M/S. SUBSCRIBERS CHITS (P) LTD. vs. COMMISSIONER OF INCOME TAX

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS TUESDAY, THE 23RD DAY OF MARCH 2021 / 2ND CHAITHRA, 1943 ITA.No.26 OF 2016 AGAINST THE ORDER/JUDGMENT DTD 26.10.2015 IN ITA 227/2015 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: M/S. SUBSCRIBERS CHITS (P) LTD. PRESIDENCY COMPLEX, XX/338/13(1), PARAYIL LANE, POTHOLE ROAD, THRISSUR – 680 004. BY ADV. DR.K.P.PRADEEP RESPONDENT/S: COMMISSIONER OF INCOME TAX AYKAR BHAVAN, C.R.BUILDINGS, I.S.PRESS ROAD, KOCHI 682 018. SC CHRISTOPHER ABRAHAM THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 23.03.2021, ALONG WITH ITA.34/2016, ITA.52/2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA.26/2016, ITA.34/2016, ITA.52/2016 -2- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS TUESDAY, THE 23RD DAY OF MARCH 2021 / 2ND CHAITHRA, 1943 ITA.No.34 OF 2016 AGAINST THE ORDER/JUDGMENT DTD 26.10.2015 IN ITA 228/2015 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: M/S. SUBSCRIBERS CHITS (P) LTD. RESIDENCY COMPLEX, XX/338 13(1), PARAYIL LANE, POTHOLE ROAD, THRISSUR-680 004. BY ADV. DR.K.P.PRADEEP RESPONDENT/S: COMMISSIONER OF INCOME TAX AYKAR BHAVAN, C.R.BUILDINGS, I.S.PRESS ROAD, KOCHI-682 018. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 23.03.2021, ALONG WITH ITA.26/2016, ITA.52/2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS TUESDAY, THE 23RD DAY OF MARCH 2021 / 2ND CHAITHRA, 1943 ITA.No.52 OF 2016 AGAINST THE ORDER/JUDGMENT DTD 26.10.2015 IN ITA 229/COCH/2015 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: M/S. SUBSCRIBERS CHITS (P) LTD. PRESIDENCY COMPLEX, XX/338/13(1), PARAYIL LANE, POTHOLE ROAD, THRISSUR 680 004. BY ADV. DR.K.P.PRADEEP RESPONDENT/S: COMMISSIONER OF INCOME TAX AYKAR BHAVAN, C.R.BUILDING, IS PRESS ROAD, KOCHI 682 018 THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 23.03.2021, ALONG WITH ITA.26/2016, ITA.34/2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA.26/2016, ITA.34/2016, ITA.52/2016 -4- J U D G M E N T [ ITA.26/2016, ITA.34/2016, ITA.52/2016 ] Dated this the 23rd day of March 2021 S.V.BHATTI,J. M/s.Subscribers Chits (P) Ltd/assessee is the appellant in these appeals. The appeals are filed against following orders pertaining to the assessment years shown hereunder: Sl. No. Assessment Year Tribunal Appeal No. I.T.A No. 1 2010-11 227/Coch/2015 26/2016 2 2011-12 228/Coch/2015 34/2016 3 2012-13 229/Coch/2015 52/2016 2. Heard Dr.K.P.Pradeep for the appellant and the learned Standing Counsel Mr.Christopher Abraham for respondents. 3. The instant appeals raise the question whether, on the facts and in the circumstances of the case, the explanation offered by the appellant could have been considered positively under Sec.273B of the Income Tax Act, 1961 and whether the Tribunal failed to appreciate the distinction provided under Sec.273B of the Income Tax Act, 1961 vis-à-vis the cases covered by Sec.271C (1)

ITA.26/2016, ITA.34/2016, ITA.52/2016 -5- (a) and the imposition of penalty for the delayed deposit of the TDS deducted by the assessee is warranted or not. The operative portion of the order under appeal reads as follows: “7. Aggrieved by the penalty impossed, the assessee preferred an appeal before the first appellate authority. The CIT(A) dismissed the appeals of the assessee and confirmed the penalty imposed u/s.271C of the Act. The CIT(A) was of the view that the reasons stated by the assessee for belated deposit of tax deducted at source are not a 'reasonable cause' as mentioned u/s. 273B of the Act. The CIT(A) held that when the tax has been deducted by the assessee and the same has been paid belatedly to the Central Government Account, the 'reasonable cause' mentioned u/s. 273B of the Act for waiver or reduction of the penalty, is not applicable. For the above proposition, the CIT(A) relied on the judgment of the Hon'ble jurisdictional High Court in the case of M/s.US Technologies International (P) Ltd reported in 195 Taxman 323 and also the order of the Cochin Bench of the Tribunal in the case of M/s.Classic Concept Home India (P) Ltd in ITA No.469 to 472/Coch/2014. 8. The assessee being aggrieved is in appeals before us. The ld counsel for the assessee reiterated the submissions made before the authorities below. The ld DR on the other hand, contended that the issue in question is squarely covered by the recent judgment of the Hon'ble Jurisdictional High Court in the case of Classic Concepts Home India Ltd in ITA No.90 of 2015 (judgment dated 21.05.2015) 9. We have heard the rival submissions and perused the material on record. Admittedly, in the instant case it is a situation where the assessee had deducted tax at source and failed to remit the same to the Central Government Account in time. The Hon'ble jurisdictional High Court in the case of Classic Concepts Home India Pvt Ltd (supra) had

ITA.26/2016, ITA.34/2016, ITA.52/2016 -6- categorically held that in a case where tax has been deducted but not paid within the time limit prescribed under the law, reasonable cause mentioned u/s 273B would not come to the rescue of the assessee. In the light of the judgment of the Hon'ble jurisdictional High Court, cited supra, we hold that the CIT(A) is justified in confirming the penalty imposed u/s 271C of the Act. It is ordered accordingly.” 4. Dr.K.P Pradeep relying on the Full Bench judgment of this Court in Lakshadweep Development Corporation Ltd v. Additional Commissioner of Income tax (TDS)1 argues that the questions framed in the instant tax appeals are no more res integra and are covered in favour of the appellant/assessee. To bring home his arguments, he invites our attention to the question considered by the Full Bench in Lakshadweep Development Corporation Ltd supra which reads thus: “The pertinent question sought to be answered as per the Reference Order dated 06.12.2017 passed by a Division Bench of this Court is whether Clause (b) of Sub-Section (1) of Section 271C of the Income Tax Act (hereinafter referred to as 'the Act), of an equal amount of tax on the failure of the person concerned to deduct or pay the tax, would take in the situation under Clause (a) of sub-section (1) of Section 271C as well; or in other words; are not the above two 1 2019 (2) KLT 564

ITA.26/2016, ITA.34/2016, ITA.52/2016 -7- provisions, clauses (a) and (b), operating in two different spheres, independent of each other, to attract penalty on establishing the specified event?. One step further; does the lapse to deduct the whole or any part of the tax [as required by or under the provisions of Chapter XVIIB of the Act] stipulated under Sec.271C(1)(a) will result in any automatic imposition of penalty, even denying the eligibility to claim the benefit of Section 273B of the Act, as held by a Division Bench of this Court in U.S.Technologies International Pvt. Ltd. vs. Commissioner of Income Tax[2010 KHC 6118 =2010(1)KLT SN 66]? Does the law declared by the Division Bench in U.S.Technologies case(cited supra) and the one in Classic Concepts Home India Pvt. Ltd. vs. Commissioner of Income Tax[(2016)383 ITR 626 (Ker.)] reflect the correct position of law? These are the points to be clarified by this Court in the appeals preferred by the assessee, raising substantial questions of law under Section 260A of the Act.” and thereafter the following paras answering the reference in the Full Bench judgment are read out: 33. The next point to be considered is with regard to the observation/finding rendered by the Bench in U.S. Technologies case, holding that failure to remit the tax after deducting the same, will constitute a more grievous default than the omission to deduct the tax under Section 271C(1)(a) and hence it cannot come within the purview of Section 273B for claiming the

ITA.26/2016, ITA.34/2016, ITA.52/2016 -8- benefit of waiver or reduction of penalty for good and sufficient reason. The said finding has also been noted as not acceptable in the Order of Reference and hence it requires to be dealt with. 34. Section 273B of the Income Tax Act stipulates that no penalty shall be imposed on the person or the assessee, as the case may be, for any failure referred to in the provisions mentioned therein, if he proves that there was reasonable cause for the failure. The said provision has already been extracted. One among the provisions mentioned therein is Section '271C'. To put it more clear, the whole provision of Section 271Cis reckoned as such, and no segregation has been effected unlike the limited extent of reckoning clause(b) of sub- section (1) of Section 271. In other words, clause (b) of sub-section (1) of Section 271C(dealing with failure to remit the deducted tax) is not excluded or the benefit is not confined to the instance covered by Section 271C(1)(a)alone. Section 273B itself starts with a 'non- obstante clause' saying that the benefit is to be extended, to the extent as specified therein, notwithstanding anything contained in the provisions mentioned above, which includes Section 271C in toto. As it stands so, it is quite open for the person/assessee concerned to claim the benefit of Section 273B even in a case covered by Sec.271C(1)(b)(failure to remit the tax deducted at source), despite the fact that it m ay be a more serious default, than the failure to deduct the tax at source. XXX XXX XXX

ITA.26/2016, ITA.34/2016, ITA.52/2016 -9- 36. From the above, it is crystal-clear that, once the burden is discharged by the person/assessee as to the existence of good and sufficient reason for not complying with the stipulation under Section 271C, it is for the authorities to consider with proper application of mind, whether the penalty is to be waived or reduced, based on the facts and circumstances. 37. Section 271C of the Income Tax Act is quite categoric. Its scope and extent of application is discernible from the provision itself, in unambiguous terms. When the non-deduction of the whole or any part of the tax, as required by or under the various instances/provisions of Chapter XVII-B would invite penalty under Clause 271C(1)(a); only to a limited extent, involving sub-section (2) of Sec.115-O(coming under Chapter XIID) or covered by the 'second proviso' to Section 194B (coming under Chapter XVIIB) alone would constitute an instance where penalty can be imposed in terms of Section 271C(1)(b) of the Act. Since there is no obscurity in the above provision, it is not for the Court to read something more into it, contrary to the intent and legislative wisdom, which stands to be a forbidden field for the Court. It is settled law that the rule of 'strict interpretation' is the relevant one in so far as the fiscal statute is concerned. We find support from the ruling rendered by the Apex Court in Sneh Enterprises vs. Commissioner of Customs, New Delhi [(2006)7 SCC 714]. 38. The Division Bench of this Court in U.S

ITA.26/2016, ITA.34/2016, ITA.52/2016 -10- Technologies case, despite the specific extent and application stipulated under Section 271C(1)(a) and271C(1)(b) for imposition of penalty for omission (i)to deduct tax at source and (ii) in not remitting the tax deducted at source separately, to the specified extent and within the boundaries mentioned therein held that the circumstances under Section 271C(1)(a) can be read into Section 271C(1)(b). Whether such 'reading into' the provision is possible or permissible in a 'fiscal statute' is an important question. XXX XXX XXX 44. Having answered the reference as above, the question is whether anything survives to be considered. It is quite open for this Court to decide the merit as well, by virtue of the specific power conferred under 'Section 7' of the Kerala High Court Act, instead of having the case sent back to the same/appropriate Bench for further consideration, after answering the reference. In view of our declaration that non- remittance of tax deducted at source as in the instant case (which comes under Section 194C of Chapter XVIIB of the Act) is not covered by Section 271C(1)(b) of the ct to attract penalty, nothing remains to be considered further, either by the Tribunal or by this Court since the verdict passed by the departmental authorities and the Tribunal (copies of which have been produced as Annexures A, B and C) stand contrary to the declaration as above. The said orders stand set aside. The appeals are allowed accordingly. The parties are to bear the costs.

ITA.26/2016, ITA.34/2016, ITA.52/2016 -11-

ITA.26/2016, ITA.34/2016, ITA.52/2016 -12- APPENDIX OF ITA 26/2016 PETITIONER'S/S EXHIBITS: ANNEXURE A TRUE COPY OF THE PENALTY ORDER NO AAJCS6954M/2010-11 DATED 28-08-2013 ISSUED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, KOCHI ANNEXURE B TRUE COPY OF THE ORDER IN APPEAL IN ITA NO 104(G)/TDS/CIT(A)/TSR/2009-10 DATED 27-2-2015 OF THE COMMISSIONER OF INCOME TAX (APPEAL), THRISSUR ANNEXURE C TRUE COPY OF THE ORDER IN APPEAL IN ITA NO 227/COCH/2014 DATED 26-10-2015 THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH

ITA.26/2016, ITA.34/2016, ITA.52/2016 -13- APPENDIX OF ITA 34/2016 PETITIONER'S/S EXHIBITS: ANNEXURE A TRUE COPY OF THE PENALTY ORDER NO.AAJC6954M/2010-11 DATED 28.08.2013 ISSUED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, KOCHI. ANNEXURE B TRUE COPY OF THE ORDER IN APPEAL IN ITA NO.104(F)/TDS/CIT(A)/TSR/2009-10 DATED 27.2.2015 OF THE COMMISSIONER OF INCOME TAX (APPEAL), THRISSUR. ANNEXURE C TRUE COPY OF THE ORDER IN APPEAL IN ITA NO.228/COCH/2015 DATED 26.10.2015 THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH.

ITA.26/2016, ITA.34/2016, ITA.52/2016 -14- APPENDIX OF ITA 52/2016 PETITIONER'S/S EXHIBITS: ANNEXURE A TRUE COPY OF THE PENALTY ORDER NO AAJCS6954M/2012-13 DATED 28.8.2013 ISSUED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, KOCHI ANNEXURE B TRUE COPY OF THE ORDER IN APPEAL IN ITA NO 104(H)/TDS/CIT(A)TSR/2009-10 DATED 27.2.2015 OF THE COMMISSIONER OF INCOME TAX (APPEAL),THRISSUR ANNEXURE C TRUE COPY OF THE ORDER IN APPEAL IN ITA NO 229/COCH/2014 DATED 26.10.2015 THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH