M/s LIC of India Staff Co-operative Bank Ltd, Trivandrum V. Additional Commissioner of Income Tax, Trivandrum

ITA 64/COCH/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 7612 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2010
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 09-02-2009
• Court: TRIBUNAL
• Department Lawyers: T J VINCENT
• Assessee Lawyers: VASUDEV RAJKUMAR N
• Keywords: Reasonable cause; Ignorance of law
• Section: 273B; 133A; 201(1)

Judgement Text

IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BEN CH, COCHIN BEFORE S/SHRI N.VIJAYAKUMARAN, JM AND SANJAY AR ORA, AM I.T.A. 64/COCH/2009 ASSESSMENT YEAR : 2005-06 LIC OF INDIA STAFF CO-OPERATIVE BANK LTD., JEEVAN PRAKASH, PATTOM, TRIVANDRUM. [PAN: VS. ADDL. COMMISSIONER OF INCOME- TAX, TRIVANDRUM. (ASSESSEE -APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI VASUDEV RAJKUMAR N., AR REVENUE BY SHRI T.J. VINCENT, DR O R D E R PER SANJAY ARORA, AM: THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-III, KOCHI (CIT(A) FOR SHORT ) DATED 24.11.2008, AND THE ASSESSMENT YEAR (A.Y. ) UNDER REFERENCE IS 2005-06. 2. THE ONLY ISSUE ARISING IN THE PRESENT APPEAL IS THE MAINTAINABILITY IN LAW OF THE PENALTY LEVIED IN THE SUM OF RS. 4,47,476/- U/S. 27 1C OF THE INCOME-TAX ACT, 1961 ('THE ACT' HEREINAFTER). 3. THE ASSESSEE IS A COOPERATIVE SOCIETY ENGAGE D IN NON-BANKING ACTIVITY, REGISTERED WITH THE REGISTRAR OF CO-OPERATIVE SOCIETIES AS A S ALARY EARNERS SOCIETY. ALL THE EMPLOYEES OF THE LIC OF INDIA (`LIC OR `CORPORATIO N FOR SHORT) ARE DEEMED AS IT MEMBERS. AS PER ITS BYE-LAWS, AS AMENDED IN 1983, T HE SAID MEMBERSHIP CEASES ONCE SUCH AN EMPLOYEE EITHER LEAVES OR RETIRES FROM SERV ICE OF THE CORPORATION. THE ASSESSEE ACCEPTS DEPOSITS FROM ITS MEMBERS AS WELL AS FROM T HE PUBLIC. DURING THE RELEVANT FINANCIAL YEAR, IT PAID INTEREST ON FIXED DEPOSITS AND CASH CERTIFICATE DEPOSITS AT RS. 624.13 LAKHS AND RS. 1251.37 LAKHS RESPECTIVELY. IT WAS F OUND, AS A RESULT OF A SURVEY U/S. 133A ITA NO. 64/COCH./2009 2 OF THE ACT AT ITS BUSINESS PREMISES ON 2.12.2005, T HAT THE ASSESSEE HAD DEFAULTED IN DEDUCTING TAX AT SOURCE UNDER SECTION 194A INASMUCH AS IT HAD FAILED TO DEDUCT TAX AT SOURCE IN RESPECT OF INTEREST PAID TO THE EX-EMPLOY EES OF LIC, WHO WERE, THUS, NO LONGER THE MEMBERS OF THE ASSESSEE-SOCIETY. THE DETAILS OF SUCH PAYMENTS FURNISHED BY THE ASSESSEE ARE AS UNDER: (AMOU NT IN RS.) PARTICUALRS INTE REST TDS ON FD 15,94,709/- 1,62,660/- ON C.D. CERTIFICATES 27, 92,305/- 2,84,816/- 43,87,014/- 4,47, 476/- AN ORDER U/S. 201(1) OF THE ACT STOOD PASSED ON 28 .11.2006 RAISING A DEMAND FOR RS. 4,47,476/- FOR WHICH THE ASSESSEE WAS IN DEFAUL T, AND WHICH STOOD PAID ON 30.12.2006. A FURTHER DEMAND TOWARD INTEREST U/S. 201(1A) WAS A LSO RAISED AT RS. 1,01,373/-, AND WHICH STOOD ALSO DISCHARGED. PENALTY PROCEEDINGS U/ S. 271C OF THE ACT, FOR FAILURE OF DEDUCTION OF TAX AT SOURCE AS PER THE PROVISIONS OF SECTION 194A, STOOD INITIATED IN VIEW OF THE ADMITTED DEFAULT, AND THE IMPUGNED PENALTY LEVI ED IN TERMS THEREOF VIDE ORDER DATED 5.7.2007. THE SAME STOOD CONFIRMED IN FIRST APPEAL , WITH THE LD. CIT(A) CONCURRING WITH THE AO THAT IGNORANCE OF LAW IS NEITHER AN EXCUSE N OR STANDS PROVED; RATHER, STANDS NEGATED IN VIEW OF THE FILING OF THE ANNUAL RETURN OF TDS U/S. 206 BY THE ASSESSEE; NON- DEDUCTION BY IT OF TDS WHERE THE INTEREST AMOUNT F ELL BELOW RS. 5000/-, I.E., THE THRESHOLD LIMIT FOR THE APPLICATION OF THE TDS PROV ISION, ETC., SO THAT IT WAS ONLY AWARE OF THE PROVISIONS OF LAW. FURTHER, THE FIRST APPELLATE AUTHORITY RELIED ON THE DECISION BY THE HONBLE APEX COURT IN THE CASE OF UNION OF INDIA & ORS. VS. DHARMENDRA TEXTILE PROCESSORS & ORS . (2008) 306 ITR 277 (SC) TO EMPHASIZE THE FACT TH AT THE PENALTY UNDER THE ACT IS A CIVIL LIABILITY, AND WILFUL CONCEALMEN T OR WILFUL DEFAULT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING THE SAME. 4.1 BEFORE US, THE LD. AR URGED THAT THE ASSESSEE W AS NOT AWARE OF THE PROVISIONS OF LAW. ON REALIZING ITS FOLLY IN CONSIDERING THE EX-E MPLOYEES OF LIC AS ALSO ITS MEMBERS, AND NOT DEDUCTING TDS ON INTEREST PAID THERE-TO UND ER THAT IMPRESSION, THE ASSESSEE ITA NO. 64/COCH./2009 3 AMENDED ITS BYE-LAW THROUGH A GENERAL HOUSE MEETING ON 10.2.2006, EMPOWERING ITS BOARD (OF TRUSTEES) TO, AT ITS DISCRETION, ALLOW ME MBERSHIP WITHOUT VOTING RIGHTS TO THE EX-EMPLOYEES OF THE LIC. THE AMENDMENT STANDS ALSO APPROVED BY THE REGISTRAR OF SOCIETIES SUBSEQUENTLY. IN ADDITION, HE RELIED ON T HE CASE LAW PER THE PAPER-BOOK SUBMITTED BY THE ASSESSEE. 4.2 THE LD. DR, ON THE OTHER HAND, RELIED ON THE OR DERS OF THE AUTHORITIES BELOW, STATING THE SAME TO BE ONLY IN APPLICATION OF LAW WHICH HAS TO BE READ AS IT STANDS, BEING AN EDICT OF THE LEGISLATURE, SO THAT NOTHING IS TO BE READ I NTO A PROVISION WHERE IT IS PLAIN AND AMBIGUOUS, AS IN THE PRESENT CASE, EVEN AS HELD BY THE HONBLE APEX COURT IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS & ORS . (SUPRA), REFERENCE TO WHICH STANDS MADE, BY REPRODUCING THE RELEVANT PART THEREOF IN HIS ORDER, BY THE LD. CIT(A). 5. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL ON RECORD, AS WELL AS THE CASE LAW CITED. 5.1 SECTION 271C STATES THAT IF ANY PERSON FAILS TO DEDUCT TAX AT SOURCE, OR AFTER DEDUCTION PAY THE SAME TO THE CREDIT OF THE CENTRAL GOVERNMENT, AS REQUIRED BY AND UNDER THE PROVISIONS OF CHAPTER XVII-B, HE SHALL BE LIABL E TO PAY, BY WAY OF PENALTY, A SUM EQUAL TO THE AMOUNT OF TAX WHICH HE HAS FAILED TO D EDUCT OR PAY, AS THE CASE MAY BE. THERE IS WITHOUT DOUBT NO AMBIGUITY IN THE PROVISIO N. IN FACT, NEITHER HAS IT BEEN SO CONTENDED BY THE ASSESSEE, WHO ADMITS OF ITS DEFAUL T IN NON-DEDUCTING TAX AT SOURCE ON THE INTEREST TO NON-MEMBERS. SECTION 273B STATES THAT N OTWITHSTANDING ANYTHING CONTAINED IN ANY OF THE PROVISIONS SPECIFIED THEREIN, INCLUDING SECTION 271C, NO PENALTY SHALL BE IMPOSABLE FOR THE FAILURE REFERRED TO IN THE SAID P ROVISIONS, IF HE PROVES THAT THERE WAS A REASONABLE CAUSE FOR THE SAID FAILURE. AS SUCH, WHA T ALL IS REQUIRED TO BE EXAMINED IN THE PRESENT CASE IS WHETHER THE ASSESSEE HAS BEEN ABLE TO MAKE OUT A CASE U/S. 273B. IN THIS REGARD IT PLEADS IGNORANCE OF LAW, PLACING RELIANCE ON THE DECISION IN THE CASE OF MOTILAL PADAMPAT SUGAR MILLS VS. STATE OF U.P. (1979) 118 ITR 326, 339 (SC), WHEREIN IT STANDS HELD THAT THERE IS NO MAXIM KNOWN TO LAW THAT EVERY ONE KNOWS THE LAW, AND THAT THERE CAN BE NO PRESUMPTION IN THIS RESPECT. WITH REGARD TO THIS, WE WOULD LIKE TO EMPHASIZE THAT ITA NO. 64/COCH./2009 4 THOUGH WITHOUT DOUBT EVERYONE CANNOT BE PRESUMED TO KNOW THE LAW, THE PLEA OF IGNORANCE OF LAW CANNOT BE ACCEPTED IN EXPLANATION OF THE DEFAULT, SAVING PENALTY FOR AN ADMITTED DEFAULT, UNTIL AND UNLESS, FIRSTLY, THE SA ME IS DEMONSTRATED AS A FACT IN SOME MANNER AND, SECONDLY, THE SAME CONSTITUTES A GOOD A ND SUFFICIENT REASON FOR THE NON- COMPLIANCE. THIS IS AS OTHERWISE IT WOULD LEAVE THE GATE WIDE OPEN FOR ANYONE TO PLEAD SO WHERE FOUND TO BE IN DEFAULT, DEFEATING THE LAW. 5.2 IN THE PRESENT CASE, HOWEVER, WHAT THE AS SESSEE ACTUALLY MEANS WHEN IT RAISES THE PLEA OF IGNORANCE OF LAW, IS OF IT BEING UNAWARE OF THE FACT THAT THE EMPLOYEES WHO HAD SINCE RETIRED OR OTHERWISE LEFT THE SERVICE OF THE LIC, ARE, IN VIEW OF THE AMENDED BYE- LAW, NO LONGER ITS MEMBERS, SO THAT THE SAVING CLAU SE OF SECTION 194A(3)(V), EXCEPTING THE DEDUCTION OF TAX ON THE INTEREST CREDITED/PAID BY T HE ASSESSEE-SOCIETY TO ITS MEMBERS OR TO ANY OTHER CO-OPERATIVE SOCIETY, WOULD NOT BE APPLIC ABLE IN RESPECT THEREOF. AMUSING AS IT MAY SOUND, YET THE SAME IS QUITE PROBABLE AND, BESI DES, IS A MATTER OF FACT, THE ONUS TO DEMONSTRATE WHICH, WITH DIRECT OR CIRCUMSTANTIAL EV IDENCE/S, IN ESTABLISHING ITS CASE U/S. 273B, IS ON THE ASSESSEE. BOTH THE ASSESSEE AND TH E REVENUE HAVE FALTERED IN ASSUMING THE ASSESSEES SAID CONTENTION, STATED OR RAISED RI GHT FROM THE BEGINING ( ALSO REFER ITS GROUND NO. 3 AND GROUND NO. 4 BEFORE THE FIRST APPE LLATE AUTHORITY ) AS BEING ONE FOR AND TOWARD IGNORANCE OF LAW, WHICH CERTAINLY IS NOT THE CASE; THE ASSESSEE, IN FACT, NOT DEDUCTING TDS ON ALMOST THE ENTIRE AMOUNT OF INTERE ST PAID BY IT ONLY IN VIEW OF SECTION 194A(3)(V), SO THAT IT WAS ONLY BUT AWARE OF THE RE LEVANT LAW. IN DOING SO, THE EXISTENCE OR OTHERWISE OF A REASONABLE CAUSE, WHICH IS ALWAYS A QUESTION OR MATTER OF FACT, REMAINED TO BE EXAMINED BY THE REVENUE, AND THE ISSUE STOOD DECIDED BY IT ON IRRELEVANT GROUNDS, I.E., EXTRANEOUS TO S. 273B. 5.3 COMING TO THE ASSESSEES CASE, IT WAS ENQUIRED BY THE BENCH DURING THE HEARING OF THE LD. AR IF THE ASSESSEE HAD IN ITS RECORDS (I.E. , FOR AND UP TO THE RELEVANT YEAR), DEMARCATED THE IMPUGNED INTEREST, I.E., ON WHICH IT HAD FAILED TO DEDUCT TDS, AS BEING PAID TO ITS NON-MEMBERS, AND TO WHICH HE REPLIED IN THE NEGATIVE. THIS IS SIGNIFICANT, AS IF THE ASSESSEES BOOKS OR RECORDS CLASSIFY THE SAID P AYMENT AS BEING TO ITS NON-MEMBERS, OR IN SOME MANNER PROVIDE FOR TAKING ON RECORD INFORMA TION (AS BY WAY OF A DECLARATION AS AT ITA NO. 64/COCH./2009 5 THE END OF EACH YEAR FROM EACH DEPOSITOR TO THE EFF ECT THAT HE CONTINUES TO BE EMPLOYED WITH LIC, ETC.), TOWARD ENSURING THAT THERE IS NO C HANGE IN THE MEMBERSHIP STATUS OF A MEMBER DURING THE YEAR, MAKING APPROPRIATE AND CORR ESPONDING CHANGES/NOTINGS IN CASE IT IS SO, THE ASSESSEE CANNOT CLAIM OF BEING UNAWAR E OF SOME DEPOSITORS BEING NO LONGER ITS MEMBERS, SO THAT THE TDS PROVISION BECAME APPLI CABLE TO IT IN THEIR RESPECT. AN ALLIED QUESTION OR FACT (WHICH WOULD ALSO REQUIRE BEING LO OKED INTO), THAT WOULD ARISE IN SUCH A CASE IS THAT THERE WOULD BE SIMILAR DEFAULTS IN THE EARLIER YEARS AS WELL; THE ASSESSEE HAVING NOT ADOPTED ANY MECHANISM TO BRING OR TAKE O N RECORD THE CHANGE/S IN THE MEMBERSHIP STATUS OF ITS MEMBERS ON ACCOUNT OF A CO RRESPONDING CHANGE IN THE EMPLOYMENT STATUS OR OTHERWISE, EVEN AS THE SAME WO ULD ONLY, IF SO, TOWARD ESTABLISHING ITS CASE OF IT BEING A CASE OF A GENUINE AND BONA FIDE MISTAKE. THIS IS PRECISELY WHAT THE REVENUE WAS REQUIRED TO EXAMINE AND VERIFY IN VETTI NG THE ASSESSEES CONTENTIONS, WHILE WE FIND THAT IT HAS ALSO NOT EXAMINED IF THE INTERE ST UNDER REFERENCE WAS IN FACT PAID ONLY TO PERSONS WHO WERE, AS STATED, EX-EMPLOYEES OF LIC , SO THAT THE LAPSE OF THEIR MEMBERSHIP WAS ONLY ON ACCOUNT OF THEIR BEING NO LO NGER IN THE EMPLOYMENT OF LIC. SUCH VERIFICATION WOULD PROVE THE ASSESSEES CREDEN TIALS WERE ITS CLAIMS TO BE FOUND CORRECT. TRUE, ONE OMISSION CANNOT BE JUSTIFIED IN TERMS OF, I.E., FORM A JUSTIFICATION FOR, ANOTHER OMISSION, BUT THE PERTINENT QUESTION TO BE CONSIDERED HERE IS WHETHER THE SAME IS BONA FIDE OR NOT. THE DEFAULT UNDER CHAPTER XVII-B OF THE AC T IS ONLY INCIDENTAL. THE REVENUE HAS ALSO NOT BROUGHT ANY MATERIAL ON RECORD TO REBUT THE ASSESSEES CLAIMS; RATHER, HAS FAILED TO VERIFY THEM, SO THAT THE SAME HAVE TO BE TAKEN AS CORRECT. SO HOWEVER, WE ARE IN AGREEMENT WITH THE REVENUE THAT THE FACT THAT THE ASSESSEE DEPOSITED TAX SUBSEQUENTLY, ALONG WITH THE MANDATORY INTEREST U/S . 201(1A), IS NO GROUND FOR NOT IMPOSING THE IMPUGNED PENALTY. THIS, AS THE SAME IS , BY ITSELF, A NEUTRAL FACT, AND CANNOT FORM PART OF A REASONABLE CAUSE OR GROUND FOR NON-I MPOSITION OF PENALTY. THE REVENUE, WE OBSERVE, HAS ALSO STATED THAT THE ASSESSEE IS NO T A PRIMARY CREDIT SOCIETY BUT ONLY A SALARY EARNERS SOCIETY. TRUE, BUT WE ARE UNABLE TO UNDERSTAND THE IMPORT OF THIS OBSERVATION IN RELATION TO THE EXEMPTION U/S. 194A (3)(V) OF THE ACT, WHERE-UNDER THE DEFAULT IN THE INSTANT CASE HAS TAKEN PLACE. CONTIN UING FURTHER, WE OBSERVE THAT THE INTEREST UNDER REFERENCE FORMS A NEGLIGIBLE FRACTION OF THE TOTAL INTEREST PAID, WHICH LENDS CREDENCE TO THE APPELLANTS ASSERTION OF THE OMISSION BEING BONA FIDE , CAUSED BY A GENUINE ITA NO. 64/COCH./2009 6 IMPRESSION THAT NO TAX WAS IN FACT DEDUCTIBLE. THE FACT THAT THE ASSESSEE COULD HAVE, AS IT SUBSEQUENTLY HAS, MOVED IN THE MATTER BY TAKING APP ROPRIATE STEPS, AS BY WAY OF AN AMENDMENT IN ITS BYE-LAWS, ALSO EXHIBITS THE IMPUGN ED DEFAULT TO BE A RESULT OF A GENUINE MISTAKE. THIS IS SO AS, IF AWARE, IT COULD HAVE EAS ILY TAKEN OR ADOPTED SUCH A MEASURE EARLIER, OR IN THE ABSENCE OF AVAILABILITY OF SUCH A RECOURSE, DEDUCTED TAX AT SOURCE. 5.4 UNDER THE CIRCUMSTANCES, WE ARE OF THE CONSIDER ED VIEW THAT THE DEFAULT IN THE INSTANT CASE STOOD CAUSED BY A GENUINE MISTAKE, AND THERE WAS, AS SUCH, A REASONABLE CAUSE FOR THE IMPUGNED DEFAULT BY THE ASSESSEE. THA T A BONA FIDE BELIEF SAVES PENALTY IS TRITE LAW. WITH REGARD TO THE CASE LAW RELIED UPON BY THE ASSESSEE, SUFFICE TO ADD THAT, AS AFORESAID, THE EXISTENCE OR OTHERWISE OF A REASONAB LE CAUSE, IS A QUESTION OF FACT AND, THUS, THE SUBJECT MATTER OF ADJUDICATION ON MERITS IN THE PRESENT CASE RESTS ON A FINDING OF FACT; THE LAW BEING WELL-SETTLED. THE CASE LAW PRESSED IN TO SERVICE ARE, THUS, OF LIMITED VALUE, APART FROM EXPLAINING AND STATING THE LAW IN THE MA TTER, AS IN THE CASE OF CIT VS. ELI LILLY & COMPANY (INDIA) PVT. LTD . (2009) 312 ITR 225 (SC), WHICH, TO THE EXTENT REL EVANT ( SCOPE OF SECTION 271C READ WITH SECTION 273B PGS. 251 & 252 ), ONLY ENDORSES WHAT HAS BEEN STATED IN ITS RESPECT IN THIS ORDER, SO TH AT THE SAME STANDS FORTIFIED. WE DECIDE ACCORDINGLY, AND THE ASSESSEE SUCCEEDS ON ITS GROUN D NO. 3. 6. WITH REGARD TO THE ASSESSEES GROUND NO. 2, WHER EBY IT IMPUGNS THE RELIANCE BY THE LD. CIT(A) ON THE DECISION IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS (SUPRA), IN OUR VIEW THE SAME DOES NOT GIVE RISE TO ANY INDEPEN DENT ISSUE FOR ADJUDICATION, BUT IS ONLY SUPPORTIVE OF ITS CASE ON THE PRINCIPAL ISSUE OF THE EXISTENCE OF A REASONABLE CAUSE FOR THE ADMITTED DEFAULT U/S. 194A. AS SUCH, THE SAID GROUND WARRANTS NO ADJUDICATION. 7. COMING TO ITS GROUND NO. 1, PER THE SAME THE ASS ESSEE CONTENDS OF THE IMPUGNED PENALTY AS BEING TIME BARRED. THE SAME STOOD NOT AR GUED BY THE LD. AR DURING THE HEARING, THOUGH STANDS URGED IN THE WRITTEN NOTES F ILED BY HIM DURING THE HEARING. THE SAID GROUND IS RENDERED ACADEMIC IN VIEW OF OUR DEC ISION ON THE MERITS OF THE CASE IN ASSESSEESS FAVOUR. WE, THEREFORE, ARE NOT INCLINED TO ADJUDICATE THE SAME. ITA NO. 64/COCH./2009 7 8. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED ON MERITS. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 09TH SEPTEMBER, 2010 GJ COPY TO: 1. LIC OF INDIA STAFF CO-OPERATIVE BANK LTD., JEEVA N PRAKASH, PATTOM, TRIVANDRUM. 2. THE ADDL. COMMISSIONER OF INCOME-TAX, TRIVANDRUM . 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-III, KO CHI. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R./I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRA R)