Quantification of Penalty is dependent upon Additions made to Income of Assessee: ITAT

The Income Tax Appellate Tribunal (ITAT), Delhi bench consisting of Pradip Kumar Kedia, Accountant Member and Narender Kumar Choudhry, Judicial Member held that quantification of penalty is dependent upon additions made to income of assessee.

The appeal has been filed by the assessee, Bharat Rana Chaudhry against the order of the Commissioner of Income Tax relevant to Assessment Year 2006-07 whereby action of the CIT in confirming the penalty of Rs.1,81,97,948/- imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961 has been assailed by the Assessee.

The Tribunal observed that “sub-clause (iii) of section 271(l)(c) provides mechanism for quantification of penalty. It contemplates that the assessee would be directed to pay a sum in addition to taxes, if any, payable him, which shall not be less than but which shall not exceed three times the amount of tax sought to be evaded by reason of concealment of income and furnishing of inaccurate particulars of income. In other words, the quantification of the penalty is dependent upon the additions made to the income of the assessee. Upto and until the issue regarding determination of the taxable income is finalized, penalty under section 271(l)(c) of the Act cannot be imposed upon the assessee. The determination of taxable income of the assessee is presently subjudiced before the CIT owing to the order of the ITAT in quantum proceedings. After adjudication the issue of quantum on merit, it will be in the discretion of the CIT to consider the appropriate modification in penalty amount on the issue against the assessee in accordance with law. The appeal is thus set aside and restored to the file of CIT for fresh adjudication in the light of outcome of quantum appeal.”

Service Tax not leviable on Compensation paid to Employer during Resignation without Notice: CESTAT

The Bangalore bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the service tax cannot be leviable on the amount of compensation paid by the employee to the employer for resigning without notice.

The appellants, XL Health Corporation India Pvt. Ltd. had collected certain amount as ‘Notice Period Pay’ or ‘Bond Enforcement Amount’ from their employees, who want to quit the job without notice or do not serve the organization for the prescribed period as per terms of the employment contract. During the course of audit of records maintained by the appellants, the Department observed that the appellants did not pay service tax on the consideration received on account of ‘notice pay’ from the employees and proceeded accordingly.

A coram of Mr. S.K. Mohanty, Judicial Member and Mr. P. Anjani Kumar, Technical Member found that the term ‘notice pay’ mentioned in the employment contract cannot be considered as a service, more specifically as the taxable service inasmuch as neither of the parties to the contract have provided any service to each other.

“Thus, the phrase ‘service’ defined in Section 65B (44) ibid and ‘declared service’, as defined in Section 65B (22) are not applicable for consideration of such activity as a service for the purpose of levy of service tax. Further, the amount received as compensation by the appellants cannot be equated with the term ‘consideration’ inasmuch as the latter is received for performance under the contract; whereas, the former is received, if the other party fails to perform as per the contractual norms. We find that the issue arising out of the present dispute is no more open for any debate, in view of the judgments relied upon by the learned Consultant for the appellants. The Hon’ble Madras High Court in the case of GE T & D India Limited (supra) has held that in absence of rendition of any taxable service, the amount received as consideration cannot be termed as taxable service for the purpose of levy of service tax thereon,” the Tribunal said.

Granting relief to the assessee relying on the judgment of Madras High Court, and the Tribunal decision in the case of M/s Intas Pharmaceuticals and M/s Rajasthan Vidhyut Prasaran Nigam Ltd. the Tribunal held that any compensation paid by the employee to the employer for resigning from the service without giving the requisite notice, would not be termed as consideration for the contract of employment and as such, would not fall within the preview of taxable service.

No Service Tax on Rajasthan Cooperative Dairy Federation for Collection of Service Charges from Milk

The Delhi bench of Custom, Excise & Service Tax Appellate Tribunal (CESTAT) comprising Justice Dilip Gupta (President) and technical member P.V. Subba Rao has held that no service tax is payable on the service charges collected by the Rajasthan Cooperative Dairy Federation from the milk unions or district cooperative societies for the services rendered to them.

The division bench was hearing an appeal filed by the Federation where the department imposed service tax observing that it charges an amount @ 1.25% of the annual turnover of milk unions to manage their finances and other services and this amount is called by the appellant as Rajasthan Cooperative Dairy Federation Cess (RCDF Cess).

The Tribunal bench held that although the Rajasthan Cooperative Dairy Federation and the milk unions/district cooperative societies are registered under the Rajasthan Cooperative Societies Act, 2001 and are thus distinct legal entities, the nature of the relationship between them continues to be that of a club and its members.

It was observed that “any amount paid by the members to the club and the services rendered by the club to its members are self-service and cannot be taxed. The fact that the club is incorporated as a separate legal entity makes no difference. We find no good reason not to apply the same principle to the appellant, which is also a cooperative federation of milk unions who are its members. Although the milk unions (district cooperative societies) and the appellant (apex society) are registered under the Cooperative Societies Act of the State and are, therefore, distinct legal entities, the nature of relationship between the appellant and the milk unions continues to that of club to its members. Therefore, no service tax is payable on the services rendered by the appellant to the milk unions.”