M/S US TECHNOLOGIES INTERNATIONAL PVT. LTD versus THE COMMISSIONER OF INCOME TAX on 10 April 2023

382

[2023] 4 S.C.R.

AM/S US TECHNOLOGIES INTERNATIONAL PVT. LTD.

v.

THE COMMISSIONER OF INCOME TAX

(Civil Appeal No. 7934 of 2011)

BAPRIL 10, 2023

[M. R. SHAH AND C. T. RAVIKUMAR, JJ.]

Income Tax Act, 1961 – s.271C – Interpretation of – Belatedremittance of the TDS after deduction, such assessee if liable topay penalty u/s.271C – Held: No –s.271C(1)(a) shall be applicableCin 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 underthe provisions of Chapter XVIIB – Words used in s.271C(1)(a) are‘fails to deduct’ – It does not speak about belated remittance of theTDS – Thus, there shall not be any penalty leviable u/s.271C onDmere delay in remittance of the TDS after the same is deducted bythe concerned assessee.

Income Tax Act, 1961 – ss.201(1A) and 276B – Held:Consequences on non-payment/belated remittance of the TDS wouldbe u/ss.201(1A) and 276B.

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Interpretation of Statutes – Penal provisions – Constructionof – Held: Penal provisions are required to be construed strictlyand literally – They are to be read as they are, nothing is to beadded or taken out of them.

Circulars/Notices – CBDT’s Circular No.551 datedF23.01.1998 – Reliance was placed by Revenue on the said Circularand it was contended that over and above the prosecution, the personwho has deducted tax at source but not remitted the same to theGovernment shall also be liable to pay penalty and that is why s.271Cwas inserted – Held: The Circular favours the assessee – Even theGCBDT has taken note of the fact that no penalty is envisagedu/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), 1961Act – Meaning and scope of – Discussed – Income Tax Act, 1961 –Hs.271C(1)(a).

Allowing the appeals, the Court

HELD: 1.1 All these cases are with respect to the belatedremittance of the TDS though deducted by the assessee andtherefore, Section 271C(1)(a) shall be applicable. As per Section271C(1)(a), if any person fails to deduct the whole or any part ofthe tax as required by or under the provisions of Chapter XVIIBthen such a person shall be liable to pay by way of penalty a sumequal to the amount of tax which such person failed to deduct orpay as aforesaid. So far as failure to pay the whole or any part ofthe tax is concerned, the same would be with respect to Section271C(1)(b) which is not the case here. Therefore, Section271C(1)(a) shall be applicable in case of a failure on the part ofthe concerned person/assessee to “deduct” the whole or any partof the tax as required by or under the provisions of ChapterXVIIB. The words used in Section 271C(1)(a) are very clear andthe relevant words used are “fails to deduct.” It does not speakabout belated remittance of the TDS. The penal provisions arerequired to be construed strictly and literally. The penal provisionare required to be read as they are. Nothing is to be added ornothing is to be taken out of the penal provision. Therefore, onplain reading of Section 271C of the Act, 1961, there shall not bepenalty leviable on belated remittance of the TDS after the sameis deducted by the assessee. Section 271C of the Income TaxAct is quite categoric. Its scope and extent of application isdiscernible from the provision itself, in unambiguous terms. Whenthe non-deduction of the whole or any part of the tax, as requiredby or under the various instances/provisions of Chapter XVIIBwould invite penalty under Clause 271C(1)(a); only a limited text,involving sub-section (2) of Section 115O or covered by thesecond proviso to Section 194B alone would constitute aninstance where penalty can be imposed in terms of Section271C(1)(b) of the Act, namely, on non-payment. It is not for theCourt to read something more into it, contrary to the intent andlegislative wisdom. [Paras 7.5, 7.6][393-A-G]

1.2 Wherever the Parliament wanted to have theconsequences of non-payment and/or belated remittance/paymentof the TDS, the Parliament/Legislature has provided the same A

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Alike in Section 201(1A) and Section 276B of the Act. Section201(1A) provides that in case a tax has been deducted at sourcebut the same is subsequently remitted may be belatedly or aftersome days, such a person is liable to pay the interest as providedunder Section 201(1A) of the Act. The levy of interest underSection 201(1A) thus can be said to be compensatory in natureBon belated remittance of the TDS after deducting the same.Therefore, consequences of non-payment/belated remittance/payment of the TDS are specifically provided under Section201(1A). Similarly, Section 276B talks about the prosecution onfailure to pay the TDS after deducting the same. Section 271CChas been amended subsequently in the year 1997 providingSections 271C(1)(a) and 271C(1)(b). As observed hereinabove,fails to pay the whole or any part of the tax would be falling underSection 271C(1)(b) and the word used between 271C(1)(a) and271C(1)(b) is “or”. Section 276B provides for prosecution in caseof failure to “pay” tax to the credit of Central Government. TheDword “pay” is missing in Section 271C(1)(a). [Paras 7.7-7.9][393-H; 394-A-D]

1.3 CBDT’s Circular No. 551 dated 23.01.1998 as suchfavours the assessee. Circular No. 551 deals with thecircumstances under which Section 271C was introduced in theEStatute, 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 remittingthe tax, it will attract payment of interest under Section 201(1A)of the Act and because of the gravity of the mischief involved, it Fmay involve prosecution proceedings as well, under Section 276Bof the Act. If there is any omission to deduct the tax at source, itmay lead to loss of Revenue and hence remedial measures havebeen provided by incorporating the provision to ensure that taxliability to the said extent would stand shifted to the shoulders of the party who failed to effect deduction, in the form of penalty.GOn deduction of tax, if there is delay in remitting the amount toRevenue, it has to be satisfied with interest as payable underSection 201(1A) of the Act, besides the liability to face theprosecution proceedings, if launched in appropriate cases, interms of Section 276B of the Act. Even the CBDT has takenHnote of the fact that no penalty is envisaged under Section 271C

of the Income Tax Act for non-deduction TDS and no penalty isenvisaged 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 Section271C(1)(a) cannot be read into “failure to deposit/pay the taxdeducted.” Therefore, on true interpretation of Section 271C,there shall not be any penalty leviable under Section 271C onmere delay in remittance of the TDS after deducting the same bythe 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 remittedthe TDS though belatedly and it is not case of non-deduction ofthe TDS at all they are not liable to pay the penalty under Section271C of the Income Tax Act. Impugned judgment(s) and order(s)passed by the High Court are quashed and set aside and thequestion of law on interpretation of Section 271C of the IncomeTax Act is answered in favour of the assessee(s) and against theRevenue. [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.

Case Law Reference

(2016) 15 SCC 81referred toPara 5.8CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7934of 2011.

From the Judgment and Order dated 16.06.2009 of the High Courtof Kerala at Ernakulam in ITA No. 3 of 2009.

With

Civil Appeal Nos. 1258-1260 of 2019.

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AArijit Prasad, C N Sreekumar, Sr. Advs., Sandeep Bisht, YatiRanjan, Mrs. Apara Pandey, Divyam Garg, Ranjan Kumar Pandey, AnilD Nair, Ms. Anupama Kumar, Ashwin, Prakash Ranjan Nayak, Advs.for the Appellant.

Balbir Singh, A.S.G., Ms. Monica Benjamin, H. R. Rao, Mrs.BPraveena Gautam, Siddhartha Sinha, Shashank Bajpai, Mohd. Akhil,Raghav Sharma, Raj Bahadur Yadav, Advs. for the Respondent.

The Judgment of the Court was delivered by

M. R. SHAH, J.

C1. Feeling aggrieved and dissatisfied with the impugnedjudgment(s) and order(s) passed by the High Court of Kerala atErnakulam in confirming the levy of interest/penalty under Section 271Cof the Income Tax Act, 1961 (hereinafter referred to as the Act) onfailure of the respective assessees to deposit the tax deducted at source(TDS) (or belated remittance of the TDS), the respective assesseesDhave 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,Eengaged in a software development business at Techno Park, Trivandrumwhich employed about 700 employees, deducted tax at source (TDS) inrespect of salaries, contract payments, etc., totalling Rs. 1,10,41,898/-for the assessment year (AY) 2003-04. In March, the assessee remittedpart 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 10Fmonths. On 10.03.2003, a survey was conducted by the Revenue atassessee’s premises and it was noted that TDS was not deposited withinthe 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 inGremittance of TDS. On 09.10.2003, the Additional Commissioner ofIncome Tax issued a show cause notice proposing to levy penalty underSection 271C of the amount equal to TDS. That the assessee replied tothe said show cause notice vide reply dated 28.10.2003. That on06.11.2003, another order under Section 201(1A) was passed levyingthe penal interest of Rs. 22,015/-. On 10.11.2003, the AdditionalH

Commissioner of Income Tax (ACIT) vide order under Section 271Clevied a penalty of Rs. 1,10,41,898/- equivalent to the amount of TDSdeducted for AY 2003-04. That order of Additional CIT levying the penaltyunder Section 271C came to be confirmed by the High Court by theimpugned judgment and order. The High Court vide impugned judgmentand order has dismissed the appeal preferred by the assessee by holdingthat failure to deduct/remit the TDS would attract penalty under Section271C of the Act, 1961.

2.2 Feeling aggrieved and dissatisfied with the levy of interest/penalty under Section 271C of the Income Tax Act, 1961 on lateremittance of TDS is the subject matter of preferred appeal(s).

CIVIL APPEAL NOS. 1258-1260/2019

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 ordersunder Section 271C levied penalty equivalent to the amount of TDSdeducted for AYs 2010-11, 2011-12 and 2012-13 on the ground thatthere was no good and sufficient reason for not levying penalty.

3.2 The CIT (Appeals) dismissed the assessees’ appeals. Bycommon order dated 01.06.2016, the Income Tax Appellate Tribunal(ITAT) allowed the assessees’ appeals by holding that imposition ofpenalty under Section 271C was unjustified and reasonable causes wereestablished by the assessee for remitting the TDS belatedly. By theimpugned common judgment and order the High Court has allowed theRevenue’s appeals relying upon its earlier judgment (which is the subjectmatter of Civil Appeal No. 7934/2011 as above). The impugned judgmentand order passed by the High Court is the subject matter of presentappeals being Civil Appeals Nos. 1258-1260/2019.

4. Shri Arijit Prasad and Shri C.N. Sreekumar, learned SeniorAdvocates have appeared on behalf of the respective assessees andShri Balbir Singh, learned ASG assisted by Ms. Monica Benjamin, learnedcounsel has appeared on behalf of the Revenue.

5. Shri Arijit Prasad, learned Senior Advocate appearing on behalfof the assessee in Civil Appeal No. 7934/2011 has vehemently submittedthat in the facts and circumstances of the case, the levy of penalty underSection 271C of the Act, 1961 is not justifiable at all. It is submitted thatin the facts and circumstances of the case there shall not be any penaltyleviable under Section 271C of the Act, 1961.

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A5.1 It is further submitted by Shri Arijit Prasad, learned SeniorAdvocate appearing on behalf of the assessee that here is the case oflate remittance of the TDS and not a case of non-deduction of TDS atall. It is submitted that therefore, at the most, the assessee shall be liableto 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 penaltyBunder Section 271C of the Act, 1961 on mere late remittance of theTDS though deducted.

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5.2 It is further submitted by Shri Arijit Prasad, learned SeniorAdvocate appearing on behalf of the assessee that Section 271C wouldbe applicable only in case of non-deduction of whole or any part of theCtax [Section 271C(1)(a)]. It is submitted that Section 271C(1)(a) shallbe applicable in case of non-deduction of whole or any part of the tax asrequired by or under the provisions of Chapter XVIIB. It is submittedthat in the present case Section 271C(1)(b) shall not be applicable. It issubmitted that therefore taking into consideration the words employed inDSection 271C(1)(a), there shall be levy of penalty of a sum equal to theamount of tax in case of failure on the part of the concerned person whofails to deduct the whole or any part of the tax as required by or underthe provisions of Chapter XVIIB. It is submitted that in case of belatedremittance of the TDS, there shall not be any levy of interest underSection 271C of the Act, 1961.E

5.3 It is submitted that as per the cardinal principle of law, a penalprovision is required to be construed strictly and literally and nothing is tobe added in the Section and the penalty provisions are required to beread as they are.5.4 It is submitted that so far as the belated remittance of theF

5.4 It is submitted that so far as the belated remittance of theFTDS is concerned, the Statute provides for penal interest under Section201(1A) of the Act, 1961. It is submitted that the penal interest leviedunder Section 201(1A) is compensatory in nature. It is submitted thattherefore, when the Parliament thought it fit to levy the penal interest onlate remittance of the TDS for the belated period, there shall not be anyGlevy of the penalty under Section 271C for belated remittance of theTDS.

5.5 It is submitted that if the stand taken by the Revenue and theviews taken by the High Court that even on belated remittance of theTDS there shall be penalty levied under Section 271C of the Act, isH

accepted, in that case it would tantamount to adding something morethan which is not provided in the Section. It is submitted that words usedin Section 271C are “fails to deduct the whole or any part of the tax.” Itis submitted that it does not speak “fails to deduct and remitted belatedly.”

5.6 Shri Arijit Prasad, learned Senior Advocate appearing on behalfof 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 personfails to pay to the credit of the Central Government the taxdeducted at source by him as required by or under the provisionsof Chapter XVIIB, he shall be liable to be prosecuted and shallbe punishable with rigorous imprisonment for a term which shallnot be less than three months but which may extend to sevenyears and with fine.” It is submitted that therefore, Section 276B talksabout “fails to pay,” the words which are missing in Section 271C ofthe Act. It is submitted that therefore, wherever, the Parliament wantedto provide for the consequences on non-payment of the TDS, the sameis provided like Section 276B of the Act. It is submitted that therefore,thus the words in Section 271C and Section 276B are different anddistinct.

5.7 It is further submitted by Shri Arijit Prasad, learned SeniorAdvocate appearing on behalf of the assessee that even otherwise, theimpugned judgment and order passed by the High Court has beensubsequently overruled by the Full Bench of the Kerala High Court inthe case of Lakshadweep Development 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 behalfof the respective assessees in respective appeals that even otherwise inexercise of powers under Section 273B, no penalty shall be imposed onthe person or the assessee, for any failure, if he proves that there was areasonable cause for the said failure. Reliance is placed on the decisionof this Court in the case of CIT Vs. Bank of Nova Scotia (2016) 15SCC 81.

5.9 It is submitted that in the case of Civil Appeals Nos. 1258-60/2019, the ITAT found in favour of the assessee that there was a reasonablecause for the assessee for the failure to remit the TDS belatedly. It issubmitted that once the ITAT found the case falling under Section 273B, A

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Athe same was not required to be interfered with by the High Court as thesame cannot be said to a substantial question of law.

5.10 Making the above submissions, it is prayed to allow the presentappeals and to hold that for late remittance of the TDS, there shall notbe any penalty leviable under Section 271C of the Act, 1961.

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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.

Issues

6.1 Shri Balbir Singh, learned ASG appearing on behalf of theRevenue has vehemently submitted that Section 271C of the Act hasCbeen inserted in the year 1987. It is submitted that the object and purposeof inserting Section 271C is to levy the penalty for failure to deduct taxat source. It is submitted that under the old provision of Chapter XXI ofthe Income Tax Act, no penalty was provided for failure to deduct tax atsource though, this default, however, attracted prosecution under theDprovisions of Section 276B, which prescribed punishment for failure todeduct tax at source or after deducting failure to remit the same to theGovernment and therefore, Section 271C came to be inserted to providefor levy of penalty for failure to deduct tax at source. It is submitted thattherefore, in a case where though the assessee has deducted the tax(TDS), but does not remit the same to the Government and/or belatedlyEremits the TDS after deducting, such an assessee is liable to pay thepenalty under Section 271C of the Act.

6.2 It is submitted that any other view will frustrate the object andpurpose of insertion of Section 271C of the Act. Then, Shri Balbir Singh,learned ASG has taken us to the CBDT Circular No. 551 datedF23.01.1998, explaining the amendment and insertion of Section 271C. Itis submitted that the object and purpose of insertion of Section 271Cseems to be that over and above the prosecution, the person who hasdeducted tax at source but not remitted the same to the Governmentshall also be liable to pay penalty and that is why Section 271C has beeninserted.G

6.3 Making the above submissions, it is prayed to dismiss thepresent appeals.

7. Heard learned counsel appearing on behalf of the respectiveparties at length.H

7.1 The short question which is posed for the consideration of thisCourt is in case of belated remittance of the TDS after deducting theTDS whether such an assessee is liable to pay penalty under Section271C of the Act, 1961?

7.2 The question which is also posed for the consideration of thisCourt is what is the meaning and scope of the words “fails to deduct”occurring in Section 271C(1)(a) and whether an assessee who causeddelay in remittance of TDS deducted by him, can be said a person who“fails to deduct TDS”?

7.3 In order to appreciate the rival contentions and to answer theaforesaid 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 sub-section (1), if any suchperson, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or afterdeducting fails to pay the tax as required by or under this Act, heor it shall be liable to pay simple interest,—

(i) at one per cent for every month or part of a month on theamount of such tax from the date on which such tax was deductibleto the date on which such tax is deducted; and

(ii) at one and one-half per cent for every month or part of amonth on the amount of such tax from the date on which such taxwas deducted to the date on which such tax is actually paid, andsuch interest shall be paid before furnishing the statement inaccordance with the provisions of sub-section (3) of Section 200:]

Section 271C of the Act

271-C. Penalty for failure to deduct tax at source. (1) If any personfails to—

(a) deduct the whole or any part of the tax as required by orunder the provisions of Chapter XVII-B; or

(b) pay the whole or any part of the tax as required by or under,—

(i) sub-section (2) of Section 115-O; or

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then, such person shall be liable to pay, by way of penalty, a sumequal to the amount of tax which such person failed to deduct orpay as aforesaid.]

(2) Any penalty imposable under sub-section (1) shall be imposedby the Joint Commissioner.

Section 273B of the Act

273-B. Penalty not to be imposed in certain cases.—Notwithstanding anything contained in the provisions of clause(b) of sub-section (1) of Section 271, Section 271-A 4203[Section271-AA], Section 271-B 4204[Section 271-BA], 4205[Section 271-BB, 4206[Section 271-C, Section 271-CA], Section 271-D, Section271-E, 4207[Section 271-F,] 4208[Section 271-FA 4209,4210[Section 271-FAB, Section 271-FB, Section 271-G, Section 271-GA, 4211[Section 271-GB,]]] 4212[Section 271-H,] 4213[Section271-I,] 4214[Section 271-J,] clause (c) or clause (d) of sub-section(1) or sub-section (2) of Section 272-A, sub-section (1) of Section272-AA] or 4215[Section 272-B or] 4216[sub-section (1) or sub-section (1-A) of Section 272-BB] or sub-section (1) of Section272-BBB or] clause (b) of sub-section (1) or clause (b) or clause(c) of sub-section (2) of Section 273, no penalty shall be imposableon the person or the assessee, as the case may be, for any failurereferred to in the said provisions if he proves that there wasreasonable cause for the said failure.

Section 276B of the Act

276-B. Failure to pay tax to the credit of Central Governmentunder Chapter XII-D or XVII-B.—If a person fails to pay to thecredit of the Central Government,—

(a) the tax deducted at source by him as required by or under theprovisions of Chapter XVII-B; or (b) the tax payable by him, as required by or under,—

(i) sub-section (2) of Section 115-O; or

(ii) the second proviso to Section 194-B, he shall be punishablewith rigorous imprisonment for a term which shall not be less thanthree 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 arewith respect to the belated remittance of the TDS though deducted bythe assessee and therefore, Section 271C(1)(a) shall be applicable. Atthe cost of repetition, it is observed that it is a case of belated remittanceof the TDS though deducted by the assessee and not a case of non-deduction of TDS at all.

7.6 As per Section 271C(1)(a), if any person fails to deduct thewhole or any part of the tax as required by or under the provisions ofChapter XVIIB then such a person shall be liable to pay by way ofpenalty a sum equal to the amount of tax which such person failed todeduct or pay as aforesaid. So far as failure to pay the whole or any partof the tax is concerned, the same would be with respect to Section271C(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 concernedperson/assessee to “deduct” the whole of any part of the tax as requiredby or under the provisions of Chapter XVIIB. The words used in Section271C(1)(a) are very clear and the relevant words used are “fails todeduct.” It does not speak about belated remittance of the TDS. As persettled position of law, the penal provisions are required to be construedstrictly and literally. As per the cardinal principle of interpretation ofstatute and more particularly, the penal provision, the penal provisionsare required to be read as they are. Nothing is to be added or nothing isto be taken out of the penal provision. Therefore, on plain reading ofSection 271C of the Act, 1961, there shall not be penalty leviable onbelated remittance of the TDS after the same is deducted by the assessee.Section 271C of the Income Tax Act is quite categoric. Its scope andextent of application is discernible from the provision itself, in unambiguousterms. When the non-deduction of the whole or any part of the tax, asrequired by or under the various instances/provisions of Chapter XVIIBwould invite penalty under Clause 271C(1)(a); only a limited text, involvingsub-section (2) of Section 115O or covered by the second proviso toSection 194B alone would constitute an instance where penalty can beimposed 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, contraryto the intent and legislative wisdom.

7.7 At this stage, it is required to be noted that wherever theParliament wanted to have the consequences of non-payment and/or AB

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Abelated remittance/payment of the TDS, the Parliament/Legislature hasprovided 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 deductedat source but the same is subsequently remitted may be belatedly orafter some days, such a person is liable to pay the interest as providedBunder Section 201(1A) of the Act. The levy of interest under Section201(1A) thus can be said to be compensatory in nature on belatedremittance of the TDS after deducting the same. Therefore,consequences of non-payment/belated remittance/payment of the TDSare specifically provided under Section 201(1A).

C7.9 Similarly, Section 276B talks about the prosecution on failureto pay the TDS after deducting the same. At this stage, it is required tobe noted that Section 271C has been amended subsequently in the year1997 providing Sections 271C(1)(a) and 271C(1)(b). As observedhereinabove, fails to pay the whole or any part of the tax would befalling under Section 271C(1)(b) and the word used between 271C(1)(a)Dand 271C(1)(b) is “or”. At this stage, it is required to be noted thatSection 276B provides for prosecution in case of failure to “pay” tax tothe credit of Central Government. The word “pay” is missing in Section271C(1)(a).

8. Now so far as the reliance placed upon the CBDT’s CircularENo. 551 dated 23.01.1998 by learned ASG is concerned, at the outset, itis required to be noted that the said circular as such favours the assessee.Circular No. 551 deals with the circumstances under which Section 271Cwas introduced in the Statute, for levy of penalty. Paragraph 16.5 of theabove Circular reads as follows:F“16.5: Insertion of a new section 271C to provide for levy of penaltyfor failure to deduct tax at source-under the old provisions ofChapter XXI of the Income Tax Act no penalty was provided forfailure to deduct tax at source. This default, however, attractedprosecution under the provisions of Section 276B, which prescribedGpunishment for failure to deduct tax at source or after deductingfailure to pay the same to the Government. It was decided thatthe first part of the default, i.e., failure to deduct tax at sourceshould be made liable to levy of penalty, while the second part ofthe default, i.e., failure to pay the tax deducted at source to theGovernment which is a more serious offence, should continue toHattract prosecution. The Amending Act, 1987 has accordingly M/S US TECHNOLOGIES INTERNATIONAL PVT. LTD. v. THECOMMISSIONER OF INCOME TAX [M. R. SHAH, J.]

inserted a new Section 271C to provide for imposition of penaltyon any person who fails to deduct tax at source as required underthe provisions of Chapter XVIIB of the Act. The penalty is of asum equal to the amount of tax which should have been deductedat source.

On fair reading of said CBDT’s circular, it talks about the levy ofpenalty on failure to deduct tax at source. It also takes note of the factthat if there is any delay in remitting the tax, it will attract payment ofinterest under Section 201(1A) of the Act and because of the gravity ofthe mischief involved, it may involve prosecution proceedings as well,under Section 276B of the Act. If there is any omission to deduct the taxat source, it may lead to loss of Revenue and hence remedial measureshave been provided by incorporating the provision to ensure that taxliability to the said extent would stand shifted to the shoulders of theparty who failed to effect deduction, in the form of penalty. On deductionof tax, if there is delay in remitting the amount to Revenue, it has to besatisfied with interest as payable under Section 201(1A) of the Act,besides the liability to face the prosecution proceedings, if launched inappropriate cases, in terms of Section 276B of the Act.

Even the CBDT has taken note of the fact that no penalty isenvisaged under Section 271C of the Income Tax Act for non-deductionTDS and no penalty is envisaged under Section 271C for belatedremittance/payment/deposit of the TDS.

8.1 Even otherwise, the words “fails to deduct” occurring in Section271C(1)(a) cannot be read into “failure to deposit/pay the tax deducted.”

8.2 Therefore, on true interpretation of Section 271C, there shallnot be any penalty leviable under Section 271C on mere delay in remittanceof the TDS after deducting the same by the concerned assessee. Asobserved hereinabove, the consequences on non-payment/belatedremittance of the TDS would be under Section 201(1A) and Section276B of the Act, 1961.

9. In view of the above in all these cases as the respectiveassessees remitted the TDS though belatedly and it is not case of non-deduction of the TDS at all they are no liable to pay the penalty underSection 271C of the Income Tax Act. Therefore, any question onapplicability of Section 273B of the Act is not required to be consideredany further.

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A10. In view of the above and for the reasons stated above, allthese appeals succeed. Impugned judgment(s) and order(s) passed bythe High Court are hereby quashed and set aside and the question oflaw on interpretation of Section 271C of the Income Tax Act is answeredin favour of the assessee(s) and against the Revenue and it is specificallyobserved and held that on mere belated remitting the TDS after deductingBthe same by the concerned person/assessee, no penalty shall be leviableunder Section 271C of the Income Tax Act. Present appeals areaccordingly allowed. No costs.

Divya Pandey

C(Assisted by : Abhishek Pratap Singh and Roopanshi Virang, LCRAs)

Appeals allowed.

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