No Penalty leviable u/s 271C on mere delay in remittance/deposit of the TDS after deduction subject to provisions of Section 201(1A) and Section 276B – Supreme Court
ABCAUS Case Law Citation:
ABCAUS 3703 (2023) (04) SC
Important Case Laws relied upon by parties:
Lakshadweep Development Corporation Ltd. Vs. Additional Commissioner of Income Tax (TDS) and Anr. (2019) 411 ITR 213 (FB)
CIT Vs. Bank of Nova Scotia (2016) 15 SCC 81
In the instant batch of appeals, the assesses had challenged the order of the Hon’ble High Court 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 the TDS).
In all the cases, there was some delay of 5 days to 10 months in remitting the amount of TDS to the credit of the Government.
In all the cases, the Income Tax Officer (ITO) vide order under Section 201(1A) of the Act levied penal interest for the period of delay in remittance of TDS. Further, penalty was levied under Section 271C of the amount equivalent to the amount of TDS deducted.
The litigation travelled to Hon’ble High Court who held that failure to deduct/remit the TDS would attract penalty under Section 271C of the Act.
Before the Hon’ble Supreme Court, the contention of the assessee was that that it was a case of belated deposit of TDS and not a case of non deduction of TDS at all. It was submitted that therefore, at the most, the assessee shall be liable to pay the penal interest leviable under Section 201(1A) of the Act.
The attention of the Hon’ble Supreme Court was drawn to Section 276BB which provides for prosecution if a person fails to pay the TDS.
The questions of law before the Hon’ble Supreme Court were,
In case of belated remittance of TDS after deducting it whether such an assessee is liable to pay penalty under Section 271C?
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, can be said a person who “fails to deduct TDS”?
The Hon’ble Supreme Court noted 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. On the other hand, Section 271C(1)(b) deals with failure to pay which was not the case in hand.
The Hon’ble Supreme Court observed that as per settled position of law, the penal provisions are required to be construed strictly and literally. 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 nothing is to be taken out of the penal provision. Therefore, on plain reading of Section 271C of the Act, there shall not be penalty leviable on belated remittance of the TDS after the same is deducted by the assessee.
The Hon’ble Supreme Court pointed out 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 Section276B of the Act.
The Hon’ble Supreme Court opined that levy of interest u/s 201(1A) can be said to be compensatory in nature on belated remittance of the TDS after deducting the same. Therefore, consequences of non payment/belated remittance/payment of TDS are specifically provided under Section 201(1A).
With respect to the reliance of the Revenue on CBDT Circular No. 551 dated 23.01.1998, the Hon’ble Supreme Court pointed out that the Circular favours the assesses as it talks about the levy of penalty on failure to deduct tax at source. It also takes note of the fact that if there is any delay in remitting the tax, it will attract payment of interest under Section 201(1A) of the Act.
The Hon’ble Supreme Court opined that on true interpretation of Section 271C, there shall not be any penalty u/s 271C on mere delay in remittance of the TDS after deducting the same. However, consequences of non payment/belated remittance of the TDS would be under Section 201(1A) and Section 276B of the Act.
Accordingly, the Hon’ble Supreme Court held that in all cases the TDS was remitted though belatedly, and therefore, assessees were not liable to pay the penalty /s 271C of the Act.
Download Full Judgment Click Here >>
- Commonality of directors of companies does not mean deposits received was bogus
- Application though named as rectification but if tax is not legitimate, it also touches merit: HC
- Cost of acquisition as on 01.04.1981 taken as per valuer report by reverse indexing of FMV
- AO was directed to serve notice of hearing through physical mode upon assessee
- ICAI Intermediate & Foundation Examinations to be held thrice in a year from May/June 2024
