Income Tax Act, 1961 – s.271C – Interpretation of – Belated remittance of the TDS after deduction, such assessee if liable to pay penalty u/s.271C – Held: No –s.271C(1)(a) shall be applicable in case of failure on the part of the concerned person/assessee to “deduct” the whole or any part of the tax as required by or under the provisions of Chapter XVIIB – Words used in s.271C(1)(a) are ‘fails to deduct’ – It does not speak about belated remittance of the TDS – Thus, there shall not be any penalty leviable u/s.271C on mere delay in remittance of the TDS after the same is deducted by the concerned assessee.
Income Tax Act, 1961 – ss.201(1A) and 276B – Held: Consequences on non-payment/belated remittance of the TDS would be u/ss.201(1A) and 276B.
Interpretation of Statutes – Penal provisions – Construction of – Held: Penal provisions are required to be construed strictly and literally – They are to be read as they are, nothing is to be added or taken out of them.
Circulars/Notices – CBDT’s Circular No.551 dated 23.01.1998 – Reliance was placed by Revenue on the said Circular and it was contended that over and above the prosecution, the person who has deducted tax at source but not remitted the same to the Government shall also be liable to pay penalty and that is why s.271C was inserted – Held: The Circular favours the assessee – Even the CBDT has taken note of the fact that no penalty is envisaged u/s.271C for belated remittance/payment/deposit of the TDS – Income Tax Act, 1961 – s.271C.
Words & Phrases –”fails to deduct” in s.271C(1)(a), 1961 Act – Meaning and scope of – Discussed – Income Tax Act, 1961 – s.271C(1)(a).
Allowing the appeals, the Court
HELD: 1.1 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. As per Section 271C(1)(a), if any person fails to deduct the whole or any part of the tax as required by or under the provisions of Chapter XVIIB then such a person shall be liable to pay by way of penalty a sum equal to the amount of tax which such person failed to deduct or pay as aforesaid. So far as failure to pay the whole or any part of the tax is concerned, the same would be with respect to Section 271C(1)(b) which is not the case here. Therefore, Section 271C(1)(a) shall be applicable in case of a failure on the part of the concerned person/assessee to “deduct” the whole or 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. The penal provisions are required to be construed strictly and literally. The penal provision are required to be read as they are. Nothing is to be added or nothing is to be taken out of the penal provision. Therefore, on plain reading of Section 271C of the Act, 1961, there shall not be penalty leviable on belated remittance of the TDS after the same is deducted by the assessee. 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 XVIIB would invite penalty under Clause 271C(1)(a); only a limited text, involving sub-section (2) of Section 115O or covered by the second proviso to Section 194B alone would constitute an instance where penalty can be imposed in terms of Section 271C(1)(b) of the Act, namely, on non-payment. It is not for the Court to read something more into it, contrary to the intent and legislative wisdom. [Paras 7.5, 7.6][393-A-G]
1.2 Wherever the Parliament wanted to have the consequences of non-payment 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. Section 201(1A) provides that in case a tax has been deducted at source but the same is subsequently remitted may be belatedly or after some days, such a person is liable to pay the interest as provided under Section 201(1A) of the Act. The levy of interest under Section 201(1A) thus can be said to be compensatory in nature on belated remittance of the TDS after deducting the same. Therefore, consequences of non-payment/belated remittance/payment of the TDS are specifically provided under Section 201(1A). Similarly, Section 276B talks about the prosecution on failure to pay the TDS after deducting the same. Section 271C has been amended subsequently in the year 1997 providing Sections 271C(1)(a) and 271C(1)(b). 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”. 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). [Paras 7.7-7.9][393H; 394-A-D]
1.3 CBDT’s Circular No. 551 dated 23.01.1998 as such favours the assessee. Circular No. 551 deals with the circumstances under which Section 271C was introduced in the Statute, for levy of penalty. On fair reading of said CBDT’s circular, it talks about the levy of penalty on failure to deduct tax at source. It also takes note of the fact that if there is any delay in remitting the tax, it will attract payment of interest under Section 201(1A) of the Act and because of the gravity of the mischief involved, it may involve prosecution proceedings as well, under Section 276B of the Act. If there is any omission to deduct the tax at source, it may lead to loss of Revenue and hence remedial measures have been provided by incorporating the provision to ensure that tax liability to the said extent would stand shifted to the shoulders of the party who failed to effect deduction, in the form of penalty. 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, besides the liability to face the prosecution proceedings, if launched in appropriate cases, in terms of Section 276B of the Act. Even the CBDT has taken note of the fact that no penalty is envisaged under Section 271C of the Income Tax Act for non-deduction TDS and no penalty is envisaged under Section 271C for belated remittance/payment/deposit of the TDS. [Para 8][394-E; 395-B-E]
1.4 The words “fails to deduct” occurring in Section 271C(1)(a) cannot be read into “failure to deposit/pay the tax deducted.” Therefore, on true interpretation of Section 271C, there shall not be any penalty leviable under Section 271C on mere delay in remittance of the TDS after deducting the same by the concerned assessee. The consequences on non-payment/belated remittance of the TDS would be under Section 201(1A) and Section 276B of the Act, 1961. [Paras 8.1, 8.2][395-E-G]
1.5 In all these cases as the respective assessees remitted the TDS though belatedly and it is not case of non-deduction of the TDS at all they are not liable to pay the penalty under Section 271C of the Income Tax Act. Impugned judgment(s) and order(s) passed by the High Court are quashed and set aside and the question of law on interpretation of Section 271C of the Income Tax Act is answered in favour of the assessee(s) and against the Revenue. [Paras 9, 10][395-G-H; 396-A-B]
Lakshadweep Development Corporation Ltd. v.
Additional Commissioner of Income Tax (TDS) and Anr. (2019) 411 ITR 213 (FB); CIT v. Bank of Nova Scotia (2016) 15 SCC 81 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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