Holding

A penalty under Section 271C is not leviable for mere belated remittance of TDS; the provision applies only to failure to deduct tax at source.

Summary

The appellant, M/s US Technologies International Pvt. Ltd., had deducted tax at source (TDS) but remitted it to the government after a delay of up to ten months. The Revenue levied a penalty equal to the amount of TDS under Section 271C of the Income Tax Act, 1961, which the High Court upheld. The appellant contended that Section 271C applies only to failure to deduct tax, not to delayed payment, and that interest under Section 201(1A) and prosecution under Section 276B are the appropriate consequences. The Supreme Court examined the language of Section 271C(1)(a), held that the phrase “fails to deduct” does not cover belated remittance, and emphasized that penal statutes must be read strictly. Consequently, the Court ruled that no penalty under Section 271C is payable for delayed remittance of TDS, and the High Court’s order was set aside.

Issues considered

Whether belated remittance of TDS after it has been deducted attracts a penalty under Section 271C of the Income Tax Act, 1961.
Whether the expression ‘fails to deduct’ in Section 271C(1)(a) includes a situation where the tax has been deducted but its payment to the government is delayed.

Legislation cited

Income Tax Act, 1961s. 115O(2), s. 194B(second proviso), s. 201(1A), s. 271C, s. 273B, s. 276B

Subjects

TDSbelated remittancepenaltySection 271CIncome Tax Actinterpretation of statutespenal provisionsinterest under Section 201(1A)prosecution under Section 276B

Judgment

382 [2023]REPORTS
SUPREME COURT 4 S.C.R. 382 [2023] 4 S.C.R.

A M/S US TECHNOLOGIES INTERNATIONAL PVT. LTD.
v.
THE COMMISSIONER OF INCOME TAX
(Civil Appeal No. 7934 of 2011)
B APRIL 10, 2023
[M. R. SHAH AND C. T. RAVIKUMAR, JJ.]
Income Tax Act, 1961 – s.271C – Interpretation of – Belated
remittance of the TDS after deduction, such assessee if liable to
pay penalty u/s.271C – Held: No –s.271C(1)(a) shall be applicable
C
in 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 under
the provisions of Chapter XVIIB – Words used in s.271C(1)(a) are
‘fails to deduct’ – It does not speak about belated remittance of the
TDS – Thus, there shall not be any penalty leviable u/s.271C on
D mere delay in remittance of the TDS after the same is deducted by
the concerned assessee.
Income Tax Act, 1961 – ss.201(1A) and 276B – Held:
Consequences on non-payment/belated remittance of the TDS would
be u/ss.201(1A) and 276B.
E Interpretation of Statutes – Penal provisions – Construction
of – Held: Penal provisions are required to be construed strictly
and literally – They are to be read as they are, nothing is to be
added or taken out of them.
Circulars/Notices – CBDT’s Circular No.551 dated
F 23.01.1998 – Reliance was placed by Revenue on the said Circular
and it was contended 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 s.271C
was inserted – Held: The Circular favours the assessee – Even the
G CBDT has taken note of the fact that no penalty is envisaged
u/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), 1961
Act – Meaning and scope of – Discussed – Income Tax Act, 1961 –
H s.271C(1)(a).
382
M/S US TECHNOLOGIES INTERNATIONAL PVT. LTD. v. THE 383
COMMISSIONER OF INCOME TAX

Allowing the appeals, the Court A
HELD: 1.1 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. 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 B
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 C
the concerned person/assessee to “deduct” the whole or any part
of the tax as required by 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. The penal provisions are D
required to be construed strictly and literally. The penal provision
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 E
Act is quite categoric. Its scope and extent of application is
discernible from the provision itself, in unambiguous terms. When
the non-deduction 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, F
involving sub-section (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 non-payment. It is not for the
Court to read something more into it, contrary to the intent and
legislative wisdom. [Paras 7.5, 7.6][393-A-G] G

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

H
384 SUPREME COURT REPORTS [2023] 4 S.C.R.

A like in Section 201(1A) and Section 276B of the Act. 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
B
on belated remittance of the TDS after deducting the same.
Therefore, consequences of non-payment/belated remittance/
payment of the TDS are specifically provided under Section
201(1A). Similarly, Section 276B talks about the prosecution on
failure to pay the TDS after deducting the same. Section 271C
C 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”. Section 276B provides for prosecution in case
of failure to “pay” tax to the credit of Central Government. The
D
word “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 such
favours the assessee. Circular No. 551 deals with the
circumstances under which Section 271C was introduced in the
E Statute, 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 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
F 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.
G On 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
H note of the fact that no penalty is envisaged under Section 271C
M/S US TECHNOLOGIES INTERNATIONAL PVT. LTD. v. THE 385
COMMISSIONER OF INCOME TAX

of the Income Tax Act for non-deduction TDS and no penalty is A
envisaged 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 Section
271C(1)(a) cannot be read into “failure to deposit/pay the tax
deducted.” Therefore, on true interpretation of Section 271C, B
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. 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]
C
1.5 In all these cases as the respective assessees remitted
the TDS though belatedly and it is not case of non-deduction of
the TDS at all they are not liable to pay the penalty under Section
271C of the Income Tax Act. Impugned judgment(s) and order(s)
passed by the High Court are quashed and set aside and the
question of law on interpretation of Section 271C of the Income D
Tax Act is answered in favour of the assessee(s) and against the
Revenue. [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 E
(2016) 15 SCC 81 – referred to.
Case Law Reference
(2016) 15 SCC 81 referred to Para 5.8
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7934 F
of 2011.
From the Judgment and Order dated 16.06.2009 of the High Court
of Kerala at Ernakulam in ITA No. 3 of 2009.
With
G
Civil Appeal Nos. 1258-1260 of 2019.

H
386 SUPREME COURT REPORTS [2023] 4 S.C.R.

A Arijit Prasad, C N Sreekumar, Sr. Advs., Sandeep Bisht, Yati
Ranjan, Mrs. Apara Pandey, Divyam Garg, Ranjan Kumar Pandey, Anil
D Nair, Ms. Anupama Kumar, Ashwin, Prakash Ranjan Nayak, Advs.
for the Appellant.
Balbir Singh, A.S.G., Ms. Monica Benjamin, H. R. Rao, Mrs.
B Praveena 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.

C 1. Feeling aggrieved and dissatisfied with the impugned
judgment(s) and order(s) passed by the High Court of Kerala at
Ernakulam in 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
D 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,
E 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 assessment year (AY) 2003-04. 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
F
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
G 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 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
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M/S US TECHNOLOGIES INTERNATIONAL PVT. LTD. v. THE 387
COMMISSIONER OF INCOME TAX [M. R. SHAH, J.]

Commissioner of Income Tax (ACIT) vide order under Section 271C A
levied a penalty of Rs. 1,10,41,898/- equivalent to the amount of TDS
deducted for AY 2003-04. 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
B
that failure to deduct/remit the TDS would attract penalty under Section
271C 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 late
remittance of TDS is the subject matter of preferred appeal(s).
C
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 orders
under Section 271C levied penalty equivalent to the amount of TDS
deducted for AYs 2010-11, 2011-12 and 2012-13 on the ground that D
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, 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 E
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 F
appeals being Civil Appeals Nos. 1258-1260/2019.
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. Monica Benjamin, learned
counsel has appeared on behalf of the Revenue.
G
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. H
388 SUPREME COURT REPORTS [2023] 4 S.C.R.

A 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 non-deduction of TDS at
all. It is submitted that therefore, at the most, the assessee shall be 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
B
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 non-deduction of whole or any part of the
C tax [Section 271C(1)(a)]. It is submitted that Section 271C(1)(a) shall
be applicable in case of non-deduction 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 consideration the words employed in
D 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.
E
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.

F 5.4 It is submitted that so far as the belated remittance of the
TDS is concerned, the 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
G 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
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M/S US TECHNOLOGIES INTERNATIONAL PVT. LTD. v. THE 389
COMMISSIONER OF INCOME TAX [M. R. SHAH, J.]

accepted, in that case it would tantamount to adding something more A
than which is not provided in the Section. It is submitted that words used
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, B
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 C
years and with fine.” It is 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 non-payment of the TDS, the same
is provided like Section 276B of the Act. It is submitted that therefore, D
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 E
subsequently overruled by the Full Bench of the Kerala High Court in
the 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 behalf F
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. G
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 reasonable
cause for the assessee for the failure to remit the TDS belatedly. It is
submitted that once the ITAT found the case falling under Section 273B,
H
390 SUPREME COURT REPORTS [2023] 4 S.C.R.

A 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.
B 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
C 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
D 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 Government and/or belatedly
E 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
F 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
G inserted.
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.
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M/S US TECHNOLOGIES INTERNATIONAL PVT. LTD. v. THE 391
COMMISSIONER OF INCOME TAX [M. R. SHAH, J.]

7.1 The short question which is posed for the consideration of this A
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” B
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”?
7.3 In order to appreciate the rival contentions and to answer the
aforesaid questions, it is necessary to have analysis of Statutory provisions. C
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 such
person, principal officer or company as is referred to in that sub- D
section 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
E
to the date on which such tax is deducted; and
(ii) at one and one-half 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
F
accordance 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 person
fails to—
(a) deduct the whole or any part of the tax as required by or G
under 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
(ii) the second proviso to Section 194-B; H
392 SUPREME COURT REPORTS [2023] 4 S.C.R.

A 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 sub-section (1) shall be imposed
by the Joint Commissioner.
B 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[Section
271-AA], Section 271-B 4204[Section 271-BA], 4205[Section 271-
C BB, 4206[Section 271-C, Section 271-CA], Section 271-D, Section
271-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[Section
271-I,] 4214[Section 271-J,] clause (c) or clause (d) of sub-section
D (1) or sub-section (2) of Section 272-A, sub-section (1) of Section
272-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 Section
272-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 imposable
on the person or the assessee, as the case may be, for any failure
E referred to in the said provisions if he proves that there was
reasonable cause for the said failure.
Section 276B of the Act
276-B. Failure to pay tax to the credit of Central Government
F under Chapter XII-D or XVII-B.—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 XVII-B; or
(b) the tax payable by him, as required by or under,—
G (i) sub-section (2) of Section 115-O; or
(ii) the second proviso to Section 194-B, 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.”

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M/S US TECHNOLOGIES INTERNATIONAL PVT. LTD. v. THE 393
COMMISSIONER OF INCOME TAX [M. R. SHAH, J.]

7.5 At the outset, it is required to be noted that all these cases are A
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 remittance
of the TDS though deducted by the assessee and not a case of non-
deduction of TDS at all.
B
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 C
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 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 D
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 E
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 is discernible from the provision itself, in unambiguous
terms. When the non-deduction of the whole or any part of the tax, as F
required by or under the various instances/provisions of Chapter XVIIB
would invite penalty under Clause 271C(1)(a); only a limited text, involving
sub-section (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 non-
payment. It is not for the Court to read something more into it, contrary G
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 non-payment and/or

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394 SUPREME COURT REPORTS [2023] 4 S.C.R.

A belated remittance/payment of the TDS, the 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
B 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 non-payment/belated remittance/payment of the TDS
are specifically provided under Section 201(1A).
C 7.9 Similarly, Section 276B talks about the prosecution on failure
to pay the TDS after 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)
D 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
E 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 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:
F “16.5: Insertion of a new section 271C to provide for levy of penalty
for failure to deduct tax at source-under 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
G 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
H attract prosecution. The Amending Act, 1987 has accordingly
M/S US TECHNOLOGIES INTERNATIONAL PVT. LTD. v. THE 395
COMMISSIONER OF INCOME TAX [M. R. SHAH, J.]

inserted a new Section 271C to provide for imposition of penalty A
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 amount of tax which should have been deducted
at source.
On fair reading of said CBDT’s circular, it talks about the levy of B
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 C
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 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, D
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 non-deduction
TDS and no penalty is envisaged under Section 271C for belated E
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.”
8.2 Therefore, on true interpretation of Section 271C, there shall
not be any penalty leviable under Section 271C on mere delay in remittance F
of the TDS after deducting the same by the concerned assessee. As
observed hereinabove, the consequences on non-payment/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 G
assessees 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 under
Section 271C of the Income Tax Act. Therefore, any question on
applicability of Section 273B of the Act is not required to be considered
any further.
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396 SUPREME COURT REPORTS [2023] 4 S.C.R.

A 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
B
the same by the concerned person/assessee, no penalty shall be leviable
under Section 271C of the Income Tax Act. Present appeals are
accordingly allowed. No costs.

Divya Pandey Appeals allowed.
C (Assisted by : Abhishek Pratap Singh and Roopanshi Virang, LCRAs)

D

E

F

G

H