Tribunal cancels penalty for non-taxable software payments under section 271C

The Tribunal upheld the CIT(A)'s decision to delete the penalty under section 271C, citing non-taxable software payments. The judgment emphasized that once demand under section 201(1) was canceled due to non-default status, the penalty under section 271C cannot stand. Revenue's appeal was dismissed, and penalty was not applicable.

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Issues:
Appeal against deletion of penalty under section 271C of the Income-tax Act, 1961 for assessment year 2007-08.

Analysis:
The appeal concerns the deletion of penalty under section 271C of the Act. The case involves the assessee's failure to deduct tax at source on payments made for software licenses and related services. The Assessing Officer deemed these payments as taxable under the DTAA, holding the assessee in default and levying a penalty. However, the CIT(A) deleted the penalty, prompting the Revenue's appeal.

The Tribunal referred to a similar case, Capgemini Technology Services India Ltd. Vs. DDIT, where it was held that payments for software use were not taxable as royalty. Consequently, the demand under section 201(1) and interest under section 201(1A) were deemed unwarranted. As the assessee was not in default, the penalty under section 271C was also dismissed. The Tribunal concluded that since the demand under section 201(1) was canceled, the penalty for default did not stand. Therefore, the Revenue's appeal was dismissed, and the assessee was not liable for the penalty under section 271C.

In summary, the Tribunal upheld the CIT(A)'s decision to delete the penalty under section 271C, citing the non-taxable nature of the software payments. The judgment emphasizes that once the demand under section 201(1) is canceled due to the non-default status of the assessee, the penalty under section 271C cannot be sustained. Hence, the appeal of the Revenue was dismissed, and the penalty was not applicable in this case.

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