AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (3) TMI 735
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....g of beer but did not own any brand of it's own and the beer is sold on brand name, hence it had entered into agreement to manufacture the beer in the brand name of parent company under the contractual agreement with MBIL group of companies and it sold the goods to APBCL under its own name. It had also paid excise duty and sale tax. In effect, it had produced and marketed the beer on its own in the brand name of the parent company and deducted the tax at source u/s 194C of the Act by treating the payment as contract payment. The AO took the view that the brand fee is in the nature of royalty for use of brand name and tax should be deducted u/s 194J of I.T. Act. Since the rate at which the tax is required to be deducted u/s 194C is lower than the rate prescribed u/s 194J of the Act, the AO treated the assessee as assessee in default in respect of short deduction of tax at source and raised the demand. However, the assessee claimed before the ld. CIT(A) for not treating the assessee in default u/s 201 as per the judgement of the Hon'ble Supreme Court rendered in the case of Hindustan Coco-Cola Beverages Pvt. Ltd. Vs. CIT[293 ITR 226] (SC).The Ld.CIT(A) considered the submission made ....
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....ngly, we are of the view that there is no infirmity in the action of the tax authorities in treating the payment of 'brand fee' as payment of royalty falling within the scope of sec.194C of the Act." 4. The Ld. Jt. CIT has imposed penalty u/s 271C of I.T. Act for short deduction of tax at source after giving opportunity to the assessee. Aggrieved by the order of the Jt.CIT, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) confirmed the penalty levied u/s 271C of the Act. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal. The Ld. CIT(A) confirmed the penalty levied u/s 271C and the relevant part of the Ld.CIT(A) is extracted which reads asunder: 6.1 The facts on record show that the assessee paid brand fee to M/s MBIL & M/s UBL under the Brewing Agreement as follows for the subject years:- Assessment year Amount 2008-09 9,13,64,139 2009-10 4,17,26,245 2010-11 2,26,48,247 6.2 The assessee had deducted TDS at 2% u/s 194C on the said payments and it was contended that it was merely a contractual payment. In this regard, it is relevant to refer to the terms of the Brewing Agreement where the consideration for the sa....
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....94J are attracted. The assessee's contention that they represent contractual payment u/s 194C was rejected by both the appellate authorities. The Hon'ble ITAT Vizag while rejecting the assessee's contention observed as under:- We have heard rival contentions and perused the record. The assessee might have acted as contract manufacturer but the facts remain that, for all practical purposes, it has declared itself to be the manufacturer and has sold the product under its invoice only. The financial statements prepared by it also vindicate the same. When, for all legal requirements, the assessee has claimed itself to be the manufacturer of beer and has sold it under its own name by using the brand name of main line companies, it is incomprehensible as to how the assessee could claim for the limited purpose of sec, 194J of the Act that it wasmere contract manufacturer manufacturing beers for others. It was not shown to us that the property and risk attached with the manufactured products always remained with the Contractee, Further, We notice that the assessee has claimed to have executed contract for others, whereas, on the payment of 'brand fee', it has deducted....
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....', and that the misapplication of the provisions cannot be considered as malafide intention; that such bonafide belief was sought to be reiterated with reference to the statutory audit report where no mention of such default was made. Thus it was argued that the assessee had 'reasonable cause' and the various judicial pronouncements referred above were relied on. It has to be seen as to the existence of a state of circumstances, which assuming them to be true would reasonably lead any ordinarily prudent man to come to the conclusion that it was the right thing to do. In this context, it may be relevant to refer to the terms of the Brewing Agreement under which the impugned payments were made and note that the plain terms of the Brewing Agreement clearly show that the impugned payments were made towards brand fee. The assessee is a signatory to the Agreement and it is an admitted position that the impugned amounts were calculated and paid as per the Brewing Agreement. The AR could not point to any clause in the Brewing Agreement to infer or understand that the impugned payments were not made towards brand fee, or that the conditions for royalty payment was not existing. ....
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.... matrix in the present case are totally different. Factually, as already discussed above, the plain terms of the Brewing Agreement clearly show that the impugned payments were made towards royalty and not towards any contract work. The assessee company is a party to the agreement and has also submitted that the payments were computed and made as per the terms of Brewing Agreement. Thus, the element of bonáfide error does not exist. Besides, no information was placed on record to show that the CA had advised that the tax had to be deducted u/s.194C in regard to the impugned payments and that the impugned payments are not in the nature of 'royalty'. In this regard It is relevant to refer to the observation of Hon'ble Delhi HC in CIT v N G Technologies Ltd (ITA No.82/2012 dt.1st December, 2014) It is mandatory and compulsory for a company to get their accounts audited from a Chartered Accountant, who is required to submit an audit report to be filed with the return. We cannot, therefore, accept the contention of the assessee as universal and comprehensive that all claims howsoever untenable, once certified by a Chartered Accountant or the Directors of the company....
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....ted the income in its hands, hence, there is no revenue loss in this case for imposing the penalty and further submitted that once the income is admitted in the hands of the deductee, deduction of TDS at 10% does not have any the tax effect. Ld.AR also argued that in case the payee admits the tax, the assessee cannot be treated as assessee in default consequent to the amendment made to second proviso to 40(a)(ia) of I.T.Act which is said to be retrospective by Hon'ble Delhi High Court in the case of CIT Vs. Ansal Landmark Townships Ltd, therefore taking cue from the amendment made to section 40(a)(ia) of the Act, the penalty is not exigible u/s 271C. Hence requested to cancel the penalty. 6. On the other hand, Ld. DR supported the orders of the lower authorities. 7. We have heard both the parties and perused the material on record. For failure of the assessee to deduct the tax as required as per chapter XVIIB and section 194B, the penalty u/s 271C attracts. We reproduce hereunder the relevant section of 271C which reads asunder: [Penalty for failure to deduct tax at source. 71 271C. 72[(1) If any person fails to- (a) deduct the whole or any part of the tax as required by ....
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.... it shows the willful default of the assessee for short deduction. Hon'ble Kerala high court in the case of CIT vs Muthoot Bankers (Aryasala) reported in 385 ITR 0051held as under: 5. Having heard the Senior Counsel for the revenue and also going through the orders passed by the statutory authorities, we find that it was the admitted case of the assessee that they did not deduct tax at source as required by them under Section 194A. When there is a failure on the part of the assessee to deduct tax at source in violation of Section 194A, the penal provisions of Section 271C are attracted. In such a case, the only way out for the assessee is to take the benefit of Section 273B by establishing that there was reasonable cause justifying their failure to comply with Section 194A. Referring to various precedents this Court had occasion to deal with a similar case in the judgment in ITA 139/2013 where it was held that the burden under Section 273B is entirely on with the assessee and that a case which is beyond the control of the assessee and which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fides, al....