- (1.) The common issue involved in all these appeals by the revenue of 3 different appellants of the same group relates to the imposition of penalties under section 271C of the Income Tax Act for failure to deduct and pay the tax at source as required by the provisions of section 194H of the Income Tax Act. For the sake of convenience, we proceed to decide these appeals by this consolidated order. The common ground, except the quantum of penalty, for all these 3 cases, as taken by the revenue, runs as under : "That the Commissioner (Appeals) erred in law and facts in cancelling the penalty under section 271C of Rs. 9,99,513 in spite of the clear-cut provision as laid down in section 271C that the person failing to deduct the tax as required by section 194H shall be liable for penalty under section 271C. Further the Commissioner (Appeals) order in A. No. 41/TDS/VNS/1992-93 dated 12-3-1993, on similar issue has not been accepted by the department and the matter is still sub judice before the Tribunal."
(2.) We have heard the learned Departmental Representative as well as the assessee's counsel. Before divulging to their respective submissions, we consider it necessary to record the undisputed facts, as borne out from the records before us, which, are, in the following terms : 2.1. As a result of newly inserted provisions of section 194H of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), as a result of Finance Act, 1991, which received the assent of the President of India on 27-9-1991, all these respondents were under an obligation to deduct and pay the tax at source @ 10 per cent from all payments or payables on account of commission after 1-10-1991. 2.2. All these respondents, taking shelter under the provisions of sub-section (2) of section 194H according to which the Central Government has retained the power to exempt any person or class or classes of persons from the applicability of provisions of section 194H(1), moved their respective petitions for exemption to the Central Board of Direct Taxes on 4-11-1991 (copy of the first respondent placed at pp. 5 and 6 of the assessee's paper book), which was decided by the Central Board of Direct Taxes as per its order placed at pp 8 to 11 of the paper-book, only after the directions of the Hon'ble High Court of Allahabad dated 23-7-1992, given in writ petitions filed by these respondents. The order of the Central Board of Direct Taxes dated 30-9-1992, has been claimed by the assessee to have been received in the second week of October, 1992. Respondent-assessees had also requested the Hon'ble Finance Minister, Government of India on 30-3-1992, for disposal of their petition furnished under section 194H(2) of the Act.
(3.) Since the Central Board of Direct Taxes rejected the respondent's petitions for exemptions, these respondents have claimed to have deducted the tax at source on 27-10-1992, and deposited the same into Government Account on 29-10-1992. In the meantime, on 18-8-1992, the Assistant Commissioner (TDS), Varanasi, called upon the respondents to furnish their annual return of commission as required under section 206C of the Act. The first respondent complied with the requirement of the Assistant Commissioner (TDS) by way of letter, dated 5-9-1992 (copy placed at p. 58 of the assessee's paper-book), which reads as under : "The Assistant Commissioner (TDS) Varanasi. Filing of Annual Return under section 206C of the Income Tax Act, 1961, for the financial year 1991-92. Sir, We write with reference to your letter No. TDS/Annual/1991-92 dated 18-8-1992, served on 3-9-1992, we submit as under : (a) Annual return of salary under section 192 has already been submitted to your office on 1-6-1992 June, 1992, photocopy of the acknowledgment No. 36651 is enclosed for your perusal. (b) Annual return of payment of contractors under section 194C has already been submitted to your office on 26-6-1992, photostat copy of acknowledgment No. 37540 is enclosed for your perusal. (c) Annual return of payment of commission of brokerage under section 194H enclosed herewith and request your honour to condone the delay. As regards our remarks is Form No. 26-I we like to add that we are not liable to deduct and pay TDS on commission under section 194H as the matter is being agitated both before the Government of India in the Ministry of Finance as well as before the Hon'ble High Court of Judicature at Allahabad and is still sub judice before both the authorities. The Government having exempted large number of units e.g., tea brokers under Notification 8989, dated 6-2-1994, air travel agents under Notification No.9006 dated 3-3-1992, and commission agents and dealers in food grains trade under Notification No. 9007, dated 3-3-1992, our case stands on a much higher and stronger footing for exemption and we have every reasonable expectation that we shall be granted similar exemption by the Government. Moreover, the exemption is not detrimental to the interest of the revenue . On the contrary its consequences on us are very grave. We cannot keep out capital which has a marginal profit looked in the department. Thereafter it is a cumbersome exercise to claim and obtain refund. In this connection, our bona fide stand in the writ petition may kindly be looked into. It is, therefore, requested that no action in the matter has been taken until the matter is finally decided by the Ministry of Finance as well as till the disposal of our writ petition before the High Court of Judicature at Allahabad. Thanking you, Yours faithfully, for UP National Mfrs. Ltd., Sd/- (Sharad Kumar Sah) Managing Director. (It is not considered necessary to reproduce the reply of other two assessees.) 3.1. The first respondent furnished the details of commission paid as per letter dated 11-9-1992 (copy placed at p. 60 of the assessee's paper book). Form No. 26-I were also filed on 7 Sept and 30-9-1992 (copies placed at pp. 69 to 70 of the assessee's paper-book). 3.2. The Assistant Commissioner (TDS) passed order under section 201 of the Act on 14-10-1992, whereby demand on account of liability of TDS and interest under section 201(1A) was created against all these three respondents and the orders were served upon the assessee on 4-11-1992, by which date they have deducted and paid the tax at source. 3.3. During penalty proceedings, the respondents had taken the plea that since their petitions under section 194H(2) made on 4-11-1991 were pending before the Central Board of Direct Taxes they had entertained a belief that they shall be granted exemption from the liability to deduct the tax at source and also entertained a belief that during the pendency of their petitions it was not necessary to deduct and pay the tax at source and the same was bona fide . It was this belief that they did not deduct the tax at source as required under section 194H. According to the respondents the belief so entertained, being a bona fide one, was a reasonable cause from not deducting and paying the tax at source and consequently the respondents were entitled to benefits of provisions of section 273B, according to which no penalty was to be imposed for failure referred to in the relevant penalty provisions including penalty provisions of section 271C if the assessee proves that there was reasonable cause for the said failure. 3.4. The Deputy Commissioner rejected the respondents plea of bona fide belief and imposed the penalty after relying on the observations of the assessing officer in order under section 201 The order of the Deputy Commissioner in case of first respondent is in the following terms : "3. Since the person responsible deliberately violated the provisions of section 194H of the Income Tax Act for which he could not give and satisfactory reply, the Assistant Commissioner (TDS), Varanasi, referred this case to the undersigned for the imposition of penalty under section 271C of the Income Tax Act. Accordingly, a show-cause notice under section 271C of the Income Tax Act was issued by the undersigned on 28-12-1992, which was duly served on 30-12-1992, fixing the date of hearing on 12-1-1993. On the written application the case for hearing was adjourned on 19-1-1993, and later on 29-1-1993. On 29-1-1993, neither the person responsible for any authorised representative appeared in person to explain his case, except filing a written submission which reads as under : 1. As stated in detail vide our reply of date in compliance to show cause notice under section 272A(2)(c) our petition to the Board seeking exemption from applicability of the newly introduced provision under section 194H filed on 4-11-1991, was decided on 30-9-1992, and the order of the Board communicated to us shortly after in October, 1992. 2. Immediately hereafter and prior to the receipt of the order under section 201, we deposited the tax payable under section 194H on 29-10-1992, and also filed the return in Form No. 26-I within 30 days of the communication of the Board's order . 3. In the facts and circumstances of the case there was no default on our part in this behalf attracting provisions of section 271C of the Act. 4. It is, therefore, requested that the impugned proceeding initiated in the matter be dropped and filed and justice be done." The above reply has got no meaning at all to denote any cognizable reason so that the assessee may be exculpated under the law. The company and its directors wanted to give an exemption for itself to the general provisions of law as introduced by the Finance (No. 2) Act, 1991, with effect from 1-10-1991, which provides for TDS in respect of payment of commission to the various parties with effect from 1-10-1991. Thereby it has tried to escape the liability to deduct the tax at source by making an application, (when the provision was already in force) the fate of which was well within its knowledge. All this exercise was to appropriate the Government fund to its own advantage and also to the advantage of its sister concerns which otherwise would have amounted to criminal breach of trust. The person responsible is very well aware of the provisions of law and its consequences and he also knew very well that no one can be exonerated from the consequences of the failure merely on the basis of a representation that he is not convinced with the said provision as it does not suit him. The default of non-deduction of tax at source at the time of payment/credit of commission has clearly been acknowledged by the above person responsible by his written submission filed from time to time before the Assistant Commissioner (TDS) Varanasi, and before the undersigned as well." 3.5. The Commissioner (Appeals) cancelled the penalty after considering the submissions advanced by the respondents and the main order being in the case of first respondent, we would like to extract the same which runs as under : "2. Apilarthi company ne M/s Sahu Agencies, Hemant Vidyut pratisthan and M/s Cinni Tullo sales service centre ki dinank 1-10-1991 se 31-3-1992, ki abadhi me bikari par commission dia he. Uparokth Avadhi Dhara 194H ke prabdhan ke anusar commission ki jama ya bhugthan ki rashi par ayakar ki kathothi Karni thi, Jinki avhab me karan kathoi notice di gia thi. Company se prapth 26-I kin anthargata commission ki rashi and aun par ayakar ki kathothi ka bibaran dia gya tha. Ysh Samamdha Company ne anapna prarup dated 7-9-1992 ki dhakil kia jabki awo dinank 30-4-1992, ki dhakil tha. 3. Appellant ne batha ki yos par ayakar katothi ke samandha me chut ke lie kendriya sarkar ki anusar 1991 ki abedan patra dia tha, Jiska nistaran dated 30-9-1992, ki hua, Yo bhi Hon'ble High Court ke direction ke patrachat ho kia gia. Abedan patra Kharij hone ki bad appellant ne 20-10-1992, ki ayakar ki kathothi karke jama kar dia. 4. Nirdharit Adhikari ke anusar 89,24,231 rupee ki commission bhugthan kia, jin par 9,99,513 rupee ki ayakar ki money hothi hai, Atha Utnai rupaia ki sasthi adhiroth kia gia hai. 5. Appellant ki bidhan adhubakta ne bateya ki dhara 271C ke antargatha karan batho notice dated 28-12-1992, ki jari and spastikaran ki lia sunahi ki tarikh 19-1-1993, nishchit ki gia thi. Santhi adesh dated 11-3-1993, ki parith kia gia, jabki uparokth ayakar dated 20-10-1992 ki hi jama kar di gia thi. Tadanusar sansodith pararup 26-I dinank 30-11-1992 ki dhakil kia gia. Sasthi ki kai bhi karan nahi kartha hai. 6. Iski Athariktha appellant ke adhibakta ne company ki appeal adesh section 41/TDS/Varanasi/1992-93 adesh dinank 12-3-1992 ka ullekh kia, jinke anusar dhara 201 ki mang nirastha kar dia gia tha. Atha : Un adhar par uparokth sasthi Uchit Nahi Hai. Unke atirikthyea bhi batha gia ki yea barsha ki karar ki bajah ki samay par ayakar ki katothi nahi kia. Yea katothi kebal 29-10-1992 ki gia. Yeske athirikth M/s Sha Agencies ki adhirotith karna uchit nahi hai.Yish Sambandh me Appeal Adesh M/s Chinni Tullo Sales and Service Appeal No. 44/Ayakar upa Ayukta/Range/Varanasi/1993-94 Adesh dinank 5-10-1993 Ka ullekh Kia jiske antargatha Dhara 271C ki sasthi nirasth kar di gie hai. 7. Mane Apilarthi ki kathan par bichar kia. Ayakar ki kathothi karan batho notice jari karne ke purb ho chuki thi and jama bhi ho gia thi. Atha: Sasthi ka koi bhi adhar nahi banta. Uparokth appeal adesh me bhiyn samandha me kafi bichar bimarsh ke paschat sasthi nirasth kia gia tha. Apilarthi ke laksha ek hi jaise hai. Aishe ki me mere bichar se sasthi uchit nahi hai. Une nirastha kia jata hai. " 3.6. The facts in the case of other two cases are the same and similar, and the parties have advanced their arguments on the basis of facts and findings in the case of U.P. National Manufacturing Ltd. after agreeing with the facts and circumstances in other two cases, are same and similar.;