Gifts were distributed without deducting tax to employees on a bona fide believe that such gifts shall not form part of salary. Thus, such distribution shall not attract penalty.   

Case: Commissioner of Income Tax vs. Indian Petrochemicals Corporation Ltd.

Facts:

The assessee being a Public Sector Unit filed its return of income. The cas was under scrutiny. The AO noticed that the assessee distributed gifts coupons to its employees. The said gifts were not disclosd in the return and thus, no deduction of tax on the same.

The AO passes an order under section 201 (1). Penalty under section 271(1)(c) was also imposed on the assessee.

The Commissioner (Appeals) rejected the appeal of the assessee.

Aggrieved by the order, assessee appealed to the tribunal. The Tribunal deleted the penalty levied upon the assessee.

Revenue appealed to the High Court.

Held:

The Revenue argued that the gift coupons given to employees were for performance of their duty and not as mementos. Therefore, they were classified as perquisite in the hands of the employees.

While the assessee submitted that being a large scale Public Sector Undertaking pays a huge amount of tax in terms of deduction from salary of its employees. Even the past record of the company does not show any default in payment of TDS.

The assessee bona-fide believed that the gifts coupons distributed shall not form part of salaries. It was under an impression that gift coupons, being in the nature of mementos to commemorate conferment of awards, were not in the nature of payment of salary.

Since the assessee was under a genuine and bona fide belief that it was not under any obligation to deduct tax at source, penalty u/s.271C shall not be levied as reasonable cause was shown for not deducting tax at source. The liability to penalty u/s.271C shall be imposed only on the person who does not have good and sufficient reason for not deducting tax at source.

Thus, no penalty on non-deduction of tax if assessee bona-fide believed that no tax shall be deducted.

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