Mere Delay in TDS remittance shall not attract penalty u/s 271C - SC
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While allowing the assessee to appeal against the Kerala High Court (HC) judgment on the interpretation of Section 271C of the Income-Tax (I-T) Act, a Bench of Justices M R Shah and C T Ravikumar held that on “mere belated remitting the TDS after deducting the same by the assesse shall not attract penalty under the said Section”.
The apex court even observed that the appeal concerned is not the case of “non-deduction” of TDS. Thus, the particular Section will not apply.
It said the provision concerned references ‘fails to deduct’ the whole or any part of the tax, not failure to remit the deducted tax.
Section 271C of the I-T Act deals with penalties for failure to deduct/remit TDS or remit. It provides for a minimum penalty, which is 100 per cent of the amount of tax evaded plus the amount of tax payable, while the maximum penalty goes up to 300 per cent.
The dispute dates back to 2003. An assessee engaged in a software development business in Thiruvananthapuram’s Technopark deducted TDS of ~1.1 crore for Assessment Year 2003-04. However, at the time of submission, the assessee remitted part of the TDS to the government; the balance was remitted later.
In a tax survey, revenue officials noted that TDS was not deposited within the prescribed timeline under I-T rules. The department issued a show cause notice, proposing to levy a penalty under Section 271C of the amount equal to TDS. The matter was later confirmed by Kerala HC.
The apex court in the order analyses two aspects of the matter.
One, whether the assessee is liable for penalty in case of delayed payment of TDS after deducting it. Two, what is the scope of ‘fails to deduct’ in the said provision.
The words used in Section 271C(1)(a) are very clear and the relevant words used are ‘fails to deduct’. They do not speak about the belated remittance of TDS.
According to the settled position of law, the penal provisions are required to be construed strictly and literally. In line with the cardinal principle of interpretation of the statute and more particularly, the penal provision, they are required to be read as they are, the top court said.
It further said that nothing is to be added or taken out of the penal provision. Therefore, on a plain reading of Section 271C, there shall not be a penalty leviable on belated remittance of TDS, after the same was deducted by the assessee.
SC further observed that whenever Parliament sought to provide for consequences of non-remittance of the deducted tax, the House had specifically provided for it i.e., Sections 276B and 201(1A).
Section 201(1A) provides that in case tax has been deducted at source but the same is subsequently remitted belatedly or after some days, such a person is liable to pay interest.
“In view of the above in all these cases as the respective assessees remitted TDS though belatedly and it is not a case of non-deduction of TDS at all, they are not liable to pay penalty under Section 271C,” it noted.
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