Supreme Court orders, “no penalty leviable under Section 271C on mere delay in remittance of the TDS”

While hearing the M/S US Technologies International Pvt. Ltd. vs The Commissioner of Income Tax case, the Supreme Court stated that “On true interpretation of Section 271C, there shall not be any penalty leviable under Section 271C on mere delay in remittance of the TDS (Tax deducted at source) after deducting the same by the concerned assessee.” The bench comprising Justices CT Ravikumar and MR Shah observed that the words, occurring in Section 271C(1)(a), ‘fails to deduct’ cannot be read as ‘failure to deposit/ pay the tax deducted’ as well as the same does not relate to remittance of the TDS.

The assessee (M/s US Technologies International Pvt Ltd), engaged in a software development business that employed about 700 employees, deducted tax at source in respect of salaries, contract payments, etc. A part of TDS was remitted after a period of delay. The period of delay ranged from 05 days to 10 months. 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. Also, the Additional Commissioner of Income Tax issued a show cause notice proposing to levy a penalty under Section 271C of the amount equal to TDS. Additional Commissioner of Income Tax vide order levied a penalty. 

The Supreme Court quashed and set aside the impugned judgment(s) and order(s) passed by the High Court. The question of law on the interpretation of Section 271C of the Income Tax Act was answered in favor of the assessee(s) and against the Revenue. The bench specifically observed that “on mere belated remitting of the TDS after deducting the same by the concerned person/assessee, no penalty shall be leviable under Section 271C of the Income Tax Act.” 

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