Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No. 7934 of 2011
M/s US Technologies ...Appellant(s)
International Pvt. Ltd.
Versus
The Commissioner ...Respondent(s)
of Income Tax
With
Civil Appeal Nos. 12581260 of 2019
J U D G M E N T
M.R. SHAH, J.
1. Feeling aggrieved and dissatisfied with the
impugned judgment(s) and order(s) passed by
Signature Not Verified
the High Court of Kerala at Ernakulam in
Digitally signed by R
Natarajan
Date: 2023.04.10
16:38:22 IST
Reason:
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confirming the levy of interest/penalty under
Section 271C of the Income Tax Act, 1961
(hereinafter referred to as the Act) on failure
of the respective assessees to deposit the tax
deducted at source (TDS) (or belated
remittance of the TDS), the respective
assessees have preferred the present appeals.
CIVIL APPEAL NO. 7934/2011
2. The facts leading the present appeal in a
nutshell are as under:
2.1 From 01.04.2002 to February, 2003, the
appellant – assessee, engaged in a software
development business at Techno Park,
Trivandrum which employed about 700
employees, deducted tax at source (TDS) in
respect of salaries, contract payments, etc.,
totalling Rs. 1,10,41,898/ for the
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assessment year (AY) 200304. In March, the
assessee remitted part of the TDS being Rs.
38,94,687/ and balance of Rs. 71,47,211/
was remitted later. Thus, the period of delay
ranged from 05 days to 10 months. On
10.03.2003, a survey was conducted by the
Revenue at assessee’s premises and it was
noted that TDS was not deposited within the
prescribed dates under Income Tax Rules (IT
Rules). On 02.06.2003, Income Tax Officer
(ITO) vide order under Section 201(1A) of the
Act, 1961 levied penal interest of Rs.
4,97,920/ for the period of delay in
remittance of TDS. On 09.10.2003, the
Additional Commissioner of Income Tax
issued a show cause notice proposing to levy
penalty under Section 271C of the amount
equal to TDS. That the assessee replied to the
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said show cause notice vide reply dated
28.10.2003. That on 06.11.2003, another
order under Section 201(1A) was passed
levying the penal interest of Rs. 22,015/. On
10.11.2003, the Additional Commissioner of
Income Tax (ACIT) vide order under Section
271C levied a penalty of Rs. 1,10,41,898/
equivalent to the amount of TDS deducted for
AY 200304. That order of Additional CIT
levying the penalty under Section 271C came
to be confirmed by the High Court by the
impugned judgment and order. The High
Court vide impugned judgment and order has
dismissed the appeal preferred by the
assessee by holding that failure to
deduct/remit the TDS would attract penalty
under Section 271C of the Act, 1961.
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2.2 Feeling aggrieved and dissatisfied with the
levy of interest/penalty under Section 271C
of the Income Tax Act, 1961 on late
remittance of TDS is the subject matter of
preferred appeal(s).
CIVIL APPEAL NOS. 12581260/2019
3. The facts leading to the present appeals in a
nutshell are under:
3.1 By order(s) dated 26.09.2013, the ACIT by
way of orders under Section 271C levied
penalty equivalent to the amount of TDS
deducted for AYs 201011, 201112 and
201213 on the ground that there was no
good and sufficient reason for not levying
penalty.
3.2 The CIT (Appeals) dismissed the assessees’
appeals. By common order dated 01.06.2016,
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the Income Tax Appellate Tribunal (ITAT)
allowed the assessees’ appeals by holding
that imposition of penalty under Section
271C was unjustified and reasonable causes
were established by the assessee for remitting
the TDS belatedly. By the impugned common
judgment and order the High Court has
allowed the Revenue’s appeals relying upon
its earlier judgment (which is the subject
matter of Civil Appeal No. 7934/2011 as
above). The impugned judgment and order
passed by the High Court is the subject
matter of present appeals being Civil Appeals
Nos. 12581260/2019.
4. Shri Arijit Prasad and Shri C.N. Sreekumar,
learned Senior Advocates have appeared on
behalf of the respective assessees and Shri
Balbir Singh, learned ASG assisted by Ms.
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Monica Benjamin, learned counsel has
appeared on behalf of the Revenue.
5. Shri Arijit Prasad, learned Senior Advocate
appearing on behalf of the assessee in Civil
Appeal No. 7934/2011 has vehemently
submitted that in the facts and
circumstances of the case, the levy of penalty
under Section 271C of the Act, 1961 is not
justifiable at all. It is submitted that in the
facts and circumstances of the case there
shall not be any penalty leviable under
Section 271C of the Act, 1961.
5.1 It is further submitted by Shri Arijit Prasad,
learned Senior Advocate appearing on behalf
of the assessee that here is the case of late
remittance of the TDS and not a case of non
deduction of TDS at all. It is submitted that
therefore, at the most, the assessee shall be
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liable to pay the penal interest leviable under
Section 201(1A) of the Act, 1961. It is
submitted that however, there shall not be
any levy of penalty under Section 271C of the
Act, 1961 on mere late remittance of the TDS
though deducted.
5.2 It is further submitted by Shri Arijit Prasad,
learned Senior Advocate appearing on behalf
of the assessee that Section 271C would be
applicable only in case of nondeduction of
whole or any part of the tax [Section 271C(1)
(a)]. It is submitted that Section 271C(1)(a)
shall be applicable in case of nondeduction
of whole or any part of the tax as required by
or under the provisions of Chapter XVIIB. It is
submitted that in the present case Section
271C(1)(b) shall not be applicable. It is
submitted that therefore taking into
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consideration the words employed in Section
271C(1)(a), there shall be levy of penalty of a
sum equal to the amount of tax in case of
failure on the part of the concerned person
who fails to deduct the whole or any part of
the tax as required by or under the provisions
of Chapter XVIIB. It is submitted that in case
of belated remittance of the TDS, there shall
not be any levy of interest under Section
271C of the Act, 1961.
5.3 It is submitted that as per the cardinal
principle of law, a penal provision is required
to be construed strictly and literally and
nothing is to be added in the Section and the
penalty provisions are required to be read as
they are.
5.4 It is submitted that so far as the belated
remittance of the TDS is concerned, the
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Statute provides for penal interest under
Section 201(1A) of the Act, 1961. It is
submitted that the penal interest levied under
Section 201(1A) is compensatory in nature. It
is submitted that therefore, when the
Parliament thought it fit to levy the penal
interest on late remittance of the TDS for the
belated period, there shall not be any levy of
the penalty under Section 271C for belated
remittance of the TDS.
5.5 It is submitted that if the stand taken by the
Revenue and the views taken by the High
Court that even on belated remittance of the
TDS there shall be penalty levied under
Section 271C of the Act, is accepted, in that
case it would tantamount to adding
something more than which is not provided in
the Section. It is submitted that words used
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in Section 271C are “fails to deduct the whole
or any part of the tax.” It is submitted that it
does not speak “fails to deduct and remitted
belatedly.”
5.6 Shri Arijit Prasad, learned Senior Advocate
appearing on behalf of the assessee has
drawn our attention to Section 276B of the
Act, 1961. It is submitted that as per Section
276B of the Act “
if a person fails to pay to
the credit of the Central Government the
tax deducted at source by him as required
by or under the provisions of Chapter
XVIIB, he shall be liable to be prosecuted
and shall be punishable with rigorous
imprisonment for a term which shall not
be less than three months but which may
extend to seven years and with fine. ” It is
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submitted that therefore, Section 276B talks
about the words which are
“fails to pay,”
missing in Section 271C of the Act. It is
submitted that therefore, wherever, the
Parliament wanted to provide for the
consequences on nonpayment of the TDS,
the same is provided like Section 276B of the
Act. It is submitted that therefore, thus the
words in Section 271C and Section 276B are
different and distinct.
5.7 It is further submitted by Shri Arijit Prasad,
learned Senior Advocate appearing on behalf
of the assessee that even otherwise, the
impugned judgment and order passed by the
High Court has been subsequently overruled
by the Full Bench of the Kerala High Court in
the case of Lakshadweep Development
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Corporation Ltd. Vs. Additional
Commissioner of Income Tax (TDS) and
.
Anr. (2019) 411 ITR 213 (FB)
5.8 It is further submitted by learned counsel
appearing on behalf of the respective
assessees in respective appeals that even
otherwise in exercise of powers under Section
273B, no penalty shall be imposed on the
person or the assessee, for any failure, if he
proves that there was a reasonable cause for
the said failure. Reliance is placed on the
decision of this Court in the case of CIT Vs.
Bank of Nova Scotia (2016) 15 SCC 81 .
5.9 It is submitted that in the case of Civil
Appeals Nos. 125860/2019, the ITAT found
in favour of the assessee that there was a
reasonable cause for the assessee for the
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failure to remit the TDS belatedly. It is
submitted that once the ITAT found the case
falling under Section 273B, the same was not
required to be interfered with by the High
Court as the same cannot be said to a
substantial question of law.
5.10 Making the above submissions, it is prayed to
allow the present appeals and to hold that for
late remittance of the TDS, there shall not be
any penalty leviable under Section 271C of
the Act, 1961.
6. All these appeals are vehemently opposed by
Shri Balbir Singh, learned ASG assisted by
Ms. Monica Benjamin, learned counsel,
appearing on behalf of the Revenue.
6.1 Shri Balbir Singh, learned ASG appearing on
behalf of the Revenue has vehemently
submitted that Section 271C of the Act has
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been inserted in the year 1987. It is
submitted that the object and purpose of
inserting Section 271C is to levy the penalty
for failure to deduct tax at source. It is
submitted that under the old provision of
Chapter XXI of the Income Tax Act, no
penalty was provided for failure to deduct tax
at source though, this default, however,
attracted prosecution under the provisions of
Section 276B, which prescribed punishment
for failure to deduct tax at source or after
deducting failure to remit the same to the
Government and therefore, Section 271C
came to be inserted to provide for levy of
penalty for failure to deduct tax at source. It
is submitted that therefore, in a case where
though the assessee has deducted the tax
(TDS), but does not remit the same to the
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Government and/or belatedly remits the TDS
after deducting, such an assessee is liable to
pay the penalty under Section 271C of the
Act.
6.2 It is submitted that any other view will
frustrate the object and purpose of insertion
of Section 271C of the Act. Then, Shri Balbir
Singh, learned ASG has taken us to the
CBDT Circular No. 551 dated 23.01.1998,
explaining the amendment and insertion of
Section 271C. It is submitted that the object
and purpose of insertion of Section 271C
seems to be 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 Section 271C has
been inserted.
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6.3 Making the above submissions, it is prayed to
dismiss the present appeals.
7. Heard learned counsel appearing on behalf of
the respective parties at length.
7.1 The short question which is posed for the
consideration of this Court is in case of
belated remittance of the TDS after deducting
the TDS whether such an assessee is liable to
pay penalty under Section 271C of the Act,
1961?
7.2 The question which is also posed for the
consideration of this Court is what is the
meaning and scope of the words “fails to
deduct” occurring in Section 271C(1)(a) and
whether an assessee who caused delay in
remittance of TDS deducted by him, can be
said a person who “fails to deduct TDS”?
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7.3 In order to appreciate the rival contentions
and to answer the aforesaid questions, it is
necessary to have analysis of Statutory
provisions.
7.4 The relevant provisions are as under:
“Section 201(1A) of the Act
Without prejudice to the provisions of
subsection (1), if any such person,
principal officer or company as is
referred to in that subsection does not
deduct the whole or any part of the tax
or after deducting fails to pay the tax
as required by or under this Act, he or
it shall be liable to pay simple interest,
—
( i ) at one per cent for every month or
part of a month on the amount of such
tax from the date on which such tax
was deductible to the date on which
such tax is deducted; and
( ii ) at one and onehalf per cent for
every month or part of a month on the
amount of such tax from the date on
which such tax was deducted to the
date on which such tax is actually
paid, and such interest shall be paid
before furnishing the statement in
accordance with the provisions of sub
section (3) of Section 200:]
Section 271C of the Act
271C. Penalty for failure to deduct tax
at source . (1) If any person fails to—
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(a) deduct the whole or any part of the
tax as required by or under the
provisions of Chapter XVIIB; or
(b) pay the whole or any part of the tax
as required by or under,—
(i) subsection (2) of Section 115O; or
(ii) the second proviso to Section 194B;
then, such 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.]
(2) Any penalty imposable under sub
section (1) shall be imposed by the
Joint Commissioner.
Section 273B of the Act
273B. Penalty not to be imposed in
certain cases .—Notwithstanding
anything contained in the provisions of
clause (b) of subsection (1) of Section
271, Section 271A 4203 [Section 271
AA], Section 271B 4204 [Section 271
BA], 4205 [Section 271
BB, 4206 [Section 271C, Section 271
CA], Section 271D, Section 271
E, 4207 [Section 271F,] 4208 [Section
271FA 4209 [, 4210 [Section 271FAB,
Section 271FB, Section 271G, Section
271GA, 4211 [Section 271
GB,]]] 4212 [Section 271
H,] 4213 [Section 271I,] 4214 [Section
271J,] clause (c) or clause (d) of sub
section (1) or subsection (2) of Section
272A, subsection (1) of Section 272
AA] or 4215 [Section 272B
or] 4216 [subsection (1) or subsection
(1A) of Section 272BB] or subsection
(1) of Section 272BBB or] clause (b) of
subsection (1) or clause (b) or clause
(c) of subsection (2) of Section 273, no
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penalty shall be imposable on the
person or the assessee, as the case
may be, for any failure referred to in
the said provisions if he proves that
there was reasonable cause for the said
failure.
Section 276B of the Act
276B. Failure to pay tax to the credit
of Central Government under Chapter
XIID or XVIIB .—If a person fails to
pay to the credit of the Central
Government,—
(a) the tax deducted at source by him
as required by or under the provisions
of Chapter XVIIB; or
(b) the tax payable by him, as required
by or under,—
(i) subsection (2) of Section 115O; or
(ii) the second proviso to Section 194B,
he shall be punishable with rigorous
imprisonment for a term which shall
not be less than three months but
which may extend to seven years and
with fine.”
7.5 At the outset, it is required to be noted that
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. At the cost of repetition, it
is observed that it is a case of belated
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remittance of the TDS though deducted by
the assessee and not a case of nondeduction
of TDS at all.
7.6 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 of any part of the tax as required by
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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. As per settled position
of law, the penal provisions are required to be
construed strictly and literally. As per the
cardinal principle of interpretation of statute
and more particularly, the penal provision,
the penal provisions 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
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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 subsection (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 nonpayment. It is not for the
Court to read something more into it,
contrary to the intent and legislative wisdom.
7.7 At this stage, it is required to be noted that
wherever the Parliament wanted to have the
consequences of nonpayment and/or belated
remittance/payment of the TDS, the
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Parliament/Legislature has provided the
same like in Section 201(1A) and Section
276B of the Act.
7.8 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).
7.9 Similarly, Section 276B talks about the
prosecution on failure to pay the TDS after
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deducting the same. At this stage, it is
required to be noted that 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”. At
this stage, it is required to be noted that
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).
8. Now so far as the reliance placed upon the
CBDT’s Circular No. 551 dated 23.01.1998 by
learned ASG is concerned, at the outset, it is
required to be noted that the said circular as
such favours the assessee. Circular No. 551
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deals with the circumstances under which
Section 271C was introduced in the Statute,
for levy of penalty. Paragraph 16.5 of the
above Circular reads as follows:
“16.5: Insertion of a new section
271C to provide for levy of penalty
for failure to deduct tax at source
under the old provisions of Chapter
XXI of the Income Tax Act no
penalty was provided for failure to
deduct tax at source. This default,
however, attracted prosecution
under the provisions of Section
276B, which prescribed punishment
for failure to deduct tax at source or
after deducting failure to pay the
same to the Government. It was
decided that the first part of the
default, i.e., failure to deduct tax at
source should be made liable to levy
of penalty, while the second part of
the default, i.e., failure to pay the
tax deducted at source to the
Government which is a more serious
offence, should continue to attract
prosecution. The Amending Act,
1987 has accordingly inserted a new
Section 271C to provide for
imposition of penalty on any person
who fails to deduct tax at source as
required under the provisions of
Chapter XVIIB of the Act. The
penalty is of a sum equal to the
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amount of tax which should have
been deducted at source.
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
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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.
8.1 Even otherwise, the words “fails to deduct”
occurring in Section 271C(1)(a) cannot be
read into “failure to deposit/pay the tax
deducted.”
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8.2 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. As observed
hereinabove, the consequences on non
payment/belated remittance of the TDS
would be under Section 201(1A) and Section
276B of the Act, 1961.
9. In view of the above in all these cases as the
respective assessees remitted the TDS though
belatedly and it is not case of nondeduction
of the TDS at all they are no liable to pay the
penalty under Section 271C of the Income
Tax Act. Therefore, any question on
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applicability of Section 273B of the Act is not
required to be considered any further.
10. In view of the above and for the reasons
stated above, all these appeals succeed.
Impugned judgment(s) and order(s) passed by
the High Court are hereby 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 and it is
specifically observed and held that on mere
belated remitting the TDS after deducting the
same by the concerned person/assessee, no
penalty shall be leviable under Section 271C
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of the Income Tax Act. Present appeals are
accordingly allowed. No costs.
………………………………….J.
[M.R. SHAH]
………………………………….J.
[C.T. RAVIKUMAR]
NEW DELHI;
APRIL 10, 2023
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