Since the assessee has filed the certificates of the recipients with proof that the recipients have offered the income to tax in their hands, the assessee shall not be treated as an assessee in default u/s 201(1) of the Act.
FULL TEXT OF THE ITAT JUDGMENT
All are Revenue’s appeals for the A.Ys 2012-13 to 2015-16 against the order of the CIT (A)-8, Hyderabad dated 10.06.2016 deleting the penalty levied by the AO u/s 271C of the I.T. Act.
2. Brief facts of the case are that the assessee Trust, which is in the business of running educational institutions under the name of Sri Chaitanya Techno Schools and Sri Chaitanya Jr. Colleges, entered into a service agreement with M/s. K-12 Educational Management Pvt Ltd and M/s. Varsity Educational Management Pvt. Ltd for rendering of support services as may be required in relation to the administration, management and operation of educational institutions. For the services rendered by the above companies, the assessee was making payment as per the agreement and deducted TDS @ 2% u/s 194C of the Act. A survey action u/s 133A was conducted on 12.3.2015 in the business premises of the assessee at Hyderabad, during the course of which, it was observed that the services under the agreement are in the nature of technical services and therefore, the assessee was required to deduct TDS @ 10% u/s 194J of the Act. Accordingly, the AO proposed to pass order u/s 201(1) and 201(1A) of the I.T. Act in respect of short deductions made by the assessee. The AO also initiated penalty proceedings u/s 271C of the Act for short deduction of tax u/s 194J of the Act.
3. During the proceedings u/s 201(1) and 201(1A) of the Act, the assessee submitted that the demand in respect of non-deduction of tax u/s 201(1) may not be raised in view of the latest amendment to the Finance Act of 2012, which has come into effect w.e.f. 1.4.2013. The assessee submitted the certificate of Chartered Accountant in Annexure-A along with Form No.26A in support of their claim that the recipients of the payments, namely K-12 Educational Management (P) Ltd and M/s. Junior Varsity Educational Management (P) Ltd have admitted the receipts and also filed the returns of income before the due date. Taking the same into consideration, the AO observed that the demand u/s 201(1) is not to be raised separately but only and the interest u/s 201(1A) is to be charged. Accordingly orders u/s 201(1) and 201(1A) were passed.
4. The assessee preferred an appeal before the CIT (A) who granted partial relief to the assessee by holding that the nature of the work performed by the company comes under the ambit of section 194C and that the assessee has appropriately deducted the tax @ 2% and deposited it to the credit of the Central Govt. and that the services cannot be equated with the technical services requiring deduction of tax at a higher rate u/s 194J of the Act as contented by the AO. Consequently, he also held that the levy of interest u/s 201(1A) also would not arise. Against the relief granted by the CIT (A), the Revenue is in appeal for all the A.Ys in ITA Nos.1160 to 1163/Hyd/2016. Following the orders holding that the assessee is not in default, the CIT (A) also deleted the penalty u/s 271C of the Act and against these orders, the Revenue is in appeal before us in ITA Nos.1156 to 1159/Hyd/2016.
5. At the time of hearing, both the parties agreed that similar issues had come up for consideration in the case of Sri Gowtham Academy of General & Technical Education vs. Dy.CIT in ITA No.433/Hyd/2015 and also in the case of Asstt. CIT vs. M/s. Nexgen Educational Trust in ITA Nos.1148 to 1151/Hyd/2016. In the appeal No.433/Hyd/2015 dated 3.2.2017, the ‘B’ Bench of this Tribunal has considered the similar agreement and has held that some of the services are technical services while some other are work contracts and that the assessee therein was correct in adopting different rates of TDS for different types of payments. In ITA Nos.1148 to 1151/Hyd/2016 dated 31.10.2017, similar issue had arisen and following the decision of the Hon’ble Delhi High Court in the case of CIT vs. Cadbury India Ltd (11 Taxmann.com 66 (Del.), it has held that when there is no demand u/s 201(1) of the Act, the provisions of section 271C are not applicable.
6. In view of our decision in the case of Sri Gotham Academy of General & Technical Education (Supra), we are of the opinion that the appeals in ITA Nos. 1160 to 1163/Hyd/2016 need to be remanded to the file of the AO for verification of the transactions which are technical in nature, requiring deduction of tax at source u/s 194J of the Act and the services which require deductions u/s 194C of the Act. Therefore, the issues are set aside to the file of the AO for de novo verification and only in respect of the transactions which require the deduction of tax at source at a higher rate u/s 194J of the Act, shall the interest u/s 201(1A) shall be considered. Since the assessee has filed the certificates of the recipients with proof that the recipients have offered the income to tax in their hands, the assessee shall not be treated as an “assessee in default” u/s 201(1) of the Act. Therefore, the appeals of the Revenue for the A.Y 2012-13 to 2015-16 are treated as partly allowed for statistical purposes.
7. As regards the penalty appeals are concerned, we find that, since the assessee has not been treated as “an assessee in default” u/s 201(1) of the Act, the penalty u/s 271C are not sustainable as held by the Coordinate Bench of the Tribunal in the case of ACIT vs. M/s. Nexgen Educational Trust (Supra). For the sake of ready reference, the relevant paragraphs are reproduced here under:
“6. We have considered the rival contentions and perused the orders on record and various case law relied upon by the parties. It is a fact that no demand u/s. 201(1) was raised for two assessment years and even other two years where it was raised, Ld.CIT(A) has given relief and deleted the demands raised u/s. 201(1). The only issue for survival in the quantum of appeals is whether interest is leviable u/s. 201(1A) and if so, what was the period for which the interest was leviable. As seen from the provisions of Section 271C, there should be a failure on the part of assessee to deduct tax or remit tax within the provisions so as to attract penalty. In this case, as seen from the facts, assessee in fact deducted tax at 2% under the provisions of Section 194C on the reason that the agreements entered were ‘contractual in nature’ and not for providing technical services. By virtue of the amendment brought to Section 201(1) by insertion of proviso w.e.f. 01-07-2012, demands u/s. 201(1) cannot be raised, if the deductee has satisfied that it has included the income and remitted the taxes. Therefore, whether it is deduction u/s. 194C or 194-J since the deductee has admitted the incomes and paid taxes thereon, the question of short deduction or non-remittance of tax does not arise in this case. In fact there were no demands u/s. 201(1) so as to levy penalty u/s. 271C.
6.1. The Hon’ble High Court of Delhi in the case of CIT Vs. Cadbury India Ltd., [11 taxmann.com 66 (Delhi)] has considered the issue on similar facts of the case, wherein also the TDS was deducted u/s. 194C, whereas the AO demanded the deduction u/s. 194-I and 194-J, at a higher rate. The Hon’ble High Court has held as under:
“It is a settled law that what would constitute reasonable cause cannot be laid down with precision and that the question as to whether there was reasonable cause or not for the assessee not to deduct tax at source at all or under some particular provision than prescribed was a question of fact which had to be seen in the facts and circumstances of each case [Para 7].
In the instant case, the assessee had been deducting tax from the payments payable to CFAs under section 194C on a consolidated basis towards different heads. There was no reason to disbelieve the assessee that the same was being done by its employees on misconceived professional advice given by the chartered accountant. Since the payments were to be deducted from CFAs, no benefit was to be derived by the assessee for making lesser or inaccurate deductions. No mala fide intention of any kind could be attributed to the assessee for deducting tax under one provision of law than the other. It was neither the case of mala fide intention nor that of negligent intention or want of bona fide, but a case of misconceived belief of applicability of one provision of law. It could not be said judiciously that the assessee had failed to comply with the provision of sections 194-1 and 194J without reasonable cause [Para 8].
Therefore, the findings as recorded by the Tribunal were justified and the instant appeals were to be dismissed”.
7. Ld. CIT(A)’s findings on the issue is in consonance with the principles laid down and consistent with the provisions of the Act. The provisions of Section 273 Bare applicable as assessee has a reasonable cause for non-deduction of tax at 10% as against 2% it has deducted. In fact, the opinion of the AO has not yet become final as the issue of levy of interest u/s. 201(1A) itself is being restored to the file of AO for fresh examination in appeals in ITA Nos. 1152/Hyd/2016 to 1155/Hyd/2016, (separately considered).
Considering this, we are of the opinion that there is no need to interfere with the order of the Ld.CIT(A). Accordingly, the grounds of Revenue are rejected. In fact the grounds are peculiarly worded as can be seen from the grounds itself. The Revenue is asking ‘whether the CIT(A) did not err’ (sic). In response, we can only say that the CIT(A) did not err in deleting the penalties”.
8. Respectfully following the same, the appeals of the Revenue in ITA Nos.1156 to 1159 are dismissed.
9. In the result, appeals of the Revenue in ITA Nos.1160 to 1163/Hyd/2016 are partly allowed while ITA Nos.1156 to 1159/Hyd/2016 are dismissed.
Order pronounced in the Open Court on 30th May, 2018.