The Supreme Court on Monday held that penalty is inapplicable on belated deposit of Tax Deducted at Source (TDS) under the Section 271C of the Income Tax Act. With this, it set aside an order by the Kerala High Court.

“On true interpretation of the section 271C, there shall not be any penalty leviable under aid section 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,” a division bench of Justices M R Shah and C T Ravikumar said.

The appellant, US Technologies moved the apex court after the Kerala High Court at Ernakulam in confirming the levy of interest/penalty under Section 271C of the Income Tax Act, on failure of the respective assessees to deposit the TDS (or belated remittance of the TDS), The Income Tax Department levied penalty under Section 271C equivalent to the amount of TDS deducted for AYs 2010-11, 2011-12 and 2012-13. While the first level of appeal held the order, Income Tax Appellate Tribunal (ITAT) set aside the order. However, the High Court ruled in the favour of the Income Tax Department.

After going through all the facts presented and arguments made, the apex court observed that penal provisions are to be interpreted literally and nothing can be added or taken out from the provisions imposing penalty. It noted that the cases in appeal are the cases of belated remittance and not the cases of non-deduction, thus, Section 271C(1)(a) shall not be applicable as the provision talks of ‘fails to deduct’ whole or any part of the tax, not failure to remit the deducted tax

Further, the bench observed that that wherever Parliament sought to provide for consequences of non-remittance of deducted tax, the Parliament has specifically provided for under other sections (276B and 201(1A).

Amit Maheshwari, Tax Partner with AKM Global says the Supreme Court ruling dealt with the applicability of section 271C at the first place. The section talks of penalty in cases of ‘failure to deduct’ whole or any part of the tax, and not failure to remit the deducted tax as well as the cases in appeal were for belated remittance. Hence, it was held that there shall not be any penalty leviable under section 271C on the mere delay in remittance of the TDS after deducting the same by the taxpayer.

“This ruling will settle the air around the tax disputes related to similar cases and act as a breather to the taxpayers who have no malafide intention in depositing late TDS after deducting it,” he said.

Related Topics