TMI Blog2005 (9) TMI 541X X X X Extracts X X X X X X X X Extracts X X X X ..... deration of Russia. 5. A survey operation under section 133A of the Income-tax Act, 1961 was carried out on 12-1-1999 and it was found that the assessee was not deducting TDS on various payments including rent, salary, contractual payments etc., as required by the provisions of Chapter XVII of the Income-tax Act. The assessee had not filed any return of TDS in previous years and in response to notice from the Assessing Officer, it filed return in Form No. 26J in respect of rental payments on 29-7-1999. The Assessing Officer passed order under section 201(1A) and required the assessee- company to file proof of payment of taxes before 30th May, 2000. While passing order under section 201(1A), the Assessing Officer appended Annexure A4, detailing therein default in respect of non-deduction of tax totalling to Rs. 1,65,78,899. 6. In view of the non-deduction of tax, a show-cause notice was sent to the assessee to show cause as to why penalty under section 271C be not imposed for default in non-deduction of TDS. In response to this notice, the assessee filed reply dated 10-4-2001, 4-5-2001 and 24th September, 2001. In particular the following submissions were made on behalf of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Governments of India and Russia, the assessee was under the impression that its entire income was exempt from tax. He further pointed out that the assessee-company was operating since 1957 and never in past any notice was sent by the Income-tax Department nor the assessee was asked to deduct tax from the payment of rent to the Airport Authority of India. The learned counsel invited our attention to page 29 of the paper book which is order of learned CIT(A) dated 8-4-1991 for assessment year 1986-87 in which it has observed that there existed reciprocal arrangement between India and Russia for not taxing the employees of Air India and Aeroflot in respective country under section 10(6)( iv ) of the Income-tax Act. 17. The learned counsel also made reference to the no objection certificate issued by the CIT dated 20th July, 1994 which is available at page 31 of the paper book. Further, the learned counsel also made reference to the letter dated 22nd May, 1995 written by the assessee-company to the ACIT in which it was clearly mentioned that no TDS is being deducted because Airport Authority of India is a Government of India organization and secondly Aeroflot is exempt from income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee through letter dated 23-3-1996. Paras 4 5 of this letter are as under : "4. We are also enclosing herewith statement for payment of RNFC and other Navigational charges paid to Government Deptt. National Airport Authority, IGI Airport, New Delhi for the period from 1-6-1994 to 31-3-1995. In this connection, we would like to inform you that we have been informed by the General Director of both IAAI and NAA that these are Government payments and no TDS is to be deducted on these payments. Further, they have referred the matter to their Ministry as well as Ministry of Finance and they are awaiting official reply from them in this regard at which time they will inform us accordingly. 5. A detailed statement of payment of amount to Hotel Maurya Sheraton for the period from 1-6-1994 to 31-3-1995 is enclosed herewith. In this connection, we would like to bring it to your kind notice that as per bilateral agreement between the two Governments, Aeroflot is exempt for payment of Income-tax under the double taxation avoidance treaty, as such No TDS was deducted by us. In view of the above, we seek your specific instructions whether to deduct the TDS on the above mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in the case of Marubeni Corpn. (Liaison Office) v. Jt. CIT [2002] 83 ITD 577 (Delhi), has accepted the plea of bona fide belief and reasonable cause. In that case of a non-resident company, the fault was for non-deduction of tax at source on certain amount of emoluments paid by the assessee-company to expatriate Japanese company. 26. In the case of CIT v. Itochu Corpn. [2004] 268 ITR 172 the Hon ble Delhi High Court has upheld the finding of the Tribunal wherein it was held that the assessee had paid the tax along with interest voluntarily and thus there existed a bona fide belief that tax was not deductible at source. 27. So far as the plea of reasonable cause is concerned, the same is to be examined in the context of the circumstances of each case. In the case of Woodward Governor India (P.) Ltd. v. CIT [2002] 253 ITR 745 the Hon ble Delhi High Court in that case considered the plea of reasonable cause and has observed as under : "Levy of penalty under section 271C of the Income-tax Act, 1961, for failure to deduct tax at source, is not automatic. In order to bring an application of section 271C, in the backdrop of the overriding non obstante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resumption that every person knows the law. It has been further observed that it is often said that every one is presumed to know the law, but that is not a correct statement and there is no such maxim known to the law. This observation of the Hon ble Supreme Court is fully applicable to the assessee s case. 31. In any case, and particularly in absence of any formal legal advice it cannot be assumed that the assessee was aware about its legal obligation cast upon it under the Income-tax Act relating to deduction of tax and therefore, it cannot be held that the assessee consciously disregarded its obligation. In the instant case the department has also failed to discharge its obligation in properly instructing the assessee at the time when the instructions were sought by the assessee from it. 32. In view of the above and in the totality of the circumstances pertaining to this matter we are of the considered opinion that the assessee had fully established a reasonable cause on its part for not being able to discharge its legal obligation. The plea of the assessee, in our opinion, justifies a reasonable cause, which is available in view of the provisions contained in section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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