Karnataka High Court
Karnataka Urban Infrasturcture ... vs The Commissioner Of Income-Tax on 4 August, 2008
Author: K.L.Manjunath
Bench: K.L.Manjunath
-1-
IN THE HIGH COURT OF' KARNATAKA AT BANGALORE;
DATED THIS THE 04% DAY 01? AUGUS'?'\i30€)3f'\ é "
PRESENT,w-
THE HON'BLE MR.JUS'FiC:1E§>K.L','_i\:E$NJiJNAFfiIi:V' '
Arifi».
THE I~£0N'BLE MR. JI}S'1f_i_§j'_1;3. v5;$_7PA.(:i~iH:1?;PUvI:?E
INCOME TAX "k;PPEAt.;NG;4V6% 1' 2004.
BETWEEN: . A _ M V' . '
KARNATAKA UREsA1§4£1{§?I§ASTi2uC';'U'iéE'4_" =
DEVELOPMENT
No.3, KSCMF BU£L;}ING;1'Ai " '-
M33-111, étw FLooR,..cu:§N:NG1;Aa.;_ ROAD,
BANGA1ORE_3~'56G0_52,'V'*..L *
REPRESEP?FEi1\'BY 1TS''MAiaAG1ޤ:- '
DIRECTQR, MR.K~..P. 2«;ms';1r~zp..;~x, 'MAJOR. : APPELLANT
~ . (BY sg1;1as;«;_bKVvKuLKA:eN1_,__A.:;v. FOR MfS.K.R.PRASAD, ADV.)
13- <§;tw£r.«iIfS's1.c3reER 0? ENCOME TAX
gAP'P.E;A'r;s) Iv, <:'§~:owGuLE HOUSE,
cREsa::,;+;:~rr_ .¥zo._as:j:s~, mneawas -- 560 001.
_ ' 2, THE IEFCOMB TAX OFFICER,
m:2~.s-111) 2s",~1s"r FLOOR, INFANTRY ROAD,
.3-EHGALQRE ---- 566 091. ; RESPONDENTS
.j;13'§=$iéi;é.a.v.sEs;{AcHAzA, ADV} TPHS I.'F.A. IS FILED UNDER SECTION 260-A OF' THE INCOME TAX WACT, 1961, ARISJNG OUT OF' ORDER DATED 22.3.2604 ?AS-SED IN ITA " . «~ NO.'?13fEANG/2001 FOR THE ASSESSMENT YEAR 1998--1999 PRAYING TC} FORMULATE THE SUBSTANTEAL QUESTIONS OF LAW STATED T}§EREIN AND ALLOW THE APPEAL AND SET ASIDE TPIE RODER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL IN ETA NO.7I2 TO 715/BANG/2001 IN ITA NO.713/BANG/'£2001 DATED 22.3.2004 AND CONSEQUENTLY CANCEL TH E ORDER PASSED BY THE CQMMISSONER OF' ENCOME 'TAX {APPEALS} «:2-an AND THE ORDER PASSED BY THE ENCOME TAX oFF1Q_E'§2."~z11, BANGALORE, E'I'C., mas 1.T.A. comma; or: FOR HEARINQ, THIS age-,nmmT;;.;.;»e DELEVERED THE FOLIDWING: .
JUDGMENT' This appeal is by the rient' V findings of the order passed by CerfiirJ;issiofierv.of..Ii1oo1ne Tax (Appeals) and the Income also by the Income Tax Appellate Txibjmal, Bajigézlo-}"e.}3enci1~V¥C.?:ii1x i'1'A No.?'13/ 2001 dated 22.3.2G_Q--4§;.. 2 ~
2. The facVts"to-this-'case are as hereunder:
The eeotor company wholly owned by the Staj:e"of The appellant] Company has entrusted '._Voe1+.a_;'";3'L" to a foreign company known as M] s.Louis Enc., USA, which is a non resident company to provide know how and consultancy to the appeiiant ~ fgezflitlsxczf :the contract. Similarly, it also entcmd into another A with a Company situated in UK. As per the terms and .co:n_&in'ons of the agreement, the appeiiantl company in addition making the payment towards the consultancy fees, the appellant has to reimburse the expenditure that may be incurred by those two companies, when they are in Kanmataka. 5% -3- (for the accommodation and conveyance of the ptwo companies, when they are in India). In terms of V' the appellant] company has to take of thetax the T non resident companies. Proceedi1Vi'gs:we1e 1 Income Tax Oificer invoking the'-pi"ovisions-- pl' 'Q61 and 201 (IA) of the income --the that the appellant] company as 195 of the Act did not deduct the in accordance with law, in of expenditure portion only. assesses stating that it was under
bonafide linpmssion.A*i:1ijat1 was requhed to be deducted in regard to' the since it was only an amount spent J "e-y aappellant] company towards the conveyance and the oflicersi employees of non resident coxnpajiies, they were in India for the purpose of execution 3216 agteement. The explanation oflered by the assesses was notppacoepted. Accordingly, an order was passed under Section and also under Section 201 (IA) of the income Tax Act. 14 order was challenged by the assessee by filing an appeal before the Commissioner of Income Tax (Appeals) which appeal came to be dismissed on 15.6.2001. Against which, the seconé fix -4- appeal filed before the Income Tax Appellate Txiburjiiil' in dismissal. Being aggrieved by the concuxreiit. pf Courts below, the present appeal is L
3. After hear1n' g, we haf}e.e:V:1'efe_'o:*x:3A'1ii.-a_te¢3.V_t1r1e VV"qties't1ens of V law as hezeundex".
(1) Whether en"'-- _ in the cincmnstances of the Oficer, Coznmission'e;:;§sf as well as the Tx~.'ae1n$eiV passing an older the li1eemeTax Act, without coi3jside:it1§£.he_: explanation shown by the q (2) \}sz3.eme:%ehe~,Aeeessmg Oflicer was justified lettyizlg ihm:eet__invoidng Section 201 (M) of the ~. the counsel ibr the parties, we are of the V .opiniei1 thett" the Assessing Oficer has not considered the H H u lellleaeplaaafiefillofiewd by the assessee in levying the penalty under Q0} of the Income Tax Act. According to the learned ll for the appellant, when the appellant being a company 'iaéholly owned by the State of Karnataka and had deducted taxes on behalf of the non resident companies, it was under the 41/ -5- bonafide belief that the amount spent towards and conveyance of the officers] employees of companies was not requixed to be as 2; it income. He further submits that W'hf§1:};'*.f3X wags fieduotedt 5:.
source in respect of the fee technical know how, the:e~..3:§'as'.'fio foetheflsssessee to deduct the tax payable .sp_ent towards the reimbursement t'};{ebfi;ffo1j'e'v:'Vj'eontends that the Asseesing the""_(3oi;1enissioner of Income Tax (Appeals; "fies ; Appeiz.-ate Tribunai did not consider }51*ope1f}y ofiered by the assessee. The learned eouxzsei for't};fe xeveftue submits all the authorities have J ,gfie._Iep1y« by the assessee. However, we are of explanation ofiemd by the assessee has not been tieottsidered by the Assessing Oficer and so also by , 'i:h,e other authorities for the following reasons. ' - Admittedly, the company' is wholly owned by the State In the explanation, it is contended that the tax iwas deducted at source based on the actual payment made to the non: resident companies to provide technical know how and {V -5- so aiso, the consultancy charges. Smce smaii spent by the company towards the conveyance of the oficers of non resi;jlent_oompa1iie's,_ 'vzheii visited India, under the bonafide tielictf. thcT,'sa1t1:e "wg:$>.}15tV» deducted and there was no to vioIet_e.'-"tee oitoetsions of Section 195 of the income Tax §¢'ae¢m"f§me in the arguments advanced by the appellant on the first questiott have not properly considered the assesses company had deéttctedt at ixzjzespect of the major payments made by it _a tnoirmreaideiiéth company, an ordinary man of pmdergee has the exp1.a11at:ion oflered by the appellant. En are of the opinion that the levy of 201 in respect of the tax not deducted on accouggtt of. tlfiieimbursement made by the assesses has to be asi;ié.._}*\cco1ding1y, Question No.1 is answexed in favour of thxee.asa":;ssee. So far as Question No.2 is concerned, the learned V. cotiiizsel for the assesses contends that Section 201 as Well as Section 201 (1A) are to be mad together and if the explanation offered by the aseessee not to levy penalty under Section 201 as Well as Section 201 (LA) cannot be pressed into sexvicc, as it 55/ -7- is only consequential one. According to him, if :is*.' not liab}e to pay the penalty, the Assessing levtrtt ' L. interest as contemplated under Section ( him, these two Sections are nofitnndependent to be L' read together. if these two sectionve'a;eVV;uead.tog,et}1e_rE, the order levying interest has to be téet aside; -the authorities did not consider the same V t t V s
6. The fer " gaeéenue contends that Section independent and levy of penalty £s_a';1_ mgeiiieeaét a:V_fd£:fit'e;ent fzoxn levy of interest. He further mnggugstgat ie:qj%'ou{ interest under Section 20: (m) is 'and no "'dis§:;r:tion is left with any other ofiicer of the two sections cannot be read conjunetively ad 'tnLd.ef;§endent and not linked with each other. Section * 20 1 :ee.ds""'nas hhfierennderz . $201. (1) If any such person (referred to in A' section 200) and in the cases referred to in section 194, the principal ofiicer and the oompany of which he is the principal oficer does not deduct (the Whole or any part of the tax) or after deducting faiis to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he W -9-
7. After reading these two sections, we are of the.',_opi.njon that levy of penalty under Section 201 and levy of Section 201 (IA) are entirely different. By c.-=%.u-s.-.5 shown by the assessee, an Assessing,' 'Qfi:'¢€?f is ja ' discretion to drop the penalty pz'o_ceed'i33.gfs;.. But o deducted under Section 193 of ttieonze the essessee is bound to pay interest, . prtfiiiisien. Even. if the penalty proceedings {Section 201, the assessee cannot pay. itfztezest under Section 2&1 (us) mesa tmgggmion that both the sections axe indepeneent inter-linked and they cannot be read-conj1tticfiire13?v"as."-letijt of interest and levy of penalty are htwo ciifiere-.2: In the circumstances, we have to advanced by the revenue afid reject the contehtion. by the iearned counsel for the assessee. we answer Question No.2 in favour of the Ievenue a:1d.,ag4a3'nst the assessee.
8. in the result, the appeal is alioweei in part. The erder "passed by the Assessing Ofieer confirmed by the Commissioner of Income Tax (Appeals) and further confirmed by the Income & ..1{)-
Tax Appeiiate Tribunal in levying Wnalty under a the izxxame Tax Act is hereby set «?.'3ifif'.. 'A interest under Section 201 (1A) of t]3»e:"1I11€:%§_fi3éé is " .A Judge JL """