THE COMMISSIONER OF INCOME TAX (TDS), COCHIN vs. M/S.MUTHOOT BANKERS, M.G.ROAD, ERNAKULAM-682011.

ITA/27/2012HC KeralaKLHC01023949201230 August 2017Author: HONOURABLE MR.JUSTICE ANTONY DOMINIC12 pages
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What were the facts?

The Revenue (Commissioner of Income Tax (TDS), Cochin) appealed against an order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench. The ITAT had set aside a penalty imposed under Section 271C of the Income Tax Act on the assessee, M/s. Muthoot Bankers. The penalty was for non-deduction of Tax Deducted at Source (TDS) on interest amounting to Rs. 9,50,05,000/- paid to its sister concerns for the assessment year 2014-2015. The Assessing Officer had determined the tax to be deducted as Rs. 95,00,500/-, and the Joint Commissioner had imposed a penalty of the same amount. The assessee contended that the non-deduction was a bona fide omission and that the recipient sister concerns had already paid tax on the interest income, thus causing no loss to the revenue. The ITAT, however, had deleted the penalty, relying on certain precedents.

What did the High Court hold?

The High Court held that the liability to deduct tax at source under Section 194A of the Income Tax Act is a strict liability. The Court found that the assessee had failed to plead and prove a reasonable cause for not deducting tax at source, as required under Section 273B of the Act. The Court distinguished the decision in CIT v. Bank of Nova Scotia, stating that it did not raise a specific question of law regarding the nature of the penalty under Section 271C, unlike the present case. The Court reiterated the principle from Union of India v. Dharamendra Textile Processors that mens rea is not an essential element for imposing penalty for breach of civil obligations. Therefore, the Court concluded that the ITAT's order cancelling the penalty was unsustainable. The questions of law were answered in favor of the Revenue, the ITAT's order was set aside, and the orders of the appellate authority and the assessing authority were restored. No issue was expressly left undecided.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the penalty for inconsistent and militating reasons, considering penalty as a civil liability? 2. Whether the submission that recipient concerns had already included the interest amount and paid tax thereon is inconsistent with the submission that the assessee was aware that the recipient sister concerns would declare such interest income, and whether the conclusion of reasonableness based on such facts is perverse? 3. Whether, on the facts and in the circumstances of the case, the assessee established reasonable cause for non-deduction of tax at source, and whether the Tribunal's findings favoring reasonable cause were perverse and unreasonable? 4. Whether the reasoning supporting the so-called reasonable cause was flimsy, untenable, and militating against facts, making the ITAT's order faulty and perverse? 5. Whether, on the facts and in the circumstances of the case, the ITAT was right in law and fact in interfering with the order of penalty levied under Section 271C of the Income Tax Act? Assessee's arguments: Non-deduction was a bona fide omission; recipient sister concerns included the interest in their returns and paid tax, hence no loss to revenue; contumacious conduct is necessary for penalty imposition, citing CIT v. Bank of Nova Scotia. Revenue's arguments: Liability to deduct tax under Section 194A is strict liability; no exemption for interest paid to sister concerns; Section 271C imposes penalty without discretion if tax is not deducted; reasonable cause under Section 273B must be proven; penalty for breach of civil obligations does not require mens rea, citing Hindustan Steel Ltd. v. State of Orissa, Chairman, SEBI v. Shriram Mutual Fund, and Union of India v. Dharamendra Textiles Processors.

Which sections of the Income-tax Act were involved?

Section 194A,Section 271C,Section 273B

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MRS. JUSTICE ANU SIVARAMAN WEDNE AY, THE 30TH DAY OF AUGUST 2017/8TH BHADRA, 1939 ITA.No. 27 of 2012 () ---------------------- AGAINST THE ORDER/JUDGMENT IN ITA 280/2011 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 13-09-2011 APPELLANT(S)/RESPONDENT: ----------------------- THE COMMISSIONER OF INCOME TAX (TDS), COCHIN.

BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S)/APPELLANT: ------------------------ M/S.MUTHOOT BANKERS, M.G.ROAD, ERNAKULAM-682011. BY ADV. SRI.T.M.SREEDHARAN (SR.) BY ADV. SRI.V.P.NARAYANAN BY ADV. SMT.BOBY M.SEKHAR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 30-08-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ANTONY DOMINIC & ANU SIVARAMAN, JJ. ----------------------------------------------- ITA.No. 27 of 2012 ----------------------------------------------- Dated this the 30th day of August, 2017 JUDGMENT Anu Sivaraman, J. This appeal is preferred by the Revenue against the order of Income Tax Appellate Tribnunal, Cochin Bench dated 28.2.2011 in ITA.No.280/Coch/2011. The matter arises from an ord

The order continues below.

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