Mere Delay In Remittance Of Tax Deposited At Source Does Not Amount To Penalty Under Income Tax Act,1961

CASE TITLE

M/s US Technologies International Pvt. Ltd.

VS The Commissioner of Income Tax

With Civil Appeal Nos. 1258­1260 of 2019

DATE OF ORDER

10TH APRIL 2023

BENCH

HON’BLE JUSTICE MR. M.R. SHAH

PARTIES

APPELLANT- M/s US Technologies International Pvt. Ltd.

RESPONDENT- The Commissioner of Income Tax

SUBJECT

The case deals with the matter that whether Section 271C of Income Tax Act,1961 would attract penalty on failure to deposit tax deducted at source.

OVERVIEW 

• The appeal is against the impugned order and judgment passed by HC of Kerala at Ernakulam.
• HC confirmed levy on interest/ penalty under Section 271C of Income Tax Act,1961 on failure of assesses to deposit tax deducted at source(TDS).
• The crucial point of the facts of the civil appeal no. 7934 of 2011 is that the assesse delayed to deposit the remitted part of TDS.
• Facts of the present appeal revolves around penalty levied on the assesse by Additional Commissioner of  Income Tax under Section 271C of Rs 1,10,41,898 through order dated 10.11.2003 equivalent to amount of TDS deducted for the AY 2003-04. This action by Additional Commissioner of Income Tax was confirmed by HC of Kerala by the impugned order and judgement. Court held that failure to deduct TDS would attract penalty under Section 271C. Aggrieved by the judgement, assesse has filed an appeal in the apex court.
• The subject matter of the other appeal is similar to the former. The Additional Commissioner of Income Tax through an order dated 26.09.2013 levied penalty under Section 271C  equivalent to amount of TDS deducted for AYs 2011-12, 2012-13. The assesses filed an appeal in the Income Tax Tribunal against the order of ACIT. The tribunal held that imposition of penalty under Section 271C was unjustified.
• But the HC of Kerala by the impugned common judgement relied upon its earlier judgement and held that failure to deduct/remit TDS would attract penalty under Section 271C.
• Aggrieved and unsatisfied by this judgement of the HC, appeals have been filed before the apex court.

ARGUMENTS ADVANCED BY APPLLEANT 

• The counsel has vehemently submitted before the apex court that levy of penalty under Section 271C does not apply in this case. 
• He said that it is the case of late remittance of TDS and not the case of non-deduction of TDS. Therefore, due to late deposit the assesses are liable to pay the Penal interest under Section 201(1A) of Income Tax Act, 1961.
• Counsel submitted that as per section 271C(1)(a), the Section would be applicable only in case of non-deduction of whole or any part of the tax.
• It was contended that in case of belated  remittance pf TDS, there shall be no levy of penalty under Section 271C.
• Counsel submitted that the Penal provision should be construed strictly and the words of the section should be considered which clearly speaks ‘fails to deduct whole or any part of the tax’ and not about belated remittance.
• Making the above submissions, it was prayed to allow the appeals and hold that section 271C shall not attract penalty to belated remittance of TDS.

ARGUMENTS ADVANCED BY RESPONDENT 

• The counsel on behalf of the revenue opposed the contentions of the counsel appearing on behalf of appellants.
• The counsel submitted that the object of the inserting Section 271C is to levy penalty for failure to deduct tax at source.
• It was submitted that therefore, in case where assesse has deducted the TDS but does not remit the same and/or belatedly remits TDS after deducting then such assesse is liable to penalty under Section 271C.
• The counsel contended that any other view of Section 271C will frustrate the object and intention of the said section.
• Making above submissions, counsel prayed for dismissing the appeals.

JUDGEMENT

•  The apex court quashed the impugned order and judgment passed by the High Court regarding section 271C.
• Court held that the assesses in the appeals remitted the TDS though belatedly won’t amount to non-deduction of TDS. Therefore, they are not liable to pay penalty under Section 271C of Income Tax Act,1961.
• Court held that true interpretation of section 271C does not apply to mere delay in remittance of the TDS after deduction by the assesse. The matter of delay shall be dealt under Section 201(1A).
• It was ruled that if there is delay in remitting the amount to revenue then it is to be satisfied as interest payable under Section 201(1A) of the Income Tax Act. 
•  Prosecution proceedings can also be launched in appropriate cases as per section 207B.Section   276B   talks   about   the prosecution on failure to pay the TDS after deducting the same.

CONCLUSION 

From the above judgement of Supreme Court, it is confirmed that in cases where mere delay has taken place in remittance of TDS after deduction by the assesse, there shall be no penalty on the assesse. The assesse is liable to pay interest due to delay which is regulated under Section 201(1A). The court has rightly interpreted section 271C without frustrating the object and intention of the penal provision.