Genuine ambiguity in TDS on warehousing charges can defeat penalty when the assessee later makes good the tax.

Penalty under section 271C was found unwarranted where the assessee's failure to deduct tax at source on warehousing charges stemmed from a genuine ambiguity in the first year of section 194-I's application to such charges. The later CBDT clarification removed that uncertainty, and the assessee's subsequent deposit of the tax into the Government treasury and filing of the return supported bona fide conduct and showed no substantive revenue loss. On that basis, deletion of the penalty was upheld in favour of the assessee.

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Issues: Whether penalty under section 271C of the Income-tax Act, 1961 was leviable for failure to deduct tax at source on rent paid where there was initial confusion about the applicability of section 194-I to warehousing charges.

Analysis: The liability to deduct tax on rent exceeding the prescribed limit was clear, but the question whether warehousing charges fell within the expression "rent" created genuine uncertainty in the first year of the provision. The subsequent clarification by the CBDT removed that ambiguity. The assessee also rectified the default by depositing the tax into the Government treasury and filing the return, which supported the bona fides of the explanation and showed no revenue loss in substance.

Conclusion: Penalty under section 271C was not justified and its deletion was upheld in favour of the assessee.

Ratio Decidendi: Where a default in deduction of tax at source arises from a genuine and contemporaneous ambiguity in the applicability of the charging provision and the assessee acts bona fide by later making good the tax, penalty is not warranted.

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