THE COMMISSIONER OF INCOME TAX (TDS) KOCHI vs. EUROTECH MARITIME ACADEMY PVT.LTD.

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY ,THE 25TH DAY OF SEPTEMBER 2018 / 3RD ASWINA, 1940 ITA.No. 137 of 2016 AGAINST THE ORDER/JUDGMENT IN ITA 352/2015 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 01-06-2016 APPELLANT/S: THE COMMISSIONER OF INCOME TAX (TDS) KOCHI, C.R BUILDINGS, I.S PRESS ROAD, KOCHI 682 018 BY ADVS. SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPT. SRI.K.M.V.PANDALAI, INCOME TAX DEPT. RESPONDENT/S: EUROTECH MARITIME ACADEMY PVT. LTD. XXXVII/3492, VAKILS BUILDING, KALOOR, KOCHI - 682 017. BY ADVS. SRI.ANIL D. NAIR KUM.MEKHALA M.BENNY KUM.SOUMYA PRAKASH SRI.JOSEPH GOPURAN SRI.R.SREEJITH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 25.09.2018, ALONG WITH ITA.147/2016, ITA.148/2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

I.T.A.Nos. 137, 147 & 148 of 2016 2 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY ,THE 25TH DAY OF SEPTEMBER 2018 / 3RD ASWINA, 1940 ITA.No. 147 of 2016 AGAINST THE ORDER/JUDGMENT IN ITA 353/2015 of I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: THE COMMISSIONER OF INCOME TAX (TDS) KOCHI C.R.BUILDINGS, I.S.PRESS ROAD,KOCHI - 682 018. BY ADVS. SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEP SRI.K.M.V.PANDALAI, INCOME TAX DEPARTMENT RESPONDENT/S: EUROTECH MARITIME ACADEMY PVT.LTD. XXXVII/3492, VAKILS BUILDING, KALOOR, KOCHI - 682 017. BY ADVS. SRI.ANIL D. NAIR KUM.MEKHALA M.BENNY KUM.SOUMYA PRAKASH SRI.JOSEPH GOPURAN SRI.R.SREEJITH OTHER PRESENT: CHRISTOPHER ABRAHAM,SC FOR APPELLANT THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 25.09.2018, ALONG WITH ITA.137/2016, ITA.148/2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

I.T.A.Nos. 137, 147 & 148 of 2016 3 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY ,THE 25TH DAY OF SEPTEMBER 2018 / 3RD ASWINA, 1940 ITA.No. 148 of 2016 AGAINST THE ORDER/JUDGMENT IN ITA 354/2015 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 01-06-2016 APPELLANT/S: THE COMMISSIONER OF INCOME TAX (TDS) KOCHI, C.R.BUILDINGS, I.S.PRESS ROAD,KOCHI - 682 018. BY ADVS. SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEP SRI.K.M.V.PANDALAI, INCOME TAX DEPARTMENT RESPONDENT/S: EUROTECH MARITIME ACADEMY PVT. LTD. XXXVII/3492, VAKILS BUILDING,KALOOR, KOCHI - 682 017. BY ADVS. SRI.ANIL D. NAIR KUM.MEKHALA M.BENNY KUM.SOUMYA PRAKASH SRI.JOSEPH GOPURAN SRI.R.SREEJITH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 25.09.2018, ALONG WITH ITA.137/2016, ITA.147/2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

I.T.A.Nos. 137, 147 & 148 of 2016 4 JUDGMENT [ ITA 137/2016 ,ITA.147/2016 ,ITA.148/2016 ] Ashok Menon, J. These three appeals are filed by the Revenue aggrieved by the common order of the Income Tax Appellate Tribunal, Cochin, pertaining to the assessment years 2010-11, 2011-12 and 2012-13. Penalty was imposed on the assessee by the Assessing Officer, which confirmed by the Appellate Authority, was reversed by the Tribunal and hence these appeals. 2. The questions of law that arises for consideration in these three appeals re-framed by us are as follows: 1) Whether the Tribunal was justified in cancelling the penalty levied under Section 271(c) of the Income Tax Act holding that the assessee had reasonable cause within the meaning of Section 273(B) of the Act. 2) Whether the assessee is entitled to the exemption under Section 194-I in view of Section 44AB of the Act ? 3. The facts in brief are that the assessee-company is a trust registered under Section 12A of the Income Tax Act, 1961 and runs an educational institution, namely,

I.T.A.Nos. 137, 147 & 148 of 2016 5 Eurotech Maritime Academy Pvt.Ltd. The assessee is paying rent for the building occupied by them and also has a responsibility, statutorily mandated, to deduct tax at source. It was found that the tax deducted at source was deposited belatedly to the Central Government account for the assessment years 2010-11, 2011-12 and 2012-13. The assessee has been defaulting such payment even prior to this. Hence, notice under Section 271C of the Act was issued by the Assessing Officer and penalty equal to the amount of tax payable was imposed. Aggrieved by this, appeals were filed before the Additional Commissioner of Income Tax and vide orders dated 27.02.2015 all the three appeals were rejected and action taken by the Assessing Officer was confirmed. 4. The learned Counsel for the assessee argues that the assessee being a registered trust, it would come within the exception under Section 194-I and 44AB of the Act and therefore, has no liability to deduct tax at source. The relevant portion of Section 194-I and the second proviso reads as follows:- “194-I. Any person,not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of

I.T.A.Nos. 137, 147 & 148 of 2016 6 rent,shall,at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode whichever is earlier, deduct income-tax thereon at the rate of- (a)--- (b)--- Provided---- Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section:” According to the learned Counsel, the assessee is a trust registered under Section 12A, and therefore, not obliged to carry out an audit as provided under Section 44AB. Only those persons covered under Section 44AB would have to discharge the statutory obligation under Section 194-I is the submission. 5. The second proviso of Section 194-I cannot be applicable to the assessee in this case, because a trust cannot be included within the definition of “an individual or a Hindu undivided family” and therefore, the monetary rules specified in clause (a) or (b) of Section 44AB also is not relevant. It is also

I.T.A.Nos. 137, 147 & 148 of 2016 7 pertinent that the second proviso to Section 194-I speaks of Section 44AB, to include individuals and Hindu Undivided Families, whose income exceeds the limits specified in clauses (a) & (b) of Section 44AB within the ambit of Section 194-I; and makes it obligatory to deduct tax on any rent paid by them. There is no exemption as such for those not coming under Section 44AB, and Section 44AB is referred only to specify the monetary limit. Hence, the argument of the learned Counsel appearing for the assessee does not appear to be very impressive to us and is not acceptable. 6. The Tribunal has accepted the explanation of the assessee in not making the deductions on time. Even that, according to us is not acceptable because there is absolutely no reason why the assessee had refrained from depositing the deductions on time. From 2009-10 onward there has been delay in making the payments as is borne out from the records and the reasons supplied for such delay is not at all acceptable to us. The only explanation offered by the assessee is the failure of the Clerk who failed to discharge her duties properly. Apart from the fact that such explanation cannot be

I.T.A.Nos. 137, 147 & 148 of 2016 8 countenanced it is also to be noticed that the assessee had been making the payments piece-meal through out the year and not deducting the tax on its payment in the respective months. Hence, it is not a case of thorough ignorance and there is deliberate laxity on the part of the assessee. 7. In the decision of a Division Bench of this Court in US Technologies International (P) Ltd. v. Commissioner of income Tax, [2010] 195 Taxman 323 (Ker), it is held thus in paragraph 3 of the judgment: “..... We are unable to accept this contention because the first part of clause (b) of Section 271C(1) i.e. failure to pay whole or any part of tax as required, takes in the tax deducted under clause (a) under any of the provisions of Chapter XVIIB. So much so, in our view, failure to deduct or failure to remit recovered tax, both will attract penalty under Section 271C of the Act. So much so, the contention of the appellant fails and we uphold the finding of the Tribunal dismissing the challenge against levy of penalty.” In Classic Concepts Home India Pvt.Ltd. v. Commissioner of Income Tax, [2016] 383 ITR 626 (Ker.) relying on the decision reported in US Technologies International (P) Ltd., another Division Bench of this Court held thus:- “So far as failure on the part of the assessee to remit the tax recovered at source is concerned,

I.T.A.Nos. 137, 147 & 148 of 2016 9 we do not think there can be any justifying circumstance for delay in remittance because assessee cannot divert tax recovered for the Government towards working capital or any other purpose. So much so, in our view, defence available under Section 273B does not cover failure in payment of recovered tax.” 8. In a case where the assessee is liable to deduct tax at source and fails to do so, penalty under Section 271(1)(c) is liable to be imposed. The learned Counsel appearing for the assessee has pointed out a decision in Commissioner of Income Tax v. Bank of Nova Scotia, [2016] 380 ITR 550 (SC), wherein the Hon'ble Supreme Court had considered the question regarding deletion of penalty under Section 271(1)(c) of the Act. Going through that decision, it is seen that the Tribunal had allowed the assessee's appeal and cancelled the penalty levied under Section 271(1)(c) on the specific finding that it is necessary to establish that there was contumacious conduct on the part of the assessee to attract penalty under Section 271(1)(c) of the Act. The Hon'ble Supreme Court agreed with the High Court that there was no substantial question of law raised and rejected the challenge. We find that the Hon'ble Supreme Court in Union of India v. Dharmendra Textile Processors, [2008]

I.T.A.Nos. 137, 147 & 148 of 2016 10 306 ITR 277 (SC) held that mens rea is not an essential element for imposing penalty for breach of civil obligations. Imposition of penalty for non-compliance of statutory provision, is not a criminal liability, but is only a civil liability and therefore, bad motive on the part of the assessee is not essential to be proved. 9. Taking the entire facts and circumstances of this case, we are of the considered opinion that the assessee is liable to pay penalty under Section 271(1)(c) of the Act, and therefore, the impugned order of the Tribunal deleting the penalty is not sustainable and hence, set aside. The questions of law are answered in favour of the Revenue and against the assessee. The appeal is allowed, setting aside the order of Tribunal and restoring those of the Assessing Authority and the Appellate Authority. No order as to costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON dkr JUDGE

I.T.A.Nos. 137, 147 & 148 of 2016 11 The words “Section 271(c)” occurring in the 3rd line of sub paragraph (1) of 2nd paragraph of the operative portion at page 1 and the words “Section 271(1)(c)” occurring in the 1st, 7th, 10th and 13th lines of the 8th paragraph (7th page) and in the 4th line of 9th paragraph (8th page) of the common judgment dated 25.09.2018 in I.T.A.Nos.137, 147 & 148 of 2016 are corrected and substituted as “Section 271C” as per order dated 01.11.2018 in I.T.A.Nos.137, 147 & 148 of 2016. Sd/- Registrar (Judicial)

I.T.A.Nos. 137, 147 & 148 of 2016 12 APPENDIX OF ITA 137/2016 APPELLANT'S/S ANNEXURES: ANNEXURE-A A TRUE COPY OF THE PENALTY ORDER DATED 26/09/2013. ANNEXURE-B TRUE COPY OF THE APPELLATE ORDER DATED 26/09/2013 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-III, KOCHI. ANNEXURE-C TRUE COPY OF THE COMMON ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL ON 01/06/2016. APPENDIX OF ITA 147/2016 PETITIONER'S/S EXHIBITS: