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Hindustan Coca Cola Beverages Pvt. Ltd. Vs. Jt. Commissioner Of Income Tax
August, 19th 2016
$~
*       IN THE HIGH COURT OF DELHI AT NEW DELHI
R-12.
+                         ITA 194/2004
        HINDUSTAN COCA COLA BEVERAGES PVT. LTD.
                                                          ..... Appellant
                          Through: Mr. Ajay Vohra, Senior Advocate with
                          Ms. Kavita Jha and Mr. Vaibhav Kulkarni,
                          Advocates.

                          versus

        JT. COMMISSIONER OF INCOME TAX                       ..... Respondent
                          Through: Mr. Raghvendra Singh, Advocates.
        CORAM:
        JUSTICE S. MURALIDHAR
        JUSTICE NAJMI WAZIRI
                      ORDER
%                     01.08.2016

Dr. S. Muralidhar, J.:
1. This appeal by Hindustan Coca Cola Beverages Pvt. Ltd. is directed
against the order dated 24th March 2004 passed by the Income Tax Appellate
Tribunal (,,ITAT) in ITA Nos. 649 & 650/Del/2002 with respect to
Financial Years (,,FYs) 1998-99 and 1999-2000.

2. By an order dated 5th September 2005, while admitting the appeal, the
following question was framed for consideration:
        "Whether in the facts and circumstances of the case and in particular




ITA 194/2004                                                       Page 1 of 17
       clauses 11 and 12 of the agreement executed between the assessee and
       Pradeep Oil Corporation, the ITAT was justified in holding that the
       penalty was rightly levied upon the assessee u/s 271 C of the Income
       Tax Act, 1961?"

3. For the reasons explained hereafter the Court is of the view that the above
question requires to be reframed.

Background facts
4. The background facts require to be narrated. The Appellant is engaged in
the business of manufacture and sale of soft drinks. On 11 th November 1998
it entered into an agreement with M/s Pradeep Oil Corporation (,,POC) for
warehousing services. In terms of the said agreement, a copy of which has
been placed on record, POC was described as 'warehouser' i.e. a licensee in
respect of the railway land of 96750 sq. ft at 13 km, Rohtak Road, Shakur
Basti, Delhi on which POC had constructed a warehouse of constructed area
of 47000 sq. ft. The agreement was for a period of three years with a
renewal clause at the option of the Appellant.

5. In terms of the agreement, the POC agreed to warehouse the products of
the Appellant either owned by the Appellant or its authorized
representatives/dealers. During the period of agreement the Appellants
trucks not less than 300 trucks per day were to be handled by POC, for
which the Appellant was to pay warehousing service charges to POC at a
minimum rate of Rs. 37,000 per day irrespective of the actual number of
trucks carrying the products for handling products up to 300 trucks a day.

6. At the time of the entering into agreement, the Appellant was to pay POC




ITA 194/2004                                                       Page 2 of 17
Rs. 1.35 crores which was to be adjusted in equal amounts in the bills over a
period of first thirty months of the agreement. The Appellant was to further
pay POC a sum of Rs.67.50 lakhs which was to be refunded without interest
by POC to the Appellant upon the expiry of the agreement. Clause 11 of the
agreement stated that the said agreement should not be construed to be
"assignment, mortgage, sublet, lease, licence or transfer otherwise, the
warehouse belonging to the warehouser and/or any privileges and facilities
connected thereto; and the possession of the warehouse and the privileges
and facilities connected thereto shall always remain with the warehouser".
Under Clause 12 both the Appellant and POC were to indemnify the other
party against any loss or damages caused due to the negligence of their
respective representatives, servants and agents etc.




7. The Appellant treated the payments made to the POC under the above
agreement as payments made, in terms of Section 194-C of the Income Tax
Act, 1961 ('Act'), for carrying out work in pursuance of the contract, and
deducted 2% from such payment, as tax deducted at source (,,TDS).

Quantum proceedings
8. The Assessing Officer (,,AO) passed an order under Section 201(1) read
with Section 201(1A) of the Act on 31st March 2001 holding that the
payments made by the Appellant to POC were in the nature of rent from
which TDS ought to have been deducted @ 20% under Section 194-I of the
Act. A demand was accordingly raised on the Appellant for the alleged short
deduction together with interest thereon.




ITA 194/2004                                                      Page 3 of 17
9. In the appeal filed by the Appellant, the Commissioner of Income Tax
(Appeals) [CIT (A)] by order dated 15th January 2002 directed the Appellant
to provide necessary evidence to the AO to ascertain whether the POC had
paid taxes on the payments received from the Appellant. Thereafter credit
for the said payments was to be given to the Appellant. The interest levied
under Section 201(1A) was not interfered with by the CIT(A)

10. The further appeal filed by the Appellant in the ITAT against the
aforementioned order of the CIT(A) came to be dismissed by the ITAT by
an order dated 12th July 2002. The ITAT, inter alia, held that in terms of
Circular No 718 dated 22nd August, 1995 the Appellant ought to have
deducted TDS under Section 194-I of the Act and that there was no bona
fide plea/reasonable cause for the Appellant to deduct TDS under Section
194-C of the Act.

11. The above order of the ITAT dated 12th July 2002 was affirmed by this
Court by order dated 21st May 2004 in ITA No. 282 of 2002. The Court was
of the view that no substantial question of law arose from the impugned
order dated 12th July 2002 of the ITAT. However, the Court clarified that the
ITAT was not required to give findings on the issue relating to bonafide
belief/reasonable cause and therefore the said observations were of no
consequence.

12. With the above order of this Court dated 21 st May 2004, the litigation
concerning the quantum proceedings came to an end.




ITA 194/2004                                                      Page 4 of 17
Appellant 's application under Section 254 (2)
13. On 17th August 2004, the Appellant filed an application, being Misc. A
No. 287/Del/2004, under Section 254(2) of the Act before the ITAT. The
application was purportedly for "rectification of mistake apparent from the
record" in the ITATs order dated 12th July 2002. The Appellant contended
that the ITAT had in its order failed to consider its alternative plea that POC
had already paid taxes on the payment received from the Appellant, and had
in fact received refunds from the Revenue, and therefore the Revenue could
not once again seek to recover the tax from the Appellant.

14. The above application Misc. A No. 287/Del/2004 was disposed of by the
ITAT by an order dated 13th September 2004. Para 3 of the said order, which
is important for the purposes for the present appeal, reads as under:
      "3. By way of present application, it is contended by the learned
      counsel that the assessee is not disputing the fact that it is an assessee
      in default. It is also not disputing that interest levied under
      Sec.201(1A) has to be recovered from the assessee. However, the
      grievance is that the assessees alternate contention has not been
      considered by the Tribunal. The alternate contention is stated to be that
      the warehouser has been assessed on its income and due tax has been
      recovered from it by the department. Since tax has already been
      recovered by the department on the income paid by the assessee, no
      further tax should be recovered from the assessee on the same income.
      In support of this contention, the learned counsel drew our attention to
      the statement of facts filed before the CIT(Appeals) in which this fact
      has been clearly mentioned. Our attention was also drawn to ground
      No.7 taken before the Tribunal in which the action of the department
      recovering the tax on the same income twice was challenged. It was
      contended that this ground has not been considered by the Tribunal
      and hence to that extent the order of the Tribunal suffered from a
      mistake apparent on record. The provisions of Section 191 were also
      referred to in support of the contention."




ITA 194/2004                                                         Page 5 of 17
15. The ITAT in the said order dated 13th September 2004 agreed with the
Appellant that the above plea regarding the tax paid by POC had been
missed by it while disposing of the appeal. Accordingly the ITAT recalled
its order dated 12th July 2002 for the limited purpose of adjudicating the
above ground.

16. Aggrieved by the order dated 13th September 2004, the Revenue filed
ITA No.478 of 2005 in this Court. The said appeal came to be allowed by
this Court in Hindustan Coco-cola Beverages Pvt. Ltd v. JCIT (2007) 293
ITR 163 (Del). The Court noted, inter alia, that in the first round itself the
ITAT considered the above plea of the Appellant raised in Ground No.7 and
gave a decision thereon. The Court held that "the conclusion reached by the
subsequent Bench of the Tribunal, different from the one that passed the first
order, to the effect that the Tribunal had failed to deal with this aspect is, in
our view, based on an incorrect reading of the first order. Certainly, this
cannot be characterised as a mistake, much less a mistake apparent from the
record justifying a ,,rectification of the first order." The order dated 13th
September 2004 passed by the ITAT was set aside.

17. Aggrieved by the above order of this Court, the Appellant went in appeal
to the Supreme Court by filing Civil Appeal No. 3765 of 2007.

18. In the meanwhile, on 18th January 2005, the ITAT modified its order
dated 12th July 2002, as regards Ground No.7 and held that since POC had
already paid taxes on the amounts received from the Appellant, no tax could
be recovered from the Appellant under Section 201(1) of the Act.




ITA 194/2004                                                          Page 6 of 17
Supreme Court's order
19. Civil Appeal No. 3765 of 2007 filed by the Appellant against the order
dated 11th October 2006 passed by this Court was allowed by the Supreme
Court in Hindustan Coco Cola Beverage (P) Ltd. v. Commissioner of
Income Tax (2007) 293 ITR 226 (SC). The Supreme Court referred to
Circular No.275/201/95-IT(B) dated 29th January 1997 issued by the Central
Board of Direct Taxes (,,CBDT), which declared that no demand under
Section 201(1) of the Act should be enforced after the tax deductor has
satisfied the officer-in-charge of TDS that taxes due have been paid by the
deductee-assessee. However, this did not alter the liability to charge interest
under Section 201(1A) till the date of payment of taxes by the
deductee/assessee or the liability for penalty under Section 271C. The
Supreme Court held that since the Appellant had paid interest under Section
201(1A) and that there was no dispute that the tax had been paid by POC,
the above circular applied to the facts on hand.

20. In coming to the above conclusion, the Supreme Court proceeded on the
basis that the Revenue had not challenged the order dated 13 th September
2004 of the ITAT recalling the earlier order dated 12th July 2002 to the
extent of not considering the ground No. 7. In fact, as noted hereinbefore,
the Revenue did challenge the order dated 13th September 2004 of the ITAT.
Be that as it may, the judgment dated 11th October 2006 passed by this Court
was set aside by the Supreme Court.

Penalty proceedings
21. As far as the penalty proceedings were concerned, a show cause notice



ITA 194/2004                                                        Page 7 of 17
(,,SCN) was issued to the Appellant on 10th April 2001 and 8th/9th October
2001, asking it to show cause as to why an order imposing penalty should
not be passed against it under Section 271-C for failure to deduct TDS under
Section 194-I of the Act. The Appellant replied to the SCN on 29th October
2001. On 31st October 2001, a penalty order was passed by the Assessing
Officer (AO) under Section 271-C of the Act, imposing a penalty of Rs.
48,86,450 being 100% of the short deduction of tax by the Appellant. The
said order was affirmed in appeal by the CIT(A) by an order dated 1st
February 2002. The further appeal to the ITAT was dismissed on 24th
March 2004 with the ITAT observing that the Appellant had not been able to
establish reasonable cause against the imposition of penalty. It is against the
above order dated 24th March 2004 in the penalty proceedings that the
present appeal was filed by the Appellant in which the above question was
framed by this Court by the order dated 5th September 2005.

22. With the Appellant having accepted the finality of the order of this Court
in the quantum proceedings as regards the Appellants obligation to deduct
TDS under Section 194-I, as against Section 194-C of the Act, it was not
open to the Appellant to re-agitate that issue in the penalty proceedings.
However, the question framed by the Court gives the Appellant a second
shot at the same question with reference to Clauses 11 and 12 of the
warehousing agreement entered into between the Appellant and POC. This
was perhaps premised on the decision of the Supreme Court in CIT v.
Anwar Ali (1970) 76 ITR 696 (SC), where it was held that the finding
given in the assessment proceedings for determining or computing tax could
not said to be conclusive as far as the penalty proceedings were concerned.




ITA 194/2004                                                        Page 8 of 17
However, it was good evidence. It was observed that before penalty could be
imposed, the entirety of circumstances must reasonably point to the
conclusion that the disputed amount represented income and that the
assessee had consciously concealed the particulars of his income or had
deliberately furnished inaccurate particulars.

Why the question in this appeal needs to be re-framed
23. However, as far as the present case is concerned, the question whether
the Appellant was justified in deducting TDS under Section 194-C rather
than Section 194-I of the Act could not have been permitted to be agitated in
the penalty proceedings, particularly in view of the order dated 13 th
September 2004 passed by the ITAT. In para 3 of the said order which has
been extracted hereinbefore, the ITAT specifically recorded that the
Appellant was not disputing any longer its liability to deduct TDS under
Section 194-I of the Act. Therefore, as far as the Appellant was concerned, it
had accepted the order dated 21st May 2004 of this Court in the quantum
proceedings which imparted finality to the decision of the ITAT on the
above question. The Appellant again went before the ITAT with an
application in which the above order dated 13th September 2004 was passed
recording the above categorical stand of the Appellant. The only issue that
remained was regarding the extent of tax if any the Assessee should be
asked to pay under Section 201 (1) of the Act. No further opportunity could
thereafter had been given to the Appellant to re-agitate the issue whether it
was justified in deducting TDS under Section 194-C of the Act. In other
words, this Court could not have permitted the Appellant to invite it to again
examine whether in terms of Clauses 11 and 12 of the warehousing




ITA 194/2004                                                       Page 9 of 17
agreement, the payments attracted TDS under Section 194-C and not Section
194-I of the Act.

24. There is another reason as to why such a question cannot be examined
again. There is a distinction in the wording of Section 271(1) (c) of the Act
and Section 271-C of the Act. The penalty imposed in the present case is
under Section 271-C of the Act and not Section 271(1)(c) of the Act. When
the Court      in CIT v. Anwar Ali (supra) talked of the findings in the
assessment proceedings not being conclusive for the purposes of penalty, it
was dealing with Section 28 (1) (c) of the Income Tax Act 1922, which
corresponded to Section 271 (1) (c) of the Act. Indeed, Section 271 (1) (c) of
the Act provides that the Commissioner may direct payment of penalty by a
person who has "concealed the particular of income or furnished inaccurate
particulars of such income". This is usually after the assessment is complete.
As far as Section 271-C is concerned, the penalty is attracted when there is a
failure to deduct TDS or deposit TDS that has been deducted. The said
provision reads as under:
    "271-C. Penalty for failure to deduct tax at source ­ (1) If any
    person fails to--

    (a) deduct the whole or any part of the tax as required by or under the
    provisions of Chapter XVII-B; or

    (b) pay the whole or any part of the tax as required by or under--

       (i) sub-section (2) of section 115-O; or

       (ii) the second proviso to section 194B,

    then, such person shall be liable to pay, by way of penalty, a sum equal




ITA 194/2004                                                       Page 10 of 17
    to the amount of tax which such person failed to deduct or pay as
    aforesaid.

    (2) Any penalty imposable under sub-section (1) shall be imposed by the
    Joint Commissioner."

25. The order passed under Section 201 (1) is not an assessment order. The
order is directed against a person who fails to deduct TDS and is deemed to
be an 'Assessee in default'. Correspondingly, the penalty under Section 271-
C of the Act is attracted where the person has failed to deduct the whole or
any part of the TDS "as required by or under the provisions of Chapter
XVII-B". It is like a no-fault liability. The AO is not in such event required
to examine, as he would under Section 271(1)(c) of the Act, whether the
Assessee had concealed the particulars of income or furnished inaccurate
particulars. The nature and scope of the Section 271-C is such that the
question of permitting an assessee to again agitate in the penalty proceedings
the question that arose in the quantum proceedings, viz., whether TDS ought
to have been deducted under a particular provision cannot arise particularly
where an assessee, as in this case, accepts the finality of the order passed in
that regard in the quantum proceedings.

26. For all of the aforementioned, the Court considers it necessary therefore
to re-cast the question that has been framed on 5th September 2005.

Analysis of Section 271-C
27. At this stage, it is important to note that the other questions urged by the
Appellant are:

       (a) Whether the penalty under Section 271-C of the Act was attracted



ITA 194/2004                                                         Page 11 of 17
       in the facts of the case?

       (b) Even assuming the penalty under Section 271-C of the Act was
       attracted, whether the Assessee has been able to show that its failure
       to do so was occasioned by ,,reasonable cause in terms of Section
       273-B of the Act?

28. It was urged by Mr.Ajay Vohra, learned Senior Advocate appearing for
the Appellant that there was no failure to deduct TDS in terms of Section
271-C of the Act, since according to the Appellant it bona fide believed that
the TDS was deductable only under Section 194-C of the Act and in fact the
whole of the TDS at 2% was deducted. Therefore, according to Mr. Vohra,
there was no failure to "deduct the whole or any part of the tax as required
by or under the provisions of Chapter XVII-B of the Act".

29. The Court is unable to agree with the above submission. The penalty
under Section 271-C of the Act is attracted where a person fails to deduct
the whole or any part of the tax as required by or under the provisions of
Act. Here it has been conclusively established that TDS ought to have been
deducted only under Section 194-I of the Act and not under Section 194-C
of the Act. TDS was deducted by the Appellant @20% under Section 194-I
of the Act was on the erroneous premise that Section 194C stood attracted.
Therefore, the Appellant failed to deduct a substantial portion of the tax that
ought to have been deducted under Section 194-I of the Act. Therefore,
Section 271-C stood straightway attracted.

30. The only question, therefore, that arises is whether for the purposes of







ITA 194/2004                                                        Page 12 of 17
Section 273- B of the Act, it could be said that the Assessee had been able to
show reasonable cause for the failure to deduct TDS under Section 194-I of
the Act. Accordingly, the question framed by this Court by its order dated
5th September 2005 is re-framed as under:
       "Whether in the facts and circumstances of the case, the Appellant has
       been able to show, for the purposes of Section 271C read with Section
       273B of the Act that there was reasonable cause for the failure to
       deduct TDS under Section 194-I of the Act?"

Submissions of counsel
31. Mr. Vohra submitted that the issue whether the TDS had to be deducted
from the warehouse charges under Section 194-C or Section 194-I of the Act
was a debatable one. He referred to Circular No. 736 dated 13 th February
1996 issued by the CBDT clarifying that Section 194-I would not be
attracted to the sharing of the proceedings of a film between a film
distributor and a film exhibitor owning a cinema theatre. It was clarified that
the distributor did not take the building on lease, sub-tenancy or under any
agreement of similar nature. Mr. Vohra also referred to Circular No. 1/2008
dated 10th January 2008 regarding applicability of Section 194-I to payments
made by the customers on account of cooling charges to the cold storage
owners. It was clarified by the CBDT that only Section 194-C of the Act
would be applicable to the amounts paid to cooling charges by the customers
of the cold storage. Mr Vohra pointed out that the decision of this Court in
United Airlines v. CIT (2006) 287 ITR 281 (Del) which held that the
landing and parking charges paid by the airlines to the airport authorities
partook the character of rent and attracted TDS under Section 194-I of the
Act was reversed by the Supreme Court in Japan Airlines Co. Ltd. v. CIT




ITA 194/2004                                                        Page 13 of 17
(2015) 377 ITR 372 (SC). He further submitted that in the present case POC
had paid the full tax on the monies received by it from the Appellant
towards warehouse charges and therefore there was no loss of the Revenue
whatsoever. The Appellant did not gain anything by not deducting TDS
under Section 194-I of the Act. No part of the amount payable either to the
exchequer or POC was retained by the Appellant. Mr Vohra He referred to
the decisions in CIT v. Eli Lily & Co.(India) (P) Ltd. (2009)312 ITR 225
(SC), CIT v. Canon India Ltd. (2009) 2 taxmann.com 32 (Del) and CIT v.
Cadbury India Ltd (2011) 11 taxmann.com 66(Del) and submitted that
there was reasonable cause for the Appellants failure to deduct TDS under
Section 194-I of the Act.

32. Mr. Raghvendra Singh, learned counsel for the Revenue, first submitted
that the conduct of the Assessee did not entitle it to any relief in terms of
Section 273-B of the Act. He sought to suggest that the Appellant ought to
have brought to the notice of the Supreme Court the error in its order dated
16th August 2007 that the Revenue had not challenged the order dated 13th
September 2004 of the ITAT, when in fact it had. He then referred to the
CBDT Circular Nos. 715 dated 8th August 1995 and 718 dated 22nd August
1995 which clarified that the warehouse charges would attract TDS under
Section 194-I of the Act. According to Mr. Singh, the agreement itself was
entered into more than three years thereafter and with the Appellant having a
full complement of legal advisers there was no excuse for not heeding the
CBDT circulars which clarified the legal position. According to Mr. Singh,
there was no perversity in the impugned order of the ITAT that called for
interference. He submitted that in any event the scope of interference in




ITA 194/2004                                                      Page 14 of 17
penalty proceedings was limited. Reference was made to the decisions in
CIT v. Mitsui & Co. Ltd. (2005) 272 ITR 545 (Del) and Azadi Bachao
Andolan v. Union of India (2001) 252 ITR 471 (Del).

Discussion and Reasons
33. Under Section 273-B of the Act, no penalty under Section 271-C of the
Act "shall be imposable on the person or the assessee, as the case may be,
for any failure referred to in the said provision if he proves that there was
reasonable cause for the said failure." A perusal of the impugned orders of
the CIT(A) and the ITAT in the penalty proceedings reveals that neither of
the said authorities considered the issue whether in fact there was reasonable
cause for the Appellant to not have deducted TDS under Section 194-I of the
Act. The ITAT on its part appears to have relied on the order passed by it on
12th July 2002 in the quantum proceedings, where it commented on the lack
of bona fide plea/reasonable cause for the Appellant to deduct TDS under
Section 194-C of the Act. This part of the order of the ITAT was in fact
commented upon by this Court in its order dated 21st May 2004 while
declining to frame a question of law in the appeal filed by the Assessee. The
Court, however, clarified that the observations of the ITAT relating to bona
fide belief/reasonable cause was of no consequence.

34. The Court is unable to agree with the submission of Mr. Singh that the
Assessee could not plead ignorance of law in view of the CBDT Circulars
dated 8th August and 22nd August 1995. The CBDTs circulars were at best
the opinion of the CBDT and to the extent they were adverse to the
Appellant, they were not binding on the Appellant. However, they were




ITA 194/2004                                                       Page 15 of 17
binding on the Revenue. As far as the Appellant was concerned, it was
entitled to challenge the CBDT's circulars which did not support its case. In
fact that is what the Appellant did in the present case. It questioned the order
of the AO under Section 201(1) and 201(1A) of the Act before the CIT(A),
then before the ITAT and ultimately this Court. Therefore, it cannot be said
that there was a deliberate failure on the part of the Appellant to deduct the
TDS under Section 194-I of the Act.

35. The facts remains that at the stage when the TDS had to be deducted the
question whether TDS had to be deducted under Section 194-C or 194-I of
the Act was not a settled one. This explains why the CBDT itself had to
issue circulars clarifying the position. Even this Court was persuaded to
again frame a question on the issue in its order dated 5th September 2005.

36. For all of the above reasons, the Court is inclined to accept the plea of
the Appellant that since the issue whether the TDS was to be deducted from
warehouse charges under Section 194-C or 194-I of the Act was a debatable
one, there was a reasonable cause for the failure of the Appellant to deduct
TDS under Section 194-I of the Act at the time such deduction had to be
made.

37. The Court accordingly answers the question that has been re-framed in
the affirmative i.e. in favour of the Appellant and against the Revenue.

38. In view of the finding that there was a reasonable cause for the failure by
the Appellant to deduct TDS under Section 194-I of the Act, the penalty
imposed upon the Appellant under Section 271-C of the Act by the AO by




ITA 194/2004                                                         Page 16 of 17
order dated 31st October 2001 is hereby set aside. The further orders dated
1st February 2002 of the CIT (A) and 24th March 2004 of the ITAT
upholding the above penalty are also hereby set aside.

39. The appeal is allowed in the above terms, but in the circumstances, with
no orders as to costs.




                                                   S. MURALIDHAR, J




                                                   NAJMI WAZIRI, J
AUGUST 01, 2016
mg




ITA 194/2004                                                     Page 17 of 17

 
 
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