Penalty under Section 271C whether leviable for delayed remittance of TDS

Facts :

Assessee a software company had deducted TDS but remitted it belatedly. Interest under Section 201(1A) was levied on the same besides levy of penalty for delayed remittance under Section 271C(1)(a). On appeal High court upheld the order of lower authorities. On further appeal to Supreme Court by assessee -

Held in favour of the assessee that penalty is not leviable for delayed remittance of TDS under Section 271C(1)(a).

There is a distinction between 271C(1)(a) and 271C(1)(b) which is seen from the language of the Section

Section 271C(1)(a) will cover cases where assessee "fails to deduct whole or any part of the tax/TDS".

Section 271C(1)(b) will cover cases where assessee "fails to pay the whole or part of the tax".

The Apex court held that -

The two Sections are separated by the word "or" thus making it either or applicable in reading. So to invoke Section 271C(1)(a) or (b) there has to be a failure to deduct or a failure to pay after doing the deduction the deducted tax and not in the case of a scenario where deduction of TDS was made but was remitted belatedly for which compensatory interest under Section 201(1A) is leviable by default. Penalty provisions have to be read the way the Sections are drafted without any additions/deletions.

Ed. Note : In this case the penalty was levied under Section 271C(1)(a). We can expect an amendment in Section 271C due to this verdict in the next finance bill as this verdict will make penalty provisions of Section 271C a leaking cauldron.

Case : US Technologies International (P) Ltd. v. CIT 2023 TaxPub(DT) 2300 (SC)