Reasonable cause defeats TDS penalty where airtime payments were treated bona fide as content purchase and the issue was debatable.

Penalty under section 271C for non-deduction of tax at source on airtime charges paid to television broadcasters was held unjustified because the assessee had shown reasonable cause. The Tribunal accepted that the payments were treated bona fide as content purchase, tax was not deducted on an honest view that section 194C did not apply, and the issue was debatable. It held that penalty under section 271C is not automatic and can arise only where the failure is without reasonable cause under section 273C. Relying on its earlier view in the assessee's own case and the surrounding circumstances, the Tribunal deleted the penalty.

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Issues: Whether penalty under section 271C of the Income-tax Act, 1961 was justified for non-deduction of tax at source on airtime charges paid to television channel broadcasters, or whether the assessee had shown reasonable cause for the failure.

Analysis: The payments were treated by the assessee as content purchase, and tax was not deducted under section 194C on the bona fide view that the sums were not for work covered by that provision. The Tribunal noted that penalty under section 271C is not automatic and can be levied only when the failure is without reasonable cause. It accepted the explanation that the issue was debatable, that the assessee acted under an honest belief based on reasonable grounds, and that the subsequent conduct and surrounding circumstances supported the absence of contumacious default. The Tribunal followed its earlier view in the assessee's own case and held that the non-deduction could not be said to be without reasonable cause within section 273C.

Conclusion: The penalty under section 271C was held to be unjustified and was deleted, in favour of the assessee.

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