Supreme Court: No Penalty Leviable on Belated Remittance of TDS after Deduction under Section 271C of Income Tax Act

Supreme Court: No Penalty Leviable on Belated Remittance of TDS after Deduction under Section 271C of Income Tax Act

The Supreme Court by its division bench of Justices M.R. Shah and C.T. Ravikumar asserted, 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.

In the present case, the Court was hearing an appeal filed by the appellant- M/s US Technologies International Pvt. Ltd. against the impugned judgment(s) and order(s) passed by the High Court of Kerala confirming the levy of interest/penalty under Section 271C of the Income Tax Act, 1961 (the Act) on failure of the respective assessees to deposit the Tax Deducted at Source (TDS) (or belated remittance of TDS), the respective assessees had preferred the appeals.

The two short question which was posed for the consideration before the Court was in case of belated remittance of the TDS after deducting the TDS whether such an assessee is liable to pay penalty under Section 271C of the Act, 1961?

Next question was, what is the meaning and scope of the words “fails to deduct” occurring in Section 271C(1)(a) and whether an assessee who caused delay in remittance of TDS deducted by him, can be said a person who “fails to deduct TDS”?

The Court at the outset, noted that all these cases with respect to the belated remittance of the TDS though deducted by the assessee and therefore, section 271C(1)(a) shall be applicable. It was pertinently remarked that it was a case of belated remittance of the TDS though deducted by the assessee and not a case of non-deduction of TDS at all.

“As per Section 271C(1)(a), if any person fails to deduct the whole or any part of the tax as required by or under the provisions of Chapter XVIIB then such a person shall be liable to pay by way of penalty a sum equal to the amount of tax which such person failed to deduct or pay as aforesaid. So far as failure to pay the whole or any part of the tax is concerned, the same would be with respect to Section 271C(1)(b) which is not the case here,” held the Court.

Therefore, the Court opined that Section 271C(1)(a) shall be applicable in case of a failure on the part of the concerned person/assessee to “deduct” the whole of any part of the tax as required by or under the provisions of Chapter XVIIB.

Furthermore, the bench pointed out that, 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.

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 discerned.

The Court averred that, “when the non-deduction of the whole or any part of the tax, as required by or under the various instances/provisions of Chapter XVIIB would invite penalty under Clause 271C(1)(a); only a limited text, involving sub­section (2) of Section 115O or covered by the second proviso to Section 194B alone would constitute an instance where penalty can be imposed in terms of Section 271C(1)(b) of the Act, namely, on non­payment. It is not for the Court to read something more into it, contrary to the intent and legislative wisdom.”

Furthermore, the bench noted that wherever the Parliament wanted to have the consequences of non­payment and/or belated remittance/payment of the TDS, the Parliament/Legislature has provided the same like in Section 201(1A) and Section 276B of the Act.

Referring to CBDT’s Circular No. 551 dated 23 January,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.”

Therefore, on true interpretation of Section 271C, the Court held that there shall not be any penalty leviable under Section 271C on mere delay in remittance of the TDS after deducting the same by the concerned assessee.

The consequences on non-payment/belated remittance of the TDS would be under Section 201(1A) and Section 276B of the Act, 1961.

Hence, the Court ruled that, since in all these cases, as the respective assessees remitted the TDS through belatedly, it was not case of non-deduction of the TDS at all and they were not liable to pay the penalty under Section 271C of the Income Tax Act.