K.S. Jhaveri, J.
1. Both these appeals arise out of the common judgment and order of the Income Tax Appellate Tribunal and involve common questions on law and facts and therefore, they are decided by this common judgment.
2. Briefly stated, the facts are that the respondent-assessee is a Public Sector Undertaking, having its Registered Office at Vadodara, Gujarat. The assessee filed its return of income on 06.05.1996 for the A.Y. 1996-97. Assessment scrutiny was undertaken and it was noticed that the assessee had distributed gift coupons to its employees, which was not disclosed in its return and therefore, there was short deduction of tax.
3. The Assessing Officer passed the order u/s.201(1) of the Income Tax Act, 1961. Aggrieved by the said order, the assessee filed appeal before the CIT(A), which was dismissed. Pursuant to the order u/s.201(1) of the Act, penalty u/s.271-C of the Act was levied upon the assessee.
4. Against the above order, the assessee filed appeal before the CIT(A). Vide order dated 20.05.2002, the CIT(A) dismissed the appeal of the assessee. The assessee preferred further appeals before the Tribunal vide ITA No.2463 and 2464/AHD/2002 against the penalties u/s.271-C of the Act. The Revenue filed appeal vide ITA No.3936/AHD/2002 against the deletion of penalty u/s.271(1) (c) of the Act. The Tribunal heard all the three appeals together and disposed of the same, vide common impugned judgment and order dated 25.04.2008. By the impugned judgment and order, the Tribunal allowed the appeal of the assessee. Being aggrieved by the impugned order, the Revenue has preferred the present appeals.
5. Both these appeals were admitted vide common order date 08.07.2009d in respect of the following common substantial question of law;
"Whether the Appellate Tribunal is right in law and on facts in reversing the order passed by the CIT(A) and thereby cancelling the penalty of Rs.1,25,58,513/- levied u/s. 271C of the Act for short deduction of tax in respect of gift coupons issued by the assessee to its employees?"
6. Mr. M.R. Bhatt learned Senior Advocate appearing for the Revenue submitted that the decision of the Tribunal was erroneous since the gift coupons were given to employees for performance of their duty and not as mementos. Therefore, they were perquisite in the hands of the employees. Hence, the provisions of Sections 17(2)(iii) and 17(2)(iv) were applicable on the payments made by the assessee. However, the Tribunal failed to appreciate the above aspect of the case and committed serious error in allowing the appeal filed by the assessee.
7. B.S. Soparkar learned counsel appearing for the assessee submitted that the assessee-Corporation is a large scale Public Sector Undertaking paying huge amount of tax in terms of deduction from salary of its employees. The assessee-Corporation will never have the malafide intention to avoid TDS on the paltry sum of gift coupons. There is no incident in the past to indicate that the assessee-Corporation, in any way, avoided the payment of TDS.
7.1 Learned counsel submitted that the assessee was under a bona fide impression that the gift coupons are not in lieu of salary and being a memento, were not liable to be treated as salary and liable for TDS. Therefore, being under the bona fide belief, it cannot be held that the assessee deliberately avoided the payment of TDS. He, therefore, submitted that the Tribunal was justified in deleting the penalty since the act was under a bona fide belief.
7.2 In support of the submissions, Mr. Soparkar has placed reliance upon the decision of the Apex Court in the case of CIT v. Eli Lilly and Co. (I) P. Ltd. [2009] 312 ITR 225/178 Taxman 505.
8. We have learned counsel for both the sides and perused the material on record. The assessee herein is a Public Sector Undertaking bound by all kinds of audits and regulatory checks on the accounts, vouchers and records. Being governed by the Board of Directors, no one has any personal interest to deliberately treat a minor payment as non-taxable, which is, otherwise, believed to be taxable perquisite.
9. The fact that the assessee was conferred various safety awards by international organizations has not been disputed. It was contended by the assessee that it held a bonafide belief that the payment made to its employees was not in the nature of salary. The fact that safety awards were conferred and gift coupons in question were linked to such safety awards and holding it as a bona fide belief on the part of the assessee cannot be called a farce. The Revenue has not controverted the fact of grant of gift awards and gift coupons being displayed by the assessee by way of hoardings, advertisement, celebration and company's resolution. Therefore, in our view, it cannot be said that the assessee had suppressed or with-held any information in order to avoid tax.
10. In Eli Lilly and Co. (I) P. Ltd. (supra), the assessee was a joint venture company between EL, Netherlands, a foreign company and R, an Indian Company. It was engaged in manufacturing and selling pharmaceutical products in India. The foreign partner had appointed four expatriates to the assessee in India. Only part of their aggregate remuneration was paid in India by the assessee. It was found that the total remuneration paid was only on account of services rendered in India and no work was performed by the expatriates for the foreign company. Since the assessee had failed to deduct tax at source in respect of the home salary paid abroad by the foreign company to the expatriate employees, it was asked to explain.
10.1 The Apex Court held that the payment of home salary abroad by the foreign company to the expatriates had a connection or nexus with their rendition of services in India and therefore, such payment constituted income, which was deemed to accrue or arise to the recipient in India as salary earned in India in terms of Section 9(1)(ii) of the Act. It was further held that since the assessee was under a genuine and bona fide belief that it was not under any obligation to deduct tax at source from the home salary paid by the foreign company, penalty u/s.271C was not leviable as reasonable cause was shown for not deducting tax at source. The liability to penalty u/s.271C can be fastened only on the person who does not have good and sufficient reason for not deducting tax at source.
11. Considering the aforesaid factual aspects and in view of the principle rendered in Eli Lilly and Co. (I) P. Ltd. case (supra), we are of the opinion that the assessee acted under the bona fide belief that the gift coupons, being in the nature of mementos to commemorate conferment of awards, were not in the nature of payment of salary. The salary of employees comes from the revenue of the PSU and when huge amount of TDS is made from regular salary, we see no reasons as to why, a Central Government PSU, will commit default to pay TDS on such small payment.
12. In view of the above, the question of law as to whether the Tribunal is right in law and on facts in reversing the order passed by the CIT(A) and thereby cancelling the penalty of Rs.1,25,58,513/- levied u/s. 271C of the Act for short deduction of tax in respect of gift coupons issued by the assessee to its employees is answered in the affirmative in favour of the assessee and against the Revenue. The appeals are, accordingly, dismissed.