No Penalty On Late TDS Deposit, Says Supreme Court

In a significant judgement, the Supreme Court on Monday held that no penalty could be imposed on mere delay in remitting the tax deducted at source.

The income tax law says that if a taxpayer "fails to deduct" the whole or any part of the tax, then a penalty is to be paid equal to the amount of tax that was not deducted.

Interpreting the provision, the apex court said the penalty can be imposed only when there is a failure to remit the TDS and not when there is a delay in remitting it. The court said that the provision was clear and the words do not talk of belated remittance of the TDS. "As per the settled position of law, penal provisions are required to be construed strictly and literally," it said.

In the present case, US Technologies International Pvt., a software development company, committed a delay in remitting a part of the TDS it had collected. Consequently, the income tax authorities imposed a penalty of Rs 1.10 crore under Section 271C of the Income Tax Act. The amount levied as penalty was equal to the TDS collected by the company in the relevant assessment year.

Subsequently, this order of the department was confirmed by the Kerala High Court in 2009, prompting US Technologies to file an appeal before the apex court.