2017 (4) TMI 1586 - HC - Income Tax

Court rules in favor of appellant, overturning penalty order under IT Act. Appellant challenges classification as defaulter.

The Court allowed the appeal, ruling in favor of the appellant against the department. The appellant successfully challenged the Tribunal's decision ... Penalty u/s 271C - appellant treated as defaulter u/s.194A/201(1) - HELD THAT:- The issue is squared covered by the decision of this Court in the case of Sr. Divisional Manager, National Insurance Co. Ltd., 61, Aerodrum Road, Alwar [2017 (2) TMI 1515 - RAJASTHAN HIGH COURT] for none of the years under consideration, the interest income exceeded ₹ 50,000/-. In fact, this Court in case of Smt. Hansagauri Prafulchandra Ladhani and ors vs. The Oriental Insurance Company Ltd [2006 (10) TMI 383 - GUJARAT HIGH COURT] provided for further splitting up of this ceiling of ₹ 50,000/- per claimant basis. Looked from any angle, the insurance company was not justified in deducting tax at source while depositing the compensation in favour of the claimants. It therefore, cannot avoid liability of depositing such amount with the Claims Tribunal. The Claims Tribunal had committed no error in insisting on the insurance company in making good the shortfall - Decided in favour of assessee. Issues:Challenge to Tribunal's order confirming Assessing Officer's decision on penalty under IT Act, 1961.Analysis:The appellant challenged the Tribunal's decision confirming the Assessing Officer's order, leading to the framing of a substantial question of law by the Court. The question revolved around the justification of imposing a penalty under section 217C of the IT Act and treating the appellant as a defaulter under sections 194A/201(1) of the Act. The appellant relied on previous court decisions to support their case, emphasizing that the issue was covered by specific judgments.The appellant's counsel referenced a decision involving the Divisional Manager of an Assurance Company engaged in the business of General Insurance. The case highlighted the company's obligation to pay compensation claims, including interest, to claimants as awarded by the Motor Accidents Claims Tribunal. The CIT (A) observed that the company was liable to deduct tax at source on the interest payments made, leading to the dispute at hand. Additionally, the appellant cited judgments from the Allahabad High Court and the Gujarat High Court to strengthen their argument regarding the nature of awards under the Motor Vehicle Act and the exclusion of interest on compensation from tax deduction provisions.The Department's representative countered the appellant's arguments by referring to a Division Bench judgment of the Court and a decision of the Karnataka High Court. However, the Court ultimately ruled in favor of the appellant, citing the previous judgments and the specific circumstances of the case. Consequently, the appeal was allowed, and the issue was resolved in favor of the assessee against the department.