Case: Commissioner of Income-tax (income tax appellate tribunal Mumbai) Vs Aishwarya Rai Bachchan
Citation: ITA 2637/MUM-2002
Date of Judgement: March 30, 2016
Appellant: Aishwarya Rai
Respondent: Commissioner of Income-tax (Income Tax Appellate Tribunal Mumbai)
Relevant Cases:
- CIT vs. Four ways International (2008) 166 Taxman 461 (Del)
- CIT vs. Mohair Investment & Trading Co. Pvt. Ltd. (2011) 42 (I) ITCL 2 (Del.)
Facts:
- The Appellant had sent an amount of $77,500, to Ms. Simone Sheffield, resident of U.S.A, in order to reimburse expenses without deduction of tax. Assessing officer called upon the appellant to discuss the situation.
- In the conversation, the Appellant submitted that the payment was made outside India for services rendered there. Hence, the provision of Section 195 of the IT Act was not applicable.
- It was further added that the payment made was not for reimbursement of expenses but for maintenance of website and other services rendered to the Appellant.
- Ms. Simone Sheffield gets commission for designing the contents of the website of the Appellant and the remaining amount was forwarded to actual service provider.
- The Appellant has argued that Ms. Simone Sheffield is resident of U.S.A. and as per DTAA between India and Bulgaria, the remittance is not liable to tax.
- The Assessing Officer treated the Appellant as an assessee in default under Section 201(1) and passed an order demanding tax of 4,27,910 and interest under Section 201(1A) of 34,233 and imposed penalty under Section 271C alleging failure to deduct tax at source.
- Appellant alleged that her Chartered Accountant had issued a certificate stating that the payment to the non–resident would not be liable for tax deduction in view of DTAA between India–U.S.A.
Issues involved:
- Whether the Appellant was liable for fine under Section 271C of IT Act?
Obiter Dicta:
“The Learned Departmental Representative relied upon the order of the learned Commissioner and the Assessing Officer. We have considered the submissions of the parties and perused the material available on record. No doubt, in the quantum proceedings before the Tribunal, the appellant has accepted her liability for deduction of tax at source, for whatever reason may be, and as a result the issue was decided against the appellant by the Tribunal by upholding the order passed under Section 201(1).
However, the issue before us is, merely because assessee was held Liable for deduction of tax at source under section 195, whether automatically it will result in imposition of penalty under Section 271C.”
Rationale:
- Section 271C states that if any person fails to deduct the whole or any part of the tax as required by the provisions of act then such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct.
- But penalty under Section 271C is not automatic but has to be r/w Section 273B of the Act. If the assessee shows reasonable cause for failure to deduct tax at source, penalty cannot be imposed.
- The Chartered Accountant of the appellant had issued a certificate indicating that the payment to the non–resident would not liable for tax as per the DTAA between India–U.S.A., therefore appellant was under Bonafide belief that tax was not required to be deducted at source on the payment made to the non–resident Indian.
Judgement:
Failure on the part of the Appellant to deduct tax at source was due to a reasonable cause. As a result the Appellate tribunal deletes the penalty imposed under Section 271C.
In the result, Appeal stands allowed.
Conclusion:
The case clears the point whether penalty can be imposed on the Failure of deduction of tax on payment transfer to a non resident Indian for services rendered, as per Section 270C of the IT Act when there is a reasonable cause, or not.
Appellant transfer an amount of $77500 to a non resident Indian, USA, without deducting the tax at source as per the section 195 of income tax act. Due to which the assessing officer imposed a penalty as per the Section 271C of IT Act.
But the tribunal deletes the penalty imposed as the Appellant did it in bona fide intention as Chartered Accountant of the appellant had issued a certificate indicating that the payment to the non–resident would not liable for tax as per the DTAA between India–U.S.A.
Edited By: Tanvi Mahajan, Publisher, Law Insider
Published On: February 13, 2022 at 23:00 IST