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of <h1>Penalties not applicable if tax not deducted at source - Tribunal ruling clarifies</h1> <h3>Commissioner of Income-Tax Versus Sri Ram Memorial Education Promotion Society.</h3> Commissioner of Income-Tax Versus Sri Ram Memorial Education Promotion Society. - [2006] 287 ITR 155, 150 TAXMANN 58 Issues:1. Interpretation of sections 203 and 206 of the Income-tax Act, 1961 regarding the deduction of tax at source and imposition of penalties.2. Whether penalties under sections 272A(2)(c) and 272A(2)(g) can be imposed if tax has not been deducted at source.Detailed Analysis:The case involved an appeal under section 260A of the Income-tax Act, 1961, where the Department raised substantial questions of law regarding the interpretation of sections 203 and 206. The appellant argued that non-deduction of tax at source should not absolve the assessee from penalties under sections 272A(2)(g) and 272A(2)(c) for violating sections 203 and 206. The dispute arose from the failure of the assessee to deduct tax at source for the salary paid to the school principal, leading to penalties imposed under section 272A(2)(c) and section 272A(2)(g) for late filings.The Assessing Officer imposed penalties for non-compliance with sections 203 and 206, but the Commissioner of Income-tax (Appeals) later canceled these penalties. The issue was whether penalties could be imposed if tax had not been deducted at source. The Tribunal upheld the cancellation of penalties, stating that sections 203 and 206 apply only when tax is deducted at source. The Tribunal's decision was based on the requirement that the person deducting tax must issue certificates or file returns only if tax has been deducted at source.Section 203 mandates the issuance of a tax deduction certificate within a prescribed time when tax is deducted at source, while section 206 requires the filing of returns by the person responsible for deducting tax. Failure to comply attracts penalties. The Tribunal held that these provisions are applicable only when tax is deducted at source, and penalties cannot be imposed if tax has not been deducted. Therefore, penalties under sections 272A(2)(c) and 272A(2)(g) were not justified in this case.The Tribunal's interpretation was upheld, stating that penalties under section 271C for failure to deduct tax at source preclude the imposition of additional penalties under sections 272A(2)(c) and 272A(2)(g) for non-compliance with sections 203 and 206. The decision emphasized that penalties for violating these sections arise only when tax is deducted at source. Consequently, the appeal was dismissed as the Tribunal's decision did not raise any substantial question of law for further appeal under section 260A of the Act.
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