Income Tax Appellate Tribunal - Mumbai
Leighton Welspun Contractors ... vs Department Of Income Tax on 30 November, 2015
आयकर अपील य अ धकरण, मंब ु ई यायपीठ,L,मंब ु ई ।
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES "L", MUMBAI Before Shri Saktijit Dey, Judicial Member, and Shri Ashwani Taneja, Accountant Member ITA NO.4552/Mum/2013 Assessment Year: 2009-10 ADIT(IT), 4(1) Leighton Welspun Contractors 133 Scindia House, बनाम/ P. Ltd.
Ballard Pier, 7F, Tower 3, Equinox business Vs. Mumbai-400038. Park, (peninsula Techno Part) off BKC, LBS Marg, Kurla(W) Mumbai-400070 (Revenue) (Respondent) P.A. No.AAACL3338D Revenue by Shri Amerender Reddy (DR) Respondent by Shri Paras Savla & Shri Harsh Kapadia (AR) ु वाई क तार ख / Date of सन 26/10/2015 Hearing :
आदे श क तार ख /Date of Order: 30/11/2015 आदे श / O R D E R Per Ashwani Taneja (Accountant Member):
This appeal has been filed by the Revenue against the order of Ld. Commissioner of Income Tax (Appeals)-11, Mumbai {(in short Ld. CIT(A)} dated 05.03.2013 for the assessment year 2009-10, decided against the penalty order passed by the Jt. Director of Income Tax (International 2 M/s. Leighton Welspun Co.P.L Taxation) u/s 271C of the Act. The Revenue has filed following grounds of appeal:
"On the facts and the circumstances of the case and in law whether the Ld. CIT(A) erred in deleting the penalty by holding that the fact of payment without TDS has been noticed by the AO only on the basis of TDS return filed by the appellant and that applicability of TDS provision is debatable especially when appellant has accepted the liability to deduct tax by not preferring any appeal against the order of AO u/s 195.
2. On facts and the circumstances of the case and in law whether the Ld. CIT(A) erred in holding that provisions of Sec. 271C would not be applicable in the absence of any desire on the part of appellant to make payments without TDS and whether such observation can be considered 'reasonable cause' u/s 273B.
3.On the facts and the circumstances of the case and in law whether the Ld. CIT(A)'s finding in para 31 of his order that Ld. AR relied on CA certificate and made payment without TDS under bonafide belief is sufficient to arrive at 'reasonable cause' as envisaged u/s 273B.
4. The Appellant prays that the order of the Id. CIT(A) on the above ground(s) be set aside and that of the Assessing Officer restored.
5. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary."
3 M/s. Leighton Welspun Co.P.L
2. During the course of hearing Shri Paras Savla & Shri Harsh Kapadia Authorised Representatives (Ld Counsel) on behalf of the assessee and Shri Amerender Reddy Departmental Representative (Ld DR) on behalf of the Revenue, argued the case.
3. All the grounds address the common issue of deletion of penalty of Rs.11,55,280/- by the JDIT u/s 271C of the Act, therefore, these are disposed of together.
3.1. The Brief background of the case is that the JDIT passed an order u/s 201/201(1A) dated 30th March, 2012 upon the assessee company, wherein it was held that the assessee has failed to deduct TDS on the following foreign remittances/payments:-
(i)Rs.11,80,727/- towards engineering and draughting services provided by M/s. AEC Technology Ltd., UK.
(ii) Rs.63,27,749/- for providing engineering services to Lye Singapore Pte. Ltd., Singapore
(iii) Rs.49,084/- for purchase of shrink wrapped software from Insight Technology Solution Pte. Ltd., Singapore.
(iv) Rs.33,47,404/- for purchase of shrink wrapped software from Q.A. Software, Australia.
(v) Rs.35,189/- for purchase of shrink wrapped software i.e. Microsoft's Visio software from Software One Pte. Limited, Singapore.
4 M/s. Leighton Welspun Co.P.L 3.2 It has been informed by the parties to us that no appeal was filed by the assessee company against the aforesaid order, and it was accepted so as to bury the litigation and to buy peace, otherwise there was no failure on the part of the assessee, as no TDS was liable to be deducted on the aforesaid remittances/payments, as per law.
3.3. Subsequently, be that as it may, the JDIT, initiated proceedings u/s 271C for levy of penalty on the failure of the assessee in deducting tax as source. During the penalty proceedings, the assessee made detailed submissions. It was noted from the records that during the penalty proceedings, the assessee company submitted that assessee was not liable to deduct TDS on the aforesaid payments and consequently it was not liable for the penalty u/s 271C also, for the following reasons:
(i) Payment to M/s. AEC Technology Ltd. is made for providing engineering and draughting services and these services do not qualify as FTS within Article 13(4)(c) of India-UK Treaty, and in any case M/s. AEC Technology Ltd. was not engaged in development and transfer of technical and transfer of plan or technical design and that M/s. AEC Technology Ltd. has not made available any technical know-how etc. to the assessee. This payment is in the nature of business income of M/s. AEC Technology Ltd. and in absence of PE (Permanent Establishment), such income is not taxable in India.
(ii) Payment to Lye Singapore Pte. Ltd. is for providing engineering services and these services do not qualify as 5 M/s. Leighton Welspun Co.P.L FTS within Article 12(4)(c) of India- Singapore Treaty.
(iii) Payments to Insight Technology Solution Pte. Ltd. and Q.A. Software and Software One Pte. Limited are for purchase of shrink wrapped software and hence, it is not liable for taxation in India.
3.4. It was further submitted by the assessee during the penalty proceedings that in all these cases TDS was not deducted in view of the certificate issued by the CA, in this regard, at the time of making remittances and therefore, penalty should not have been levied for not deducting the TDS, on the basis of CA's certificate. The assessee relied upon the various judgments in its support to demonstrate that issues involved were decided in favour of the assessee or these were at least debatable, and in any case there was reasonable cause for not deducting TDS, and therefore, this case was not liable for levy of penalty u/s 271C.
3.5. But the JDIT did not agree with the submissions of the assessee and he levied the penalty u/s 271C for an aggregate amount of Rs. 11,55,280/-.
3.6. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) and there also detailed submissions were made in the appellate order passed by the Ld. CIT(A). He referred to the facts of the case.
Being aggrieved the revenue has filed an appeal before us during the course of hearing detailed arguments have been 6 M/s. Leighton Welspun Co.P.L made by the Ld. DR. It has been submitted by him that order passed u/s.201, holding the assessee in default was not challenged by the assessee, thereby accepting the failure on the part of the assessee. Thus, now, when the penalty has been levied, the assessee is trying to make out case that the impugned payments were not subject to deduction of TDS. These arguments are after thought in view of clear position of law. It was further submitted that the argument of 'debatable issue' is not available to the assessee as he has accepted the order u/s 201, holding the assessee in default. It was further submitted that assessee has not been able to demonstrate the reasonable cause and that assessee's case does not fit into the scope of reasonable cause. It has been further submitted that some of the cases relied upon by the Ld. Counsel pertain to the penalty u/s. 271(1)(c) which is not comparable to section 271C, since there is no mention of section 271(1)(c) in the section 273B. It was further submitted that there is no provision of relying upon CA's certificate u/s 195. He has relied upon section 195(2), to submit that the assessee has to strictly comply with the provisions of section 195 and he cannot justify his failure in deduction of TDS by relying upon any CA's certificate, in view of specific and clear provisions of section 195. It was, thus, requested by the Ld. DR that penalty was rightly levied by the AO and therefore, it should be confirmed, and order of Ld. CIT(A) should be reversed.
3.7. On the other hand, Ld. Counsel of the assessee has submitted that penalty was unjustified and illegal in view of the facts of this case and clear position of law. It has been submitted by him that all the impugned payments can be put into two categories i.e. payments towards:
7 M/s. Leighton Welspun Co.P.L
(i) Engineering and Draughting services provided by AEC.
(ii) Payments for purchase of shrink wrapped software (i.e. standard computer software) 3.8. Detailed arguments have been made by the Ld. Counsel with respect to all the aforesaid five payments to argue that:
a) The issue involved with regard to deductibility of TDS on the impugned payments is highly debatable,
b) The assessee had bonafide belief while making payment without deducting TDS, more so by relying upon CA's certificate
c) In any case the assessee had a reasonable cause and this case is covered by section 273B. He has relied upon various judgments to show that the issue involved is debatable.
3.9. We have gone through the orders of the lower authorities, submissions made, material placed before us for our consideration and judgments relied upon by both the sides. The solitary issue, which we have been called upon to decide, is that whether in the given facts of the case whether penalty levied u/s 271C by the AO for the alleged failure of the assessee in deduction of tax at source on five foreign remittances, has been rightly deleted by Ld. CIT(A). In this regard, before discussing the facts of this case, it is noted by us that penalty u/s 271C can be levied subject to section 273B. It provides that no penalty shall be imposed on the 8 M/s. Leighton Welspun Co.P.L person or the assessee as a case may be for any failure rendered to in the said provisions if he proves that there was 'reasonable cause' for the said failure. Therefore, if assessee is able to make out that there was a 'reasonable cause' for his failure in deduction of tax at sources then position of law is very clear that penalty u/s 271C shall not be levied. Thus, before levying the penalty, the concerned authority is required to find out if there was a 'reasonable cause' on the part of the assessee. It has been held in various judgments that "reasonable cause" as applied to human action is that which would constrain or prevent a person of average intelligence and ordinary prudence, from taking action which said person would have taken in the normal circumstances, but for the said cause. It can be described as a probable cause, and it means an honest belief founded upon reasonable grounds of the existence of a state of circumstances, which, assuming them to be true would reasonably lead any ordinary prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do.
3.10. In this regard we can take reference from the judgment of Hon'ble Delhi High Court in the case of Woodward Governor India (P.) Ltd. v. CIT (253 ITR 745) (Delhi) relevant para of the said judgment is reproduced below:
"Levy of penalty under section 271C is not automatic. Before levying penalty, the concerned officer is required to find out that even if there was any failure referred to in the 9 M/s. Leighton Welspun Co.P.L concerned provision the same was without a reasonable cause. The initial burden is on the assessed to show that there existed reasonable cause which was the reason for the failure referred to in the concerned provision. Thereafter the officer dealing with the matter has to consider whether the explanation offered by the assessee or the person, as the case may be, as regards the reason for failure, was on account of reasonable cause. "Reasonable cause" as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as a probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead any ordinary prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that same was the right thing to do. The cause shown has to be considered and only if it is found to be frivolous, without substance or foundation, the prescribed consequences will follow."
3.11. We further noted from the perusal of various judgments that what would constitute 'reasonable cause' cannot be laid down with precision and that the question as to whether there was a reasonable cause or not for the assessee not to deduct tax at source at all or under some particular provisions than prescribed is a question of fact which is required to be ascertained in the facts and circumstances of each case.
3.12. In the aforesaid position of law we have analysed facts of this case, as brought before us. It is noted that as per the AO 10 M/s. Leighton Welspun Co.P.L the assessee was liable to deduct tax at source on the five remittances particulars of which have been narrated in this order above. For analyzing the obligation of the assessee under the law to deduct TDS on these payments, we can put these payments into two categories i.e. 1) payments made for Engineering and Draughting services (i.e. design and drafting services) and 2) payments made for purchase of shrink wrapped software (i.e. a standard computer software).
3.13. As far as first category of payment is concerned, these were made to two parties namely AEC Technology Ltd., UK and Lye Singapore Pte. Ltd., Singapore. The assessee has submitted that he was under bona fide belief that these two payments are not liable for deduction of tax at source under the income tax law of our country, for the reason that nature of payment of these services is not FTS, as per India-UK DTAA and India UK DTAA, for the reasons that as per article 13/12 of the FTS, there is a 'make available condition'. It has been submitted that as per terms of the agreement entered into by the assessee with these parties, the assessee is charged merely to use the design services provided by the services providers and that the assessee is not eligible to apply technology contained therein. On the other hand, to make payments of these services taxable in India, into form of FTS or otherwise, "the development and transfer of technical plan or technical design" services should be "made available"
to the assessee in such a way in which the assessee should be in a position to apply the technology contained in the technical 11 M/s. Leighton Welspun Co.P.L services availed by the assessee from these parties. In absence of the same, the payments cannot be categorised as FTS under the treaty law, and consequently, there would arise no obligation to deduct tax at source.
3.14. It has been submitted by the assessee that on this issue clear law was not available, and therefore, assessee adopted one of the views available in a bonafide manner. The submissions of the assessee was rejected by the AO on the ground that there was no debate on this issue, and the assessee was clearly liable to deduct tax at source.
3.15. We have analysed this controversy. In our considered opinion, not much is required to be deliberated to say that whether a particular service entails 'make available' facility or not, cannot be decided under the straight jacket formula. There would always be various 'ifs and buts' in deciding this factor and this issue will have to be decided in the given facts and circumstances of the case after a long drawn process. It is further noted by us that there is huge controversy arising before various courts with respect to these issues. Ld. Counsel of the assessee has drawn our attention on clause 4(c) of Article 12 of India- Singapore Treaty, which deal with royalties and fee for technical services. Clause 4(c) provides that the term "fee for technical services" excludes from its definition any service that does not enable the person acquiring the services to apply the technology contained therein.
12 M/s. Leighton Welspun Co.P.L 3.16. It is further noted by us that the undisputed fact is that there was a CA's certificate, and relying upon the same only the assessee took a view that it was not liable to deduct tax at source on the payments made to these two parties.
3.17. Similarly, with regard to payments made to remaining three parties for purchase of shrink wrapped software (i.e. standard computer software), the TDS was not deducted by the assessee for the reason that the impugned payments were for a copyrighted article, i.e. they were 'goods' and, therefore, such payments were not nature of royalties as per the income tax act as well as respective DTAA's. Rather these were to be treated as sale of goods and were treated taxable as business profits.
3.18. It is noted that there is huge controversy on this issue, and therefore, assessee placed reliance on the judgments which were in its favour including the judgment of Hon'ble Supreme court in the case of Tata consultancy services 271 ITR 401. It is noted by us that various High Courts and benches of the tribunal have taken contradictory stands on this issue. The assessee has furnished list of various cases 'for' and 'against' the assessee, on this issue. Apparently, assessee adopted one of the views available.
13 M/s. Leighton Welspun Co.P.L 3.18. Under these circumstances, we are unable to accept the stand of the AO that - "no controversy was involved on the obligation of the assessee for deduction of TDS on the impugned payments and that view taken by the assessee was not one of the possible view and was not bonafide view, and accordingly there could not have been any reasonable cause for non-deduction of TDS on the impugned payments". In our considered opinion, the decision with regard to the obligation of the assessee for deduction of TDS on the aforesaid payments was highly debatable, in the given facts of the case and legal scenario discussed above. The view adopted by the assessee based upon the certificate of the C.A., was one of the possible views and can be said to be based upon bonafide belief of the assessee. Therefore, under these circumstances we can hold that there was reasonable cause as envisaged u/s 273B for not deducting tax at source by the assessee on the aforesaid payments, and therefore, the assessee was not liable for levy of penalty u/s 271C, and therefore, the Ld. CIT(A) has rightly deleted the same. We uphold the order of Ld. CIT(A) and dismiss the grounds raised by the Revenue in its appeal.
14 M/s. Leighton Welspun Co.P.L
4. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 30th November, 2015.
Sd/- Sd/-
(Saktijit Dey ) (Ashwani Taneja)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मब
ुं ई Mumbai; दनांक Dated : 30/11/2015
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आदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु त(अपील) / The CIT, Mumbai.
4. आयकर आयु त / CIT(A)- , Mumbai
5. #वभागीय त न&ध, आयकर अपील य अ&धकरण, मब ुं ई / DR, ITAT, Mumbai
6. गाड+ फाईल / Guard file.
आदे शानस ु ार/ BY ORDER, स या#पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मब ंु ई / ITAT, Mumbai