Income TaxPenalty Whether Penalty Under Section 271C Leviable for Belated Deposit of TDS?

SUBSCRIBE FOR FULL CONTENT


The Tax Publishers Income Tax--Penalty Whether Penalty Under Section 271C Leviable for Belated Deposit of TDS? Sameer Bhatia The learned author discusses the rationale of section 271C of the Income Tax Act, 1961 which has passed through numerous phases right from the year of its incorporation on the legislative page i.e. 1989 to a further substitution in the year 1997 and with a further amendment inserted by the Finance Act, 2023 which introduced and envisaged the concept of ensuring remittance of taxes deducted by the assessees under the Income Tax Act, 1961. Amendment introduced by the Finance Act, 2023 is of significant import as it lays much stress on the concept of 'ensuring payment' rather than bank upon the phraseology of just making good the payment without fetters of time-lines attached to such payment. The recent pronouncement of the Hon'ble Supreme Court in US Technologies International Private Limited (2023) 453 ITR 644 (SC) : 2023 TaxPub(DT) 2300 (SC) throws light on whether prior to amendment by the Finance Act, 2023, an assessee can escape rigours of the provision by citing belated remittance of tax deducted at source. 1. Prologue Chapter XXI of the Income Tax Act, 1961 deals with the aspect of penalty imposable on various counts for having committed numerous violations under the law in force. The law on penalty devised as a sequel to any omission or commission on the part of assessee committed under the law has to pass through a decisive test of first meeting with the ingredients of violation itself. These violations vary on account of failure to furnish returns, comply with notices, keep, maintain or retain books of accounts, documents, under-reporting or misreporting of income, failure to deduct TDS, failure to get accounts audited, penalty for failure to deduct tax at source etc. Section 271C of the Income Tax Act, 1961 deals with the penalty for failing to deduct tax at source which a person under an obligation imposed has to deduct. 2. Ingredients of section 271C of the Income Tax Act, 1961 and the related controversy Section 271C was inserted in the Income Tax Act by the Direct Tax Laws (Amendment) Act, 1987 with effect from 01st April, 1989 made expressly applicable from assessment year 1989-90. The provisions when understood in its literal understanding imposes penalty for apparent failure on the part of assessee to deduct tax at source. The provision as it stood on 01st April, 1989 was subsequently substituted by virtue of Finance Act, 1997 made operative from 01st June, 1997 wherein it was totally re-casted and refurbished in order to make it more stringent. Further to the substitution with effect from 01st June, 1997, the scope of provision was extended by way of suitable amendments introduced by the Finance Act, 2023 which rested its focus on the expression called 'ensure'. The amended provision as it stands on the statute concentrates more vigorously on the expression 'ensure' so as to connote that a person will just not be penalized on the solitary score that he failed to deduct applicable tax at source which would also incorporate any part of deduction contemplated by the provisions of Chapter XVII-B with a consistent or persisting failure to have ensured due payment of tax deducted to the coffers of government will also attract such penalty which is equivalent to the amount of tax such person failed to deduct to pay or ensured to have paid as provided therein -- SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Income Tax--Penalty

Whether Penalty Under Section 271C Leviable for Belated Deposit of TDS?

Sameer Bhatia

The learned author discusses the rationale of section 271C of the Income Tax Act, 1961 which has passed through numerous phases right from the year of its incorporation on the legislative page i.e. 1989 to a further substitution in the year 1997 and with a further amendment inserted by the Finance Act, 2023 which introduced and envisaged the concept of ensuring remittance of taxes deducted by the assessees under the Income Tax Act, 1961. Amendment introduced by the Finance Act, 2023 is of significant import as it lays much stress on the concept of 'ensuring payment' rather than bank upon the phraseology of just making good the payment without fetters of time-lines attached to such payment. The recent pronouncement of the Hon'ble Supreme Court in US Technologies International Private Limited (2023) 453 ITR 644 (SC) : 2023 TaxPub(DT) 2300 (SC) throws light on whether prior to amendment by the Finance Act, 2023, an assessee can escape rigours of the provision by citing belated remittance of tax deducted at source.

1. Prologue

Chapter XXI of the Income Tax Act, 1961 deals with the aspect of penalty imposable on various counts for having committed numerous violations under the law in force. The law on penalty devised as a sequel to any omission or commission on the part of assessee committed under the law has to pass through a decisive test of first meeting with the ingredients of violation itself. These violations vary on account of failure to furnish returns, comply with notices, keep, maintain or retain books of accounts, documents, under-reporting or misreporting of income, failure to deduct TDS, failure to get accounts audited, penalty for failure to deduct tax at source etc. Section 271C of the Income Tax Act, 1961 deals with the penalty for failing to deduct tax at source which a person under an obligation imposed has to deduct.

2. Ingredients of section 271C of the Income Tax Act, 1961 and the related controversy

Section 271C was inserted in the Income Tax Act by the Direct Tax Laws (Amendment) Act, 1987 with effect from 01st April, 1989 made expressly applicable from assessment year 1989-90. The provisions when understood in its literal understanding imposes penalty for apparent failure on the part of assessee to deduct tax at source. The provision as it stood on 01st April, 1989 was subsequently substituted by virtue of Finance Act, 1997 made operative from 01st June, 1997 wherein it was totally re-casted and refurbished in order to make it more stringent. Further to the substitution with effect from 01st June, 1997, the scope of provision was extended by way of suitable amendments introduced by the Finance Act, 2023 which rested its focus on the expression called 'ensure'. The amended provision as it stands on the statute concentrates more vigorously on the expression 'ensure' so as to connote that a person will just not be penalized on the solitary score that he failed to deduct applicable tax at source which would also incorporate any part of deduction contemplated by the provisions of Chapter XVII-B with a consistent or persisting failure to have ensured due payment of tax deducted to the coffers of government will also attract such penalty which is equivalent to the amount of tax such person failed to deduct to pay or ensured to have paid as provided therein --