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January 3, 2023

Penalty under Section 271(1)(c) not applicable because tax assessed equals TDS deducted

by CA Shivam Jaiswal in Income Tax

Penalty under Section 271(1)(c) not applicable because tax assessed equals TDS deducted

Fact and Issue of the case

Briefly the facts of the case are that the assessee is a non-resident and during the financial year relevant to the impugned Assessment Year, the assessee has booked certain units in M/s Omaxe Ltd. Novelty Mall, Amritsar. The assessee has made payment of 95% of the basic sale price at the time of booking the said units and has been provisionally allotted these units and in lieu of 95% payment of the basis sale price, M/s Omaxe Ltd. was to pay monthly assured return to the assessee till the time of possession of these units were handed over to the assessee. In the return of income filed for the impugned assessment year, the assessee has shown the amount received from M/s Omaxe ltd. as income under the Head “Income from House property” and has claimed statutory deduction under section 24 of the Act. Further the assessee has claimed credit of TDS deducted by M/s Omaxe Ltd. @ 15% as per Article-12 of India and U.K DTAA r/w Section 90 of the Act.

As per the AO, the income received by the assessee from M/s Omaxe Ltd. cannot be stated to be income from house property as there is no construction/ complete property and the question of letting out the same to third party and earning rental income thereof does not arise. It was held by the AO that assured return being given to the assessee by M/s Omaxe Limited therefore does not fall under the head “income from house property”. Thereafter, the AO analyze the provisions of Article 12 of Indo-UK DTAA as well as definition of interest as per Section 2(28A) of the Act and has held that the money paid by the assessee to M/s Omaxe Ltd. is a capital investment for purchase of the property, the assessee will get back the capital asset and not the money. There is no money borrowed by M/s Omaxe Ltd. which is returnable within a specified time period. There was no debt or deposit taken by the Omaxe Ltd. from the tax payer and it does not have any character of debt or payment of interest. It was accordingly held by the AO that the assured return paid to the assessee is not covered under the definition of interest as per Article-12 of Indo-UK DTAA as well as Section 2(28A) of the Act. Further referring to the allotment letter, the AO held that the agreement does not intend to treat assured return as interest as nowhere in the allotment letter, it has been stated that M/s Omaxe Ltd. shall payany interest to the assessee otherwise it would have been worded as interest which is absent in the instant case. It was accordingly held by the AO that assured return received by the assessee can only be classified under the head “income from other source” under section 56(1) of the Act and the same was accordingly brought to tax in the hands of the assessee and as against the returned income, the assessed income was determined at Rs 2,58,090/- and penalty proceedings u/s 271(1)(C) were separately initiated.

Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A). The submissions made before the AO were reiterated. It was submitted that the AO has failed to appreciate the nature of income received by way of assured return before allotment of the property. It was submitted that under Article-12 of the Indo-UK DTAA, the term “interest” means income from debt claims of every kind. It was submitted that the amount given by the assessee to M/s Omaxe Ltd. was in the nature of debt claim till the possession of the property was actually handed over to the assessee and in this regard reference was drawn to the contents of the allotment letter dt. 12/06/2007. 4.1 The Ld. CIT(A) considered the submissions of the assessee however the same were not found acceptable. As per the Ld. CIT(A), the payments are in the nature of return on investment as held by the Hon’ble Delhi High Court in case of M/s Omaxe Ltd. Vs. Vikas Malhotra and others vide order dt. 28/07/2014 in ITA FAO(OS) 191/2014. It was further held by the Ld. CIT(A) that payment from M/s Omaxe Ltd. are not in the nature of damages for late delivery of the asset. The payments were merely assured returns of a fixed amount per month. The word “interest” has not been used in the agreement. It was accordingly held that the payments are not interest and Article -12 of India-UK DTAA as well as provision of Section 2(28A) of the Act are not applicable in the instant case. Being aggrieved with the order of the Ld. CIT(A) the assessee moved in appeal before the Tribunal.

Observation of the Tribunal

The Tribunal has heard the rival contentions and purused the material available on record. In the quantum proceedings, we have held that the amount received by the assessee is in the nature of interest taxable @ 15% under Article 12 of India-UK DTAA. It is also an admitted and undisputed position that M/s Omaxe Limited has deducted tax @ 15% as per Article 12 of India-UK DTAA while remitting the payment to the assessee. Therefore, we find that even as per the findings of the ld CIT(A), where the provisions of Explanation 3 read with Explanation 4(b) to Section 271(1)(C) are applicable and invoked in the instant case, the tax finally assessed would be equal to tax deducted at source and there is no quantum of tax which is sought to be evaded by the assessee and therefore, in light of same, there is no basis for levy of penalty u/s 271(1)(C) of the Act. In light of the same, the penalty so levied and sustained by the Ld. CIT(A) u/s 271(1)(C) is hereby directed to be deleted and the matter is decided in favour of the assessee. In ITA No. 1232/Chd/2019, ITA No. 1233/Chd/2019, ITA No. 1234/Chd/2019, ITA No. 1235/Chd/2019, ITA No. 1236/Chd/2019, both the parties fairly submitted that the facts and circumstances of the case are exactly identical except for the difference in the amount involved. Therefore, our findings and directions contained in ITA No. 1231/Chd/2019 shall apply mutatis mutandis to these appeals and the same are decided in favour of the assessee. In the result, all the appeals of the assessee stands allowed.

Conclusion

The Tribunal ruled in favour of the assessee stating that the tax finally assessed would be equal to tax deducted at source and there is no quantum of tax which is sought to be evaded by the assessee and therefore, in light of same, there is no basis for levy of penalty u/s 271(1)(C) of the Act.

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