2019 (3) TMI 333 - HC - Income Tax

Penalty u/s 271C - delay in paying the tax deducted at source from the bills of the contractors - violation to Section 273B - mandate of sub-section (2) of Section 115-O as well as the second proviso to Section 194B - Tax on distributed profits of domestic companies and Winnings from lottery or crossword puzzle - HELD THAT - On deduction of tax if there is delay in remitting the amount to Revenue it has to be satisfied with interest as payable under Section 201(1A) of the Act as mentioned above besides the liability to face the prosecution proceedings if launched in appropriate cases in terms of Section 276B of the Act. This alone has been sought to be explained in the said Circular issued by the CBDT. Even according to the CBDT no penalty is envisaged under Section 271C of the Income Tax Act for non payment of the tax deducted at source. Once the burden is discharged by the person/assessee as to the existence of good and sufficient reason for not complying with the stipulation under Section 271C it is for the authorities to consider with proper application of mind whether the penalty is to be waived or reduced based on the facts and circumstances. 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. When the non-deduction of the whole or any part of the tax as required by or under the various instances/provisions of Chapter XVII-B would invite penalty under Clause 271C(1)(a); only to a limited extent involving sub-section (2) of Sec.115-O(coming under Chapter XIID) or covered by the second proviso to Section 194B (coming under Chapter XVIIB) alone would constitute an instance where penalty can be imposed in terms of Section 271C(1)(b) of the Act. Since there is no obscurity in the above provision it is not for the Court to read something more into it contrary to the intent and legislative wisdom which stands to be a forbidden field for the Court. It is settled law that the rule of strict interpretation is the relevant one in so far as the fiscal statute is concerned. We find support from the ruling rendered by the Apex Court in Sneh Enterprises vs. Commissioner of Customs New Delhi 2006 (9) TMI 179 - SUPREME COURT OF INDIA . The finding of the Division Bench in U.S.Technologies International Pvt. Ltd. vs. Commissioner of Income Tax 2009 (6) TMI 1016 - KERALA HIGH COURT and Classic Concepts Home India Pvt. Ltd. vs. Commissioner of Income Tax 2015 (6) TMI 399 - KERALA HIGH COURT to the effect that Section 271C(1)(b) will take in Section 271C(1)(a) as well to attract penalty for non-payment of the tax deducted at source does not reflect the correct provision of law. They stand overruled. The finding and reasoning in U.S.Technologies International Pvt. Ltd vs. Commissioner of Income Tax and Classic Concepts Home India Pvt. Ltd. vs. Commissioner of Income Tax that the benefit of waiver/reduction of penalty once good and sufficient reason is established in terms of Section 273B of the Income Tax Act is not attracted in a case covered Section 271C(1)(b) (involving failure as to non-deposit of the tax deducted at source) is not correct. It also stands overruled. Whether anything survives to be considered? - It is quite open for this Court to decide the merit as well by virtue of the specific power conferred under Section 7 of the Kerala High Court Act instead of having the case sent back to the same/appropriate Bench for further consideration after answering the reference. In view of our declaration that nonremittance of tax deducted at source as in the instant case (which comes under Section 194C of Chapter XVIIB of the Act) is not covered by Section 271C(1)(b) of the Act to attract penalty nothing remains to be considered further either by the Tribunal or by this Court since the verdict passed by the departmental authorities and the Tribunal (copies of which have been produced as Annexures A B and C) stand contrary to the declaration as above. The said orders stand set aside.

Summary

Issues Involved:
1. Interpretation of Clause (b) of Sub-Section (1) of Section 271C of the Income Tax Act.
2. Applicability of Section 273B for waiver or reduction of penalty under Section 271C.
3. Validity of prior judgments in U.S. Technologies International Pvt. Ltd. and Classic Concepts Home India Pvt. Ltd. cases.

Detailed Analysis:

1. Interpretation of Clause (b) of Sub-Section (1) of Section 271C:
The primary issue was whether Clause (b) of Sub-Section (1) of Section 271C, which stipulates a penalty for failure to pay the tax deducted, also encompasses situations under Clause (a) of the same subsection, which deals with the failure to deduct tax. The court clarified that clauses (a) and (b) operate in different spheres and are independent of each other. Clause (a) pertains to the failure to deduct tax as required under Chapter XVIIB, while Clause (b) specifically addresses the failure to pay the tax deducted under sub-section (2) of Section 115-O or the second proviso to Section 194B. The court emphasized that it is not within the court's purview to rewrite the law or question legislative wisdom. The statutory language was clear, and the court ruled that the provisions should be interpreted strictly as written.

2. Applicability of Section 273B for Waiver or Reduction of Penalty:
The court examined whether the benefit of Section 273B, which allows for the waiver or reduction of penalties for reasonable cause, applies to penalties under Section 271C. The court concluded that Section 273B applies to the entirety of Section 271C, including both clauses (a) and (b). Therefore, if an assessee can demonstrate reasonable cause for the failure to deduct or pay the tax, the penalty can be waived or reduced. The court referenced the Supreme Court's decision in Commissioner of Income Tax, New Delhi vs. M/s. Eli Lilly Company (India) Pvt. Ltd., which supported this interpretation.

3. Validity of Prior Judgments in U.S. Technologies International Pvt. Ltd. and Classic Concepts Home India Pvt. Ltd. Cases:
The court critically analyzed the prior judgments in U.S. Technologies International Pvt. Ltd. and Classic Concepts Home India Pvt. Ltd. The earlier decisions had held that the failure to remit tax deducted at source was a more serious lapse than the failure to deduct tax and thus, Section 273B's benefits were not applicable. The court overruled these findings, stating that the earlier judgments did not provide sufficient reasoning and misinterpreted the statutory provisions. The court reiterated that both non-deduction and non-payment of tax deducted could attract penalties, but reasonable cause under Section 273B could mitigate these penalties.

Conclusion:
The court overruled the previous judgments in U.S. Technologies and Classic Concepts, declaring that the provisions of Section 271C(1)(b) do not encompass Section 271C(1)(a) and that the benefit of Section 273B applies to both clauses. The orders imposing penalties on the appellant were set aside, and the appeals were allowed, emphasizing that the statutory provisions must be interpreted strictly as written without judicial overreach.