M/S Bio-Technology Venture Fund vs. Addl. Commissioner Income Tax,

THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI RAMESH RANGANATHAN

INCOME TAX TRIBUNAL APPEAL Nos.80, 95 and 101 of 2010

30.08.2010

Between:

M/s.Bio-Technology Venture Fund. …. Appellant AND

Addl.Commissioner Income Tax, Range-15, Hyderabad.

… Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI RAMESH RANGANATHAN

INCOME TAX TRIBUNAL APPEAL Nos.80, 95 and 101 of 2010

COMMON JUDGMENT: (Per Hon’ble Sri Justice V.V.S.Rao) These three appeals under Section 260A of the Income Tax Act, 1961 (the Act) are by assessee against the common order of the Income Tax Appellate Tribunal, Hyderabad, in I.T.A.Nos.369, 370, 371/Hyd/08, dated 26.12.2008. The dispute arises out of penalty proceedings under Section 271C of the Act for failure of the assessee to deduct tax at source under Section 194J of the Act during the three assessment years viz., 2004-‘05, 2005-’06 and 2006-’07. The admitted fact of the matter is that the appellant is a Venture Capital Fund registered with the Securities Exchange Board of India. During the three assessment years, the appellant paid managerial fee to APIDC Venture Capital Private Limited (APIDC) for managing their assets. During the survey under Section 133A of the Act by the jurisdictional Income Tax Officer, it was noticed that the appellant failed to deduct tax at source on payment of managerial fee to APIDC. Therefore, the notice under Section 271C of the Act was issued for

failure to deduct whole of the tax. The appellant submitted explanation pleading that they were under genuine belief that the tax is not required to be deducted, that the tax was not deducted on the plea that provisions of Section 194J of the Act are not attracted to managerial fee, that there was no intention to violate the provisions of the Act and that they had reasonable cause for non-compliance with TDS provisions. The Additional Commissioner of Income Tax rejected the grounds of defence and by proceedings dated 28.3.2007 levied the penalty under Section 271C of the Act. Being aggrieved, the appellant unsuccessfully preferred the appeals. The Commissioner of Income Tax (Appeals), by common order dated 15.1.2008 dismissed the three appeals. As noticed supra, the appellant was unsuccessful in their second appeal before the learned Tribunal. The learned Counsel submits that appellant’s accounts were mandatorily audited under Section 44A(b) of the Act and that while furnishing the audited report in Form3CA, the auditors did not point out in column No.27 thereof that any tax had been deducted at source on payment of managerial fee. It is nextly urged that the appellant was not treated as “assessee in default” as contemplated under Section 201(1A) of the Act and, therefore, the question of applying Section 271C of the Act does not arise. Lastly he contends that the assessing officer erroneously relied on the precedents, which are in relation to Section 271(1)(c) of the Act, which have no application to the cases arising under Section 271C of the Act. The Counsel relied on the decision in CIT v Eli Lilly & Co (India) (P) Ltd.[1] in support of the contention that in every case of non-compliance with provisions of Section 194J of the Act, levy of penalty is not mandatory and the penalty can be waived if it is proved that the assessee had reasonable cause. Indisputably under the explanation (b) to Section 194J(3) of the Act read with explanation (2) to clause (vii) of subsection (1) of Section 9 of the Act, the appellant is required to deduct tax while paying the fee for managerial services. Therefore the issue before learned Tribunal was whether the appellant had reasonable cause for failure to deduct tax under Section 194J of the Act as provided for under Section 273B of the Act. The onus is always on the assessee to do so. The appellant satisfactorily discharged the burden of showing that there was reasonable cause for failure to deduct tax, penalty shall not be imposable under Section 271C of the Act. In Eli Lilly & Co., the apex Court considered this aspect of the matter and held that, “the liability to levy penalty can be fastened only on the person who does not have good and sufficient reason for not deducting tax at source.” We may

usefully excerpt the following. Section 271-C inter alia states that if any person fails to deduct the whole or any part of the tax as required by the provisions of Chapter XVII-B then such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct. In these cases we are concerned with Section 271-C(1)(a). Thus Section 271-C(1) (a) makes it clear that the penalty leviable shall be equal to the amount of tax which such person failed to deduct. We cannot hold this provision to be mandatory or compensatory or automatic because under Section 273-B Parliament has enacted that penalty shall not be imposed in cases falling thereunder. Section 271-C falls in the category of such cases. … Section 273-B states that notwithstanding anything contained in Section 271-C, no penalty shall be imposed on the person or the assessee for failure to deduct tax at source if such person or the assessee proves that there was a reasonable cause for the said failure. Therefore, the liability to levy of penalty can be fastened only on the person who does not have good and sufficient reason for not deducting tax at source. Only those persons will be liable to penalty who do not have good and sufficient reason for not deducting the tax. The burden, of course, is on the person to prove such good and sufficient reason. In each of the cases before the Supreme Court, non deduction took place on account of controversial addition. Their Lordships held that, “all the assesses were under bona fide belief that they were not under obligation to deduct tax at source from the home salary paid by the foreign company” concluded that the assessee discharged burden for failure to deduct tax at source. Whether the appellant was shown reasonable cause? It is a question of fact. The first and second appellate authorities have recorded valid reasons for rejecting the plea of the appellant. After perusing the orders to which our attention has been invited, we do not find any question of law in these appeals. The learned Tribunal has appreciated factual matrix and made the following observations. If assessee bona fide believes on the basis of some advice from a professional that tax need not be deducted, then there may be a reasonable cause for the assessee for non- deduction of tax. If there is any ambiguity in the provisions of the Act, then also the assessee may be justified in claiming that it was under a bona fide belief, which was the cause for non-deduction of tax. It is not the case of the assessee that the belief was nursed on the basis of any advice rendered by any professional. It is also not the case of the assessee that there is any ambiguity or confusion in the provisions of the Act. As we have already observed S.194J clearly says that any payment for technical services has to be subject to deduction of tax, while making or crediting payment. Fee for technical services means the fees paid for managerial services also. Therefore, there is no ambiguity in the

provisions of law. Moreover, there is not even a confusion in the provisions of the Act. Therefore, this Tribunal is not in a position to accept the contention of the assessee that it was under a bona fide and genuine belief with regard to non- deduction of tax at source. In the absence of any material to support, the contention of the assessee in this behalf cannot be accepted.

The learned Tribunal has also correctly applied principles of law. The appeals do not involve any substantial question of law. The appeals are therefore dismissed.

_______________ (V.V.S.RAO, J)

______________________________ (RAMESH RANGANATHAN, J) 30.08.2010 YS [1] (2009) 15 SCC 1 : (2009) 312 ITR 225