Mere Delay In Remittance Of TDS Doesn’t Attract Penalty Under S 271C Income Tax Act: Supreme Court
The Supreme Court has ruled that no penalty is leviable under Section 271C of the Income Tax Act, 1961 on mere delay in remittance of the tax deducted at source (TDS) after the same has been deducted by the assessee.The bench of Justices M.R. Shah and C.T. Ravikumar observed that the relevant words used in Section 271C(1)(a) are “fails to deduct”, and the same does not speak about...
The Supreme Court has ruled that no penalty is leviable under Section 271C of the Income Tax Act, 1961 on mere delay in remittance of the tax deducted at source (TDS) after the same has been deducted by the assessee.
The bench of Justices M.R. Shah and C.T. Ravikumar observed that the relevant words used in Section 271C(1)(a) are “fails to deduct”, and the same does not speak about belated remittance of the TDS. The words “fails to deduct” occurring in Section 271C(1)(a) cannot be read as “failure to deposit/ pay the tax deducted”, the Court has held.
The Apex Court added that the consequences of non-payment/belated remittance of the TDS are specifically provided by the Parliament under Sections 201(1A) and 276B of the Act.
The bench thus set aside the Kerala High Court’s order where it had upheld the levy of penalty under Section 271C for belated remittance of TDS by the assessee.
The assessee, M/s US Technologies International Pvt Ltd, who is engaged in a software development business, deducted TDS in respect of the salaries, contract payments, etc. made to its employees for the relevant assessment year. The assessee remitted a part of the TDS after a period of delay.
After a survey was conducted by the revenue department at assessee’s premises, it was noted that the TDS was not deposited within the prescribed dates under the Income Tax Rules, 1962. Consequently, the Income Tax Officer passed an order under Section 201(1A) levying penal interest for the period of delay in remittance of TDS.
Further, the Additional Commissioner of Income Tax (ACIT), in an order passed under Section 271C, levied penalty equivalent to the amount of TDS deducted for the relevant assessment year. In an appeal filed by the assessee against the said order, the Kerala High Court upheld the order of the ACIT.
The assessee challenged the order of the Kerala High Court before the Supreme Court.
The assessee, US Technologies, pleaded before the Apex Court that it was not a case of non-deduction of TDS but only of late remittance. Therefore, at the most, it was liable to pay the penal interest under Section 201(1A), however, there cannot be any levy of penalty under Section 271C on mere late remittance of the TDS, it contended.
To this, the revenue department averred that in a case where, though the assessee has deducted the TDS, but does not remit the same to the Government and/ or belatedly remits the TDS after deducting the same, such an assessee is liable to pay penalty under Section 271C.
As per Section 271C (1)(a), if any person fails to deduct the whole or any part of the tax as required under the provisions of Chapter XVII-B, then, such person shall be liable to pay a penalty equal to the amount of tax which such person failed to deduct.
Referring to the facts of the case, the Apex Court reckoned that it was a case of belated remittance of TDS deducted by the assessee, and not a case of nondeduction of TDS.
While holding that Section 271C(1)(a) was applicable to the case, the Court observed, “The words used in Section 271C(1)(a) are very clear and the relevant words used are “fails to deduct.” It does not speak about belated remittance of the TDS.”
The bench added that as per the settled position of law, the penal provisions are required to be construed strictly and literally. Further, as per the cardinal principle of interpretation of statute, and more particularly the penal provision, the penal provisions are required to be read as they are; nothing is to be added or taken out of the penal provision, said the Court.
“Therefore, on plain reading of Section 271C of the Act, 1961, there shall not be penalty leviable on belated remittance of the TDS after the same is deducted by the assessee,” the Court held, adding that penalty can be imposed in terms of Section 271C(1)(b) only on non-payment of tax as required under Section 115-O (2) or under the proviso to Section 194B.
The Supreme Court further observed that wherever the Parliament wanted to provide consequences of nonpayment and/or belated remittance of TDS, it has provided the same in Section 201(1A) and Section 276B of the Act.
Section 201(1A), which provides for levy of interest for the delay in remittance of TDS after the same has been deducted by the assessee, is compensatory in nature, the Court ruled.
Similarly, Section 276B which provides for prosecution on failure to pay the TDS after deducting the same, uses the word “pay”, which is missing in Section 271C(1)(a), the Supreme Court added.
Referring to CBDT’s Circular No. 551 dated 23.01.1998, the Court observed, “Even the CBDT has taken note of the fact that no penalty is envisaged under Section 271C of the Income Tax Act for non- deduction (of) TDS and no penalty is envisaged under Section 271C for belated remittance/ payment/ deposit of the TDS.”
The Court thus allowed the appeal and set aside the Kerala High Court’s order while ruling that the assessee was not liable to pay the penalty under Section 271C of the Income Tax Act.
Case Title: M/s US Technologies International Pvt Ltd vs. The Commissioner of Income Tax
Citation : 2023 LiveLaw (SC) 285
Counsel for the Appellant: Ranjan Kumar Pandey
Counsel for the Respondent: Raj Bahadur Yadav
Income Tax Act, 1961- Section 271C: The Supreme Court has ruled that no penalty is leviable under Section 271C on the mere delay in remittance of TDS after the same has been deducted by the assessee. The Court has held that the relevant words used in Section 271C(1)(a) are “fails to deduct”, and the same does not speak about belated remittance of the TDS-The Court ruled that the words “fails to deduct” occurring in Section 271C(1)(a) cannot be read as “failure to deposit/ pay the tax deducted”, while adding that the consequences of non-payment/belated remittance of the TDS are specifically provided by the Parliament under Sections 201(1A) and 276B of the Income Tax Act-The Court thus set aside the Kerala High Court’s order where it had upheld the levy of penalty under Section 271C for belated remittance of TDS.