Issue: Can penalty under section 271C be levied for the non-remittance of the tax deducted at source under Chapter XVII-B to the credit of the Central Government?
Case in consideration: CIT (TDS) v. Eurotech Maritime Academy Pvt. Ltd.  415 ITR 463 (Ker)
Facts of the case: The assessee, a trust registered under section 12AA, ran an educational institution. It paid rent for the building occupied by it. The Assessing Officer found that the tax deducted at source by the assessee was deposited belatedly and imposed a penalty under section 271C equal to the amount of tax payable. The explanation offered by the assessee for the delay is that the clerk failed to discharge her duties properly. It was also noticed that the assessee had been making the payments piecemeal throughout the year and not deducting the tax on its payment in the respective months. The assessee contended that it is a trust registered under section 12AA, and therefore, not obliged to carry out an audit as provided under section 44AB. Only those persons covered under section 44AB would have to deduct tax at source under section 194-I. The first appellate authority, however, rejected the trust’s contentions and confirmed the penalty order passed by the Assessing Officer. The Tribunal deleted the penalty on the ground that the assessee had reasonable cause within the meaning of section 273B and reversed the order.
Relevant provision of the Income-tax Act, 1961: Section 194-I requires any person, not being an individual or a Hindu undivided family, to deduct tax at source from any amount paid or credited as rent to a resident. The second proviso to 194-I provides that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax thereunder. Section 271C imposes penalty where the assessee is liable to deduct tax at source and fails to do so.
High Court’s Observations: The second proviso to section 194-I cannot be applicable to the assessee, because a trust cannot be included within the definition of “an individual or a Hindu undivided family” and therefore, the monetary limits specified in clause (a) or (b) of section 44AB is not relevant in this case. There is no exemption as such for other persons not covered under section 44AB. Hence, the trust is liable to deduct tax at source, irrespective of whether or not it was covered under section 44AB.
Regarding the delay in deposit, the Court took note of the decision of the Kerala High Court in US Technologies International (P.) Ltd. v. CIT  195 Taxman 323 case, which held that penalty under section 271C would be attracted for failure to deduct or failure to remit recovered tax. Further, it also noted another decision of the same High Court in case of Classic Concepts Home India Pvt. Ltd. v. CIT  383 ITR 626 (Ker) which held that so far as failure on the part of the assessee to remit the tax recovered at source is concerned, there cannot be any justifying circumstance for delay in remittance because the assessee cannot divert tax recovered for the Government towards working capital or any other purpose. Thus, the defence available under section 273B does not cover failure in payment of recovered tax.
High Court’s Decision: Accordingly, the High Court held that, assessee is liable to pay penalty under section 271C for both non-deduction of tax at source and non-remittance of tax deducted at source.