At source amount of deduction of tax has a purpose to release it to the account of deductee immediately upon such deduction to help compute him his advance tax liability accurately during the previous year. If this seamless credit doesn’t happens then the scheme of deduction of tax at source fails.
Upon their research on the provisions of the Act and their reading of Board circulars the Supreme Court in (2023] 453 ITR 644 (SC) arrived at following conclusions :
- That there shall not be any penalty leviable under section 271C on mere delay in remittance of the tax deducted at source after deducting it. There is only interest and prosecution implications as the Court suggests barring section such as 115-O; 194B, 194R, 194S and 194BA.
- That the penalty is only for failure to deduct tax
In this case massive amount of TDS for payment under the heads salaries, payment to contractors, professional fees for technical services, rent, etc., have been retained by the assessee without making remittance to the Department which got paid only during search and survey action.
If these two pronouncements are the gospel truths then the vital question is why to make taxpayers suffer on account of the fault of the deductors to deposit salary taxes otherwise withheld by them u/s 192 or for their non appearance in form 26AS or for non issue of Form 16/16A.
By this judgement it is utmost clear that the department is on a wrong foot in denying credit for taxes deducted at source only because they have not been deposited. Why penalise deductee when the deductor is not liable to any penalty.
In the light of this decision it is required to amend the income tax rules to enable deductors to submit a monthly return of taxes deducted at source irrespective of whether these are deposited or not so that credits to the tax deducted are not held back.
The forms of TDS returns and 26AS , 16, 16A need to revised and updated accordingly for grant of credit with reference to date of deduction.