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IN THE HIGH COURT OF KERALA AT ERNAKULAM
P.R. Ramachandra Menon, Anil K. Narendran, Devan Ramachandran, JJ.
Lakshadweep Development Corporation Ltd. – Appellant
Versus
Additional Commissioner of Income Tax (TDS), Kochi – Respondent
ITA Nos. 36, 37 of 2016
Decided On : 19-12-2018
Facts of the case
Whether Clause (b) of Sub-Section (1) of Section 271C of the Income Tax Act, stipulating penalty of an equal amount of tax on the failure of the person concerned to deduct or pay the tax, would take in the situation under Clause (a) of sub-section (1) of Section 271C as well; or in other words; are not the above two provisions, clauses (a) and (b), operating in two different spheres, independent of each other, to attract penalty on establishing the specified event? One step further; does the lapse to deduct the whole or any part of the tax [as required by or under the provisions of Chapter XVIIB of the Act] stipulated under Sec. 271C(1)(a) will result in any automatic imposition of penalty, even denying the eligibility to claim the benefit of Section 273B of the Act, as held by a Division Bench of this Court in U.S. Technologies International Pvt. Ltd. vs. Commissioner of Income Tax, 2010 KHC 6118 : 2010 (1) KLT 66? Does the law declared by the Division Bench in U.S. Technologies case(cited supra) and the one in Classic Concepts Home India Pvt. Ltd. vs. Commissioner of Income Tax, (2016) 383 ITR 626 (Ker.) reflect the correct position of law? These are the points to be clarified by this Court in the appeals preferred by the assessee, raising substantial questions of law under Section 260A of the Act.
Finding of the courts
" Section 271C(1)(b) will take in Section 271C(1)(a) as well, to attract penalty for non-payment of the tax deducted at source, does not reflect the correct provision of law-Overruled.
" The finding and reasoning in U.S. Technologies International Pvt. Ltd vs. Commissioner of Income Tax, 2010 KHC 6118 and Classic Concepts Home India Pvt. Ltd. vs. Commissioner of Income Tax, (2016) 383 ITR 626 (Ker.) that the benefit of waiver/reduction of penalty [once good and sufficient reason is established in terms of Section 273B of the Income Tax Act] is not attracted in a case covered Section 271C(1)(b) (involving failure as to non-deposit of the tax deducted at source) is not correct-It also stands overruled.
" Non-remittance of tax deducted at source as in the instant case (which comes under Section 194C of Chapter XVIIB of the Act) is not covered by Section 271C(1)(b) of the Act to attract penalty, nothing remains to be considered further, either by the Tribunal or by this Court since the verdict passed by the departmental authorities and the Tribunal (copies of which have been produced as Annexures A, B and C) stand contrary to the declaration as above.
Result : Allowed
P.R. Ramachandra Menon, J.
1. The pertinent question sought to be answered as per the Reference Order dated 06.12.2017 passed by a Division Bench of this Court is whether Clause (b) of Sub-Section (1) of Section 271C of the Income Tax Act (hereinafter referred to as the Act), stipulating penalty of an equal amount of tax on the failure of the person concerned to deduct or pay the tax, would take in the situation under Clause (a) of sub-section (1) of Section 271C as well; or in other words; are not the above two provisions, clauses (a) and (b), operating in two different spheres, independent of each other, to attract penalty on establishing the specified event? One step further; does the lapse to deduct the whole or any part of the tax [as required by or under the provisions of Chapter XVIIB of the Act] stipulated under Sec. 271C(1)(a) will result in any automatic imposition of penalty, even denying the eligibility to claim the benefit of Section 273B of the Act, as held by a Division Bench of this Court in U.S. Technologies International Pvt. Ltd. vs. Commissioner of Income Tax, 2010 KHC 6118 : 2010 (1) KLT 66? Does the law declared by the Division Bench in U.S. Technologies case(cited supra) and the one in Classic Concepts Home India Pvt. Ltd. vs. Commissioner of Income Tax, (2016) 383 ITR 626 (Ker.) reflect the correct position of law? These are the points to be clarified by this Court in the appeals preferred by the assessee, raising substantial questions of law under Section 260A of the Act.
2. As observed by the Bench in the Reference Order, there may not be much scope for discussion on facts. However, to have an exhaustive analysis, it will be worthwhile to note down the 'gist' of the factual matrix as well.
3. The orders under challenge in the above two appeals are those passed by the assessing authority, first appellate authority and also by the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') in the further appeals filed by the assessee; copies of which have been produced as Annexures A, B and C respectively. The issue projected in both the appeals, the finding and reasoning given by the authorities/Tribunal concerned and the nature of challenge raised by the assessee are exactly similar. The difference is only with regard to the assessment year in question.
4. There occurred some delay in paying the tax deducted at source from the bills of the contractors. In the first case, i.e. I.T.A. 36 of 2016, the maximum delay was upto 39 days, whereas in the second case, i.e. ITA No. 37 of 2016, it was upto 32 days. On coming across the lapse on the part of the assessee, notice was issued under Section 274 of the I.T. Act r/w. Section 271C, proposing to impose penalty by the Addl. Commissioner of Income Tax (TDS) Cochin. According to the assessee/appellant, it was only a short delay, because of administrative exigencies and shortage of staff. The situation arose when certain invoices/bills of contract works corresponding to the financial year in question were received after that financial year. It was asserted that the TDS was recovered at the time of effecting payment to such contractor. But there occurred an inadvertent omission in remitting the same to the Government, which however was cleared with interest payable under Section 201(1A) of the Act.
5. On receipt of the notice, though the position was sought to be explained, it was not properly appreciated by the authority concerned. The appellant/assessee is a 100% Government of India undertaking, incorporated under the Companies Act, 1956. Its operation is mainly for the general welfare of the people of the Lakshadweep Islands (who are Scheduled Tribes, as per the Presidential order issued in this regard) and they run as many as 6 factories in the Lakshadweep Islands; besides the management and operation of 30 vessels owned by the Union Territory of Lakshadweep. The task as above is undertaken through contractors, who are being paid according
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