2023 (4) TMI 418 - SC - Income Tax

Levy of penalty u/s 271C - delay in deposit of Tax deducted at source (TDS) - belated remittance of the TDS - the meaning and scope of the words fails to deduct occurring in Section 271C(1)(a) - HELD THAT - At the outset, it is required to be noted that all these cases are with respect to the belated remittance of the TDS though deducted by the assessee and therefore, Section 271C(1)(a) shall be applicable. At the cost of repetition, it is observed that it is a case of belated remittance of the TDS though deducted by the assessee and not a case of nondeduction of TDS at all. 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. 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. At this stage, it is required to be 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. As observed hereinabove, 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 . At this stage, it is required to be noted that 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). Now so far as the reliance placed upon the CBDT s Circular No. 551 dated 23.01.1998 by learned ASG is concerned, at the outset, it is required to be noted that 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 nondeduction TDS and no penalty is envisaged under Section 271C for belated remittance/payment/deposit of the TDS. Even otherwise, the words fails to deduct occurring in Section 271C(1)(a) cannot be read into failure to deposit/pay the tax deducted. No penalty - Decided in favor of assessee.

Summary

Issues Involved:
1. Whether the levy of penalty under Section 271C of the Income Tax Act, 1961 is justified for the late remittance of TDS.
2. Interpretation of the terms "fails to deduct" in Section 271C(1)(a) and its applicability to delayed remittance of TDS.
3. Consideration of reasonable cause under Section 273B for non-imposition of penalty.

Summary:

Issue 1: Levy of Penalty under Section 271C for Late Remittance of TDS
The Supreme Court addressed the appeals against the High Court of Kerala's decision confirming the levy of penalty under Section 271C of the Income Tax Act, 1961 for the late remittance of TDS. The appellants, engaged in various businesses, had deducted TDS but remitted it belatedly. The High Court had upheld the penalty, but the Supreme Court examined whether such penalty was justified under Section 271C.

Issue 2: Interpretation of "Fails to Deduct" in Section 271C(1)(a)
The Court analyzed the statutory provisions, particularly Section 271C(1)(a), which states that a penalty is applicable if a person "fails to deduct" the whole or any part of the tax. The Court emphasized that the words "fails to deduct" do not encompass the late remittance of TDS. It held that penal provisions must be construed strictly and literally, and nothing should be added or taken out of the provision. Therefore, Section 271C does not apply to cases of belated remittance of TDS.

Issue 3: Consideration of Reasonable Cause under Section 273B
The Court noted that Section 201(1A) of the Act provides for compensatory interest for belated remittance of TDS, while Section 276B deals with prosecution for failure to pay TDS. The Court highlighted that the Parliament has clearly distinguished between non-deduction and late payment of TDS, with different consequences for each. The Court also referred to the CBDT Circular No. 551, which supports the interpretation that Section 271C applies only to non-deduction of TDS, not to delayed remittance.

Conclusion:
The Supreme Court concluded that for mere delay in remittance of TDS, no penalty is leviable under Section 271C of the Income Tax Act. The appeals were allowed, and the impugned judgments of the High Court were quashed. The Court held that the interpretation of Section 271C should favor the assessee, and no penalty should be imposed for late remittance of TDS.