The Supreme Court examined whether an assessee who has deducted tax at source but remitted the same belatedly is liable to penalty under Section 271C of the Income Tax Act, 1961. The appeals arose from judgments of the High Court of Kerala confirming the levy of penalty under Section 271C on account of delay in remittance of tax deducted at source.

The Court noted that in all the cases under consideration, the assessees had duly deducted tax at source in respect of salaries, contractual payments, and other specified transactions. However, there was a delay in remitting the deducted tax to the credit of the Central Government. The Revenue levied interest under Section 201(1A) for the period of delay and further imposed penalty under Section 271C equivalent to the amount of tax deducted, which was upheld by the High Court.

After analysing the statutory scheme, the Supreme Court held that Section 271C(1)(a) applies only in cases where a person fails to deduct the whole or any part of the tax as required under Chapter XVII-B of the Act. The provision does not cover cases of belated remittance of tax after deduction. The Court reiterated the settled principle that penal provisions must be construed strictly and literally, and no words can be added to expand their scope beyond what is expressly stated in the statute.

The Court further observed that wherever the legislature intended to provide consequences for non-payment or delayed payment of tax deducted at source, it has done so expressly. Section 201(1A) provides for levy of interest, which is compensatory in nature, for delayed remittance of TDS. Additionally, Section 276B provides for prosecution in cases of failure to pay tax deducted at source. The absence of any reference to belated remittance in Section 271C clearly indicates that penalty under that provision is not attracted in such cases.

The Court also relied upon CBDT Circular No. 551 dated 23 January 1998, which clarifies that Section 271C was introduced to penalise failure to deduct tax at source and not delayed remittance after deduction. The Circular further recognises that delay in remitting deducted tax attracts interest under Section 201(1A) and, in appropriate cases, prosecution under Section 276B.

Accordingly, the Supreme Court held that in cases of mere delay in remitting tax deducted at source, penalty under Section 271C is not leviable. The impugned judgments of the High Court were set aside, the appeals were allowed, and the question of law was answered in favour of the assessees and against the Revenue.

Source Link - https://api.sci.gov.in/supremecourt/2010/13647/13647_2010_4_1502_43314_Judgement_10-Apr-2023.pdf

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