2005 (12) TMI 223 - AT - Income Tax

Tribunal Upholds Penalty Cancellation for Non-Deduction of TDS on ESOS Shares

The Tribunal dismissed the Department's appeals, upholding the cancellation of penalties u/s 271C for financial years 1998-99 and 1999-2000 related to the ... Failure To Deduct Tax At Source Issues involved: Department appealing against cancellation of penalties u/s 271C of the IT Act for financial years 1998-99 and 1999-2000 due to short-deduction of TDS on shares transferred to employees under ESOS.Summary:1. Facts and Issue: Appeals filed by Department against CIT(A)'s order cancelling penalties u/s 271C for short-deduction of TDS on shares transferred under ESOS. Both appeals disposed of together due to identical facts and issues.2. Background: Assessee, a company, transferred shares to employees under ESOS without deducting tax at source, leading to penalty proceedings u/s 271C for financial years 1998-99 and 1999-2000.3. CIT(A) Decision: CIT(A) accepted assessee's contention of not deducting tax at source based on advice received, deleting penalties for both financial years. Department appealed to the Tribunal.4. Legal Precedent: Reference made to a Bangalore Bench Tribunal case holding ESOS benefits not taxable before a specific amendment, applicable prospectively from 1st April 2000. Tribunal concurred that no tax deduction was required for financial years 1998-99 and 1999-2000.5. Tribunal Decision: Tribunal upheld CIT(A)'s decision to cancel penalties, citing that ESOS benefits were not taxable perquisites for the relevant financial years. No benefits accrued to employees under ESOS, hence no tax deduction was necessary, leading to dismissal of Department's appeals.In conclusion, the Tribunal dismissed the Department's appeals, upholding the cancellation of penalties u/s 271C for financial years 1998-99 and 1999-2000 related to the non-deduction of TDS on shares transferred under ESOS, based on the legal interpretation that ESOS benefits were not taxable during those years.