Income Tax Appellate Tribunal - Nagpur
Steel Authority Of India Ltd. vs Income-Tax Officer on 23 September, 2005
Equivalent citations: [2006]100ITD29(NAG)
ORDER
H.S. Sidhu, Judicial Member
1. The assessee has preferred these appeals against the order of the learned Commissioner of Income-tax (Appeals) confirming penalties imposed by the Assessing Officer under Section 271C of the Income-tax Act, 1961 for the assessment years 1997-98 and 1998-99.
2. The various grounds raised in the memo of appeal are with regard to only one issue that the levy of penalty under Section 271C of the Income-tax Act, 1961 is unjustified, unwarranted and bad in law.
3. The brief facts of the case of the assessee are that the assessee is a Government Company and is operating a Steel Plant at Bhilai known as Bhilai Steel Plant. The assessee-company has got two categories of workers namely Executives/Officers and Non-executives/Staff. The Revenue Authorities have held that the assessee-company at the time of making payment of gratuity to various employees has short deducted tax at source. The Revenue Authorities had passed the order under Section 201 of the Income-tax Act, 1961 raising demand for short deduction of tax at source in respect of various gratuity payments to the employees of the company. The aforesaid demand raised by the Revenue Authorities has since been collected and the Appellant was unsuccessful before the Commissioner of Income-tax (Appeals) against the order passed under Section 201 of the Income-tax Act, 1961. The Committee of Disputes had not accorded approval to pursue the matter further before the Income-tax Appellate Tribunal and therefore, the demand raised under Section 201 could not be agitated before the Income-tax Appellate Tribunal.
4. The Assessing Officer (In short A.O.) has held in the penalty order that the assessee-company while defraying Salaries and Gratuity at the time of retirement has deducted tax at source by considering the exemption limit of Gratuity under Section 10(10)(iii) at Rs. 2,50,000 whereas the company correctly should have deducted tax at source considering the exemption limit in respect of gratuity paid at Rs. 1,00,000 under Section 10(10)(ii) of the Income-tax Act, 1961. The conclusion of the Assessing Officer was based on the fact that the assessee is liable to pay gratuity to various employees under Payment of Gratuity Act, 1972 and thus provisions of Section 10(10)(ii) are applicable. The Assessing Officer also noticed that the Non-executives/staff of the assessee-company were eligible for payment of gratuity as per the terms of agreement with the workers under an agreement with the National Joint Committee for Steel Industries which dates back to 27.10.1970. The provisions of Section 4(5) of Gratuity Act provide that nothing in Section 4 shall effect the right of an employee to receive better terms of gratuity under any Award or Agreement or Contract with the employer. The Assessing Officer therefore, concluded that the payment of gratuity as per the agreement with the employees to non-executives/staff is also as per the provisions of Section 4(5) of Payment of Gratuity Act, 1972. The Assessing Officer therefore, held that the payment of gratuity by assessee-company to its executives/officers as well as non-executives/staff will be under the Payment of Gratuity Act itself and thus, the exemption available to various employees would be under Section 10(10)(ii) of the Income-tax Act, 1961. The Assessing Officer thus concluded that the short deduction of tax at source is for the reason that higher exemption limit was considered while making payment of gratuity to employees and it is the default of the assessee-company. The Assessing Officer held that the default of the assessee-company is deliberate and it has resulted into short collection of tax at source. The Assessing Officer further held that the assessee had not honestly estimated the income from salaries which includes payment of gratuity while deducting tax at source. The Assessing Officer thus concluded that this is a fit case for imposition of penalty and accordingly, imposed penalty of Rs. 1,40,08,400 for assessment year 1997-98 and Rs. 59,03,445 for the assessment year 1998-99.
5. In the appeals filed by the assessee the learned Commissioner of Income-tax (Appeals) upheld the findings of the Assessing Officer and held that on the facts of the case it was a deliberate short deduction of tax at source and short deduction of tax at source appears to be with mala fide intention of the deductor to deliberately dodge the revenue. The learned Commissioner of Income-tax (Appeals) with these observations dismissed the appeals of the assessee.
6. Aggrieved by the order of the ld. CIT(A) the assessee has filed the present appeals before this Tribunal, and in the Paper Book the assessee has filed approval received from the Committee on Disputes to pursue the appeal filed by the assessee. The approval is dated 1.2.2001 and is placed in the Paper Book at pp. 73 to 76.
7. The learned Counsel of the assessee, Shri K.P. Dewani, Advocate has made elaborate arguments in support that there is no case for imposition of penalty under Section 271C of Income-tax Act, 1961. It was submitted by him that the obligation of tax deducted at source is provided under Section 192 of the Income-tax Act, 1961 and it provides for tax deduction at source on the estimated income from salaries. It was further brought to our attention that the provisions of Section 191 provide for direct recovery from employees and all the provisions are under Chapter of Collection & Recovery. It was submitted that as per Assessing Officer the default of short deduction of tax at source is for the period from June 1996 to September 1997. The assessee-company while making payment of gratuity has considered gratuity received by employees exempt up to Rs. 2,50,000 considering the provisions of Section 10(10)(iii) of the Income-tax Act, 1961. Whereas the case of the revenue is that the assessee-company is governed under the provisions of Payment of Gratuity Act, 1972 and, therefore, gratuity paid by the assessee has to be considered as exempt under the provisions of Section 10(10)(ii) read with the provisions of Sections 4(2) and 4(3) and maximum amount exempt will be Rs. 1,00,000. The exemption limit for payment of gratuity which falls under Section 10(10)(iii) is Rs. 2,50,000 as per the notification issued by the Central Government dated 1.2.1996. The xerox copy of the notification is placed in the Paper Book at P-70.
8. The learned Counsel of the assessee has submitted that the penalty proceedings are independent proceedings and assessee can show that there is no short deduction of tax at source and consequently the question of imposition of penalty under Section 271C of the Income-tax Act, 1961 does not arise. The assessee for this proposition placed reliance on the decision of Bombay High Court in Jainarayan Babulal v. CIT .
9. It was submitted by the counsel of the assessee that the provisions for exemption of payment of gratuity at the hands of various employees have been amended from time to time and the provisions of Section 10(10)(ii) and (iii) have been introduced by the Finance Act, 1974. The various limits provided therein have been revised from time to time by notifications of Central Government and amendment in Finance Acts. The Finance Act, 1974 had introduced three categories of exemption for employees in Section 10(10) of Income-tax Act, 1961. Sub-clause (i) provided for exemption of entire amount of gratuity in respect of all Government Employees, Sub-clause (ii) provided for exemption of entire gratuity which is received under the provisions of Payment of Gratuity Act, 1972 Sub-clause (iii) was the residuary clause which provided for any other gratuity other than falling under the preceding two clauses. In the case of assessee dispute is with regard to gratuity paid to non-executive staff as per terms of agreement is claimed by assessee to be falling for consideration at the hands of employees under Section 10(10)(iii) of Income-tax Act, 1961. Whereas according to revenue the payment of gratuity to employees is under Section 4(5) of Payment of Gratuity Act, 1972 and thus if falls for consideration under Section 10(10)(ii) of Income-tax Act, 1961. The learned Counsel of the assessee has invited our attention to the Circular No. 138 dated 17.6.1974 issued by Board which explains the various provisions introduced in the Finance Act, 1974.
10. Inviting our attention to the passages of the Circular it was submitted that the Board itself has clarified that the gratuity received by employees in terms of provisions of Section 4(5) of the Payment of Gratuity Act shall fall for exemption under Section 10(10)(iii) of the Income-tax Act, 1961 being the residuary class. The assessee has also invited attention to the notification placed in the Paper Book at P-70 issued by the Central Government (Notification No. S.O. 394 dated 1.2.1996). As per this notification the gratuity exempt at the hands of employee received under Section 10(10)(iii) shall be Rs. 2,50,000. The Counsel of the assessee thus submitted that considering the provisions of Section 10(10) as explained by Central Board of Direct Taxes there is no default at the hands of assessee for short deduction of tax at source. It was argued that as there is no case for short deduction the question of imposition of penalty under Section 271C of the Income-tax Act, 1961 does not arise. The learned Counsel of the assessee submitted that penalty levied be therefore directed to be cancelled.
11. Alternatively it was also submitted that the observation of the lower authorities that the default of the assessee-company is deliberate and with mala fide intention are highly unjustified and contrary to evidence on record. In the order imposing penalty in para 2 the Assessing Officer has observed that the default was noticed as a result of scrutiny of annual return in Form No. 24 filed on 26.7.1997. The correspondence of revenue authorities with the assessee-company in November 1997 indicates that details were being collected from the assessee-company to verify whether there is proper deduction of tax at source or not. The counsel of the assessee invited our attention to P-28 being a communication from the Addl. Commissioner of Income-tax to assessee-company wherein the Additional Commissioner has acknowledged the co-operation extended by the assessee-company for enabling to scrutinize the return to a great extent. The learned Counsel submitted that the observation of the Assessing Officer that there was deliberate default is not well founded. It was also submitted that observation of CIT(A) that assessee had mala fide intention and had intention to dodge the revenue are highly unjustified and are without any evidence on record. It was further submitted that provision of Section 192 mandates deduction of tax at source from salary of employee by employer on estimated income of employee. Acting bona fidely assessee has made deduction and it cannot be faulted for the same as short deduction by assessee. Assessee was under bona fide belief and by non-deduction has not derived any benefit. The assessee-Company under the bona fide belief that Gratuity is exempt up to Rs. 2,50,000 as per the notification of Central Government dated 1.2.1996 has properly deducted tax at source and thus there is no case for imposition of penalty. Reliance is placed on (i) Hindustan Steel Ltd. v. State of Orissa , (ii) ITO v. Dishergarh Power Supply Co. Ltd. [2001] 71 TTJ (Cal.) 725, (iii) 88 TTJ (Chd.) 450 and (iv) 272 ITR 545 (Delhi). Assessee is a Government Company and has paid the amount demanded as short deduction of tax at source and on identical facts Hon'ble Jurisdictional High Court in the case of CIT v. Senior Accounts Officer, Madhya Pradesh Electricity Board has held that no penalty under Section 271C is imposable.
12. It was submitted that there is no basis or evidence on record for Assessing Officer to make observation that assessee has not acted honestly or has deliberately failed to deduct. None of the correspondence referred to in the order suggest that default on the part of assessee is deliberate. Revenue had not proved that action of assessee in not deducting the tax on payments was a mala fide one. No provision under the Income-tax Act, 1961 authorises the Income-tax Authorities to revise the estimate of income made by the person responsible for paying the income. Revenue has ample power to collect the due tax from employees. Section 191 recognises that tax can be collected directly. Revenue cannot recover the tax which is not deducted from payee of assessee and has to be collected from employees directly. Thus if no tax itself can be collected from assessee then assessee could not be visited with penalty for the same. Reliance is placed on (i) Gwalior Rayon Silk Co. Ltd. v. CIT , (ii) Hero Honda Motors Ltd. v. ITO [2000] 112 Taxman 154 (Delhi)(Mag.), (iii) Gujarat Narmada Valley Fertilizers Co. Ltd. v. ITO [1999] 71 ITD 66 (Ahd.), (iv) Eicher Goodearth Ltd. v. ITO [1998] 98 Taxman 229 (Delhi) (Mag.) and (v) Associated Cement Co. Ltd. v. ITO [2000] 74 ITD 369 (Mum.). It was thus submitted that on facts of the case no penalty ought to have been imposed by the Assessing Officer.
13. On the other hand, the learned Departmental Representative relied on the orders of authorities below. It was submitted that there was deliberate intention of short deduction of tax at source and no fault can be found in the orders of lower authorities. It was submitted that there is no merit in the appeal of assessee and same deserves to be dismissed.
14. We have heard the rival submission, perused the orders of lower authorities and considered the facts as record. The assessee is a Government Company and has been visited with penalty under Section 271C of Income-tax Act. In the facts of the present case as discussed hereinabove it is seen that assessee-company has paid gratuity to various employees under an agreement. According to Revenue the payment made to various employees is under the provision of Section 4(5) of Payment of Gratuity Act, 1972. The revenue has thus considered the limit as prescribed under Section 10(10)(ii) of Income-tax Act, 1961 for exemption to be considered at the hands of various employees. The learned Counsel of the assessee has brought to our attention the circular explaining provision of Section 10(10) introduced by the Finance Act, 1974. The relevant portion of Circular No. 138 issued by Central Board of Direct Taxes is reproduced here-under:
20. Under Section 10(10) of the Income-tax Act, as it stood prior to the amendment by the Finance Act, 1974, death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or under any similar scheme of a State Government or a local authority was completely exempt from income-tax. Similarly retiring gratuity received under the new Pension Code applicable to the members of the Defence Services qualified for tax exemption without any ceiling limit. In the case of any other gratuity received by an employee on his retirement or incapacitation or by his widow, children or dependants on his death, the exemption was available to the extent such gratuity did not exceed one-half month's salary for each year of completed service. Calculated on the basis of the average salary for the three years immediately preceding the year in which the gratuity was paid, or 15 months salary so calculated, or Rs. 24,000 whichever was the least. The Finance Act, 1974 has made the following modifications in the existing provisions relating to exemption of gratuities with a view to liberalizing the provisions in certain directions and removing certain unintended anomalies:
(i) Under Section 10(10) of the Income-tax Act, as it stood prior to its amendment by the Finance Act, 1974, gratuities received by civilian employees of the Central Government who were not covered by the revised Pension Rules of the Central Government, as for instance, members of the all-India services did not qualify for full exemption from tax. In such cases, the exemption was allowed under the residuary provision and was accordingly limited to one-half month's salary for each year of completed service, calculated on the basis of the average salary for the three years immediately preceding the year in which the gratuity was paid, or 15 months salary so, calculated, or Rs. 24,000 whichever was the least. As this position was clearly unintended, the Finance Act, 1974, has made a specific provision in the law retrospectively, from 1.4.1962, i.e., the date of commencement of the Income-tax Act, to secure that death-cum-retirement gratuities received by all categories of Central Government employees as also employees of State Governments are exempted from income-tax in full.
(ii) Since the revised Pension Rules have been replaced by the Central Civil Services (Pension) Rules, 1972, with effect from 1.6.1972, a verbal change has been made in Section 10(10) so as to include a reference to the new rules from the date on which they came into force.
(iii) Under the Payment of Gratuity Act, 1972 gratuity is payable to low paid employees on a somewhat more liberal scale than the exempt amount of gratuity under the Income-tax Act. Under the first mentioned Act, gratuity is payable to persons drawing wages not exceeding Rs. 1,000 per mensem. For this purpose "wages" means all cash emoluments including dearness allowance, but excluding any bonus, commission, house rent allowance, overtime wages and any other allowance. Persons employed in managerial or supervisory capacity and Government employees are outside the purview of that Act.
Under Sub-sections (2) and (3) of Section 4 of the Payment of Gratuity Act, 1972, gratuity is payable at the rate of 15 days "wages" (based on the rate of wages last drawn by the employee) for every completed year of service or part thereof in excess of 6 months, subject to a maximum of 20 months "wages". In the case of employees working in a seasonal establishment, gratuity is calculated at the rate of seven days wages for each season, subject to the overall limit of 20 months "wages". Section 10(10) of the Income-tax Act has been amended to specifically provide that the entire amount of gratuity received by an employer under Sub-section (2) or (3) of Section 4 of the Payment of Gratuity Act shall be exempt from income tax. In this connection, it may however, be mentioned that under Sub-section (5) of Section 4 of the Payment of Gratuity Act, an employee can receive better terms of gratuity under any award or agreement or contract with the employer. In cases where a higher amount of gratuity is received by an employee under any award or agreement or contract with the employer, the amount of exempt gratuity will be calculated in accordance with the residuary provision referred to in item (iv) below.
(Emphasis supplied) This amendment will take effect from 1.4.1975, and will accordingly apply for the assessment year 1975-76 and subsequent years. Gratuities received under the Payment of Gratuity Act during the previous year relevant to the assessment years 1973-74 and 1974-75 will be governed by the existing provisions of Section 10(10) of the Income-tax Act.
(iv) In the case of those employees of statutory corporations and employees in the private sector who are not covered by the Payment of Gratuity Act, the ceiling limits over the exempt amount of retiring gratuity have been raised. Under the amended provision, exemption will be allowed in an amount not exceeding one-half month's salary for each year of completed service, calculated on the basis of the average salary for the three years immediately preceding the year in which the gratuity is paid or 20 months salary so calculated or Rs. 30,000, whichever is the least. This amendment will also take effect from 1.4.1975, and will accordingly apply for the assessment year 1975-76 and subsequent years.
Perusal of the aforesaid circular makes it evident that Revenue Authorities had to apply provisions of Section 10(10)(iii) of Income-tax Act, 1961 for the purpose of considering the exemption limit at the time of receipt of gratuity from the employer in the cases of employees receiving gratuity under Section 4(5) of Payment of Gratuity Act. The circular issued by the Board are binding on authorities. In view of above the view adopted by Assessing Officer to consider the limit as prescribed under Section 10(10)(ii) of Income-tax Act, 1961 in respect of payment of gratuity made to various employees under Section 4(5) of Payment of Gratuity Act, 1972 is not correct. The circular clearly provides that the payment of gratuity received under the terms of agreement as provided under Section 4(5) of Payment of Gratuity Act will fall for exemption under residuary clause i.e., Section 10(10)(iii). Central Government vide its Notification dated 1.2.1996 has prescribed the maximum amount of gratuity exemption at the hands of recipient at Rs. 2.50 lakhs for the gratuity received effective from 1.4.1995. The gratuity payment made in the case of assessee-company are from June 1996 to September 1997. In view of above we are of the opinion that there is no default in the case of assessee-company as the company has rightly treated the gratuity received by various employees as exempt up to the sum of Rs. 2.50 lakhs. In view there being no default on the part of assessee in deduction of tax at source from employees the question of imposition of penalty does not arise. The penalty levied is unjustified and is unsustainable.
15. We also find that Assessing Officer has not brought any evidence on record to show that estimate of salary made by the assessee was not bona fide or was with mala fide intention. It is settled position of law that onus to prove that action is mala fide is on the person who alleges the same. It would be worthwhile to reproduce observations of Apex Court in the case of E.P. Royappa v. State of Tamil Nadu . At page 586 the Apex Court has made following observation:
Burden of establishing mala fide is very heavy on the person who alleges it. The allegation of mala fides are often more easily made than proved and the very seriousness of such allegations demands proof of high order of credibility.
In the facts of the present case it is seen that there is no evidence on record to show that there was any deliberate intention on the part of assessee while making deduction of tax at source by considering the exemption available to its employees at Rs. 2.50 lakhs. There could be no personal gain to assessee as it is a Government company and therefore, allegation in the orders of Lower Authorities as to mala fide intention are not justified. In the facts of the present case, the assessee-company has amply demonstrated that actions of assessee were bona fide by referring to various correspondence which are placed in the paper book. The company has made honest estimate of salary income of employees for deduction of tax at source. The ratio as laid down by various authorities referred to in the submissions of the counsel of the assessee fully supports the case of assessee that it was a bona fide estimate by the assessee for the purpose of deduction of tax at source in the case of assessee-company. The ratio as laid down by the Hon'ble Jurisdictional High Court in the case of CIT v. Senior Accounts Officer, Madhya Pradesh Electricity Board also squarely applies to the facts of the present case. It has been held by the Hon'ble MP High Court in the case referred to hereinabove as under:
In our opinion, the Tribunal rightly accepted the explanation offered by the Board/assessee. It was not a case of deliberate attempt on the part of the assessee to avoid payment by way of deduction for being deposited. The assessee is not a private businessman but it is a Government statutory organization. Moreover there was some confusion as regards the extent of percentage to be deducted from the different class of customers. No sooner it was clarified, the Board made compliance from their own funds. In a case of the nature, the law laid down by the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa , when Their Lordships held (Page 29).
Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by statute.
In our opinion, the aforesaid principle of law squarely apply to the facts of this case, if we examine the explanation offered by the Board/assessee for not depositing/deducting the tax deducted at source from the particular class of consumers. In our view, the explanation was bona fide and deserves to be accepted. In no case was it a case of deliberate concealment or was done with a view to evade payment of tax and putting the Revenue to loss.
Considering the totality of the facts and circumstances of the case discussed hereinabove we are of the considered opinion that no penalty under Section 271C is imposable on the facts and circumstances of the case of assessee. We hereby delete the penalty imposed by Assessing Officer and confirmed by CIT(A) for both the years under consideration and allow both the appeals filed by the assessee.
16. In the result, the appeals of the assessee are allowed.