No penalty imposable u/s 271C of the IT Act in view of Contradictory decisions of High Courts and the arguable and nascent legal issue which required resolution by Supreme Court and these constitute reasonable cause for not deducting TDS by the air carriers at the relevant period.

"We find some parallels between the facts of the present case and the situation in Eli Lilly & Co. (Supra). The liability of an airline to deduct TDS on Supplementary Commission had admittedly not been adjudicated upon by this Court when the controversy first arose in AY 2001­02. While learned Counsel for the Revenue, Mr. Kumar, has notified us that various airlines were deducting TDS under Section 194H at that time, this does not necessarily mean that the position of law was settled. Rather, it appears to us that while one set of air carriers acted under the assumption that the Supplementary Commission would come within the ambit of the provisions of the IT Act, another set held the opposite view. The Assessees before us belong to the latter category. Furthermore, as we have highlighted earlier, there were contradictory pronouncements by different High Courts in the ensuing years which clearly highlights the genuine and bona fide legal conundrum that was raised by the prospect of Section 194H being applied to the Supplementary Commission. 

62. Hence, there is nothing on record to show that the Assessees have not fulfilled the criteria under Section 273B of the IT Act. Though we are not inclined to accept their contentions, there was clearly an arguable and “nascent” legal issue that required resolution by this Court and, hence, there was “reasonable cause” for the air carriers to have not deducted TDS at the relevant period. The logical deduction from this reasoning is that penalty proceedings against the airlines under Section 271C of the IT Act stand quashed."

[SINGAPORE AIRLINES LTD. v. CIT, C.A. No.-006964-006965 / 2015 dated 14.11.2022)

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