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Smart Summary

Judicial Opinion — Summary (per Yadav, J.M.)

Factual and Procedural Background

The appeals were filed by the assessee challenging confirmation of penalty levied under section 271C of the Income-tax Act, 1961. The Assessing Officer (AO) verified Form No. 26-C filed by the assessee for the financial years 1998–99 and 1999–2000 and issued notice under section 133(6). During verification and a subsequent survey it was found that the assessee paid M/s Pradeep Oil Corporation Rs. 23,07,000 (1998–99) and Rs. 81,42,000 (1999–2000) described as warehousing charges; the assessee had deducted tax at source at 2% under section 194C (contractor rates).

The parties had executed an agreement dated 11-11-1998 by which Pradeep Oil Corporation, a licensee of railway land where it had constructed a warehouse, agreed to warehouse the assessee’s products under terms that included minimum daily charges (Rs. 37,000 per day up to 300 trucks), an upfront payment of Rs. 1,35,00,000 to be adjusted over the first 30 months, and an agreed refundable sum of Rs. 67,50,000 to be returned without interest at expiry. The warehouser was to warehouse products only of the assessee (or its authorized representatives), and the arrangement was initially for three years.

The AO concluded the composite agreement was essentially for taking premises on rent and held the payments were liable to deduction at source under section 194-I (rent — 20% for non-individual payee). The AO charged interest under section 201(1A) and initiated penalty proceedings under section 271C for short deduction. The AO imposed a consolidated penalty of Rs. 48,86,450 for the two years. The assessee appealed to the Commissioner of Income-tax (Appeals) (CIT(A)), who re-examined the grounds and directed the AO to apply a 15% rate instead of 20% (following the quantum order) but otherwise confirmed the penalty. The assessee appealed further to the Tribunal and then to the court whose opinion is summarized here.

Legal Issues Presented

  1. Whether the payments made by the assessee to M/s Pradeep Oil Corporation were payments of "rent" (triggering deduction under section 194-I) or payments to a contractor (triggering deduction under section 194C).
  2. Whether penalty under section 271C of the Act can be levied on the assessee for short deduction of tax when the deductee (recipient) has paid the tax or shown the receipts as business income (in light of CBDT Circular No. 275 dated 29-1-1997 relied on by the assessee).
  3. Whether the assessee had a reasonable cause or bona fide belief that deduction under section 194C (2%) was appropriate, thereby precluding penalty under section 271C.

Arguments of the Parties

Assessee's Arguments

  • All grounds of appeal related to the validity of levy of penalty under section 271C.
  • The assessee contended the arrangement with Pradeep Oil Corporation was for services rendered under contract (warehousing services) and could not, by any stretch, be construed as payment of rent; therefore tax should have been deducted under section 194C at 2%.
  • The recipient (Pradeep Oil Corporation) had shown the receipts as business income and the Revenue had accepted that treatment (the assessee argued that the Revenue cannot treat the payment as rent based on its own scrutiny).
  • The assessee relied on CBDT Circular F. No. 275/201/95-IT(B) dated 29-1-1997 to argue that if the tax due has been paid by the deductee and the deductor has satisfied officials that tax was paid by the deductee, then no demand under section 201(1) should be enforced — on this basis the assessee argued no penalty under section 271C should be leviable.
  • The assessee relied on a number of judicial authorities and the Board’s circulars (listed in the record) in support of its case.

Revenue's Arguments

  • The Department relied upon the findings of the AO and the CIT(A) that the composite agreement was in essence an agreement for renting premises; therefore deduction was required under section 194-I (rent) at applicable rates.
  • The Department drew attention to a letter from Pradeep Oil Corporation (dated 30-11-2002) stating the recipient had shown the receipt as business income but that the assessment was processed under section 143(1)(a) and the Revenue had not examined the nature of receipt; thus the recipient’s treatment did not alter the liability of the assessee for correct TDS deduction.
  • With respect to CBDT Circular No. 275 (assessed by the assessee), the Revenue submitted that the Circular does not prevent charging interest under section 201(1A) or imposition of penalty under section 271C; non-enforcement of demand after deductee payment does not affect liability for interest or penalty until the date of payment.
  • The Department pointed to an earlier Tribunal order in the assessee’s case which treated the payments as rent and confirmed interest under section 201(1A); the Tribunal had examined the nature of the payment and held it was rent.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Board’s Circular in F.No. 275/201/95-IT(B), dated 29-1-1997 As relied on by the assessee: the Circular states that no demand under section 201(1) should be enforced after the tax deductor has satisfied that the tax due has been paid by the deductee. The court examined the Circular and held that it does not state that once short deducted tax is paid by the deductee no penalty under section 271C can be levied. The Circular does not alter liability for interest under section 201(1A) or penalty under section 271C until payment dates; thus it does not preclude penalty in this case.
Ikea Asia Pacific (P.) Ltd. v. Joint CIT [I.T. Appeal No. 479 (Delhi) of 2001] Not specified in the provided opinion. The court observed that the judgments relied upon by the assessee (including this) were rendered on different facts and issues, were distinguishable, and provided no assistance to the assessee's case.
Cement Marketing Co. of India Ltd. v. Asstt. CST [1980] 124 ITR 15 (SC) Not specified in the provided opinion. The court treated this and other cited judgments as fact-specific and distinguishable; no assistance was drawn from them for the assessee’s position.
Hindustan Steel Ltd. v. State Of Orissa [1972] 83 ITR 26 (SC) Not specified in the provided opinion. Distinguishable on facts; the court found no aid for the assessee from this decision.
ITO v. Sood Enterprises [1992] 41 ITD 234 (Delhi) Not specified in the provided opinion. Distinguishable on facts; no assistance to the assessee.
Detecon Indian Project Office v. ITO [1994] 210 ITR 260 (Delhi) Not specified in the provided opinion. Distinguishable on facts; no assistance to the assessee.
Addl. CIT v. Mohammed & Sons [1985] 154 ITR 220 (Raj.) Not specified in the provided opinion. Distinguishable on facts; the court did not rely on it in favour of the assessee.
CIT v. Gangaram Chapolia [1976] 103 ITR 613 (Ori.) (FB) Not specified in the provided opinion. Distinguishable on facts; no assistance to the assessee according to the court.
Commissioner Of Income-Tax v. Shanta Electrical Industries [1986] 160 ITR 774 (Delhi) Not specified in the provided opinion. Distinguishable on facts; not helpful to the assessee in this matter.
Azadi Bachao Andolan v. Union of India [2001] 252 ITR 471 (Delhi) Not specified in the provided opinion. Distinguishable on facts; no assistance to the assessee.
Woodward Governor India (P.) Ltd. v. CIT [2002] 253 ITR 745 (Delhi) Not specified in the provided opinion. Distinguishable on facts; not relied upon by the court in favour of the assessee.
Commissioner Of Income-Tax v. Rishikesh Apartments Co-Operative Housing Society Ltd. [2002] 253 ITR 310 (Guj.) Not specified in the provided opinion. Distinguishable on facts; the court found no assistance to the assessee.
Commissioner Of Income-Tax v. Nestle India Ltd. [2002] 243 ITR 435 (Delhi) Not specified in the provided opinion. Distinguishable on facts; not helpful to the assessee's submissions according to the court.
Gwalior Rayon Silk Co. Ltd. v. CIT [1983] 140 ITR 832 (M.P.) Not specified in the provided opinion. Distinguishable on facts; the court drew no assistance from it for the assessee.
CIT v. Divisional Manager, New India Assurance Co. Ltd. [1983] 140 ITR 818 (MP) Not specified in the provided opinion. Distinguishable on facts; no assistance to the assessee was derived by the court.

Court's Reasoning and Analysis

The court conducted a step-by-step analysis confined to the record and statutory provisions:

  1. Statutory distinction: The court explained the statutory scope of sections 194C and 194-I. Section 194C applies to payments to contractors/sub-contractors for carrying out work (including supply of labour). Section 194-I applies to payments of "rent" and its Explanation (1) defines "rent" broadly to include any payment under any lease, sub-lease, tenancy or any other agreement or arrangement for use of land or building (with furniture/fittings and appurtenant land).
  2. Contractual terms and factual matrix: The court examined the agreement and factual materials (including statements recorded during survey and company resolution). The agreement identified the warehouser as licensee of railway land, gave the assessee exclusive warehousing rights for its products, fixed minimum daily charges, included a large upfront payment to be adjusted over 30 months, included a refundable amount secured by bank guarantee, and allowed renewal on similar terms. The warehouser could not warehouse other parties' goods without the assessee's permission. On a plain reading, the court concluded the arrangement was essentially for use of a warehouse (i.e., a tenancy/letting) akin to rent.
  3. Application of CBDT circulars: The court noted CB D T Circular No. 715 dated 8-8-1995 and Circular No. 718 dated 22-8-1995, which were relied upon by the AO and the court as clarifying that where a composite arrangement is in substance an agreement for taking premises on rent, tax must be deducted under section 194-I, and that warehousing charges fall within the definition of "rent" under Explanation (1) to section 194-I. The court accepted that circular guidance and concluded warehousing charges are subject to deduction under section 194-I.
  4. Examination of Circular No. 275 (29-1-1997): The court carefully read the Circular relied upon by the assessee and concluded it clarifies only that a demand under section 201(1) should not be enforced after the deductor is satisfied that the tax due has been paid by the deductee. However, the Circular does not state that payment by the deductee prevents levy of penalty under section 271C or charging of interest under section 201(1A) up to the date of payment. Thus the Circular did not absolve the assessee of liability to penalty for short deduction where deduction itself was incorrect.
  5. Precedents and Tribunal findings: The court noted the Tribunal had earlier examined the nature of these warehousing payments in the assessee’s case, applied relevant judicial pronouncements, and concluded the agreement was for use of land/warehouse and not for services; accordingly the Tribunal upheld interest under section 201(1) read with section 201(1A). The court observed that the judgments cited by the assessee were on different facts and issues and were therefore distinguishable and not helpful.
  6. Reasonable cause / bona fide belief: Given the prior CBDT clarification on warehousing charges (Circular No. 718 dated 22-8-1995) and the public nature of CBDT circulars, the court held the assessee should have appreciated the requirement to deduct under section 194-I. There was no evidence of legal advice or other plausible justification explaining why the assessee nonetheless deducted at contractor rates under section 194C. The Tribunal had also found no bona fide belief or reasonable cause to justify the assessee’s approach.
  7. Conclusion of analysis: On the totality of facts, agreement terms, CBDT circulars, the Tribunal’s earlier conclusion, and lack of reasonable cause, the court concluded the Revenue was justified in levying penalty under section 271C for short deduction of tax; the assessee was required to deduct TDS at 20% (section 194-I rate for non-individual payee) but had intentionally deducted 2% under section 194C.

Holding and Implications

Holding:

The court UPHELD the orders of the Commissioner of Income-tax (Appeals) confirming the penalty under section 271C and dismissed the assessee's appeals. The opinion records: "Accordingly, the orders of the Commissioner of Income-tax (Appeals) who has confirmed the penalty are hereby upheld" and "In the result, the appeals filed by the assessee are dismissed."

Implications (direct effect and scope):

  • Direct effect on parties: The assessee's appeals are dismissed and the penalty levied under section 271C for short deduction of tax on the warehousing payments is sustained. The court accepted the AO/CIT(A)/Tribunal analysis that the payments were in substance rent (section 194-I) and not contractor payments (section 194C).
  • On CBDT Circular No. 275: The court held that the Circular does not preclude levy of penalty under section 271C merely because the deductee has paid tax; thus payment by the deductee is not a bar to penalty where the deductor’s obligation to deduct was breached and requisite conditions for reasonable cause are not made out.
  • Precedential scope: The court explicitly stated that the judgments cited by the assessee were distinguishable on facts and did not assist the assessee; the decision was based on the facts, statutory interpretation (scope of sections 194C and 194-I), the terms of the agreement, and applicable CBDT circulars. The opinion does not purport to lay down a broad new principle beyond applying those authorities to these facts.

Disposition: Appeals dismissed; penalty under section 271C upheld.

Show full summary ...

    Hindustan Coca-Cola Beverages (P.) Ltd. v. Joint Commissioner of Income-tax

    Per Yadav, J.M. - These appeals are preferred on behalf of the assessee against the confirmation of penalty levied by the Assessing Officer under section 271C of the Income-tax Act, 1961 [hereinafter called the Act], by the Commissioner of Income-tax (Appeals).

    2. Though the assessee has raised various grounds of appeals, but all grounds relate to the validity of levy of penalty under section 271C of the Act.

    3. We have heard the rival submissions and carefully perused the orders of the authorities below and the documents placed on record.

    4. The facts in brief are that a form No. 26-C for payment made to contractor under section 194C filed by the assessee for the financial years 1998-99 and 1999-2000 were taken up for verification by the Assessing Officer and notice under section 133(6) was issued to the assessee. During the course of verification it was noticed that the assessee has made payment to Pradeep Oil Corporation of Rs. 23,07,000 in financial year 1998-99 and Rs. 81,42,000 in financial year 1999-2000, which was in the nature of warehousing charges. The TDS was deducted at 2 per cent, the rates applicable to the contractor as per 194C of the Act. Survey was conducted to examine the issue and it was noticed that the assessee-company has entered into an agreement with Pradeep Oil Corporation on 11-11-1998 and took possession of the warehouse to warehouse its products. For ready reference, the relevant portion of the agreement is extracted as under:-

    "The Warehouser is a licensee in respect of railway land of 96750 sq. ft. at 13 KM Rohtak Road, Shakur Basti, Delhi (plot) whereon the Warehouser has constructed, and is maintaining, inter alia, a warehouse of constructed area of 47000 sq. ft. (Premises); and the company has approached the Warehouser for warehousing its products.

    And whereas the warehouser has expressed his willingness and ability to warehouse the products is entitled so to do.

    1. The warehouser agrees to warehouse the products only of the company owned either by the company or its authorized representatives dealers. The company envisages that during the period of agreement, its products in not less than 300 trucks per day shall be handled by the Warehouser. The parties have mutually agreed that the company shall pay warehouser service charges to the warehouser of a minimum of Rs. 37,000 per day irrespective of the actual number of trucks carrying the products for handling products of upto 300 trucks a day, and payment shall be made month by month and every month. If there shall be warehousing of products more than 300 trucks a day, the additional warehousing service charges shall be decided by the parties by mutual discussion.

    As the warehouser shall make necessary arrangements in the warehouse to meet the traffic envisaged by the company, the company shall pay at the time of entering into this agreement Rs. 1,35,00,000 [Rs. One crore thirty five lakhs only] which amount shall be adjusted in equal amounts in the bills for warehousing service charges over the period of the first 30 months of this agreement."

    5. During the course of survey, statement of the Manager (Finance) of the assessee-company was recorded in the which he has deposed that the assessee has a warehouse at 13-KM Stone, Rohtak Road, Shakur Basti, New Delhi. Besides, in the copy of the resolution of the company dated 9-11-2000 it has also been stated that the company has a warehouse at 13-KM Stone, Rohtak Road, Shakur Basti, New Delhi. Accordingly, show-cause notice was issued to the assessee as to why the payments to Pradeep Oil Corporation may not be treated as a warehousing charges and TDS deducted as per section 194-I i.e. @ 20 per cent. In response thereto the assessee has submitted that it was an arrangement for services to the party under the contract and by no stretch of imagination, can this be construed to be payment of rentals. The Assessing Officer examined the facts of the case in the light of the Circular Nos. 715 dated 8-8-1995 and 718 dated 22-7-1995 and also in the light of the agreement executed between the parties and held that this composite agreement is in essence the arrangement for taking the premises on rent, hence the payment is covered under section 194-I of the Act and tax needs to be deducted for payment thereof as per section 194-I of the Act. He accordingly charged interest under section 201(1A) of the Act and initiated the penalty proceedings under section 271C of the Act for short deduction of tax. Again in the penalty proceedings the assessee raised the same plea, which was turned down by the Assessing Officer and slapped consolidated penalty of Rs. 48,86,450 for the financial years 1998-99 and 1999-2000 against which an appeal was filed before the Commissioner of Income-tax(Appeals) assailing the penalty order on various grounds. The CIT (Appeals) again re-examined all the grounds raised before him and directed the Assessing Officer to apply the rate of 15 per cent instead of 20 per cent, following his order in quantum.

    6. Being not satisfied with the order of the CIT (Appeals) the assessee has preferred an appeal before the Tribunal and besides reiterating his contentions raised before the lower authorities, the learned counsel for the assessee has submitted that the recipient of the amount had shown it to be its business income and not a property income and the same was accepted by the Revenue. Hence the Revenue cannot treat this payment as payment of rent. He has also raised a plea of a reasonable cause for non-deduction of proper tax under section 194-I of the Act. In support of his various submissions the assessee has relied upon the following judgments:-

    (i)Board’s Circular in F.No. 275/201/95-IT(B), dated 29-1-1997.

    (ii) Ikea Asia Pacific (P.) Ltd. v. Joint CIT [I.T. Appeal No. 479 (Delhi) of 2001]

    (iii) Cement Marketing Co. of India Ltd. v. Asstt. CST [1980] 124 ITR 151 (SC);

    (iv) Hindustan Steel Ltd. v. State Of Orissa†. [1972] 83 ITR 26 (SC);

    (v) ITO v. Sood Enterprises [1992] 41 ITD 234 (Delhi);

    (vi) Detecon Indian Project Office v. ITO [1994] 210 ITR 260 2 (Delhi);

    (vii) Addl. CIT v. Mohammed & Sons [1985] 154 ITR 220 3 (Raj.);

    (viii) CIT v. Gangaram Chapolia [1976] 103 ITR 613 (Ori.) (FB);

    (ix) Commissioner Of Income-Tax v. Shanta Electrical Industries [1986] 160 ITR 774 4 (Delhi);

    (x) Azadi Bachao Andolan v. Union of India [2001] 252 ITR 471 5 (Delhi);

    (xi) Woodward Governor India (P.) Ltd. v. CIT [2002] 253 ITR 745 6 (Delhi);

    (xii) Commissioner Of Income-Tax v. Rishikesh Apartments Co-Operative Housing Society Ltd. [2002] 253 ITR 3107 (Guj.);

    (xiii) Commissioner Of Income-Tax v. Nestle India Ltd. [2002] 243 ITR 435 8 (Delhi)

    (xiv) Gwalior Rayon Silk Co. Ltd. v. CIT [1983] 140 ITR 8329 (M.P.); &

    (xv) CIT v. Divisional Manager, New India Assurance Co. Ltd. [1983] 140 ITR 818 (MP).

    The learned counsel for the assessee, Shri R. Ganesan, has made a reference to the Board’s Circular in F. No. 275/201/95-IT(B) dated 29-1-1997, according to which no demand visualized under section 201(1) of the Act, should be enforced after the tax deductor has satisfied that the tax due has been paid by tax deductor assessee. In the instant case, tax due has been paid. Hence no penalty under section 271C is leviable.

    7. The learned Departmental Representative, on the other hand, has placed reliance upon the order of the lower authorities. Besides, placing reliance upon the finding of the Commissioner of Income-tax (Appeals), the learned Senior Departmental Representative, Mr. Salil Gupta, has also made a reference to the letter of Pradeep Oil Corporation to the assessee dated 30-11-2002, in which it was stated by the recipient that the alleged receipt was shown as business receipt in its return of income, but the assessment was framed under section 143(1)(a) of the Act and the Revenue has no occasion to examine the nature of receipt. Hence the treatment of the receipt by the recipient, would not affect the gravity of offence committed by short deduction of tax. With regard to CBDT’s Circular, Mr. Salil Gupta has urged that it has been clarified in this Circular also that non-enforcement of tax, if paid by the deductee assessee, would not effect the chargeability of interest under section 201(1A) of the Act till the date of payment of tax by deductee assessee or the liability for penalty under section 271C of the Act. A reference was also made with regard to order of the ITAT by which order of charging interest under section 201(1A) was confirmed by the Tribunal. The nature of payment was also examined by the Tribunal in the aforesaid order and finally held that it was a payment of Rent.

    8. Having considered the rival submissions and from a careful perusal of the record, we find that section 194C deals with the payments made to contractors or sub-contractors for carrying out any work [including supply of labour for carrying out any work] in pursuance of a contract executed between the contractor and different types of assessees envisaged in sub-section (1) of section 194C of the Act whereas section 194-I deals with the payment of rent by a person not being an Individual or a Hindu undivided family, who is responsible for paying to any person any income by way of the rent. In Explanation (1) to section 194-I the word "rent" has been defined and according to the explanation the rent means any payment by whatever name called under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including the factory building), together with furniture, fitting and the land appurtenant thereto whether or not such building is owned by the payee, meaning thereby any payment in respect of use of any property to a person to whom the property belongs in any manner the payment is called to be a rent and while making the payment of this rent the payer is required to deduct @ 15 per cent if payee is individual or HUF and @ 20 per cent in other cases.

    9. For ready reference, we may prefer to extract the relevant portion of sections 194C and 194-I, as under:-

    "194C. (1) Any person responsible for paying any sum to any resident [hereafter in this section referred to as the contractor] for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and—

    (a)the Central Government or any State Government; or

    (b)any local authority; or

    (c)any corporation established by or under a Central, State or Provincial Act; or

    (d)any company; or

    (e)any co-operative society’ or

    (f)any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or

    (g)any society registered under the Societies Registration Act, 1860 (21 if 1860) or under any law corresponding to that Act in force in any part of India; or

    (h)any trust; or

    (i)any University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or

    (j)any firm,

    shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft to by any other mode, whichever is earlier, deduct an amount equal to -

    (i)one per cent in case of advertising;

    (ii)in any other case two per cent,

    of such sum as income-tax on income comprised therein.

    (2) Any person (being a contractor and not being an individual or a Hindu undivided family) responsible for paying any sum to any resident (hereafter in this section referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax on income comprised therein;"

    "194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time or payment thereof in cash or by the issue of a cheque or draft of by any other mode, whichever is earlier, deduct income-tax thereon at the rate of-

    (a)fifteen per cent if the payee is an individual or a Hindu undivided family; and

    (b)twenty per cent in other cases;

    Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of or to, the payee, does not exceed one hundred and twenty thousand rupees :

    Provided further that an individual or a Hindu Undivided Family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44-AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section.

    Explanation, - For the purposes of this section,-

    (i)"rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee;"

    10. From a careful perusal of sections 194C and 194-I, we find that section 194C deals only with the payment with a contractor and sub-contractor for the work carried out by the contractor or sub-contractor and it has no relevance with regard to the payment for the use of the land or property.

    11. Turning to the case in hand, we find that an agreement was executed between the assessee and M/s. Pradeep Oil Corporation, who has a warehouse at 13-KM Stone, Rohtak Road, Shakur Basti, Delhi. It is stated in this agreement that M/s. Pradeep Oil Corporation is a licensee in respect of railway land, on which warehouse has been constructed. As per this agreement, the arrangement of warehousing was made initially for a period of three years from the date of entry of the first truck of the product. This agreement can be further renewed by a notice of assessee-company in writing at least 6 months prior to the date of the expiry of the agreement upon the same terms and conditions for further period of three years and the warehousing service charges payable by the company to the warehouser shall be increased by 18 per cent of the warehousing service charges payable for the immediately preceding year. The warehouser further agrees to warehouse the products only of the company, owned either by the company or its authorized representative or dealers. The company envisages that during the period of agreement its product is not less than 300 trucks shall be handled by the warehouser. It was also mutually agreed that the assessee company shall pay warehousing charges to the warehouser of a minimum Rs. 37,000 per day irrespective actual number of trucks carrying the product for handling the products upto 300 trucks a day. It was further agreed that the assessee-company shall pay at the time of entering into this agreement a sum of Rs. 1,35,00,000, which shall be adjusted in equal instalments in the bills of warehousing charges over the period of first 30 months of this agreement and future rent month by month. It was further agreed that the assessee-company shall pay at the time of entering into this agreement an amount of Rs. 67,50,000 which shall be refunded without interest thereon by the warehouser to the company upon the expiry of the arrangement under this agreement. The warehouser shall simultaneously provide to the company a bank guarantee for the said amount. According to clause 5, all charges, taxes, levies, duties payable, on the products warehoused in the warehouse to the Government and/or any other authorities shall be paid promptly by the company directly to the concerned authorities and the warehouser shall not be responsible and/or liable for the same for any reason whatsoever.

    12. From a plain reading of various clauses of this agreement only one inference would be drawn that the warehouse was taken on almost a fixed rent and the warehouser has no right to warehouse the goods of any other person without the permission of the assessee-company. More so, according to this agreement, this warehouse was let out/given to the assessee company for a period of three years after taking a huge advance. Once it is evident from the documents and the conduct of the parties that the assessee has taken this warehouse on rent, we are unable to understand how the assessee has claimed that it has made the payment to a contractor or a sub-contractor and claimed deduction of TDS under section 194C of the Act, as section 194C only deals with the payment to contractors for the work carrying out by them. The facts of the case make abundantly clear that the payments were made by the assessee-company to the warehouser as rent of the warehouse taken to warehouse its goods or at the most as a warehousing charges. Through Circular No. 715 dated 8-8-1995 it has been made clear by the Board that if the composite arrangement is in essence of the agreement for taking premises on rent, the tax will be deducted under section 194-I for payments thereof. Through Circular No. 718 dated 22-8-1995 while replying a query "whether the tax is to be deducted at source from warehousing charges?" The Board has clarified that the term "rent" as defined in Explanation (i ) below section 194-I means any payment by whatever name called under any lease, sub-lease, tenancy or any other arrangement or arrangement for the use of any building or land. Therefore, warehousing charges will be subject to deduction of tax under section 194-I.

    13. We have also carefully examined the Circular No. 275 dated 29th January, 1997, which was relied on by the assessee and appearing at page No. 1 of the compilation and we find that through this Circular it has been clarified by the Board that no demand visualized under section 201(1) of the Act should be enforced after the tax depositor has satisfied the official in-charge of the TDS that tax due had been paid by the deductee-assessee. The Board has further clarified that non-enforcement of demand would not alter the liability to charge interest under section 201(1A) of the Act till the date of payment of taxes by the deductee-assessee or liability for the penalty under section 271C of the Act. Nowhere it has been stated or clarified either in the Act or by the CBDT that once the short deducted tax has been paid by the deductee-assessee, no penalty under section 271C can be levied. We have also examined the letter written by Pradeep Oil Corporation to the assessee regarding the treatment given by them to the receipts of the aforesaid payments of warehousing charges and we find that the declaration of the receipt as business receipt does not change the nature of payment in the hands of the assessee. Whatever nature of receipt was declared by M/s. Pradeep Oil Corporation in its hands, it was not examined by the Revenue authorities as the returns were processed under section 143(1)(a) of the Act. As such, the contention of the assessee that this payment was shown in the hands of the recipients as business receipts and was accepted by the Revenue do not refrain the Revenue from examining the real nature of payment made by the assessee to Pradeep Oil Corporation. During the course of hearing, our attention was also invited to the order of the Tribunal in the assessee’s case on an issue of charging of interest under section 201(1) read with section 201(1A) of the Act and on its perusal, we find that the Tribunal has examined the nature of payments of this warehousing charges in the light of various judicial pronouncements and the terms of agreement and finally held that the agreement between the parties is only for the use of the land and warehouse and no service of any type are provided by the warehouser. With regard to the question of bona fide belief/reasonable cause vis-a-vis the stand of the assessee that the payment was made to a contractor and provisions of section 194C of the Act are applicable other than those of section 194-I, the Tribunal has held that before the impugned assessment year the CBDT has clarified by replying a query i.e. "whether the tax is to be deducted at source from warehousing charges" through its Circular No. 718 dated 22-2-1985 that the term "rent" as defined in Explanation (1) below section 194-I means any payment by whatever name called under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any building or land.

    "Therefore, warehousing charges will be subject to deduction of tax under section 194-I." This clarification was issued by the Board on 22-8-1995 and despite the clarification the assessee had deducted TDS @ 2 per cent applicable to contractor as per section 194C during the financial years 1998-99 and 1999-2000. The Circulars of the CBDT are public documents and these are given wide publicity because they affect the tax liabilities of the citizens. While dealing with the chargeability of tax the Tribunal has also held that the assessee should have understood the intention of the Department and acted accordingly. It was further held by the Tribunal that it is not a case where the assessee can say that it had sought legal advise to support its action since none has been brought forth. The assessee had the legal brains at its disposal and the Tribunal really wonder as to why even after the Circular of the Board the assessee chose to act in the manner that it did. The Tribunal accordingly rejected the submissions of the assessee that there was a reasonable cause or a bona fide belief for its deduction of tax at the rate applicable to payment to contractors envisaged under section 194C of the Act. The Tribunal accordingly upheld the action of the Revenue initiated under section 201(1) read with section 201(1A) of the Act. This order of the Tribunal on the impugned issues still holds the field as it has not been reversed by the appellate authorities.

    14. We, however, again examined the entire facts in order to determine whether the Revenue is justified for levying the penalty under section 271C of the Act and we find that since the doubt, if any, with regard to the nature of payment of warehousing charges has been clarified by the Board in 1995, there is no plausible reasons as to why and how the assessee had been claiming the payment of rent of warehouse or at the most warehousing charges as a payment to contractors under section 194-C of the Act and deducted the TDS @ 2 per cent only. We have also carefully examined the judgments referred to by the parties and we find that the judgments were rendered on different issues based on different facts and circumstance of the case. Since all these judgments are distinguishable on facts, no assistance can be drawn from them in favour of the assessee.

    15. Keeping in view the totality of facts and circumstances of the case, we do not find any force in the contentions of the assessee that under misconception of legal provisions, he has deducted the tax at 2 per cent, the rates applicable to contractors as per section 194C of the Act. We, therefore, of the view that the Revenue authorities are justified in levying the penalty under section 271C of the Act for the assessee’s default of short deduction of tax inasmuch as the assessee is required to deduct the TDS @ 20 per cent, rate applicable on payment of rent as per section 194-I of the Act, but the assessee has intentionally deducted the lesser TDS @ 2 per cent under the garb that its case falls under section 194C of the Act. Accordingly, the orders of the Commissioner of Income-tax (Appeals) who has confirmed the penalty are hereby upheld.

    16. In the result, the appeals filed by the assessee are dismissed.

    145/69

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