2005 (5) TMI 38 - HC - Income Tax

TDS - Once a person prescribed or concerned or the assessee has been subjected to a penalty u/s 271C, for not deducting the tax at source, there would not arise any occasion for levying a penalty under section 272A(2)(c) and 272A(2)(g) for non-compliance with the provisions of sections 203 and 206. In other words, in case the tax has not been deducted at source, the question of issuing the certificate of tax under section 203 or that of filing of return under section 206 would not arise at all. That being so, the question of imposing penalty for violation of the aforesaid provisions, would also not arise.- Tribunal was correct in holding that since the tax has not been deducted, there is no violation of the provisions of section 206 and, therefore, penalty is not leviable without appreciating the fact that sections 192 and 206 read with rule 36 of the Income-tax Rules, 1962 are interlinked

Summary

Issues:
1. Interpretation of sections 203 and 206 of the Income-tax Act, 1961 regarding the deduction of tax at source and imposition of penalties.
2. Whether penalties under sections 272A(2)(c) and 272A(2)(g) can be imposed if tax has not been deducted at source.

Detailed Analysis:
The case involved an appeal under section 260A of the Income-tax Act, 1961, where the Department raised substantial questions of law regarding the interpretation of sections 203 and 206. The appellant argued that non-deduction of tax at source should not absolve the assessee from penalties under sections 272A(2)(g) and 272A(2)(c) for violating sections 203 and 206. The dispute arose from the failure of the assessee to deduct tax at source for the salary paid to the school principal, leading to penalties imposed under section 272A(2)(c) and section 272A(2)(g) for late filings.

The Assessing Officer imposed penalties for non-compliance with sections 203 and 206, but the Commissioner of Income-tax (Appeals) later canceled these penalties. The issue was whether penalties could be imposed if tax had not been deducted at source. The Tribunal upheld the cancellation of penalties, stating that sections 203 and 206 apply only when tax is deducted at source. The Tribunal's decision was based on the requirement that the person deducting tax must issue certificates or file returns only if tax has been deducted at source.

Section 203 mandates the issuance of a tax deduction certificate within a prescribed time when tax is deducted at source, while section 206 requires the filing of returns by the person responsible for deducting tax. Failure to comply attracts penalties. The Tribunal held that these provisions are applicable only when tax is deducted at source, and penalties cannot be imposed if tax has not been deducted. Therefore, penalties under sections 272A(2)(c) and 272A(2)(g) were not justified in this case.

The Tribunal's interpretation was upheld, stating that penalties under section 271C for failure to deduct tax at source preclude the imposition of additional penalties under sections 272A(2)(c) and 272A(2)(g) for non-compliance with sections 203 and 206. The decision emphasized that penalties for violating these sections arise only when tax is deducted at source. Consequently, the appeal was dismissed as the Tribunal's decision did not raise any substantial question of law for further appeal under section 260A of the Act.