No penalty u/s 271C on mere delay in deposit of TDS after deduction – Supreme Court
No penalty can be levied u/s 271C of the Income Tax Act 1961 on mere delay in deposit of TDS after its deduction – Supreme Court
In a recent judgment, the Hon’ble Supreme Court has 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.
ABCAUS Case Law Citation:
ABCAUS 3703 (2024) (04) HC
In the instant case, the assessee had challenged the order of the Hon’ble High Court confirming 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.
The appellant assessee was engaged in a software development business at Techno Park, which employed about 700 employees, deducted tax at source (TDS) in respect of salaries, contract payments, etc.
The assessee remitted part of the TDS belatedly. The period of delay ranged from 05 days to 10 months. Later a a survey was conducted by the Revenue at assessee’s premises and it was noted that TDS was not deposited within the prescribed dates under Income Tax Rules (IT Rules).
Subsequently, the Income Tax Officer (ITO) vide order under Section 201(1A) of the Act, 1961 levied penal interest for the period of delay in remittance of TDS. Four months later, the Additional Commissioner of Income Tax issued a show cause notice proposing to levy penalty under Section 271C of the amount equal to TDS.
Later, the Additional Commissioner of Income Tax (ACIT) vide order under Section 271C levied penalty equivalent to the amount of TDS deducted for. That order of Additional CIT levying the penalty under Section 271C came to be confirmed by the High Court.
The High Court vide impugned judgment and order dismissed the appeal preferred by the assessee by holding that failure to deduct/remit the TDS would attract penalty under Section 271C of the Act.
The questions posed for the consideration of the Hon’ble Supreme Court were
(i) Whether belated remittance of the TDS after deducting the TDS whether such an assessee is liable to pay penalty under Section 271C of the Act?
(ii) 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 Hon’ble Supreme Court observed that 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. Section 271C of the Income Tax Act is quite categoric. Its scope and extent of application is discernible from the provision itself, in unambiguous terms.
The Hon’ble High Court opined that 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. Similarly, Section 276B talks about the prosecution on failure to pay the TDS after deducting the same.
The Hon’ble Supreme Court also noted that Section 271C has been amended subsequently in the year 1997 providing Sections 271C(1)(a) and 271C(1)(b). The word fails to pay the whole or any part of the tax would be falling under Section 271C(1)(b) and the word used between 271C(1)(a) and 271C(1)(b) is “or”. Section 276B provides for prosecution in case of failure to “pay” tax to the credit of Central Government. The word “pay” is missing in Section 271C(1)(a).
The Hon’ble Supreme Court observed that the reliance placed by the Department upon the CBDT’s Circular No. 551 dated 23.01.1998 is of no use because the said circular as such favours the assessee. 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 TDS and no penalty is envisaged under Section 271C for belated remittance/payment/deposit of the TDS.
The Hon’ble Supreme Court opined that the words “fails to deduct” occurring in Section 271C(1)(a) cannot be read into “failure to deposit/pay the tax deducted.
Accordingly, the Hon’ble Supreme Court held that on true interpretation of Section 271C, 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
The Hon’ble Supreme Court held that in all these cases as the respective assessees remitted the TDS though belatedly and it is not case of non deduction of the TDS at all they are no liable to pay the penalty under Section 271C of the Income Tax Act. Therefore, any question on applicability of Section 273B of the Act is not required to be considered any further.
The impugned judgment(s) and order(s) passed by the High Court were accordingly quashed and set aside and the question of law on interpretation of Section 271C of the Income Tax Act was answered in favour of the assessee(s) and against the Revenue and it was specifically observed and held that on mere belated remitting the TDS after deducting the same by the concerned person/assessee, no penalty shall be leviable under Section 271C
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