TMI Blog2004 (12) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... to various projects in India. During the assessment years under consideration the assessee-company provided technical consultancy services under various projects founded by Overseas Economic Co-operation Fund in pursuance of the following agreements: S. No. Project Execution Date of Agreement Status 1. Development of Tourist Infrastructure along the Buddhist Sector ( DTIBS Project ) Ministry of Tourism ( MOT ) GOI 19-10-1990 Completed (1990-98) 2. Ajanta-Ellora Conservation and Tourism Development Project ( AECTDP Project ) Ministry of Tourism ( MOT ), GOI 10-8-1993 Completed (1993-98) 3. BangaloreWater Supply and Sewerage Project ( BWSSB Project ) BangaloreWater Supply and Sewerage Board ( BWSSB ), GOI 29-11-1996 Ongoing (1996 - till date) 4.2 The appellant was making payment of salary to the expatriate employees inJapan. During the verification of the TDS return filed by the assessee-company, it was noticed by the Department that the assessee was not deducting tax from the salaries paid to its expatriate employees. The claim of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volved. He also held the assessee liable to pay penalty for the same amount. The learned Jt. CIT also held that no reasonable cause has been put forth by the assessee-company and the company has failed to discharge the obligation cast upon it by the statute to deduct tax at source and, therefore, the assessee-company was defaulter within the meaning of s. 271C of the IT Act. The learned Jt. CIT imposed penalty for the various financial years as under: S. No. Financial year Amount of short deduction of tax(Rs.) 1. 1990-91 35,19,158 2. 1991-92 68,56,724 3. 1992-93 45,54,180 4. 1993-94 31,50,965 5. 1994-95 27,26,080 6. 1995-96 29,70,024 7. 1996-97 26,79,360 8. 1997-98 36,50,436 9. 1998-99 26,27,201 Total 3,26,99,128 4.5 The assessee challenged the imposition of penalty before the learned CIT(A). Before him it was submitted, inter alia, that the assessee had a bona fide belief about exemption and this belief emanated from the terms of the contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, it was under legal obligation to deduct tax and as it failed to deduct tax at source, it was a defaulter and consequently liable for imposition of penalty under s. 271C. According to the learned senior Departmental Representative, irrespective of any assurance if exemption was not granted to the assessee, the liability persisted and, therefore, for breach of such liability the penalty was imposable. The learned senior Departmental Representative also placed reliance on the order of learned CIT(A). Regarding the plea of reasonable cause, the submission of the learned senior Departmental Representative was that the burden to establish a reasonable cause was upon the assessee and as this burden was not properly discharged, the learned CIT(A) was justified in upholding the imposition of penalty. In support, the learned senior Departmental Representative placed reliance on the following decisions: (i) Sunderdas Thackersay Bros. vs. CIT (1982) 26 CTR (Cal) 290 : (1982) 137 ITR 646 (Cal); (ii) Kunj Behari Lal Lalta Prasad vs. ITO (1983) 144 ITR 583 (All); and (iii) Woodword Governor India (P) Ltd. vs. CIT Ors. (2001) 168 CTR (Del) 394 : (2002) 253 ITR 745 (Del). 7. In rejo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." 8.2 The second agreement is dt.10th Aug., 1993. This agreement is also with the same ministry, i.e., the Ministry of Tourism, Government of India. A copy of this agreement is available at pp. 86 to 105 of the paper book. In this agreement also a similar warrantee as incorporated in cl. (5) of the first agreement, referred to above, was given on behalf of the Government of India. 8.3 The third agreement is dt.29th Nov., 1996, which is between the assessee and Bangalore Water Supply Sewerage Board. In this agreement also clause No. 5 was incorporated which is as under: "5.01. The BWSSB warrants that all payments to the foreign consultant and their staff shall be free from all taxes, duties, fees, levies and other impositions under the laws and regulations of India, and that BWSSB will pay any taxes to the tax authorities that are required by the taxation regulations, in respect of: 5.01.1 any payments made to the foreign consultant or to the expatriate staff in connection with the carrying out of the services; 5.01.2 any equipment, materials and supplies brought intoIndiafor the purpose of carrying out the services and which will be subsequently re-exported therefrom: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In order to process this, we are advised that we require an exemption letter from the tax authorities and that this will be issued on application from your ministry directly to the IT Department. We would appreciate if you would initiate the application to the authorities and confirm that we are willing to assist in any way possible. Thank you in anticipation of your early co-operation in this matter. Your faithfully, Sd/- (David Ferguson) Project Manager" 8.6 Thereafter, following correspondence was made between the Ministry of Tourism and the Ministry of Finance: 8.7 In the letter dt.23rd Sept., 1991, a request was made by the Ministry of Tourism to the CBDT, Ministry of Finance, to grant necessary tax exemption certificate. The relevant paras of this letter are being reproduced below: "M/s Pacific Consultants International,Tokyo, were appointed consultants accordingly and an agreement was signed with them by the Ministry of Tourism on19th Oct., 1990. The art. 5.01 entitles a foreign consultant exemption from payment of local taxes. The salary of the repatriate staff is paid in foreign currency by their head office inTokyo. You are requested to kindly grant necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia or the Government shall reimburse to the consultant the cost of the said account, if the exemption is not granted by the tax authorities in respect of any payments made to the foreign consultant or to the expatriate staff in connection with the carrying out of these services. 4. All payments to the foreign consultants are made in Japanese Yen (inTokyo), through a letter of credit opened with the supp of OECF. 5. Since ministry has budgetary constraints, allocation of fund for the purpose of tax payment can only be to the Department of other tourism projects. The project for the development of infrastructure in such tourist areas is designed to promote foreign tourism and thus earn foreign exchange for the country. 6. The Ministry of Tourism has already taken up the matter with the Central Board of Direct Taxes, Revenue Department, Ministry of Finance for the exemption for the payment of income-tax and corporate taxes to M/s Pacific Consultant International,Tokyo." 8.12 Another letter was written in this regard on19th Oct., 2001. Similarly, on29th Aug., 2001, also the Jt. Secretary, Ministry of Tourism, Government of India, wrote a letter to the Jt. Secretary, Ministry o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot susceptible of a clear and precise definition; for an attempt to give a specific meaning to the word reasonable is trying to count what is not number and measure what is not space. It can be described as rational according to the dictates of reason and is not excessive or immoderate. The word reasonable has in law the prima facie meaning of reasonable with regard to those circumstances of which the actor, called on to act reasonably, knows or ought to know. Reasonable cause can be reasonably said to be a cause which prevents a man of average intelligence and ordinary prudence, acting under normal circumstances, without negligence or inaction or want of bona fides." 8.16 From the above proposition laid down by the Hon ble Supreme Court also, it is clear that the reasonable cause can be said to be a cause which prevents a man of average intelligence and ordinary prudence or, in other words, a prudent man acting under normal circumstances, to take a particular view of the matter. In the present case, in the facts and circumstances mentioned above and, in particular, on the basis of the agreements and correspondence referred to above, the assessee had a bona fide belief that i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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