THIS ISSUE. I AGREE WITH THE LEARNED AO HERE HO WEVER, THIS FACT DOES NOT MAKE THIS ISSUE OF UNDISPUTED IN NATURE. SECONDLY, THE ARGUMENT OF THE DEBATABLE NATURE OF TAXABILITY IS NOT TO BE TAKEN I N A MANNER SO AS TO CONCLUDE THAT THE APPELLANT WAS DOUBTFUL AS TO WHET HER THE PAYMENT IS TAXABLE OR NOT. WHAT THE APPELLANT HAS ARGUED IS T HAT THOUGH IT WAS OF THE VIEW THAT THE PAYMENT IS NOT TAXABLE, WHEREAS MANY OTHERS WERE OF THE VIEW THAT THE PAYMENT IS TABLE AND HENCE, PENALTY C ANNOT BE LEVIED ON AN ISSUE ON WHICH, THERE IS NO UNANIMITY IN INTERPRETAT ION OF LAW. AS ON TODAY, THERE ARE DECISIONS IN FAVOUR OF THE APPELLANT AS W ELL AS AGAINST THE ASSESSEE, WHICH IS INDICATIVE OF THE FACT THAT THE ISSUE IS DISPUTED AND ALSO OF THE FACT THAT APPELLANT MAY HAVE BONAFIDE BELIEF THAT SUCH PAYMENT IS NOT TAXABLE. ACCORDING TO ME, BONAFIDE BELIEF OF NON-T AXABILITY OF THE PAYMENTS BASED ON THE FAVOURABLE COURT DECISIONS WOULD CONST ITUTE A REASONABLE CAUSE U/S.273B. ON THE OTHER HAND, THE LEARNED AO S ARGUMENT AMOUNTS TO STATING THAT ASSESSEES HAVE TO ACCEPT DEPARTMENT AL VIEW AND THEY ARE NOT ENTITLED TO THEIR VIEW. IN MY VIEW, THE LEARNE D AOS SUCH POSITION IS NOT JUSTIFIED. 11. IN THE CASE OF CIT VS. MANZOOR AHMAD WALVIR 400 IT R 89 (J&K) AND FIND IT RELEVANT FOR THE PROPOSITION THAT THE PENALTY CANNO T BE SUSTAINED WHEN THERE IS EXISTENCE OF DISPUTE ON THE ISSUE AT THE R ELEVANT POINT OF TIME. WE PROCEED TO EXTRACT THE HELD PORTION FOR THE SAID JUDGMENT AND THE SAME READS AS UNDER : HELD : DISMISSING THE APPEAL, THAT THERE HAD BEEN DISALLOWANCE BY INTERPRETING THE WORD PAYABLE IN SECTION 40(A)(IA ) TO INCLUDE PAYMENTS MADE DURING THE YEAR. SOME HIGH COURTS HAD TAKEN T HE VIEW THAT THE EXPRESSION PAYABLE DID NOT INCLUDE AMOUNTS PAID, WHILE OTHERS HAD TAKEN THE VIEW THAT THE EXPRESSION PAYABLE INCLUDED AMO UNTS PAID DURING THE YEAR. THE SUPREME COURT FINALLY RESOLVED THE CONTR OVERSY IN PALAM GAS ITA NO.1078/PUN/2015 EATON TECHNOLOGIES LTD., 6 SERVICE V. CIT (2017) 394 ITR 300 (SC) HOLDING THAT THE EXPRESSION PAYABLE INCLUDED NOT ONLY AMOUNTS WHICH REMAINED PAYABLE AT THE END OF THE YEAR, BUT ALSO AMOUNTS PAID DURING THE YEAR. WHEN THE AS SESSEE MADE THE CLAIM, THIS ISSUE WAS DEBATABLE AND, THEREFORE, IN SO FAR AS THE DEDUCTION OF TAX AT SOURCE ON AMOUNTS PAID WAS CONCERNED, THE POSITION WAS THAT, WHILE IT COULD BE MADE THE SUBJECT OF DISALLOWANCE, IT COULD NOT F ORM THE BASIS FOR IMPOSING A PENALTY. THE DELETION OF PENALTY BY THE TRIBUNAL WAS JUSTIFIED. 12. FROM THE ABOVE, WE FIND IT IS A CASE WHERE EVENTUA LLY THE J&K HIGH COURT RESOLVED THE CONTROVERSY. EVEN THEN THE EXISTEN CE OF DISPUTE AT THE TIME OF PAYMENT TO THE NON-RESIDENTS IS FOUND RELEVANT FOR DISMISSAL OF PENALTY. IN THIS REGARD, WE ALSO PERUSED THE WRITTEN SUB MISSIONS MADE BY THE LD. AR FOR THE ASSESSEE. 13. CONSEQUENTLY, THE CONCLUSION DRAWN BY THE CIT(A) IN OU R VIEW IS REASONABLE AND THE SAME DOES NOT CALL FOR ANY INTERFEREN CE. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 14. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF JANUARY, 2018. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 12 TH JANUARY, 2018 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// //TRUE COPY// SENIOR PRI VATE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A)-13, PUNE 4. CIT-13, PUNE 5. , , B BENCH PUNE; 6. / GUARD FILE.