M/s US Technologies International Pvt. Ltd. Versus The Commissioner ...Respondent(s) of Income Tax

M/s US Technologies  International Pvt. Ltd. Versus The Commissioner      ...Respondent(s) of Income Tax 

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

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

the  High Court  of Kerala  at  Ernakulam  in

Page 1 of 31

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

Page 2 of 31

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

Page 3 of 31

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. 

Page 4 of 31

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.

Page 6 of 31

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 nondeduction of TDS at all. It is submitted that

therefore, at the most, the assessee shall be

Page 7 of 31

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

Page 8 of 31

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

Page 9 of 31

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

Page 10 of 31

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

Page 11 of 31

submitted that therefore, Section 276B talks

about  “fails   to   pay,”  the words which are

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

Page 12 of 31

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

Page 13 of 31

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

Page 14 of 31

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

Page 15 of 31

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. 

Page 16 of 31

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”?

Page 17 of 31

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 subsection (3) of Section 200:]

Section 271C of the Act

271­C. Penalty for failure to deduct tax

at source. (1) If any person fails to—

Page 18 of 31

(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 subsection   (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 subsection (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

Page 19 of 31

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

Page 20 of 31

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

Page 21 of 31

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

Page 22 of 31

is   discernible   from   the   provision   itself,   in

unambiguous   terms.   When   the   nondeduction 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   nonpayment/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 sourceunder 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   nondeduction 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   nonpayment/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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