TDS default and penalty upheld where directors' later advance tax payment did not cure the payer's statutory obligation.

Penalty under section 271C was upheld where tax was not deducted at source from directors' remuneration. The Tribunal held that the payer's statutory TDS obligation cannot be displaced by declarations from the payees promising to pay advance tax, and later payment of tax by the directors did not cure the default already committed at the time of payment. It further held that an explanation which would effectively render the TDS provisions redundant cannot amount to reasonable cause. On that basis, the assessee remained liable for the statutory default and the penalty was sustained.

---

---

Issues: Whether penalty under section 271C of the Income-tax Act, 1961 was leviable for failure to deduct tax at source from remuneration paid to directors when the directors had filed declarations and subsequently paid advance tax.

Analysis: The Tribunal held that the payer's obligation to deduct tax at source is statutory and cannot be displaced by letters from the payees undertaking to pay advance tax. The statutory scheme of tax collection under the Income-tax Act, 1961 contemplates distinct mechanisms for tax deduction at source and advance tax, and the fact that the payees later paid tax does not erase the default committed by the payer at the time of payment. The Tribunal further held that an explanation which, if accepted generally, would make the TDS provisions redundant cannot constitute reasonable cause for the default.

Conclusion: Penalty under section 271C was rightly levied and the assessee's contention was rejected.

Final Conclusion: The appeals failed, as the assessee remained liable for the statutory default in not deducting tax at source and no reasonable cause was established.

Ratio Decidendi: A payer cannot avoid liability under the TDS provisions by relying on a payee's promise or subsequent payment of tax, because the default is complete when tax is not deducted at source without reasonable cause.

---