Introduction:
In a landmark judgment, the Supreme Court, in the case of US Technologies International (P.) Ltd. v. CIT [2023] 149 taxmann.com 144 (SC), clarified that Section 271C penalties cannot be imposed for belated or non-payment of Tax Deducted at Source (TDS). The ruling sheds light on the strict interpretation of penal provisions and provides significant relief to taxpayers.
Background:
The case involved a private limited company engaged in software development that deducted TDS for salaries, contract payments, etc., during the relevant assessment year. The company, however, deposited the TDS amount in instalments, with delays ranging from 5 days to 10 months.
The Assessing Officer (AO) noticed the delay during a survey and charged interest under Section 201(1A). Additionally, the Additional Commissioner (ACIT) imposed a penalty equivalent to the TDS amount under Section 271C. Despite the High Court confirming the penalty order, the assessee appealed to the Supreme Court.
Supreme Court’s Verdict:
The Supreme Court, in its judgment, emphasized the language of Section 271C(1)(a), which pertains to a failure on the part of the assessee to “deduct” the whole or any part of the tax as required by the Act. The critical aspect highlighted by the court was the use of the words “fails to deduct” in Section 271C(1)(a), which do not encompass the belated remittance of TDS.
The court clarified that penalties under Section 271C(1)(a) apply strictly to instances where there is a failure to deduct TDS and do not extend to the timing of remittance. It cited the importance of interpreting penal provisions literally and strictly, without adding or omitting any elements.
The Rationale:
The judgment highlighted that penalties for non-payment or belated remittance/payment of TDS are explicitly addressed in other sections of the Income Tax Act, such as Section 201(1A) and Section 276B. The court emphasized the need to adhere to the specific consequences outlined by the legislature for such actions.
Conclusion:
The Supreme Court’s ruling brings clarity to the interpretation of Section 271C(1)(a) and reinforces the principle that penalties must be applied strictly and literally. Taxpayers can take solace in the fact that belated remittance of TDS, after deduction, does not attract penalties under this section. This judgment serves as a significant precedent in protecting taxpayers from unwarranted penalties for procedural delays in TDS remittances.
