TMI Blog2014 (1) TMI 1233X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, the assessee is not treated as an assessee in default for the purpose of section 201(1) of the Act – Relying upon Hindustan Coco Cola Beverage Pvt. Ltd. vs. CIT [2007 (8) TMI 12 - SUPREME COURT OF INDIA] - interest u/s. 201(1A) is mandatory and is required to be charged – thus, it is evident from the assessment order that the assessee was not treated as an assessee in default u/s. 201(1) of the Act. When the AO himself treated the assessee as an assessee not in default in respect of the amounts of TDS to be deducted, then there cannot be any scope for levying penalty u/s. 271C of the Act - the amount of tax has been paid by the recipient of the income - the provisions of section 271C cannot be applied to the assessee's case as these provisions clearly state that if any person fails to deduct whole or any part of the tax as required under the provisions of Chapter XVII-B, then such person shall be liable to pay by way of penalty an amount equal to the amount of tax which such person failed to deduct or pay as above said – thus, the assessee is not in default in respect of the amount of tax itself, there cannot be any levy of penalty u/s. 271C, more so, where there was a rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C of IT Act cannot be held as legal in view of the fact of clear observation by the assessing officer that the assessee was not treated as defaulter for the purpose of section 201(1) of the IT Act. b. Without prejudice to the above, tile action of the Add!. CIT, Range-15, Hyderabad in initiation of penalty proceedings by issuing show cause notice dated 21.3.2011 held to be invalid as the same were barred by limitation. c. Without prejudice to the above, the action of the Addl. CIT, Range-15, Hyderabad if at all empowered to levy penalty he ought to have finalized the proceedings within six months from the end of the month (November 2009) in which the order u/s 201(1) 201(1A) was passed. d. The Addl. CIT, Range-15, Hyderabad ought to have observed that the provisions of section 275(1)(a) or (b) would not be applicable to the case under consideration and time limit stipulated u/s 275(1)(e )would only apply. In such situation pending of appeal against levy of interest u/s 201 (1A) would not be relevant factor and ought to have finalized the penalty proceedings (if at all applicable), within six months from the end of the month in which the order u/s 271 C was passed. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is duty bound to deduct TDS from the payments made to the parties. In support of the same, he relied upon Circular No. 8 of CBDT dated 24th November, 2009 which reads as follows:- "3.1. In view of above, all such past transactions between TPAs and hospitals fall within provisions of section 194J and consequence of failure to deduct tax or after deducting tax failure to pay on all such transactions would make the deductor (TPAs) deemed to be an assessee in default in respect of such tax and also liable for charging of interest u/s 201(1A) and penalty u/s 271C." 7. Hence, the learned DR submitted that there is no reasonable cause which prevented the assessee from deducting tax at source on payment made to hospitals. The learned DR relied on the decision of Karnataka High Court in case of Medi Assist TPA vs. DCIT (324 ITR 356) wherein the Karnataka High Court held that third party administrator who is engaged in health insurance claim services under various health insurance policies issued by several insurance companies and who is the authority or the person to pay the amounts claimed. In case of Dedicated Health Care Services TPA (India) Pvt. Ltd., and Others vs. ACIT (32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no issue for consideration before Hon'ble Supreme Court with regard to levy of penalty u/s 271C of the Act. In the instant case, the Assessing Officer did not treat the assessee as the assessee in default so far as section 201(1) of the Act is concerned. Penalty u/s 271C is only consequential in nature for the default committed u/s 201(1) of the Act. Being so, it is reasonable to interpret the provisions of section 271C of the Act, then no penalty could be levied on the assessee. He submitted that when the assessee is in default for failure to deduct or pay tax at source, naturally, there cannot any question of imposing penalty u/s 271C for the reason that the very basis of such penalty is the amount of tax which such person failed to deduct or pay as per law and when there is no such amount in existence, the possibility of imposing penalty will automatically be ruled out. The Assessing Officer relied upon Circular No. 8 of 24-11-2009 which reads as under:- "3.1 : In view of above, all such past transactions between TPAs and hospitals fall within provisions of section 194J and consequence of failure to deduct" tax or after deducting tax failure to pay on all such transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly set aside. Further, on the said aspects the AO and the appellate authorities shall independently apply their minds in exercise of their quasi judicial powers without being tied down by the circular.--" Therefore, the above part of the circular relied upon by the Addl.CIT for levying penalty is not valid in law. Therefore, the penalty levied by the Addl. CIT basing on that part of the circular cannot be upheld. 10. He submitted that the following reasons show that there is existence of reasonable cause on the part of the assessee not to deduct TDS:- 1. The assessee is a TPA came into existence in 2003 and rendering services. 2. There are 27 such TPAs throughout the country rendering same sort of services. 3. In 2008 the department pursued the TPAs with regard to their liability u/s. 194J of the IT Act. 4. Much debate took place with regard to stand taken by the department with regard to the liability of TPAs u/s. 194J of the IT Act. 5. The situation necessitated the board to issue a detailed circular clarifying the position in November 2009. 6. The matter went for consideration of various Hon'ble High Courts. The Hon'ble High Courts rendered decisions in favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by limitation. 18 In view of detailed submissions made the order passed u/s. 271C of the IT Act is invalid. 19 Without prejudice to all the above, in view of the detailed submissions there is reasonable cause for the assessee for non compliance with the provisions of section 271C of the IT Act." 11. Further, he relied on the decision of Hon'ble Delhi High Court in the case of Woodwards Governor India Pvt. Ltd. vs. CIT (253 ITR 745) wherein held as follows:- "Sec. 273B starts with a non obstante clause and provides that notwithstanding anything contained in several provisions enumerated therein including s. 271C, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to m the said provisions, if he proves that there was reasonable cause for the said failure. A clause beginning with "notwithstanding anything" IS sometimes appended to a section in the beginning with a view to give the enacting part of the section in case of conflict an overriding effect over the provision or Act mentioned in the non obstante clause. Therefore, in order to bring in application of s. 271 C in the backdrop of s. 273B, absence of reasonable ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to deduct tax at" source at alll or under some particular provision than prescribed was a question of fact which had to be seen in the facts and circumstances of each case....." . 14. In the case of CIT Vs Japan Radio Company Ltd (286 ITR 682) the Hon'ble High Court of Delhi held as under: "Existence of confusion regarding the liability of the company to deduct tax at source from payments made by it to expatriate employees constituted a reasonable cause for the assessee company not to make such deductions of tax; penalties under s. 271C were not leviable and no/ substantial question of law arises. " 15. In the case of Azadi Bachaho Andolan Vs Union of India (252 ITR 471) the Hon'ble High Court of Delhi held as under: "Reasonable cause, as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. The expression "reasonable" is not 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 reasons and is not excessive or immoderate. The word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of tax at source under s. 192 was a nascent issue. It has not been considered by this Court before. Further, in most of these cases, the tax deductor- assessee has not claimed deduction under s.40(a)(iii)in computation of its business income. This is one more reason for not imposing penalty under s. 271C because by not claiming deduction under s. 40(a)(iii) , in some cases, higher corporate tax has been paid to the extent of Rs. 906 52 lacs. In some of the cases, it is undisputed that each of the expatriate employees have paid directly the taxes due on the foreign salary by way of advance tax/self-assessment tax. The tax-deductor-assessee was under a genuine and bona- fide belief that it was not under any obligation to deduct tax at source from the home salary paid by the foreign company/head office and, consequently, in none of the cases penalty was leviable under s. 271 C as the respondent in each case has discharged its burden of showing reasonable cause for failure to deduct tax at source" From the above decisions it IS clear that the assessing officer has to considered the matter in detail to find out whether there was reasonable cause as claimed by the assessee before le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tations have been received from various stakeholders regarding applicability of the provisions u/s. 194J of the Income-tax Act, 1961, on payments made by Third Party Administrators (TPAs) to hospitals on behalf of the insurance companies for settling the medical/insurance claim, etc., with the hospitals." 20. As evident from the above, there is a confusion among the TPAs regarding applicability of provisions of section 194J relating to payment made by TPAs to hospitals. Even this circular is subject matter of litigation before various High Courts, viz., the Karnataka High Court in the case of Medi Assist TPA vs. DCIT (324 ITR 356) and Dedicated Health Care Services TPA (India) Pvt. Ltd. Others vs. ACIT Others, 324 (2010) ITR 345 (Mum.). Therefore, in our considered opinion, bona-fide belief in non-deduction of TDS would constitute a reasonable cause. Ignorance of law may be no excuse but simultaneously it is also true that there is no presumption that everyone knows the law. What is important is the fact that a person comes to know that he has committed a mistake and being a person of reasonable intelligence and ordinary prudence, if he takes corrective measures rectifying th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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