COMMR. OF INCOME TAX vs. THE DIRECTOR OF HRY. STATE LOTTERIES,

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ITA/192/2006HC Punjab & HaryanaPHHC01074879200608 January 2007Author: MR. JUSTICE SATISH KUMAR MITTAL4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial question of law arose from the orders of the CIT(Appeals) and the ITAT. The Tribunal had relied on the Supreme Court decision in Hindustan Steel Ltd. v. State of Orissa (83 ITR 26), which held that a penalty should not be imposed merely because it is lawful to do so, and that it should not be imposed if there has been no conscious default or disregard to statutory provisions. The Court noted that the assessee is a government undertaking, no malafides were attributed to it, and it had established a reasonable cause for not deducting the surcharge. The failure to deduct was not actuated by malafide, the error was rectified, and the surcharge was deposited. Therefore, the Court found no error of law in the orders of the lower appellate authorities and dismissed the appeal.

What were the facts?

The Revenue (Commissioner of Income-Tax, Panchkula) filed an appeal against an order of the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench-B, for assessment year 1995-96. The ITAT had upheld the deletion of a penalty levied under Section 271-C of the Income Tax Act, 1961. The penalty was imposed on the assessee, the Director of Haryana State Lotteries, for failing to deduct surcharge at 15% on income tax deducted at source under Section 194-C of the Act while making payments to four contractors. The Assessing Officer had raised a demand under Section 201(1)/201(1-A) and initiated penalty proceedings. The assessee's defense was ignorance of the law regarding surcharge deduction. The CIT(Appeals) and the ITAT deleted the penalty, finding no mens rea or malafide, and noting that the assessee had subsequently deposited the short-deducted surcharge.

What were the issues?

1. Whether on the facts and in the circumstances of the case, the decision of the learned ITAT cancelling penalty levied under Section 271-C of the I.T. Act is in conformity with the law? 2. Whether on the facts and in the circumstances of the case, ignorance of law is an excuse to evade penal consequences for default in deduction of Income-tax at source? Assessee's contentions: The assessee argued that it had no means to know if a contractor's annual income exceeded Rs. 75,000, which would necessitate surcharge deduction. It further contended that as soon as it was made aware of the requirement, the surcharge was deducted, and the shortfall was rectified by payment to the Revenue. The error was considered bona fide, justifying the setting aside of the penalty. Revenue's contentions: The Revenue contended that the assessee violated the provisions of law regarding surcharge deduction and was therefore liable for penalty under Section 271-C. It argued that the ITAT and CIT(Appeals) were not justified in deleting the penalty, as ignorance of statutory provisions or a bona fide error cannot absolve the assessee from the consequences of its conduct.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 271-C,Section 201(1),Section 201(1-A),Section 194-C,Section 206

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH.

Date of Decision: 8.1.2007 Commissioner of Income-Tax, Panchkula ....Appellant through Mr.Yogesh Putney,Advocate Versus The Director of Haryana State Lotteries, Allahabad Bank Building, Sector 17, Chandigarh. ...Respondent through Mr.H.N. Mehtani,Advocate. CORAM : HON'BLE MR.JUSTICE VIJENDER JAIN, CHIEF JUSTICE. HON'BLE MR.JUSTICE RAJIVE BHALLA

1.

Whether Reporters of Local Newspapers may be allowed to see the judgement ?

2.

To be referred to the Reporters or not ?

3.

Whether the judgement should be reported in the Digest ? **** Vijender Jain, Chief Justice (Oral) This appeal has been filed under Section 260-A of the Income Tax Act, 1961,(hereinafter referred to as “the Act”) against the order dated 2.9.2005 of the Income Tax Appellate Tribunal, Chandigarh Bench-B, Chandigarh, passed in ITA No.732/Chandi/2002 for the assessment year 1995-96, wherein the Revenue has, inter alia, raised the following questions of law :- (1) “Whether on the facts and in the circumstances of the case, the decision of the learned ITAT cancelling penalty levied under Section 271-C of the I.T. Act is in conformity with the law ?” (2)“Whether on the facts and in the circumstances of the case, ignorance of law is an excuse to evade penal consequences for default in deduction of Income-tax at source?” Learned counsel Sh.Yogesh Putney has contended on behalf of the revenue that in its annual return of TDS under Section 206 in Form No.26-C for the financial year 1994-95, the assessee failed to deduct sur- charge on the income tax deducted at source. The Assessing Officer raised a demand under Section 201(1)/201(1-A) of the Act, vide order dated 18.9.1997 and also initiated penalty proceedings under Section 271-C of the Act, for assessee''s failure to deduct sur-charge @ 15% on income tax deducted under Section 194-C of the Act, while making payments to four contractors. The stand of the assessee during the penalty proceedings was that he was unaware of the provisions of the Act and, therefore, sur-charge could not be deducted. Penalty of Rs.6,01,359/- was levied under Section 271-C of the Act, for failure to deduct sur-charge on the payments made to the aforesaid four Contractors. The assessee filed an appeal before the C.I.T. (Appeals). The C.I.T. held that there was no element of mensrea or malafide in the conduct of the assessee because he had at least deducted tax at source and subsequently on demand, had deposited the short deduction of tax on account of sur-charge also. Consequently, the C.I.T. (Appeals) deleted the penalty.

The revenue filed an appeal before the I.T.A.T. The I.T.A.T. also agreed with the view taken by C.I.T. (Appeals) and taking into consideration that there was no conscious default by the assessee in not deducting the surcharge from the payments made to the contractors negatived the plea raised by the revenue. Mr.Yogesh Putney, learned counsel appearing for the revenue contends that as the respondent violated the provisions of law with regard to deduction of sur-charge, they were liable to penalty under Section 271-C of the Act and the I.T.A.T. and the C.I.T. (Appeals) were not justified in deleting the same, as ignorance of statutory provisions or a bonafide error could not save the respondent from the consequences of its conduct.

On the other hand, learned counsel, Sh.H.N. Mehtani, appearing for the assessee contends that the assessee had no means to know, whether the contractor had income of more than Rs.75,000/- p.a. and, therefore, sur-charge was not deducted. However, as soon as the assessee was made aware of the fact that the sur-charge was to be deducted from the payments made to the contractors, the same was deducted and the shortfall in deduction made good by making payment to the revenue. It is contended that the error being bonafide, the C.I.T. (Appeals) and the I.T.A.T. rightly set aside the penalty. We have perused the order of C.I.T. (Appeals) as well as the order passed by the I.T.A.T. The I.T.A.T. has relied upon a decision of the Hon'ble Supreme Court in case of Hindustan Steel Ltd. V. State of Orissa, 83 ITR, 26, wherein it was held that a penalty should not be imposed merely because it is lawful to do so. It was further held that penalty shall not be imposed, if there has been no conscious default or disregard to the statutory provisions. The assessee is a government undertaking and no malafides have been attributed to it. The assessee has established a reasonable cause in not making deduction of sur-charge alongwith the tax. The assessee's failure to deduct the surcharge was not actuated by an act of malafide. The error was duly rectified and the surcharge deposited. We find no error of law in the orders passed by the C.I.T (Appeals) and the I.T.A.T. that would require consideration. As no substantial question of law arises, the appeal is accordingly dismissed. ( VIJENDER JAIN ) CHIEF JUSTICE 8.1.2007 ( RAJIVE BHALLA ) GS JUDGE

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