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Judgment
Devi Prasad Singh, J.—Present appeal u/s 260A of the Income Tax Act 1961 (in short hereinafter referred as the Act) preferred by the revenue is against the tribunal''s order relates to assessment year 2004-05. Controversy relates to a proceeding for penalty u/s 271(1)(c) of the Act.
Facts:
Assessee filed the return of the income on 14.10.2005 regarding total amount of Rs. 1,17,600 which was processed u/s 143(1) of the Act. The case was selected for scrutiny under the guidelines for the Financial year 2005-06. Notice u/s 143(2) and 142(1) of the Acts were issued on 19.10.2006. In response to which counsel for assessee appeared to defend the cause of assessee.
Assessee has shown income from salary from M/s Ramjee Distributors (P) Ltd. of Rs. 12,000/- after claiming standard deduction, net income was disclosed Rs. 7,200/-. The income from other source was disclosed at Rs. 1,22,394/-. The assessee has also shown long term capital gain on sale of shares of Sri Niwas Leasing and Finance Ltd. A number of shares sold on 15.5.2003 was 23,000 and the sale proceed was disclosed was at Rs. 25,25,400/-. Further 27,000 shares were sold on 21.4.2003 and the sale proceed was disclosed at Rs. 29,64,600/-. He has also constructed a house on plot No. 71-72, Chandganj Garden, Lucknow. By an order-sheet entry dated 30.11.2006 assessee was asked to furnish name of stock exchange through which share was purchased and sold along with rate of shares of the stock exchange on date of purchase and sale. Assessee has constructed house between financial year 2001-02 to 2004-05 with investment of Rs. 56,74,567/-.
Order-sheet shows that the counsel for the assessee appeared on 27.10.2006 and required to furnish the Contract Note of purchase and sale of shares sold with copy of bill of broker, justify holding of shares, which were sold, year-wise investment in house property, valuation report of approved valuer, confirmation of salary received from Company and other documents.
On 9.11.2006, Counsel for the Assessee appeared but filed only partial reply to the query made on 27.10.2006, hence, he required to furnish the valuation report of the approved valuer, source of investment in purchase share, copy of bank pass-book explaining each credit and debit entries, copy of demat account, if any. Again on 23.11.2006, counsel for the assessee required to furnish certain statement, which was not furnished in response to earlier order.
On 30.11.2006, counsel for assessee was directed to furnish reply in terms of the order dated 9.11.2006. He was further directed to furnish the name of stock exchange through which share was purchased and sold, rate of shares in stock exchange on date of purchase and sale on or before 6.12.2006.
On 6.12.2006, the assessee surrendered entry appearing in bank account number 459 of the Allahabad Bank on sale of shares amounting to Rs. 61,35,844/- on agreed basis. In consequence thereof, assessee was required to furnish the bank account.
In the meantime, in response to the letter dated 13.11.2006, though share broker S.J. Capital Limited, member of Delhi Stock Exchange Ltd., had not sent any reply till 6.12.2006 and the letter returned unserved with remark "receiver is not residing on the address given". Letter from Delhi Stock Exchange dated 8.12.2006 was received in which it has been stated that : (a) There is no transaction of shares of Shri Niwas Leasing & Finance Ltd. in Delhi Stock Exchange between 15.4.2002 to 19.4.2002; (b) There is no transaction of scrip between 15.5.2003 to 21.5.2003; (c) The statement provided shows that S.J. Capital Ltd. has no sale purchase of aforesaid scrip between 15.5.2003 to 21.5.2003; (d) A statement was given by Delhi Stock Exchange, which shows that S.J. Capital has not done any trading of aforesaid shares from 15.4.2002 to 19.4.2002.
Assessee while surrendering the entries of Bank Account No. 459 of Allahabad Bank for Rs. 61,35,844/-, also submitted a written reply dated 6.12.2006, which is reproduced as under:
To ,
The Deputy Commissioner of Income Tax, Range-V, Lucknow
Ref: Assessment of Rakesh Suri Khayali Ganj, Lucknow for A.Y. 2004-2005 PAN: APXPS 3980F
Sir,
With reference to your querry regarding Long-Term Capital Gain on sale of shares, it is submitted as under:
That the applicant had sole 50000 share of shri Niwas Leasing & Finance through share broker M/s S.J. Capital Ltd., G-8/94 Sector-15 Rohni Delhi 110085 through Delhi Stock Exchange.
That the share were kept in physical form and not kept in Demat Account.
That the applicant approached share broker M/s S.J. Capital Ltd. For recon formation of transaction and also for the conformation of market rate on the date of sale of shares.
That the applicant is assessee to tax from the last over a period of 30 years and understand the consequences in the event of not able to explain the nature of credit entry in the bank account. Presently applicant is also not in a position to produce Director of M/s S.J. Capital Ltd. G-8/94 Sec. 15 Rohni Delhi 110085.
That the share broker m/s S.J. Capital Ltd. Is not co-operating with the applicant and under the circumstances applicant decided on his own will to co-operate with the Income Tax Department and voluntarily agreed to surrender and offer the amount received through share broker M/s S.J. Capital Ltd. through D.D. which were credited in the saving bank account No. 459 Allahabad Bank, Kesar Bagh Branch, Lucknow as income for taxation.
That the details of amount receipts through D.D. and credited in the bank account as under :
Date Date of DD Credited DD amount In SB a/c No. 459 Alld.
04.07.2003 07.07.2003 4,50,000/- 30.07.2003 02.08.2003 2,25,588/- 03.12.2003 06.12.2003 5,98,800/- 04.12.2003 09.12.2003 5,98,800/- 08.12.2003 13.12.2003 5,98,800/- 10.12.2003 13.12.2003 6,00,000/- 13.12.2003 20.12.2003 1,23,582/- 02.01.2004 06.01.2004 5,98,800/- 03.01.2004 06.01.2004 5,98,800/- 13.01.2004 16.01.2004 5,98,800/- 05.01.2004 19.01.2004 4,99,000/- 21.01.2004 24.01.2004 6,44,874/- ______________ Total 61,35,844/- ______________ 07. That under the circumstances when M/s S.J. Capital Ltd. share broker not co-operating applicant voluntarily agreed to offer the said DD amount totaling to Rs. 6,35,844/- received from share broker M/s S.J. Capital Ltd. As income from undisclosed sources and willing to pay the due Income Tax on the said amount of income to purchase peace with the department and to avoid the unnecessary legal lengthy proceedings.
Prayer
The under the facts and circumstances of the case narrated above and in view of the applicant has voluntarily agreed to offer, the said amount of Rs. 61,35,844/- received from M/s S.J. Capital Ltd. And also reaply to pay income tax, since the applicant himself offered the amount received from M/s S.J. Capital Ltd. for taxation, therefore there is no question mensrea evidence in the instant case, liable for penalty for concealment, it is therefore requested that no penalty proceedings u/s 271(1)(c) may be initiated as held by Supreme Court and various High Courts, "that no penalty u/s 271(1)(c) is leviable no voluntary agreed addition.
Thanking you, Date : 06.12.2006
Yours faithfully, Rakesh Suri (Applicant)
Keeping in view the aforesaid facts and circumstances, the Assessing Officer has treated the addition of Rs. 61,35,844/- as income from undisclosed source u/s 69(A) of the Income Tax Act, 1961 and charged interest u/s 234(A) and 234(B) of the Act and issued notices for penalty u/s 271(1)(c) of the Act vide order dated 22.12.2006.
After receipt of the reply of the notice u/s 271(1)(c) of the Act, Assessing Officer imposed penalty of Rs. 18, 38,000/- on the assessee vide order dated 18.6.2007.
Feeling aggrieved, assessee preferred an appeal against the imposition of penalty. The Commissioner of Income Tax (Appeal), while allowing appeal, observed that mere issuance of notice or questionnaire does not lead to proof of concealment or furnishing of inaccurate particulars of income. It has further been observed that order-sheet does not disclose anything about concealment or furnishing of inaccurate particular. The disclosure of amount lying in Bank on 6.12.2006 was voluntary, hence, no penalty could have been imposed u/s 271(1)(c) of the Act.
The appeal preferred by the revenue before the Income Tax Appellate Tribunal [hereinafter referred to as ''Tribunal'' was also dismissed reiterating the order of appellate authority. The Tribunal observed that mere surrender does not amount to concealment of income tax. It has also been noted by the Tribunal that shares were kept in physical form and not kept in demat account. S.J. Capital Ltd. of Delhi is an established share holder and since it was not cooperating the assessee as voluntary surrender and disclosed the account.
Substantial Question of Law:
On 7.10.2009, a Division Bench of this Court had framed substantial question of law, which is reproduced as under:
Whether the learned Income Tax Appellate Tribunal erred in law in canceling the penalty of Rs. 18,35,000.00 levied u/s 271(1)(c) of the Income Tax Act, 1961, by holding that surrender of income even though made after initiation of enquiries by the Assessing Officer was nevertheless voluntary?
Discussion & Finding:
The appellate authority and Tribunal had treated the disclosure of income on 6.12.2006 as voluntary on the ground that till that date, there was no order indicting the assessee conduct since the share broker M/s S.J. Capital Ltd. has not co-operated assessee disclose the income to keep peace of mind. The reason for disclosure of account in question has also been given in the para-5 of the letter dated 6.5.2006 (supra), submitted to the Assessing Officer is the non-cooperation of the share broker M/s S.J. Capital Ltd. However, defence taken by the assessee seems to be not correct as evident from the reply sent by Delhi Stock Exchange dated 8.12.2006. Delhi Stock Exchange communicated that M/s S.J. Capital Ltd. has not done any trading of share in question from 15.4.2002 to 19.4.2002. There has been no transaction of share of Sri Niwas Leasing and Finance Ltd. in Delhi Stock Exchange during the period in question. There has been no sale and purchase shares by M/s S.J. Capital Ltd. between 15.5.2003 to 21.5.2003. Thus, the assessee had not approached the Assessing Officer with clean hand. Things would have been different in case the asessee while disclosing the income would have given correct fact.
Apart from above, from the order-sheet, it appears that before the Assessing Officer, learned Counsel for the assessee has not furnished the required information in terms of the order dated 27.10.2006 on 9.11.2006. Counsel for the assessee tried to evade from furnishing the information on 23.11.2006, thereafter on 30.11.2006, only after receipt of final call to make available by 6.12.2006, income was disclosed only on 6.12.2006.
Accordingly, in view of the above, the Assessing Officer inferred that being cornered by the revenue and having no way of escape, the assessee has disclosed the income on 6.12.2006, which cannot be treated as voluntary disclosure.
Law help those who are fair in their action and intend to cooperate with the department with open heart. In case after trying best on his or her part to escape the liability, disclosure is made, it may not be treated as voluntary disclosure to escape the penalty u/s 271(1)(c) of the Act.
While moving application for voluntary disclosure, the assessee must disclose the correct facts, instead of making a ground on false pretext. The narration of facts in the letter of assessee dated 6.12.2006 (supra) seems to be incorrect or false to some extent in case it is tested in the light of the letter sent by Delhi Stock Exchange dated 8.12.2006.
Reliance has been placed by the learned Counsel for the respondents on Commissioner of Income Tax Vs. Aggarwal Pipe Co., where Delhi High Court held that bonafide surrender of cash credit by assessee during the course of assessment proceeding shall not entail penalty.
In the case of Commissioner of Income Tax Vs. M.M. Gujamgadi, Hon�ble Supreme Court held that every addition of income by income Tax Officer will not automatically attract levy of penalty unless explanation of Assessee is not found to be bonafide.
In the case of Commissioner of Income Tax Vs. Mohinder Singh, Allahabad High Court held that for fixing of quantum of penalty u/s 271(1)(C)(iii) the amount of income in respect of which particulars have been concealed or inaccurate particulars may be furnished has to be found by the authorities concerned.
However, cases relied upon by the respondents counsel seems to be not applicable under the facts and circumstances of the case since assessee seems to not acted bonafidely.
The facts and circumstances of the case on record shows that the assessee had not acted fairly. The manner in which the assessee has tried to prolong the case before the Assessing Officer by not providing information immediately and narrating incorrect facts in the letter dated 6.12.2006 shows that the assessee has been deliberately concealed the income and disclosure was not voluntarily but under compulsion being cornered by the Assessing Officer.
In Commissioner of Income Tax Vs. Suresh Chandra Mittal, Hon�ble Supreme Court has held that where the burden of proving concealment is not discharged, penalty cannot be levied. In the present case, the order passed by the Assessing Officer is reasoned order, disclosing the material with regard to concealment of income.
In Commissioner of Income Tax Vs. Suresh Chandra Mittal, Madhya Pradesh High Court (Indore Bench) held that burden of proof to disclose concealment of fact rest on the shoulder of revenue. Additional income offered to buy peace and avoid litigation is justifiable ground and penalty cannot be imposed.
In Inland Revenue Commissioners v. Fishers Executors [1926] AC 395, observed to quote:
subject is entitled so to arrange his affairs as not to attract taxes imposed by the Crown so far as he can do so within the law, and that he may legitimately claim the advantage of any expressed term or of any emotions that he can find in his favour in taxing Acts. In so doing he neither comes under liability nor incurs blame
Lord Tomlin followed the above in Inland Revenue Commissioners v. Duke of Westminister [1936] AC 1
Every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less then it otherwise would be.
However, later on, avoidance of payment of tax was treated as immoral. Lord Simon in Latilla v. Inland Revenue Commissioners [1943] A.C. 377 said,
My Lords, of recent years much ingenuity has been expended in certain quarters in attempting to devise methods of disposition of income by which those who were prepared to adopt them might enjoy the benefits of residents in this country while receiving the equivalent of such income without sharing in the appropriate burden of British taxation. Judicial dicta may be cited which point out that, however, elaborate and artificial such methods may be, those who adopt them are ''entitled'' to do 60. There is, of course, no doubt that they are within their legal rights but that is no reason why their efforts, or those of the professional gentlemen who assist them in the matter, should be regarded as a commendable exercise of ingenuity or as a discharge of the duties of good citizenship. On the contrary, one result of such methods, if they succeed, is of course to increase protanto the load of tax on the shoulders of the great body of good citizens who do not desire or do not know how, to adopt these manoeuvres.
Lord Denning and Lord Harman had described the tax avoidance scheme adopted at certain quarter as magic performance by lawyer-turnedmagicians, �which smells a little of the lamp" and which smells '' it is a splendid scheme-it is almost too good to be true. In law quite too good to be true.
Hon�ble Supreme Court in Commissioner of Income Tax, Gujarat Vs. A. Raman and Company, observed:
Avoidance of tax liability by 80 arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the Legislative injunction in taking statutes may not, except on period of penalty, be violated, but it may lawfully be circumvented.
Again in Commissioner of Income Tax, Gujarat Vs. B.M. Kharwar, Hon�ble Supreme Court observed:
The taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it Is open to the taking authorities to unravel the device and to determine the true character of relationship. But the legal effect of a transaction cannot be displaced by probing into the "substance of the transaction".
Again Hon�ble Supreme Court in McDowell and Co. Ltd. Vs. Commercial Tax Officer, observed as under, to quote.
We think that time has come for us to depart from the Westminister principle as emphatically as the British Courts have done and to dissociate ourselves from the observations of Shah, J. and similar observations made elsewhere. The evil consequences of tax avoidance are manifold. First there is substantial loss of much needed public revenue, particularly in a welfare state like ours. Next there is the serious disturbance caused to the economy of the country by the piling up of mountains of black money, directly causing inflation. Then there is "the large hidden loss" to the community".
Then again there is the ''sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it''. Last but not the least is the ethics (to be precise, the lack of it) of transferring the burden of tax liability to the shoulders of the guideless good citizens from those of the ''artful dodgers''.
In the present case, assessee tried his best to escape from communicating the relevant information even while surrendering the income ground taken for the purpose are not correct. This shows the state of mind and disclosure seems to be not voluntary but under compulsion being cornered by revenue. Of course, thing would have been different in case immediately after receipt of notice on first and second date, the assessee would have disclose the escaped income.
In Western Automobiles (India) Vs. Commissioner of Income Tax, Bombay City-I, Bombay, Bombay held that where cash credits are discovered in the accounts and the assessee accepts the amounts as his income for the year in question, it would be sufficient to discharge the onus on the revenue in penalty proceedings by relying upon such admission. Assessee permitted to submit explanation. Thereafter levying of penalty may not be faulted.
In Krishna Kumari Chamanlal and another Vs. Commissioner of Income Tax and another, Bombay High Court upheld the penalty where assessee did not avail of the opportunity given to show that the amounts mentioned above were not concealed income. Despite several opportunities, the assessee did not remain present. Later on agreed to surrender the amount only after seizure operation took place.
In Varkey Chacko Vs. Commissioner of Income Tax, their Lordship of Hon�ble Supreme Court has held that when the Income Tax officer reached the satisfaction that the appellant had concealed his income and made the assessment order. Assessing Officer had rightly imposed penalty. However, penalty may be imposed only after assessment order made which finds such concealment or furnishing of inaccurate particulars.
Andhar Pradesh High Court in a case reported in K.S.N. Murthy and K. Apparao Vs. Chairman, Central Board of Direct Taxes and Others, has held that ''voluntary'' means without compulsion; it has to be understood as anything done intentionally and without coercion, compulsion or constraints. Where assessee is not ''voluntary'', it should be satisfied on the basis of the materials on record. Mere fear on the part of the assessee without anything more, cannot be a ground for not exercising the discretion. Such fear must be traceable to imminent or proximate exposure of the assessee to penal action, but for the filing of the return.
A Division Bench of the Allahabad High Court in a case reported in Banaras Chemical Factory Vs. Commissioner of Income Tax, held that disclosure of concealed income of Rs. 6,00000/- assessee was guilty of concealment, liable for penalty.
In Sir Shadi Lal Sugar and General Mills Ltd. and Another Vs. Commissioner of Income Tax, Delhi, their Lordship of Hon�ble Supreme Court held that where assessee agreed to additions to his income, it does not follow that amount agreed to be added was concealed income. There may be a hundred and one reason for such admission.
A Full Bench of the Allahabad High Court in the case reported in Bhairav Lal Verma Vs. Union of India (UOI), while interpreting the word �voluntarily� given in Section 273(A) of the Act held that voluntarily means out of free will without any compulsion. When the Assessee concealed the incriminating material with regard to income so disclosed cannot be held to be voluntarily. It shall be appropriate to reproduce the relevant portion from the judgment of Bhairav Lal Verma (supra) as under:
The position thus settled is that the word "voluntarily" in Section 273A of the Act means out of free will without any compulsion. Disclosure of concealed income after the Department has seized the incriminating material with regard to the income so disclosed, cannot be voluntary disclosure, because it was made under the constraint of exposure to adverse action by the Department. But it cannot be held as a principle of law that the disclosure of income made after the search/raid cannot be voluntary. It is a question which has to be decided by the Department in each case on the basis of the material on the record. If on record there is incriminating material with regard to the disclosed income, the disclosure cannot be voluntary. But if the Department has no incriminating material with regard to the income disclosed, the disclosure is liable to be treated as voluntary having been made without any compulsion or constraint of exposure to adverse action by the Department. In a case where the assessee has disclosed not only the income regarding which the Department has incriminating material, but has also disclosed the income with regard to which no incriminating material was seized by the Department, the disclosure of the income with regard to which the Department has no incriminating material, is liable to be treated as voluntary. For example, if an assessee is having five accounts and the Department has incriminating material with regard to one of those accounts only, the disclosure of income relating to four accounts with regard to which the Department has no incriminating material, is voluntary, because it was made without any constraint or compulsion, even though the disclosure of the income relating to the account regarding which the Department has incriminating material, is liable to be treated as non-voluntary.
Dictionary:
Black''s Law Dictionary (Seventh Edition) defines "voluntarily" as intentionally or without coercion. It shall be appropriate to reproduce meaning of "voluntarily" and "voluntary" as given in Black''s Law Dictionary, which is as under:
Voluntarily, adv. Intentionally; without coercion.
Voluntary, adj. 1. Done by design or intention (voluntary act). 2. Unconstrained by interference; not impelled by outside influence (voluntary statement). 3. without valuable consideration; gratuitous (voluntary gift). 4. Having merely nominal consideration (voluntary deed)-voluntariness, n.
In The Law Lexicon by P. Ramanatha Aiyar, meaning of Voluntary has been given as, to quote:
Voluntary- Of one''s free will, impulse of choice; not constrined by another; acting voluntarily or willingly [Section 2(2), Sale of Goods Act]; [Article 101(3), prov., Const.]
Voluntary- The expression ''voluntary'' is used in this section to mean ''naturalisation'' in the narrow sense of that term and excluding compulsory, involuntary of collective naturalization which some states have adopted at different times. T.A. Mahomed Usman Vs. State of Madras and Another, [Citizenship Act, 1955, Section 9(1)]
Means doing of something as the result of the free exercise of the will but not something done under a legal duty." "Where a person obtained a passport acted on his own volition and knew the nature of his act and did not act in performance of a legal duty, nor due to coercion or fraud or misrepresentation or mistake he has acted voluntarily." Abdul Salam Vs. Union of India (UOI) and Another, [Citizenship Rules (1956) Rule 30]
Thus, from the dictionary meaning conduct of the assessee in case judged it does not seem to be a natural disclosure of account while writing letter dated 6.12.2006. The assessee has concealed the material fact and given incorrect statement of fact in Para 5 of the application and also not provided information required by the assessing officer, at very threshold after receipt of notice. Accordingly action of the assessee is neither bonafide nor voluntary.
Hon�ble Supreme Court in a case reported in 2007 (15) SCC 109 Union of India v. Dharmendra Textile Processors, held that basic scheme for imposition of penalty u/s 271(1)(c) of the Income Tax Act, Section 11AC of the Central Excise Act and Rule 96ZQ(5) of the Central Excise Rule is common. Hon''ble Supreme Court noted the conflict of opinion between two judgements reported in 2007 (8) SCALE 304 Dilip N. Shriff v. Jt CIT on the one hand and on the other hand, Chairman, The Chairman, SEBI Vs. Shriram Mutual Fund and Another, After considering these two cases and explanation given in Section 271(1)(c) of the Income Tax Act, Hon�ble Supreme Court referred the matter to Hon�ble the Chief Justice to be adjudicated by larger Bench. However, it has been held that the object behind the section read with explanation indicates that it has been enacted to provide for a remedy for loss of revenue. The penalty u/s is civil liability. Wilful concealment is not an essential ingredient for attracting the civil liability as is the case in the matter of prosecution u/s 276C of the Act what has to be seen as to whether officer has record finding with regard to concealment?
In Three Judge Bench of Hon�ble Supreme Court, Union of India v. Dharmendra Textile Processors 2008 (73) SCC 369 (while adjudicating reference), held that the explanations added to Section 271(1)(c) in entirety also indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing returns.
In a recent case reported in Commissioner of Income Tax, Delhi Vs. Atul Mohan Bindal, their Lordship held that mens rea is not necessary for imposing penalty u/s 271(1)(c) of the Act since it is a civil liability. The provision imposing strict liability on the assessee for concealment of income. It has further been held that if the Assessing Officer satisfied that the person has concealed the particulars of his income or furnished inaccurate particular of such income, such person may be directed to pay penalty.
In Commissioner of Income Tax, New Delhi Vs. Eli Lilly and Company (India) Pvt. Ltd., their Lordship of Hon�ble Supreme Court held that u/s 271C penalty can be imposed only on the person who do not have good and sufficient reason for not deducting the tax at source. The burden, of course is on the person to prove such good and sufficient reason to reproduce relevant portion, to quote:
Burden of proof Tax directly paid by deduction-penalty can be levied only on the persons who do not have good and sufficient reason for not deducting the tax at source. Only those persons will be liable to penalty who do not have good and sufficient reason for not deducting the tax at source. The burden, of course, is on the person to prove such good and sufficient reason.
In view of above, disclosure by the assessee does not seem to be voluntary and bonafide but under compulsion. Assessee has not furnished correct information while moving the letter dated 6.12.2006 with unclean hand.
Accordingly, the question is answered as under:
Tribunal erred under law in canceling the penalty of Rs. 18,35000/- levied u/s 271(1)(c) of the Income Tax Act, 1961 disbelieving the finding of fact recorded by Assessing Officer.
The appeal is allowed and question answered in favour of revenue. No costs.