Penalty under section 271C does not apply to delayed deposit of tax already deducted at source.

Section 271C penalises failure to deduct tax at source under Chapter XVII-B and does not extend to a mere delay in remitting tax already deducted. On the facts, the assessee had deducted tax under section 194A but deposited it late, so the default was one of non-payment after deduction rather than non-deduction. Following the Full Bench view that non-remittance is outside section 271C(1)(a), the penalty was held not leviable.

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Issues: Whether penalty under section 271C of the Income-tax Act, 1961 is leviable where tax was deducted at source but not deposited within the prescribed time.

Analysis: Section 271C applies to failure to deduct the whole or any part of tax as required under Chapter XVII-B. On the facts found by the authorities, the assessee had deducted tax under section 194A but had failed to remit it to the Government account within time. The Tribunal noted that the earlier Kerala High Court decisions relied upon by the lower authorities had been overruled by the Full Bench, which held that non-remittance of tax deducted at source does not fall within section 271C(1)(a) as a default of non-deduction. Since the assessee's default was only in payment after deduction, the penalty provision was not attracted.

Conclusion: Penalty under section 271C was not leviable on the assessee for delayed deposit of tax deducted at source, and the issue was decided in favour of the assessee.

Ratio Decidendi: Section 271C penalises failure to deduct tax at source and does not extend to mere failure to deposit tax after it has been validly deducted.

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