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| DATE: | (Date of pronouncement) |
| DATE: | April 13, 2011 (Date of publication) |
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| Click here to download the judgement (cadbury_penalty_271C_tds.pdf) |
No penalty for TDS breach if no “mala fide intention” or “deliberate defiance” of law
The assessee engaged Clearing & Forwarding Agents and paid rent for use of space in the warehouse. It deducted tax at source u/s 194C though tax ought to have been deducted u/s 194-I. It did not deduct TDS on payments made to the manpower supplying agencies for supply of pilots though it was liable to do so u/s 194J. The AO passed an order u/s 201 holding the assessee liable to deduct TDS u/s 194-I and 194-J and also levied penalty u/s 271C. In the s. 201 proceedings, the assessee accepted that it was liable to deduct tax u/s 194-I and 194J though it disputed the levy of penalty u/s 271C on the ground that the failure was due to “misconceived professional advice”. The CIT (A) rejected the plea though the Tribunal accepted it. On appeal by the department, HELD dismissing the appeal:
(i) The fact that the assessee has not disputed the quantum is not a good ground for imposition of penalty since the findings in the assessment proceedings are not conclusive. This is not a good ground for levy of penalty unless and until material is brought on record by the Revenue to the effect that the assessee deliberately defied the provision of the law (Anwar Ali 76 ITR 696 (SC) referred);
(ii) Levy of penalty u/s 271C is not automatic. Before levying penalty, the AO is required to determine whether the failure was without reasonable cause. “Reasonable cause” means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead any ordinary prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that same was the right thing to do (Woodward Governor India 253 ITR 745 (Del) followed);
(iii) On facts, there is no reason to disbelieve the assessee that the deduction u/s 194C was being done on the misconceived professional advice given by the CAs. Since the payment were to be deducted from CFA no benefit was to be derived by the assessee for making lesser or inaccurate deductions. No malafide intention of any kind can be attributed to the assessee for deducting tax under one provision of law than the other. This was neither the case of malafide intention nor that of negligent intention or want of bonafide, but a case of misconceived belief of applicability of one provision of law. It cannot be said judiciously that the assessee failed to comply with s. 194-I & 194-J without reasonable cause.
The grounds of the HC decision, which has gone against the Revenue, is seen to have been summed up as under:
“(iii) On facts, there is NO REASON TO DISBELIEVE the assessee that the deduction u/s 194C was being done on the MISCONCEIVED PROFESSIONAL ADVICE GIVEN BY THE CAs. Since the payment were to be deducted from CFA NO BENEFIT WAS TO BE DERIVED BY THE ASSESSEE for making lesser or inaccurate deductions. No MALAFIDE INTENTION OF ANY KIND CAN BE ATTRIBUTED to the assessee for deducting tax under one provision of law than the other. This was neither the case of malafide intention NOR THAT OF NEGLIGENT INTENTION OR WANT OF BONAFIDE, but a case of MISCONCEIVED BELIEF of applicability of one provision of law. IT CANNOT BE SAID JUDICIOUSLY THAT THE ASSESSEE FAILED TO COMPLY WITH s. 194-I & 194-J WITHOUT REASONABLE CAUSE.”
One’s reasonable guess is that, there is, having special regard to the obvious importance and far reaching consequences, every possibility of the Revenue, being the aggrieved party, agitating the point(s) of dispute in further proceedings before the apex court.
The legal implications of the portions highlighted in BOLD FONT (as supplied for the purpose of this comment) could be expected to be extensively argued, and gone into in-depth, if and when the matter so comes to be so heard.
The decision gives two reasons for its conclusion. (1) Deductor does not get any benefit on account of wrong TDS deduction (2) the act of the assessee was based on a wrong professional advise.
While the first reason does not appear to be the real touchstone (since in almost all TDS situations deductor gets no benefit by a lower deduction – hence in isolation such an argument would render 271C nugatory.
As regards second reasoning – the professional giving an advise contrary to a settled law / expression provision / supreme court decision may be questioned for his professional negligence.
The verdict of the Delhi HC is not readily reconcilable with the view taken by the SC in recent times in leading cases; for knowing more, one may refer to the several articles on the subject in public domain. For instance, the article:
Supreme Court Reaffirms Dharmendra Textiles @ indiacorplaw.blogspot.com.
As regards the assessee’s allegation of “the misconceived professional advice given by the CAs”, so far as is gathered from the text of the court judgment, no direct or categorical evidence seems to have been adduced for proving the said plea. Be that as it may, it calls for no special emphasis that, for obvious reasons, all such instances coming to light from to time requires to be taken a diligent note of; also be followed up by suitable remedial measures / effective timely action, that too suo motu, by the ICAI as the Regulatory Authority having exclusive control over the profession, in its larger interests.
I completely agree with the views expressed by V. Swaminathan on the instant case.