TMI Blog2023 (12) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... of average intelligence and ordinary prudence. The cause shown has to be considered and only if it is found to be frivolous, without substance or foundation, would the prescribed consequences follow. Thus in the substance of this case after the decision of ITAT, the disallowance was sustained but at the same time the assessee was allowed deduction of that income and therefore, the effect was tax neutral. Therefore, the reasonable cause for the assessee not to deduct the TDS which although was added in the income of the assessee u/s 40(a)(i) - Since the effect was revenue neutral assessee has not disputed the levy or addition further in the Hon ble High Court. Based on this fact, we are of the view that the assessee was having reasonable cause for not deducting the tax and ultimately the revenue has chosen it to income of the assessee by adding the same in the income of the assessee u/s. 40(a)(i). As noted that there is no deliberate inaction on the part of the assessee. Therefore, in view of decision in the case of CIT vs. Bank of Nova Scotia [ 2016 (1) TMI 583 - SUPREME COURT] wherein the Hon ble Apex Court hold that the assessee has deliberately not avoided TDS and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia, there is no Income tax liability of the foreign company in India under sec. 195(1) of the Act and therefore, TDS provisions are not applicable. Considering the language of section 195 of IT. Act and DTAA between India and USA, the Assessee company was under bon-fide belief that no tax is deductible and therefore, it had not committed any infringement of law for which penalty u/s 271C is to be levied on account of non-deduction of tax at source on payments to non-resident. 3. Succinctly, the fact as culled out from the records is that in this case, the ITO, Ward 5(4), Jaipur passed an order dated 30.04.2014 u/s 143(3) of the I.T. Act, 1961. During scrutiny proceedings, it was found that in the P L account the assessee company has debited an amount of Rs. 1,14,68,382/- under the head 'Software License and Set-up charges' which was credited to M/s BJW consulting Service LLC and Practice forces - Anesthesia Billing software. As per section 195(1) of the I.T. Act, 1961 which reads Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act shall, at the tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 312 (Del) is not applicable to the fact of the instant case. The appellant has raised the issue of reasonable cause for failure to deduct tax at source and has cited the case of CIT Vs. I.T.C Ltd. (2017)297 CTR (Del) 47. In the case of the appellant, the liability to deduct TDS has been upheld by the CIT(A) as well as the Ld. ITAT in appellant's case in quantum appeal. Reference is invited to page 6 of the order of the CIT(A)-2, Jaipur in the instant case of the appellant in appeal against order u/s 143(3) dated 30.03.2014 for the instant assessment year i.e AY 2011-12 wherein it is observed as under: Interestingly, at this stage, the A/R informed that it had deduction (sic) TDS on some amounts relating to one party which could not be informed earlier. This further goes to show that for similar type of transactions assessee himself has a dual stand, in one case it has deducted TDS while on the other party it has not. Thus, this also goes to prove that a clear default has been committed of TDS to be deducted and amounts are disallowable. The above observation of the CITA) goes to establish the contumacious conduct on the part of the appellant and negates the question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following written submission: BRIEF FACTS OF THE CASE: Data-wise happenings in this case are as under:- S. No. Order dated Description of issue and the relevant authority, if any 1 29.03.2014 Assessment order under s. 143(3) by ld. AO 2 26.11.2015 Order of ld. CIT(A) dismissing the quantum appeal 3 31.11.2017 Order of Hon ble ITAT-partly allowing quantum appeal 4 22.03.2018 Initiation of penalty proceeding u/s 271C of Act 5 30.03.2018 Order levying penalty of Rs. 11,46,838/- u/s 271C 6 14.06.2024 Order of ld. CIT(A) dismissing the appeal 7 14.08.2024 Appeal to this Hon ble ITAT against order of CIT(A) Assessment u/s. 143(3) of Act was completed by Id. AO vide order dated 9) on which no tax was deductible but Id, AO, by treating it as payment for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 327 (Ker): India and USA. Non-resident- Income deemed to accrue or arise in India. DTAA more beneficial than Income tax Act. Fee for included services would be taxable in India. Meaning of included services. Transfer of technical knowledge, experience, skill, know-how or process or consists of development or transfer of technical plan or design. Payment to US Company for providing management, financial, legal public relations and treasury or risk management services- not for included services. Payment not taxable in India- Income tax Act 1961 ss, 9(1)(vii), 90 Double Taxation Avoidance Agreement between India and United States of America- Art. 12 (PB pages 55 to 68). (3) Pr. CIT Vs. Disham Pharmaceuticals and Chemicals Ltd. (2019) 417 ITR 373 (Guj): Payment to non-resident, not taxable in India. Tax not deductible at source on such payment. (PB pages 69 to 86). (4) CMA CGM Agencies India (P) Ltd. Vs. Dy CIT (2020) 203 TTJ (Pune) 249: Royalty and fee for technical services- payment made by the assessee to French company for use of software and maintenance charges neither constituted royalty nor fees for technical services hence not taxable in India and not disallowable u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... six years from In case of State of Punjab Vs. Bhatinda Distt. Cooperative Milk Producer Union Ltd. (2007) 11 SSC 363 (referred to at page 298 of 428 ITR), Hon'ble Supreme Court has held as under (P.B. Page 126-127): 18. In so far as the Income tax Act is concerned, our attention has been drawn to section 153(1)(n) thereof which prescribes the time limit for completing the assessment, which is two years from the end of the assessment year in which the income was first assessable. It is well known that the assessment year follows the previous year and, therefore, the time limit would be three years from the end of the financial year. This seems to be reasonable period as accepted under section 153 of the Act, through for the completion of assessment proceedings. The provisions of reassessment are under sec. 147 and 148 of the Act and they are on a completely different footing and, therefore, do not merit consideration for the purpose of this case. 19. Even though the period of three years would be a reasonable period as prescribed under section 153 of the Act for completion of proceedings, we have been told that Income tax Appellate Tribunal has, in a series of decisions, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for passing the order under ss. 201(1) / 201 * (1A) and consequent amendment has been made in those provisions- Therefore, the analogy and reasoning given in those decisions of various High Courts is also applicable for considering the reasonable period for passing the order under s. 206C- Hence, applying the reasonable period of limitation as four years within which the AO could pass order under ss. 206(6) / 206 * (7) , the impugned order passed by the AO on 30th March 2016 is beyond the said reasonable period of limitation and consequently, invalid being barred by limitation. Accordingly, the impugned order passed under ss. 206(6)/206(7) is quashed (P.B. pages 157 to 169). (5) Director of Income tax (International taxation) Vs. Executive Engineer (2020) 428 ITR 294 (Karn): Limitation - TDS- Short deduction. Supreme Court in State of Punjab Vs. Bhatinda Distt. Cooperative Milk Producers (2007) 11 SSC 363 has held that four years. would be a reasonable period of time for initiating action in case where no limitation is prescribed. Proceeding under section 201 to treat Deductor as assessee in default - proceedings must be initiated within reasonable time. Proceedings initiated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here exist DTAA, no tax is deductible at source on payments made to non-residents having no PAN, no branch, no PE, no liaison office in India. Therefore considering the language of section 195 of Act and DTAA between India and USA, the assessee company was under bona- fide belief that no tax is deductible on payments made to USA Companies against purchase of software. Reliance is placed on the following decision of Delhi Bench of Hon'ble Tribunal: Dy. CIT Vs. Jt. Secretary, Organising Committee for Winter Games (2018) 196 TTI (Del) 975: Failure to deduct tax at source. Reasonable cause- Assessee having not deducted TDS under bona-fide belief that payment made are not subject to TDS, the failure to deduct tax at source was for a reasonable cause and therefore, penalty levied u/s. 271C is not sustainable (P.B. pages 179 to 193). 5.1 To support the contentions so raised in the written submission the ld. AR of the assessee has also submitted a paper book containing following documents which reads as under:- Index to paper book Index to II paper book- (Judgements) S. No. Particulars/Short description P. B. Page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly of software to two USA companies on which no tax was deductible but Id. AO, by treating it as payment for Royalty, made addition under sec. 40(a)(i) of Act. The first appeal filed by the assessee was dismissed (P.B. pages 15 to 23) whereas the second appeal before this Hon'ble ITAT was partly allowed with a direction to allow deduction @ 100% under section 10A of Act on enhanced profit as per circular No. 37 of 2016 of CBDT. Since there was no tax liability after order of this Hon'ble ITAT, assessee company did not prefer appeal u/s. 260 A before the Hon'ble High Court. 7.1 After receipt of order of the Hon'ble ITAT a notice dated 22.03.2018 was issued for the first time by Addl. CIT (TDS) Jaipur to show-cause as to why penalty under section 271C of Act should not be imposed as no TDS was made on various liabilities in period relevant to A.Y. 2011-12 (P.B. page 36). Rejecting the response, penalty of Rs. 11,46,838/- u/s. 271C was levied. The bench noted that the levy of penalty under section 271C, for failure to deduct tax at source, is not automatic. In order to bring in application of section 271C, in the backdrop of the overriding non obstante clause in sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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