November 2008
Penalty : Failure to deduct tax at source : S. 194A and S. 271C : Bona fide belief based on opinion of senior counsel : Penalty not justified.
By K. B. Bhujle, Advocate
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18 Penalty : Failure to deduct tax at
source : S. 194A and S. 271C of Income-tax Act, 1961 : A.Ys. 1994-95 and
1995-96 : Bona fide belief based on opinion of senior counsel :
Penalty not justified.
[CIT v. Wishwapriya Financial Services and Securities
Ltd., 303 ITR 122 (Mad.)]
The assessee was engaged in retail and financial services,
corporate and advisory services and securities trading. An advertisement was
given in the newspaper in the name of the assessee, stating that the return on
the investment made with the company would not attract tax deduction at source
and accordingly, the assessee did not deduct tax at source on interest paid on
such investments. For the A.Ys. 1994-95 and 1995-96, the Assessing Officer
issued show-cause notice proposing to impose penalty u/s.271C of the Income-tax
Act, 1961 for failure to deduct tax at source u/s.194A on interest paid on such
investments. The assessee replied that he had acted under the bona fide
belief that the income received from the investments did not attract the
liability for deduction of tax at source and therefore, when the amounts were
distributed among the investors, no tax was deducted at source. It was also
contended that an opinion from a senior counsel was obtained before devising the
scheme to the effect that no tax need be deducted at source on the payments made
to the investors. The Assessing Officer rejected the contention and imposed the
penalty. The Tribunal deleted the penalty.
On appeal by the Revenue, the Madras High Court upheld the
decision of the Tribunal and held as :
“(i) The mere fact that the bona fide claim stood
disallowed did not itself lead to the inference that the company consciously
and deliberately flouted the provisions of the Act. The assessee thought that
there was no relationship of debtor and creditor or borrower and lender and
that, S. 194A, S. 201(1), S. 201(1A) read with S. 2(28A) of the Act were not
attracted. It was clear from the order of the Tribunal that it had accepted
the explanation and given a finding that there was a reasonable cause for not
deducting tax at source.
(ii) The assessee acted in a bona fide manner on the
basis of the opinion obtained from a senior counsel before devising the
scheme. The finding that there was a reasonable cause was a finding of fact
and it was not perverse. The concurrent findings given by both the authorities
below were based on valid materials and evidence and did not warrant
interference. The Tribunal was justified in deleting the penalty levied
u/s.271C of the Act.”
