Karnataka High Court
Karnataka Urban Infrastructure ... vs The Commissioner Of Income-Tax on 4 August, 2008
Author: K.L.Manjunath
Bench: K.L.Manjunath
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IN THE HIGH COURT OF' KARNATAKA AT BA.fiGAi;§}"RE 2
DATED THIS THE 04TH DAY;aF.Aue.>_tiSfi" 209$'
PRESENT'; S S' V'
THE HON'BLE MR.JU'$T:-Cg K.'L.MANJUVNAf_1*iiV
AN_I.)_f. ' S E
THE HON'BLE MR«.}JUsTI§:E A;s;I§ASHHAPURE
INCOME TAX 'AP?fEAL'."N_Q;_i;géo4.
BETWEEN: . _ S S S' S
KARNATAKA Ukaaréi _ih:_FRAsTRiJéf;*tiRE-T' V
DEVELOPME.NT_ Fi1~_IAN€£._ CORPQRATEONL
NO.8, KSCMF BU'1L;a1NG,v";V _ ' _
M333-Iii, 2559 ROAD,
EANGAD£)RE--S6O c)_5z'~.g.T_ _.
REPRESENTED ,3? ITSMAr¢AG11§i_r3
DIRECTOR, MR.I{. P_.K§?1SHN15;N, MAJOR. :APPEI.LANT
" - gay S.E§I'::AS§i€)i{.__KULI{§;R}$I.,.AV. FOR M/S.K.R.PRASAD, ADV.)
1]' ._ V'"E"___T§iE'CCMMEVSSIbNER OF INCOME TAX
{APPEALS} 1v,'c.;;owGULE HOUSE},
c;2Es'c.ENT_vie0,aE;, BANGALORE -- $0 001.
~- 2, THE INCOME TAX OFFICER,
' {TBS-HI; 181* 121,003, INFANTRY ROAD,
'*I3'ANGAi~_«ORE --- 560 001. : RESPONDENTS
--.($.18?§sRi;M.v.sEsHAcHA:.A, ADV.) THIS I.T.A. IS FILED UNDER SECTION 260-A OF' THE INCOME TAX SVACT, 1961, ARISiNG OUT 0? ORDER DATED 22.32004 PASSED IN ITA " R0312/BANG/2001 FOR THE ASSESSMENT YEAR 1997-1998 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIORS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE; RODER PASSED BY THE INCOME TAX APPELLATE TRIBLHVAL IN ETA NO.7i2 TO 715/BANG/2001 IN ITA NOYIZIBANG/2001 DATED 22.3.2004 AND CONSEQUENTLY CANCEL THE ORDER PASSED BY THE COMMISSIONER OF' INCOME TAX (APPEALS) -2- AND THE ORDER PASSED BY THE INCOME TAX OFSKEER'.j_~(*;f§oe;_.__1;2,_ BANGALORE, 1-:'rc., THIS E.T.A. comma ON FOR HEARJNG,~THIS-'_:£)AYi," ' ; DELIVERED 'THE FOLLOWING: _: Z' A. , JUD(},MEN'I'* This appeal is by the finctings of the order pass'es:1__by f{}ojo3;Ti1i3cionet9"of"Vinco13ae Tax (Appeals) and the Income by the Income Tax Appellate Ttjbitoeal, ITA No.7 12/ 2001 dated " 'V t 4' V' '
2. :V:vThe case are as hereunder".
The sector company wholly owned by _ the of Kaxiiatéfita. ':'1'he appellant] Company has entrusted coot1a cts_ to a foreign company known as M] 8. Louis Inc., USA, which is a non resident company V V _ to pIovide--. tec1io1'cal know how and consultancy to the appellant 'A tezqzns ofthe contract. Simiiariy, it also entered into another 4: -eofit:i~act with a Company situated in UK. As per the tezms and Vt "co1;tdifions of the agreement, the appeiiantl company in adciition " " to malcing the payment towarfis the consultancy fees, the appellant has to reimburse the expenditure that may be incurned by those two companies, when they are in Karnataka. §-/ -3- (for the accommodation and conveyance of the Vfwo companies, when they are in India). in terms of V' the appellant/company has to take of t};1ez_tax as non resident companies. Proceedings :'W€I'€ Income Tax Offioer invoking the of 2(li 201 (m) of the Income ,_'I'ax At:t.»tl1e that the appellant] company as reqiiireci 195 of the Act did not deduct the in accordance with law, in of expenditure portion only. Raply .by~.tlie'_as.sessee stating that it was under
honafide iingaxressioael was required' to be deducted in regard the since it was only an amount spent A appellant] towards the conveyance and the oficersl employees of non resident ' conipm 'es,. they were in India for the purpose of execution ._'oiT,the agifeement The explanation ofiemd by the assessee was w,/)"/ Accordingly, an order is' passed unéer Section 20 1 also under Section 201 (IA) of the Income Tax Act. This V lorcler was challenged by the assesses by filing an appeal before the Commissioner of Income Tax (Appeals) which appeal came J to be dismissed on 15.6.2001. Against which, the second appeal 6/ -4- filed before the Income Tax Appellate Tribunal also' " in dismissal. Being aggficvcci by the concurrent Courts below, the present appeal is
3. After hearing, We have refeimfilfiwd 'quesfi§ixs bf L lawas hereunder. V ' V S (1) Whether on.» tile circumstances of the time Oficer, Commissioner of Ineonfi_t:--.Ta5_< Well as the Tribuyaamerc :;j11s.§;ifieci'~.iii"'--1:>:1s.;$;iViig an order ems mac Tax Act, without cof;si4sie:1i:1Vg"'i:3r1:e.Vé:i.*1d explanafion shown. by the «V (2) 2 Whet_herVthe'~.Aésessing Oficer was justified 1¢§rya'.gg i1ite:'e$t..i11Vol<ing Section 201 may of the ~_ in<:dm_e Act ?
= the counsel for the parties, we am of the «Qpiniofi £116 Assessing Oficer has not considered the H K oflered by the asscssee in levying the penalty under of the Income Tax Act. Accozding to the learned T for the appellant, when the appellant being a com any c£€06"C "' n ivholly owned by the State of Kaxnataka and had paid taxes on behaif of the non resident companies, it was under the bonafidc W. ,_ ....":)....
beiief that the amount spent towards accommod,at:io:n._V_and conveyance of the officers] employees of the __ companies was not required to be heated of income. He further submits that when, 'dead at e sounee in respect of the fee payable he s, technical know how, there was for 'fheesssessee to deduct the tax payable: on spent towards the reimbursement charges. e".etherefot9e'eA--e.fV_'eontends that the Assessing Oficer' 'as:Z'we1i._ as the"'€3ortimi$.éioner of Income Tax (Appeals) he Appeiiate Tribune} did not consider fizoperlye the offered by the assessee. The learnedennnsei for the revenue submits all the authorities have theteply by the assessee. However, we are of expkanation ofiered by the assesses has not been esonsidexed by the Assessing Oficer and so also by w___&e othef authorities for the folkowing reasons. Admittedly, the company is Wholly owned by the State T Kaxnataka. In the explanation, it is contended that the tax V e [was deducted at source hased on the actual payment made to the non~ resident companies to provide technical know how and (V agd no 'discretion is left with any other officer of the -7- is only consequential one. According to him, if the is not liable to pay the penalty, the Assessing interest as contemplated under Section 201 him, these two Sections are not indegiendent i read together. If these two sections 1 levying interest has to be set and aiiI'ttie'i*»i1utif;orin'es did not consider the game it it
6. The learned counsei :theo:_iireifeii1tge contends that Section independent and levy of penalty from levy of interest. He further conteitds-the1t_ interest under Section 201 (1A) is Cem' pt-<«<:5r\'V° ('E3 'L' two sections cannot be read r, as t11ueyiéz}?e and not linked with each other.. Secfion 20 1 Iendsins nliieteunder:
. z V2201. (1) If any such person (referred to in it section 200) and in the cases referred to in section 194, the principal oficer and the company of which he is the principal oficer does not deduct (the whole or any part of the tax) or after deducting fails to pay the tax as required by or under this Act, he or it shall, without pzejudice to any other consequences which he W, -3- or it may incur, be deemed to be an ' default in respect of the tax:
Provided that no charged under sectionjg-::g 1 printipal oficer or (Assessing) Officer ie.c"'seti:3fied. thét' 'such person or pxincifpéi offieelfer as the case may be,/_._ has' V and suficienfe and pay the ..
Section :20': e'(1.A}:,a1§§i§iA;xeaas«"§as hereunder; IA}. hp-x%ejV;1dhice to the provisions of suh~s"egutio11 such pexson, principal pffizzer of ae is referred to in that sub . iéectionc-does"h6t"deduct (the whole or any part of " after deducting fails to pay the tax as _ under this Act, he or it shail be A hay simple interest at { [twelve] per cent perhannum] on the amount of such tax from the AA ' on which such tax was deductible to the date V' -0:11 which such tax is actuaiiy paid [and such interest shall be paid before filmishing the quarterly statement for each quarter in accordance with the pmvisions of sub~sect:io11 (3) of section 2200].}" 'JV.
.9.
?. Afier reading these two sections, we are of ogiizglon that levy of penalty under Section 201 and levy of Section 201 (1A) are entirely difi"ere1_2_L.. . 1 shown by the assessee, an Asselssings a discretion to drop the penalty ,ta.v§ is lnot' deducted under Section 195 of lllncozhe assessee is bound to pay interest; provision. Even if the penalty pmceedingsvAsre_ 'Section 201, the assessee cannotliveseaw tolj:lé1y"ii1tezest under Section 201 (1A)'.3 the opinion that both the sections are mdepelmlentt hot inter-linked and they cannot Cgrfit.-.~o~eH'v c"'--."(g be reafi .as'1evy'of interest and levy of penalty are two In the circumstances, we have to accept by the revenue and reject the conte~z1_tiot:~ by the learned counsel for the assessee.
'~._'A<:>co1fii1igl;,?', we answer Question No.2 in favour of the revenue the assessee.
8. In the result, the appeal is allowed in part. The order u x passed by the Assessing Oficer oonfixmed by the Commissioner of Income Tax (Appeals) and further -confirmed by the Income £2,
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Tax Appenate Tribunal in levying penalty fiécéf the Income Tax Act is hereby set.:asid.c. j interest under Section 201 (1A) of th;"e Izfz.rA,':t;s'1'I:xe confirmed. T ' sai-
Judge sax-
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