Summary
A software company deducted tax at source of about Rs. 1.10 crore on salaries and contract payments for assessment year 2003-04 but remitted it late, the delay ranging from five days to ten months. Interest under Section 201(1A) was levied, and the Additional Commissioner then imposed penalty under Section 271C equal to the entire tax deducted, which the Kerala High Court upheld; in connected appeals the High Court reversed the Tribunal's deletion of similar penalties. The Supreme Court allowed the assessees' appeals, holding that Section 271C(1)(a) penalises only failure to deduct the whole or any part of tax, that penal provisions must be read strictly as they stand, and that the consequences of belated remittance of tax already deducted are interest under Section 201(1A) and prosecution under Section 276B, not penalty under Section 271C.
Issues
- Whether an assessee who deducts tax at source but remits it belatedly to the Government is liable to penalty under Section 271C of the Income Tax Act, 1961.
- What is the meaning and scope of the words fails to deduct in Section 271C(1)(a), and whether they cover failure to deposit tax deducted.
Provisions considered
- Section 271C(1)(a) and (b), Income Tax Act, 1961Clause (a) imposes penalty equal to the tax for failure to deduct the whole or any part of tax under Chapter XVII-B; clause (b) covers failure to pay only in the limited cases of Section 115-O(2) and the second proviso to Section 194-B. Belated remittance of tax deducted falls under neither. (¶¶ 7.4, 7.5, 7.6, 7.9, 8.1, 8.2)
- Section 201(1A), Income Tax Act, 1961Provides compensatory interest where tax is deducted but paid late; this is the consequence Parliament prescribed for belated remittance. (¶¶ 7.7, 7.8, 8.2)
- Section 276B, Income Tax Act, 1961Prosecution for failure to pay tax deducted at source to the Government; the word pay used here is missing from Section 271C(1)(a), showing that non-payment was dealt with by prosecution and not by penalty. (¶¶ 7.7, 7.9, 8)
- Section 273B, Income Tax Act, 1961Since no penalty is leviable under Section 271C for belated remittance, the question of reasonable cause under Section 273B did not require consideration. (¶ 9)
Held
- Section 271C(1)(a) uses the words fails to deduct and does not speak of belated remittance; penal provisions must be construed strictly and literally, read as they are, with nothing added or taken out. On a plain reading no penalty is leviable under Section 271C on belated remittance of tax after it has been deducted, and it is not for the court to read more into the section contrary to legislative intent. (¶¶ 7.5, 7.6, 8.1, 8.2)
- Wherever Parliament intended consequences for non-payment or belated payment of tax deducted it provided them, as in Section 201(1A) for interest and Section 276B for prosecution; the word pay found in Section 276B is absent from Section 271C(1)(a). (¶¶ 7.7, 7.8, 7.9)
- CBDT Circular No. 551 of 23.01.1998 favours the assessee: it explains that Section 271C was inserted to penalise failure to deduct tax at source, while failure to pay the tax deducted, being more serious, was to continue to attract prosecution under Section 276B and interest under Section 201(1A). (¶ 8)
Result
Appeals allowed; Kerala High Court judgments confirming penalty under Section 271C quashed and set aside; question of law answered in favour of the assessees, holding that no penalty is leviable under Section 271C on mere belated remittance of tax deducted at source; no costs.