Taxpublishers.in - Monday Corner Answer to the Quiz for the week (06 May 2024)

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Quiz for the week (06 May 2024): Texas (P) Ltd, Delhi is a manufacturing company who paid Rs.60 lakhs towards contract payments to 2 concerns namely A & Co (firm); and Chandra (resident individual) of Rs. 40 lakhs and Rs.20 lakhs respectively. It deducted tax at source but did not remit in respect of A & Co. In the case of Chandra, it did not deduct tax at source throughout the financial year 2023-24. Discuss the consequences of its action. Best Answer : As per section 194C where any person responsible for paying any sum to any resident (being a contract payment) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the assessee and contractor, the assessee shall deduct tax at source either at the time of credit of such sum to the account of the contractor or at the time of payment, whichever is earlier. The quantum of deduction is 1% where the payment is made or credit is given to an individual or a HUF and @2% where the payment is made or credit is given to a person other than an individual or a HUF. In this case, Rs.40 lakhs was the contract payment made to A & Co being a firm for which the tax deductible at source shall be @2%. A sum of Rs.40,000 was deducted but not remitted in respect of payment made to A & Co (firm). In respect of contract payment of Rs.20 lakhs to Chandra being resident individual the rate of TDS applicable is 1% and the TDS amount being Rs.20,000. No tax was deducted at source in respect of payment made to Chandra where Rs.20,000 being 1% of Rs.20 lakhs should have been deducted. Section 271C provides for penalty in the case of failure to deduct the whole or any part of the tax liable to be deducted under Chapter XVII-B. The quantum of penalty is equal to the amount of tax not deducted at source. In the case of contract payment to Chandra, the penalty leviable for the non-deduction tax at source is Rs.20,000 under section 271C. In the case of contract payment to A & Co (firm) tax of Rs.40,000 was deducted at source but was not remitted. The assessee cannot be subjected to penalty under section 271C since the said section is applicable only for failure to make deduction and not for failure to make remittance after deduction. One may refer to section 276B which says failure to pay tax to the credit of the Central Government as required by or under the provisions of Chapter XVII-B is liable for prosecution with rigorous imprisonment for a term which shall not be less than 3 months but which may extend to 7 years and with fine. Therefore, for deducting the TDS of Rs.40,000 and failing to remit the same would expose Texas (P) Ltd for prosecution under section 276B. Where the payee has admitted the income paid tax and furnishes certificate in Form No.26A by complying with rule 31ACB, the payer would not be treated as assessee-in -default under section 201 of the Act. The expenditure in such case would become allowable as though it was deducted and remitted on the date of furnishing of ITR by the payee. Per se, it would be liable for disallowance for non-deduction and non-remittance as the case may be as per section 40(a)(ia) for the previous year for which it was not deducted or was deducted but not remitted before the ‘due date’ specified in section 139(1). However, upon furnishing of certificate in Form No.31ACB by the payer, the payee would be free from penalty under section 201 after being not treated as assessee-in-default. The assessee in order to avoid penalty under section 271C has to take to shelter under section 271B if has reasonable cause for the said failure. As regards deduction but non-remittance of TDS which is liable for prosecution, the assessee has to seek relief by means of compounding of offences by seeking application of relevant CBDT Circular.

Quiz for the week (06 May 2024):

Texas (P) Ltd, Delhi is a manufacturing company who paid Rs.60 lakhs towards contract payments to 2 concerns namely A & Co (firm); and Chandra (resident individual) of Rs. 40 lakhs and Rs.20 lakhs respectively. It deducted tax at source but did not remit in respect of A & Co. In the case of Chandra, it did not deduct tax at source throughout the financial year 2023-24. Discuss the consequences of its action.

Best Answer :

As per section 194C where any person responsible for paying any sum to any resident (being a contract payment) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the assessee and contractor, the assessee shall deduct tax at source either at the time of credit of such sum to the account of the contractor or at the time of payment, whichever is earlier.

The quantum of deduction is 1% where the payment is made or credit is given to an individual or a HUF and @2% where the payment is made or credit is given to a person other than an individual or a HUF.

In this case, Rs.40 lakhs was the contract payment made to A & Co being a firm for which the tax deductible at source shall be @2%. A sum of Rs.40,000 was deducted but not remitted in respect of payment made to A & Co (firm).

In respect of contract payment of Rs.20 lakhs to Chandra being resident individual the rate of TDS applicable is 1% and the TDS amount being Rs.20,000. No tax was deducted at source in respect of payment made to Chandra where Rs.20,000 being 1% of Rs.20 lakhs should have been deducted.

Section 271C provides for penalty in the case of failure to deduct the whole or any part of the tax liable to be deducted under Chapter XVII-B. The quantum of penalty is equal to the amount of tax not deducted at source. In the case of contract payment to Chandra, the penalty leviable for the non-deduction tax at source is Rs.20,000 under section 271C.

In the case of contract payment to A & Co (firm) tax of Rs.40,000 was deducted at source but was not remitted. The assessee cannot be subjected to penalty under section 271C since the said section is applicable only for failure to make deduction and not for failure to make remittance after deduction.

One may refer to section 276B which says failure to pay tax to the credit of the Central Government as required by or under the provisions of Chapter XVII-B is liable for prosecution with rigorous imprisonment for a term which shall not be less than 3 months but which may extend to 7 years and with fine.

Therefore, for deducting the TDS of Rs.40,000 and failing to remit the same would expose Texas (P) Ltd for prosecution under section 276B.

Where the payee has admitted the income paid tax and furnishes certificate in Form No.26A by complying with rule 31ACB, the payer would not be treated as assessee-in -default under section 201 of the Act. The expenditure in such case would become allowable as though it was deducted and remitted on the date of furnishing of ITR by the payee. Per se, it would be liable for disallowance for non-deduction and non-remittance as the case may be as per section 40(a)(ia) for the previous year for which it was not deducted or was deducted but not remitted before the ‘due date’ specified in section 139(1). However, upon furnishing of certificate in Form No.31ACB by the payer, the payee would be free from penalty under section 201 after being not treated as assessee-in-default.

The assessee in order to avoid penalty under section 271C has to take to shelter under section 271B if has reasonable cause for the said failure. As regards deduction but non-remittance of TDS which is liable for prosecution, the assessee has to seek relief by means of compounding of offences by seeking application of relevant CBDT Circular.