Section 271C Penalty can’t be Imposed for Belated or Non-payment of TDS: SC

Case Details: M/s US Technologies International Pvt. ltd. vs. Commissioner of Income Tax - [2023] 149 taxmann.com 144 (SC)

Judiciary and Counsel Details

• • M.R. Shah & C.T. Ravikumar, JJ.

Facts of the Case

Assessee, a private limited company, was engaged in a software development business. It deducted tax at source (TDS) in respect of salaries, contract payments, etc., for the relevant Assessment Year. The assessee deposited the amount of TDS in instalments with a delay ranging from 5 days to 10 months.

During the survey conducted by the Assessing Officer (AO), the delay in depositing the amount of TDS was noticed, and interest under section 201(1A) was charged. Further Additional Commissioner of Income Tax (ACIT) levied a penalty equivalent to the amount of TDS under section 271C on the assessee.

The High Court further confirmed the penalty order imposed by ACIT. Aggrieved by the order, the assessee preferred an appeal to the Supreme Court.

Supreme Court Held

The Supreme Court held that section 271C(1)(a) is applicable in case of a failure on the part of the assessee to “deduct” the whole or any part of the tax as required under the provisions of the Act. 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 the belated remittance of the TDS.

Only a limited text involving Section 115O(2) or covered by the second proviso to Section 194B alone would constitute an instance where a penalty can be imposed in terms of Section 271C(1)(b), for the non-payment of TDS. The consequences of non-payment or belated remittance/payment of the TDS, the legislature has provided the same as in Section 201(1A) and Section 276B of the Act.

As per the settled position of law, the penal provisions are required to be construed strictly and literally. The cardinal principle of interpretation of the statute and, more particularly, the penal provision, the penal provisions are needed to be read as they are. Nothing is to be added, or nothing is to be taken out of the penal provision.

The words “fails to deduct” occurring in Section 271C(1)(a) cannot be read into “failure to deposit/pay the tax deducted”. Therefore, on the plain reading of Section 271C, no penalty under section 271C(1)(a) can be levied on belated remittance of the TDS after the same is deducted by the assessee.