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THE COMMISSIONER OF INCOME TAX (TDS) , COCHIN. Versus MR. THOMAS MUTHOOT, MUTHOOT HOUSE, KOZHENCHERRY

2015 (7) TMI 955 - KERALA HIGH COURT

Penalty levied under Sec.271C - Non deduction of TDS on interest paid thus violation of Section 194A - Whether in the light of the specific exemption provided in section 194A (3)(iv) to such income credited or paid by a firm to a partner of the firm, the assessee is reasonably entitled to entertain the belief that payment of interest by the partners to the firm is similar or similarly placed? - ITAT deleted penalty levy - Held that:- While Section 194A provided for deduction of tax on interest, .....

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tered accountants at their disposal, could entertain a belief that they were not liable to deduct tax at source on the interest paid to the firm. This, therefore, means that the alleged belief of the assessees is certainly not one a reasonable person would have entertained nor such persons would have acted in the same way given the totality of circumstances.

Therefore, we cannot accept the plea that the belief allegedly entertained by the assessees was a bonafide one or could be accep .....

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by the assessees. However, the object of these provisions being different from section 194A read with Section 271C, such an order passed by the Tribunal cannot come to the rescue of the assessees. In any case, principles of res-judicata and estoppel are alien to tax jurisprudence and therefore, this contention also cannot improve the case of the assessees. One another reason which has weighed with the Tribunal is that the firm had declared the interest received in its return and that since the f .....

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ME TAX FOR THE RESPONDENT : SRI.T.M.SREEDHARAN (SR.), SRI.V.P.NARAYANAN AND SMT.DIVYA RAVINDRAN JUDGMENT Antony Dominic, J. 1.These appeals are filed by the Revenue challenging the common order passed by the Income Tax Appellate Tribunal, Cochin Bench in ITA Nos.385/Coch/2011 and 391/Coch/2011. 2.Briefly stated the relevant facts are that the respondents are Partners of a firm M/s.Muthoot Estate Investments. They had drawn funds from the firm over and above their respective capital and paid inte .....

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, ₹ 15,69,664/- and ₹ 70,49,302/- were levied as penalty on the respondents in ITA Nos.139/13 and 177/13, respectively. The penalty orders were confirmed by the Commissioner (Appeals). The further appeals filed before the Tribunal were allowed and the impugned order was passed holding that the relief entertained by the assessees that they were not liable to deduct tax at source on the interest paid by them to the partnership firm can be considered as a reasonable cause as contemplate .....

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of law formulated are: 1. Whether, on the facts and in the circumstances of the case, the tribunal is right in law and fact in cancelling the penalty levied under Sec.271C? 2. Whether, on the facts and in the circumstances of the case and also in the light of the specific exemption provided in section 194A (3)(iv) to such income credited or paid by a firm to a partner of the firm, the assessee is reasonably entitled to entertain the belief that payment of interest by the partners to the firm is .....

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y person, not being an individual who is exempted, and responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall deduct income tax thereon at the rates in force, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by cheque or draft or by any other mode. Section 271C of the Act provides that if any person fails to deduct the whole or any part of the tax as required to be d .....

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ay be, for any failure referred to in the Section, if he proves that there was reasonable cause for such failure. 5.A survey of the above statutory provisions show that if an individual who is liable to deduct tax at source under Section 194A commits default in doing so, automatically, Section 271C is attracted and he is liable to be levied penalty as provided therein. However, that absolute liability to be penalised is softened by section 273B by providing such person an opportunity to prove th .....

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me to the same conclusion or acted in the same way given the totality of the circumstances. 6.In this context, it is also relevant to note that in Commissioner of Income Tax v. Sri Jagdish Prasad Choudhary [(211) ITR 472], a Full Bench of the Patna High Court has interpreted the expression "reasonable cause", as follows: "The word "reasonable cause" has not been defined under the Act but it could receive the same interpretation which is given to the expression "suff .....

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ssioner of Income-Tax v. Adinath Industries [(252) ITR 471] held thus: "Reasonable cause, as applied to human actions 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 mean ing 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 dic .....

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; 8.The same Division Bench of the Delhi High Court in its judgment in Woodward Governor India P. Ltd. v. Commissioner of Income-Tax and Others [(253) ITR 745] held thus: "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 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 reaso .....

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ef that under Section 194A, they were not liable to deduct tax at source on the interest paid by a partner to the firm. In other words, the substance of the plea of the assessees was that they were ignorant of their statutory liability to deduct tax at source on the interest paid by them to the firm of which they are partners. While Section 194A provided for deduction of tax on interest, by virtue of the provisions contained in sub section (3), only such income credited or paid by a firm to a pa .....

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ce on the interest paid to the firm. This, therefore, means that the alleged belief of the assessees is certainly not one a reasonable person would have entertained nor such persons would have acted in the same way given the totality of circumstances. 10.Therefore, we cannot accept the plea that the belief allegedly entertained by the assessees was a bonafide one or could be accepted as a reasonable cause as provided under Section 273B. 11.In effect, the defence put forward by the assessees is o .....

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ssees is untenable. We are unable to accept this contention. First of all, this contention was not raised before any one of the authorities, including the Tribunal and the parties proceeded thus far, on the conceded basis that the assesees had the liability under Section 194A. That apart, unless the assessees establish by evidence that they are entitled to the coverage of the proviso to Section 194A(1), they cannot claim the benefit of exclusion. This proviso reads thus: "Provided that an i .....

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proviso are made out, such a claim of exclusion cannot be entertained. In this case, such facts are not established and therefore, we are not in a position to entertain this plea raised for the first time before us. True the counsel contended that the question raised being one of the law can be raised before this Court, in our view, the question raised is not a pure question of law but is a mixed question of law and facts. 14.Learned counsel for the assessee relied on the judgment in Hindustan C .....

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