Section
276B of the Act, standing as on date and introduced with effect from
01.06.1997, deals with 3 types of offences given hereunder:
(a)
Failure of person to pay to the credit of the Central Government tax already
deducted at source,
(b) Failure of person to
pay Dividend Distribution Tax (DDT), payable under section 115-O(2) to the
credit of the Central Government, and
(c) Failure of person to
pay to the credit of the Central Government tax payable by him as required
under Proviso to section 194B.
Ø then such person shall
be punishable with rigorous imprisonment for a period of which shall not be
less than 3 months but which may extend to 7 years and with fine
(a) Failure of person to pay to the credit of the Central
Government tax already deducted at source
1st
type of offence mentioned in section 276B. It deals with a situation where a
tax is already deducted by any person under the provisions of Chapter XVII-B
like sections 192, 194, 194C, 194-I, 194J, 195 etc., but the same has not been
paid by such person to the credit of Central Government. Offence of
non-deduction of tax at source is not covered here. After amendment of section
276B with effect from 01.04.1989, only if a person deducts tax but does not pay
the same there is an offence. If any person fails to deduct tax at source
itself, then the same is liable to monetary penalty under section 271C of the
Act, whereas where a person deducts tax but fails to pay the same to the
Government, then he is liable for prosecution under section 276B of the Act.
Up
to 31.03.1989, non-deduction of tax at source was also an offence under section
276B of the Act. It was only vide the Direct Tax Laws (Amendment) Act, 1987
that the act of non-deduction of tax at source was brought outside the ambit of
prosecution and was made liable for monetary penalty under section 271C.
(b)
Failure of person to pay dividend distribution tax (DDT), payable under section
115-O(2) to the credit of the Central Government
Under
section 115-O, a domestic company is liable to pay DDT on any dividends
declared, distributed or paid at rates mentioned therein. Further, as per
section 115-O(3), liability of payment of tax is on the company and the principal
officer of the company. On failure to comply with the provisions of section
115-O, company and the principal officer of the company, are treated as
assessee-in-default under section 115Q. In addition to that, such persons are
also liable for monetary penalty under section 271C and for prosecution under
section 276B. Thus, when a domestic company declares, distributes or pays
dividend to its shareholders and when the Company fails to pay DDT to the
credit of Central Government within the due date, then principal officer of the
company as well as the Company shall be treated as guilty of offence under
section 276B and can be made punishable thereunder.
(c)
Failure of person to pay to the credit of the Central Government tax payable by
him as required under proviso to section 194B
Proviso to section 194B deals with a case where the winnings are wholly in kind or partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the winnings, the person responsible for paying shall, before releasing the winnings, ensure that tax has been paid in respect of the winnings.
Text of Section 276B
Failure to pay tax to the credit of Central Government
under Chapter XII-D or XVII-B
[1][276B.
If a person fails to pay to the credit of the Central
Government,–
(a) the tax deducted at
source by him as required by or under the provisions of Chapter XVII-B; or
(b) the tax payable by
him, as required by or under -
(i) sub-section (2) of
section 115-O; or
(ii) [2][***]
proviso to section 194B,
he
shall be punishable with rigorous imprisonment for a term which shall not be
less than three months but which may extend to seven years and with fine.]
KEY
NOTE
1. Substituted by the Finance Act, 1997, with
effect from 01.06.1997.
2.
Word “second” omitted by the Finance Act, 2022, with effect from 01.04.2022.
Nature
of offence
If
a person fails to pay to the credit of the Central Government,–
(a)
the tax deducted at source by him as required by or under the provisions of
Chapter XVII-B; or
(b)
the tax payable by him, as required by or under -
(i)
sub-section (2) of section 115-O; or
(ii)
proviso to section 194B,
he
shall be punishable
Cognizable/or
Non-Cognizable
Non-Cognizable
Non-Bailable/Bailable
Bailable
Summons
case/Warrants case
Warrant
case
Triable
by
Special
Court/Magistrate of first class
Punishment
Punishable
with rigorous imprisonment for a term which shall not be less than three months
but which may extend to seven years and with fine
Threshold
for launching prosecution in respect of the offences for failure to pay tax to
the credit of Central Government under Chapter XII-D or XVII-B
As
per Circular No. 24/2019, dated 09.09.2019, the CBDT, in order to reduce the
prosecutions, has enhanced the threshold for launching prosecution in respect
of the offences for failure to pay tax to the credit of Central Government under
Chapter XII-D or XVII-B.
OFFENCES
UNDER SECTION 276B: FAILURE TO PAY TAX TO THE CREDIT OF CENTRAL GOVERNMENT
UNDER CHAPTER XII-D OR XVII-B
Cases
where non-payment of tax deducted at source is Rs. 25,00,000/- or below, and
the delay in deposit is less than 60 days from the due date, shall not be
processed for prosecution in normal circumstances.
In
case of exceptional cases like, habitual defaulters, based on particular facts
and circumstances of each case, prosecution may be initiated only with the
previous administrative approval of the Collegium of two CCIT/DGIT rank officers
as mentioned in Para 3.
Approving
Authority [Section 276B]
Failure
to pay to credit of Central Government (i) tax deducted at source under Chapter
XVII-B, or (ii) tax payable under section 115-O(2) or second proviso to section
194B–
|
(a)
|
Where
non-payment of TDS exceeds Rs. 25,00,000/- |
Sanctioning
Authority |
|
(b)
|
In
other case |
Sanctioning
Authority with the previous administrative approval of the Collegium of two
CCIT/DGIT rank officers |
The CBDT Circular No. 24/2019, dated 09.09.2019 lays down the relaxation and appropriate safeguards for launching prosecution in respect of cases where the amount of tax involved is Rs. 25 lakhs or less.
In
cases where amount involved/tax sought to be evaded is more than Rs. 25 lakhs,
the Circular does not provide any relaxation/safeguard and the prosecution
shall be initiated as per the prevailing guidelines.
Reasonable
cause
No
penalty or prosecution shall be made or launched against the assessee for any
failure referred to in section 276B if he proves that there was a reasonable cause
for the said failure. But if there is no reasonable cause for such failure,
then the concept of compounding comes in the picture. Compounding of offences means
that the assessee can, instead of serving imprisonment term, pay a fee to the
revenue department and waive his prosecution charges.
No
Prosecution if it is a Company assessee
Prosecution
cannot be initiated against the company. It has to be initiated in the name of
Director or Principal Officer responsible for TDS compliances.
Responsibility
of Principal Officer for TDS Default by Company
Section
204 of Income Tax Act defines ‘a person responsible for paying’ in reference of
various provisions including the provisions contained in Chapter XVIIB related
with the deduction of tax at source. Section 204 (i) and (iii) of the Income Tax
Act provides that in case the payments are to be made by a company, then the
expression 'person responsible for paying' shall include the ‘principal officer’.
The
expression ‘principal officer’ has been defined under section 2(35) of the Income
Tax Act and read as under:
Text of Section 2(35)
(35) “principal officer”,
used with reference to a local authority or a company or any other public body
or any association of persons or any body of individuals, means -
(a)
the secretary, treasurer, manager or agent of the authority, company,
association or body, or
(b) any person connected
with the management or administration of the local authority, company,
association or body upon whom the Assessing Officer has served a notice of his
intention of treating him as the principal officer thereof ;
Under
Sub-clause (a), the persons mentioned therein become liable for any violation
as the principal officer. It is to be taken note that the Managing Director or
Director is not included within the ambit of Sub-clause (a) of Section 2(35).
In
case the Income Tax Officer seeks to prosecute any person, other than as
provided in section 2(35)(a), along with the company for an offence punishable
under section 276-B of the Income Tax Act, then he has to issue a notice under
Sub-clause (b) of 2(35) expressing his intention to treat the director as ‘principal
officer’ of the company. However, it would be sufficient compliance if in the
show-cause notice issued to the company it is mentioned that the directors are
to be considered as principal officers of the company.
In
order that a person can be said to be a ‘principal officer’ defined under
section 2(35)(b), the following two ingredients must be satisfied:
(i) He must be a person connected with the
management or administration of the company; and
(ii) The ITO must have served upon him a notice of
his intention of treating him as the principal officer of the company.
The
satisfaction of any one of the two conditions or ingredients will not attract
this clause.
Provisions in Brief
|
Offence
under the Act |
Punishment
under the Act |
Compounding
fee under the Guidelines, dated 14.06.2019 |
Circular
No. 24/2019, dated 09.09.2019 |
|
Section
276B - Failure to deposit TDS to the credit of Central Government |
Rigorous
imprisonment for a term from 3 months to 7
years and with fine |
Suo moto application by
taxpayer – Compounding fee is 2% per month or part of a month of the amount
of tax in default |
No
prosecution in normal circumstances if delay in deposit of tax is less than
60 days from the due date |
Initiating prosecution with the previous sanction of tax authorities
As per section 279,
prosecution for offences under section 276B, section 276BB, and section 277 are
to be instituted with the previous sanction of Principal Commissioner or
Commissioner or Commissioner (Appeals). The Principal Chief Commissioner or
Chief Commissioner or, as the case may be, Principal Director General or
Director General may issue such instructions or directions to the aforesaid
income-tax authorities as he may deem fit for institution of proceedings under
this sub-section.
Details of past conviction for default in depositing of TDS were not disclosed by assessee while filing compounding application for relevant assessment years on ground that order of conviction was under challenge before Supreme Court and was stayed, since order of conviction was a relevant fact and assessee being a repeat defaulter who was successfully convicted by criminal court for past years, there was no infirmity in order of Commissioner in rejecting said application, until pending conviction orders with respect to earlier years were set aside
Prosecution was initiated against assessee
for relevant assessment years under sections276B and 278B due to default in
deposit of TDS. On receipt of notice of prosecution assessee filed an
application to Commissioner for compounding of offences. Commissioner rejected
said application on ground that assessee had been convicted for same offences
for assessment years 2010-11, 2011-12 and 2012-13 and said fact was suppressed
in application. He, thus, held that application was not maintainable in light
of Para 8.1(iii) of CBDT Compounding Guidelines, 2019. Assessee claimed that
order of conviction related to earlier years was under challenge in SLP wherein
Supreme Court had stayed operation of order of conviction and he could not be
considered a 'convict' during pendency of aforesaid proceedings. Prior order of
conviction is a relevant fact and could not be said to be inconsequential and,
thus, assessee should have duly disclosed existence of conviction order and
proceedings pending before SLP while furnishing information in instant
compounding application. Since assessee was a repeat defaulter and had been
successfully convicted by Criminal Court in complaints filed against him, in
such circumstances until pending conviction orders with respect to earlier
years were set aside, there was no infirmity in order of Commissioner in light
of Para 8.1(iii) of CBDT guidelines, 2019. [In favour of revenue]
(Related Assessment years : 2014-15, 2015-16 and 2017-18) – [Viraj
Exports (P) Ltd. v. Chief Commissioner of Income (TDS)
[2022] 142 taxmann.com 285 (Del.)]
Assessing Officer cannot initiate prosecution against director without issuing notice to treat him as principal officer of Company
Assessing Officer filed a complaint against a
company and assessee (director of company) for offence punishable under section
276B. Assessee filed an application before Trial Court for his discharge
contending that he was only director of company and not managing director and
hence fell under charge of section 2(35)(b) which requires a notice to treat
him as principal officer of company and notice issued by Assessing Officer to
him asking to show cause as to why prosecution should not be initiated against
him for offence punishable under section 276B could not be considered as notice
under section 2(35). Trial Court held that notice dated 21.10.2018 was not in
consonance with section 2(35) and discharged assessee of offence punishable
under section 276B. As conclusion of Trial Court that notice dated 21.10.2018
was not in consonance with section 2(35) did not suffer from any perversity or
illegality, revision petition filed by revenue deserved to be dismissed. [In
favour of assessee] - [Income-tax Department,
Bangalore v. Jenious Clothing (P) Ltd. (2022) 140 taxmann.com 351 (Karn.)]
Amount of TDS deducted was not more than Rs. 50,000 and TDS amount was deposited with interest, criminal proceedings initiated against assessee for offence under section 276B were liable to be quashed
Failure to pay tax on distributed profits of domestic companies/deducted
at source - Complaint was filed against assessee-firm and its principal officer
for failure to deposit TDS amount for financial year 2016-17 to account of
Central Government of India. Prosecution was launched under section 276B read
with section 278B - Whether since TDS amount in all these cases were deposited
with interest prior to initiation of criminal proceedings and apart from one or
two cases, deducted amount was not more than Rs. 50,000, criminal proceedings
were liable to be quashed - Held, yes [Paras 17 and 18] [In favour of assessee]
A complaint was lodged by Assistant Commissioner Income-tax Department stating that the assessee-firm, accused No. 1 and its the principal officer, accused No. 2 deducted TDS amount for the financial year 2016-17 but failed to credit the same to the account of Central Government of India. Therefore, the accused No. 2 on behalf of the accused No. 1 committed offence punishable under section 276B.
The assessee filed instant petition with prayer to quash complaint. The assessee submitted that the TDS amount deducted by it was deposited with certain delay, however, in terms of section 201(1A), the amount was deposited along with interest. According to assessee once the TDS amount had been deposited along with the interest there was no occasion to initiate the prosecution under sections 276B and 278B.
Held : TDS amount in all these cases were deposited with interest and the chart with respect to the same is also annexed with the counter affidavit of the Income-tax Department, wherein the date of deduction and date of depositing the said amount has been mentioned. However, some delay occurred in depositing the TDS. Apart from one or two cases, the deducted amount are not more than Rs. 50,000. While passing the sanction under section 279(1), the sanctioning authority has not considered the CBDT Instructions, bearing F. No. 255/339/79-IT (Inv.), dated 28.05.1980, issued in this regard by the CBDT. In CBDT instructions, it is mentioned that prosecution under section 276B shall not normally be proposed when the amount involved and/or the period of default is not substantial and the amount in default has also been deposited in the meantime to the credit of Government. No such consideration will, of course, apply to levy of interest under section 201(1A). Moreover after receiving the deducted amount with interest, the prosecution has been launched against the petitioners, which is not in accordance with law. If the petitioners failed to deposit the amount in question within the stipulated time, i.e. by the 7th day of the subsequent month, it was required to launch the prosecution immediately, which has not been done in the cases in hand. Moreover section 278AA clearly states that no person for any failure referred to under section 276B shall be punished under the said provisions, if he proves that there was reasonable cause for such failure.
The amount has already been deposited with interest and there is no reason why the criminal proceeding shall proceed and the criminal proceeding was launched after receiving the said amount with interest, had it been a case that the case was immediately instituted and thereafter the TDS amount has been deposited with interest, the matter would have been different. As such the continuation of the proceedings will amount to an abuse of the process of the Court.
Accordingly, the entire criminal proceedings and the cognizance orders in their respective cases, taken against the petitioners for the offences under sections 276B and 278B pending in the Court of Special Judge, Economic Offences, Dhanbad, are hereby, quashed. – [Dev Multicom (P) Ltd. v. State of Jharkhand (2022) 138 taxmann.com 538 (Jharkhand)]
Delayed remittance of TDS punishable under section 276B; Rejects plea of mens rea, financial constraints
Special Court for Economic Offences at Bangalore holds
Assessee-Company guilty under section 276B for delayed remittance of TDS,
imposes fine of Rs. 20,000/- and acquits its MD as the Revenue failed to prove
his involvement in the day-to-day affairs of the business; Holds that
non-imposition of penalty for TDS default is no defence against prosecution
under section 276B; Assessee, a multi-specialty hospital, was found to have not
paid TDS of Rs.1.07 Cr. for Financial year 2016-17 to the Revenue within the
stipulated period; Revenue launched prosecution against the Assessee and its
Managing Director (MD) under section 276B and 278B, respectively; Special Court
observes that the penal provisions have to be strictly interpreted and whenever
two views are possible, the one which favours the accused is to be upheld but
that does not mean that “the penal provisions have to be interpreted in
a way to avoid the penal consequence only”; Notes that Section 201(1) read
with Rule 30 makes it clear that TDS has to be credited to Revenue’s account
within the prescribed time, failing which Section 276B gets attracted, relies
on Supreme Court ruling in Madhumilan
Syntex Ltd. v. Union of India (2007) 290 ITR 199 : 208 CTR 417 : 160 Taxman 71
(SC) to reject the argument that voluntary remittance of the TDS
with interest absolves the Assessee from the criminal consequence and notes
that had Section 276B not contained the phrase ‘as required by or under the
provisions of Chapter XVII-B’ then the argument would have been accepted;
Special Court further observes that “there is no law to the effect that
initiation of penalty proceedings is to be preceded before initiation of criminal
proceedings”, thus, rejects Assessee’s submission that since penalty for
TDS default was not imposed, the prosecution was required to be dropped and
notes that the argument would be good if the penalty proceedings were not
initiated; Also rejects the argument based on Section 40(a)(ia) that TDS was
paid before the due date of filing ITR, therefore, the time provided for
remitting TDS is up to the date of filing ITR, holds that the filing of ITR is
completely different from the remittance of tax deducted but not paid; Holds
that mens rea is not a prerequisite for invocation of Section
276B, relies on P&H High Court ruling in DCIT
v. Modern Motor Works (1996) 220 ITR 415 : 133 CTR 259 : 87 Taxman 182
(P&H) and Delhi High
Court ruling in Rishikesh Balkishan Das v. I.D. Manchanda (1987)
167 ITR 49 (Del.) and holds that jurisdictional High Court ruling
in Vyalikaval House Building Co-Operative Society Ltd. v. ITO,
Bangalore (2020) 428 ITR 89 : (2019) 267 Taxman 81 : 110 taxmann.com 107
(Karn.) delivered in the context of Section
276C(2) is inapplicable in the present case; Thus, observes that only way to
get rid of the conviction is by showing the existence of justifiable reasons
for the failure to remit the TDS as provided under section 278AA and notes, “If
the failure is inflicted by the negligence or inaction. Then it cannot be held
a ‘reasonable cause.’”; Thus, observes that if the accounts where the TDS
amount credited were attached or due to some other reason beyond the control of
the Assessee the TDS amount could not be remitted, then it would be a
reasonable cause but financial constraints or absence of mens rea cannot
be termed as reasonable cause and non-remittance due to negligence or using the
TDS amount to meet some financial requirements certainly is not a reasonable
cause and holds the Assessee guilty under section 276B and imposes a fine of
Rs. 20,000/- noting that non-realization of dues from the market led the
Assessee to delay the remittance of TDS which was remitted before the due date
of filing ITR; Regarding charges levelled against Assessee’s MD as per
Section 278B, the Special Court holds that Revenue’s case was not that MD
verified the TDS returns/Form No. 26AS and except the averment in the complaint
there was no other evidence to show that the MD was in charge and responsible
for day-to-day affairs of the Assessee’s business; Thus, relies on Bombay High
Court ruling in Homi Phiroze Ranina and Delhi High Court ruling in Anil Batra
and acquits the MD. – [ITO v. Panacea Hospital (P) Ltd. – Date of Judgement
: 16.10.2021 (District Court, Bangalore)]
Neither service of
notice nor hearing of petitioner before treating petitioner as a principal
officer was involved, and connection of petitioner with management, and
administration of company was also not established, Assessing Officer could not
have named petitioner as Principal Officer
The
petitioner had been treated as a principal officer of the company Kingfisher
Airlines for the financial year 2009 under section 2(35). The petitioner
contended that to come within the ambit of Key Management Personnel, the
petitioner was neither managing director nor the chief executive officer the
whole time director/the company secretary/the chief financial officer/anyway
connected with management administration of the company.
The
revenue on the other hand justifying the said order submitted that the
petitioner was the treasurer of the U.B. Group of companies during which the
relevant financial years and hence he was treated as principal officer. Further
that neither a personal hearing nor an order was necessary to treat the person
as a principal officer. It was sufficient if a notice of the intention of the
Assessing Officer of treating any person as principal officer is issued. The
petitioner assailed the order of the Commissioner on ground that the objections
submitted by the petitioner to the notice issued had not been duly considered
hence sought to set aside said order.
Held
:
The impugned order deserves to be set aside for the reason that a Principal
Officer, as contemplated under section 2(35), used with reference to a local
authority or a company or any other public body or any association of persons
or anybody of individuals, means the secretary, treasurer, manager or agent of
the authority, company, association or body, or any person connected with the
management or administration of the local authority, company, association or
body upon whom the Assessing Officer has served a notice of his intention of
treating him as the principal officer thereof.
It
is clear that to treat any person as a Principal Officer, such person should be
connected with the management or administration of the local authority/company
or association or body. Such connection with the management or administration
is the basis for treating any person as a Principal Officer. Such connection
has to be established or to be supported with substantial material to decide
the connection of any person with the management or administration. Without
disclosing the basis, no person can be treated as a ‘Principal Officer’ of the
company recognising him as the Key Management Personnel of the company. The
details of such information on the basis of which the Key Management Personnel
tag is made, has to be explicitly expressed in the notice of the intention of
treating any person as a Principal Officer by the Assessing Officer. Neither in
the show-cause notice nor in the order impugned, such connection of the
petitioner with the management or administration of the company Kingfisher
Airlines Limited is established. The phrase ‘Key Management Personnel’ of the
company has a wide connotation and the same has to be supported with certain
material unless such connection is established, no notice served on the
petitioner would empower the respondent authority to treat the petitioner as a ‘Principal
Officer’.
In
the instant case, the question inasmuch as neither service of notice nor
hearing of the petitioner before treating the petitioner as a Principal Officer
is involved. The fulcrum of dispute revolves around the aspect whether the
petitioner is the person connected with the management or administration of the
company. Such finding has to be supported by substantial material and has to be
reflected in the notice issued under section 2(35) to treat a person as a
Principal Officer of the company which will have wider consequences. The said
aspect is lacking in the present order impugned. Merely on surmises and
conjectures, no person shall be treated as a Principal Officer. Writ petition is
to be allowed. The impugned order is to be quashed. – [A. Harish Bhat v.
ACIT(TDS), Bengaluru (2020) 269 Taxman 218 : (2019) 111 taxmann.com 210 (Karn.)]
Mere
delay in TDS deposits in time is offence sufficient to attract section 276B -
No reasonable cause was shown for delay - Launching of prosecution is held to
be valid
Section
278AA makes it clear that in order to get over the penal consequences that
follow on account of non-payment of tax deducted at source, it is open for the
accused persons to come clean of the said charge by showing reasonable cause
for failure to deposit the said amount. In the light of this provision, contentions
urged by the learned counsel for the petitioners cannot be accepted. Since the
material placed on record prima facie discloses that the petitioners
have deducted tax at source but failed to credit the same to the account of the
Central Government within the prescribed time, the petitioners cannot escape
from the rigour of Section 276B of the Act.
The
alternative argument canvassed by the learned counsel for the petitioners that
without determining the penalty, the respondent was not entitled to resort to
criminal prosecution of the petitioners under Section 276B of the Act, also
cannot be accepted for the reason that the petitioners/accused have not
disputed their liability. The question of determining the liability and consequent
imposition of penalty would arise only in case of dispute with regard to the
liability to remit the deducted tax. In the instant case, the facts alleged in the
complaint clearly indicate that the amount was credited subsequent to the survey.
As a result, even this defence is not available to the petitioners. (Related
Assessment Years : 2011-12, 2012-13) – [Golden Gate Properties Ltd v. DCIT –
(2019) 416 ITR 399 : 265 Taxman 213 (Karn.)]
Assessee i.e. Managing Director of 'A' Group of Companies was sought to be prosecuted under section 276B for failure to remit tax deducted at source, in view of fact that a notice was issued to assessee to convey intention of department to treat him as Principal Officer of ‘A’ Group of companies and, moreover, assessee failed to bring on record any proof showing that amount in question was paid to department after issuance of show-cause notice, there was no infirmity in prosecution proceedings launched against assessee
Assessee
i.e. Managing Director of ‘A’ Group of Companies, was sought to be prosecuted
under section 276B for failure to remit tax deducted at source. Hence, instant
petition was filed challenging validity of prosecution proceedings. It was
noted that a notice was issued to assessee to convey intention of department to
treat him as Principal Officer of ‘A’ Group of companies and, thereupon, a
show-cause notice was issued in name of accused companies. It was also found
that Sanctioning Authority had passed sanction order after referring to
provisions of law applicable to assessee’s case. Moreover, assessee failed to
bring on record any proof showing that amount in question was paid to
department after issuance of show-cause notice. On facts, there was no
infirmity in prosecution proceedings launched against assessee and, thus,
instant petition was to be dismissed. [In favour of revenue] (Related Assessment
years : 2011-12 and 2012-13) – [Dr. Viloo Patell v. Income Tax Department (2019)
112 taxmann.com 220 (Karn.)]
Directors cannot be acquitted merely on ground that no separate notices were issued to them - Failure to pay to the credit of the Government tax deducted at source – Directors in charge, to show that offence occurred without their knowledge or due diligence was exercised by them to prevent commission of offence–Non issuance of separate notices, does not absolve directors in charge–Order of lower courts acquitting directors is held to be erroneous - Benefit of probation granted to accused directors of assessee and levy of fine
It was held that section
278B of the Act, makes the directors of the company in charge of its affairs
liable for the offence committed by it unless the presumption is rebutted by
such director. For the purpose of section 278B, once the offence is shown to
have been committed by the company, then the liability of the directors in
charge of their affairs is attracted. The burden then shifts to such directors
to show that the offence occurred without their knowledge or that they had
exercised all due diligence to prevent the commission of such offence. Allowing
the petitions of the revenue, the Court held that, the directors of the company
were convicted for the offence under section 276B for the three assessment
years in question 1982-83 to 1984-85. Both the lower criminal courts had erred
in acquitting the directors of the assessee only because they were not issued
separate show-cause notices. Both the directors had signed the company’s balance-sheets
and therefore their defence that they were not in charge of the affairs of the
company was untenable. Considering that the matters pertained to the assessment
years 1982-83 to 1984-85 and given the long pendency of the matters, the
directors were given the benefit of probation. Accordingly, while sentencing
the directors to pay a fine of Rs. 50,000 each for the offence under section
276B for each of the assessment years in question and in default to undergo
simple imprisonment for seven days, they were granted the benefit of probation
and directed to file a bond of good behaviour in the trial court in the sum of
Rs. 10,000 each for the period of six months. The judgments of the District Judge
and Additional Sessions Judge and the Additional Chief Metropolitan Magistrate
were set aside. (Related Assessment years : 1982,83 to 1984-85) – [ITO v.
Anil Batra. (2018) 409 ITR 428 (Del.)]
There was no material to
establish that assessee was in-charge of day-to-day affairs, management, and
administration of his company, Assessing Officer could not have named him as
Principal Officer and accordingly he could not have been prosecuted under
section 276B for TDS default committed by his company
Assessee was a
Non-Executive Chairman of Board of Directors of company based in Delhi/NCR
region. Assessing Officer passed an order under section 2(35) with respect to
TDS default of company treating assessee as Principal Officer of company within
meaning of section 2(35). Assessee stated that he was not involved in
day-to-day affairs of company. Further, Managing Director, himself had
specifically stated that he was person in-charge of day-to-day affairs of
company and not assessee. He had stated assessee was only a Non-Executive
Director in company, who was based at Chennai and was not involved with
day-today management of company and had not made any visits to company till
date as he did not draw any salary or remuneration from company and attended
Board Meetings only in Non-Executive capacity, for which, he did not even get
any sitting fees. However, Assessing Officer without giving any reasons for
rejecting contention of Managing Director and without any material to establish
that assessee was in-charge of Company, arrayed assessee as Principal officer.
Main criteria treating a person as Principal Officer is that he should have
been in-charge of management, administration and day-to-day affairs of company.
In absence of any material to establish that assessee was in-charge of
day-to-day affairs, management, and administration of company, Assessing
Officer could not have named him as Principal Officer and accordingly assessee
could not have been prosecuted under section 276B for TDS default committed by
company. [In favour of assessee] (Related Financial years : 2013-14 to 2014-15)
- [Kalanithi Maran v. Union of India (2018) 405 ITR 356 : 304 CTR 17 : 256
Taxman 260 : 168 DTR 385 : 92 taxmann.com 308 (Mad.)]
Failure to pay to the credit tax deducted at source–Application for compounding of offence for delay in depositing tax deducted at source was dismissed only on ground that nobody attended proceedings when said application was taken up for hearing–Order was to be set aside and, matter was remanded back for disposal on merits
There
was delay in depositing the tax deducted at source. An application for
compounding of offences was made. Though assessee was served with letters of
intimation informing date on which they should present themselves and seek relief
in terms of compounding application, they could not depute a representative to
remain present. Assessee’s application was rejected and a criminal complaint
was filed. Against said order, petition was filed. Allowing the petition the
Court held that the respondents had not applied their mind to compounding
applications by dealing with merits thereof. Since application had been
dismissed only on ground that nobody attended proceedings when said application
was taken up for hearing, impugned order was to be set aside and, matter was to
be remanded back for disposal on merits and in accordance with law. – [Durgeshwari
Hi-Rise & Farms (P) Ltd v. CCIT (2018) 172 DTR 343 : (2019) 103
taxmannn.com 292 (Bom.)]
Sanction – Chief
Commissioner – Late deposit of tax deducted at source – If sanctioning was held
to be not as per requirement of law summons issued by the Court can be
challenged
The assessee-company
deducted an amount as TDS but failed to credit same in account of Central
Government. However, later on, assessee credited amount of TDS withinterest.
The Commissioner issued sanction order to prosecute assessee for offence
committed under section 276B, pursuant to which the assessee filed a writ
petition against sanction order. The Court noted that on criminal complaint
being preferred, the Additional Chief Metropolitan Magistrate had already taken
cognizance of issue of non-depositing of TDS by assessee and issued summons to
assessee for appearance and to face trial and in view of the fact that trial
had already been initiated against assessee in criminal court, it held that it
would not be fair or proper for it to decide question of validity of sanction
order on merits as it would amount to a pre trial adjudication and held that
the questions and issues relating to issue of sanction order could be raised
and decided during trial. Accordingly, it dismissed assessee’s writ.
If the assessee is able
to make out that cognisance was not justified and as per law they can challenge
and question the summoning order by way of petition under section 397 read with
Section 401 of the Code of Criminal Procedure, 1973 or if permissible, by way
of a petition under Section 482 of the Code. Referring various case laws the
Court observed that following principles can be culled out:–
(a) It is incumbent on
the prosecution to prove that the valid sanction has been granted by the
sanctioning authority after being satisfied that a case for sanction has been
made out.
(b) The sanction order
may expressly show that the sanctioning authority has perused the material
placed before it and, after consideration of the circumstances, has granted
sanction for prosecution.
(c) The prosecution may
prove by adducing the evidence that the material was placed before the
sanctioning authority and its satisfaction was arrived at upon perusal of the
material placed before it.
(d) Grant of sanction is
only an administrative function and the sanctioning authority is required to prima
facie reach the satisfaction that relevant facts would constitute the
offence.
(e) The adequacy of
material placed before the sanctioning authority cannot be gone into by the
court as it does not sit in appeal over the sanction order.
(f) If the sanctioning authority
has perused all the materials placed before it and some of them have not been
proved that would not vitiate the order of sanction.
(g) The order of
sanction is a prerequisite as it is intended to provide a safeguard to a public
servant against frivolous and vexatious litigants, but simultaneously an order of
sanction should not be construed in a pedantic manner and there should not be a
hyper-technical approach to test its validity.” – [Indo Arya Central
Transport Ltd v. CIT (TDS) (2018) 92 taxmann.com 129 (Del)]
In a case of prosecution
for non-deduction of TDS, the Chief Metropoliton Magistrate held that in the
case of default, Mens rea has to be presumed to exist and it is for the
accused to prove the contrary and that too beyond reasonable doubt. It rejected
assessee’s plea that default in payment of TDS occurred due to delay by department in refunding excess
TDS due to the assessee, holding that amount deducted by way of TDS has to be
deposited within prescribed time irrespective of any counter claim of the
assessee. – [ITO v. VCI Hospitality Ltd - Date of Judgement : 28.08.2018
(Chief Metropolitan Magistrate, Delhi) (Del)]
If assessee deducted TDS
but same was not deposited within specified time due to oversight on part of
its accountant, prosecution proceedings against assessee after three years
would be contrary to CBDT instruction and, thus, deserved to be quashed
The petitioner in the relevant year
2009-10 made certain payments on various dates, towards interest (other than
'interest on securities') and commission and while crediting the said sums,
duly deducted tax at source under sections 194A and 194H respectively. The
aforesaid tax could not be deposited within due date due to oversight on the
part of the Accountant. The mistake was noticed at the time of audit of books
of account by the Statutory Auditors. The petitioner so paid a sum thereafter
paid aforesaid sum. Owing to the delay in payment, the petitioner while paying
the said sum also deposited interest amounting to as required under section
201(1A).
Prosecution had been launched
against the petitioner on the basis of complaint filed by the department
alleging therein that TDS return filed by the petitioner has had not been
deposited in time to the credit of Central Government relevant year. Thus,
there was delay of 481 days without any reasonable cause.
The Commissioner accorded sanction
under section 279(1) for launching prosecution for the offence committed by the
petitioner under section 276B. The
Special Judge, on the basis of the aforesaid complaint filed by the complainant
took cognizance against the petitioner and its three Directors for the offence
under section 276B.
On writ to the High Court, the
petitioner contended that the instant prosecution was mechanical and contrary
to the instructions issued by the CBDT and was wholly unsustainable in law.
Oversight on the part of the Accountant could not be termed as anything but a
reasonable cause and such defaults are often committed in due course of
business Department contented that by making payment of TDS amount along with
interest will not exonerate the petitioner from the liability of section 276B.
Held : The petitioner deducted tax
at source at the rate of Rs. 1,43,029 for the financial year 2009-10, but did
not deposit the same with the Central Government within the specified time limit.
Subsequently, out of total amount of Rs. 1,43,029 so deducted under sections
194A and 194H, the petitioner paid a sum of Rs. 41,029 on 07.09.2010 and,
thereafter paid a sum of Rs. 1,02,000 on 20.09.2010. The petitioner also
deposited interest of Rs. 23,595 as required under section 201(1A) owing to the
delay in payment of the aforesaid amount.
The instructions issued by the CBDT
dated 28.05.1980 wherein, it is mentioned that prosecution under section 276B
should not normally be proposed when the amount involved and/or the period of
default is not substantial and the amount in default has also been deposited in
the meantime to the credit of the government. No such consideration will, of
course, apply to levy of interest under section 201(1A).
In the instant case, the petitioner
has deposited the amount of Rs. 1,43,029 along with interest of Rs. 23,595 on
various dates in the year 2010. Allegation against the petitioner is that the
petitioner did not deposit amount of Rs. 1,43,029 duly deducted at source for
the financial year 2009-10 within specified time with the Central Government,
but the aforesaid amount has been deposited by the petitioner along with
interest on various dates in the year 2010 when the mistake was noticed by the
petitioner at the time of audit of Books of Account in 2010. Prosecution has
been launched against the petitioner after the lapse of three years on
14.05.2013 as a consequence of sanction order passed under section 279(1) on 31.03.2013,
in contravention of the instructions dated 28.05.1980 issued by the CBDT.
Section 278AA specifically says
that no person shall be punished for any failure referred to under the said
provisions, if the assessee proves that there was reasonable cause for such failure.
Reasonable cause would mean a cause which prevents a reasonable man of ordinary
prudence acting under normal circumstances, without negligence or inaction or
want of bona fides.
Oversight on the part of the
Accountant, who was appointed to deal with Accounts and Income-tax matters, can
be presumed to be a reasonable cause for not depositing the tax within time.
The petitioner immediately after noticing the aforesaid defects by the
Statutory Auditors of the petitioner-company deposited the amount of Rs.
1,43,029 along with interest amounting to Rs. 23,595 as required under section
201(1A) in the year 2010 itself. Instant prosecution has been launched against
the petitioner on 14.05.2013 after lapse of about three years from the date of
deposit of due tax along with interest by the petitioner under section 201(1A),
which is contrary to the instructions issued by CBDT.
The order dated 15.05.2013 passed
by the Special Judge, Economic Offences, Patna, taking cognizance of the offence
under section 276B, along with entire criminal proceeding against the
petitioner is hereby quashed. [In favour of assessee] – [Sonali Autos (P)
Ltd. v. State of Bihar (2017) 396 ITR 636 : 298 CTR 91 : 84 taxmann.com 286 (Patna)]
Documents listed with
complaint for offence under sections 276B and 278B against assessee could not
be produced before Trial Court owing to fact that said documents were in
judicial custody in some other cases, Trial Court was not justified in
dismissing complaint for want of production of documents
Revenue filed complaints before
Trial Court against assessee-company and its director for offence under
sections 276B and 278B for failure to remit income-tax deducted at source into
Government account. Trial Court posted matter for evidence of witness and also
for marking of documents. Since complainant had not taken any steps to produce
witness or mark documents despite availing 23 hearings, Trial Court dismissed
complaint and discharged accused. Since documents listed with complaint were on
file of another Trial Court and delay had not been caused by complainant, case
to be restored to file of Trial Court for deciding same on merit . [In favour
of revenue] (Related Assessment year : 1988-89) – [P. Jayanandan, ITO v. Sri
Ramakrishna Steel Industries Ltd. (2013) 355 ITR 528 : 38 taxmann.com 175 : (2014)
220 Taxman 92 (Mad.)]
IN CASE OF DIRECTORS - Director of a company is
not 'principal officer' within meaning of section 2(35) and in case Income-tax
Officer seeks to prosecute a director along with company for an offence
punishable under section 276B, then he has to issue a notice under sub-clause
(b) of section 2(35) expressing his intention to treat such director as ‘principal
officer’ of company and in absence of such a notice prosecution against
director would fail
Respondent No. 1 was a private limited company and
respondent No.3 was its director. The Assessing Officer had filed complaints
before the ACMM praying therein that the respondents be summoned, tried and
punished under section 276B. It was alleged that the respondents had failed to
deduct the tax at source (TDS) from the interest paid and deposit the same with
the Income-tax department within the prescribed period and, thus, had committed
an offence punishable under section 276B. Respondent No. 3 was impleaded as an
accused being 'principal officer' of the company within the meaning of section
2(35). Charge under section 276B was framed against the respondents to which
they pleaded not guilty and claimed trial. After holding trial, while
respondent No. 1 was convicted under section 276B, respondent No.3 had been acquitted
on the ground that no notice was served on him under section 2(35) treating him
as the ‘principal officer’, before launching the prosecution under section
276B, inasmuch as the notice issued to the company was defective in the sense
that it was not mentioned therein that the department intended to treat the
directors of the company as 'principal officers'. The department filed instant
petitions seeking leave to appeal against the judgment passed by ACMM whereby
respondent No. 3 had been acquitted of the offence under section 276B.
Held : Section
194A mandates the deduction of tax at source on the credit or payment of
interest other than 'interest on securities'. Section 194A(4) uses the
expression 'the person responsible for making the payment'. Section 204 defines
the expression 'person responsible for paying'.
Perusal of section 204(iii) clearly shows that in case of a company, the company itself, including the principal officer thereof, would be responsible to deduct the tax at source and deposit it with the department.
Infringement
of section 194A(4) is an offence punishable under section 276B. In case an
offence is committed by a company, the prosecution for the offence under
section 276B has to be launched against the company itself and its principal
officer.
Section
2(35) defines the expression ‘principal officer’. A perusal of the aforesaid
provision clearly shows that the director is not included within the ambit of
sub-clause (a) of section 2(35). In case the ITO seeks to prosecute the
director along with the company for an offence punishable under section 276B,
then he has to issue a notice under sub-clause (b) of section 2(35) expressing
his intention to treat the director as 'principal officer' of the
company.
In
the instant case, admittedly, no notice as, required under section 2(35) had
been issued to respondent No. 3. Only a show-cause notice was issued to the
company wherein it was not mentioned that the Assessing Officer intended to
treat the director of the company as the 'principal officer' for the purpose of
launching prosecution under section 276B.
The
legal position emerging from the various decisions is that before launching a
prosecution under section 276B against the directors of a company, the
Assessing Officer has to issue a notice under section 2(35) expressing his
intention to treat such directors of the company as the 'principal officers'.
However, it may not be necessary to issue a separate notice or communication to
all the directors that they are to be treated as the ‘principal officers'. It
would be sufficient compliance if in the show-cause notice issued to the
company it is mentioned that the directors are to be considered as the
principal officers of the company under the Act.
In
the instant case, neither a notice was issued to respondent No. 3 under section
2(35) showing that the department intended to treat him as the ‘principal
officer’ nor in the show-cause notice issued to the company it was mentioned
that the department intended to treat the directors of the company as the ‘principal
officers’, for the purpose of launching prosecution under section 276B. For
the foregoing reasons, there was justification in not granting leave of appeal
to the petitioner. The petition was to be dismissed accordingly. – [CIT
v. Delhi Iron Works (P) Ltd & ORS (2011) 331 ITR 5 : (2010) 195 Taxman 372 :
8 taxmann.com 61 (Del.)]
ITO filed complaint under section 276B, read with section 278B against partners of firm which failed to deduct tax at
source as required under section 194A
- Trial court held that as no notice was given to partners of firm under section 2(35), they could not be
considered as principal officers and as such, they could not be convicted
under section 278B and that
in absence of averment in complaint that partners were
in charge of and responsible to firm for
conduct of business of firm,
complaint was liable to be dismissed - On revision petition, Sessions Judge
confirmed discharge of accused partners -
On facts, no interference was required in order of discharge
ITO
filed the complaint under section 276B, read with section 278B against
the partners of the firm which failed to deduct tax at
source as required under section 194A. Accordingly, a complaint
under section 276B read with section 278B was filed against
the partners of the firm. The trial court came to the conclusion
that as no notice was given to the partners of
the firm under section 2(35),
the partners could not be considered as principal officers and as
such, they could not be convicted under section 278B. It was further held
that in the absence of an averment in the complaint that
the partners were in charge of and responsible to
the firm for the conduct of the business of the firm the
complaint was liable to be dismissed. Against the order of discharge, the ITO
filed a revision petition which was dismissed by the Sessions Judge. On
petition under section 482 of the Code of Criminal Procedure.
No interference was
required in the impugned order, particularly when the order of discharge was affirmed
in revision by the Court of Sessions. Though instant petition had been filed
under section 482 of the Code of Criminal Procedure, 1973, in substance it was
a second revision against the order of discharge which was barred under section
397(2) of the Code. The provisions of section 397(2) of the Code cannot be
circumvented merely by filing the petition under section 482 of the Code. On
the merits also, in similar circumstances, the High Court in Smt. Pushpa Maini v. ITO (1993) 200 ITR 198
: 68 Taxman 300 (P&H) has held that in the absence of pleading in the
complaint about the involvement of the respondents and about their
responsibility for the conduct of the business, the discharge order passed by
the trial court on the said ground could not be said to be unjustified.
Similarly, regarding the notice part, the Himachal Pradesh High Court in ITO v. Dayal Sons (2000) 244 ITR 126 :
(2002) 123 Taxman 192 has held that prosecution of the accused for offences
under sections 276C and 279 was bad and vitiated if no notice was given to him
before launching the prosecution. The High Court has further, held that the
requirement of natural justice is inherent in the provisions of section 279(2),
and that the person accused is entitled to notice before initiation of the
proceedings in respect of which a right of compounding has been given. A
similar view was taken by the Madras High Court in Shital N. Shah v. ITO (1991) 188 ITR 376, which had been followed
by the trial court, while discharging the accused. In view of this legal
position, on the merits also, no infirmity or illegality was found in the
impugned order. (Related Assessment year
: 1980-81) – [ITO v. Shiv Sewak Cotton
Co. (2006) 282 ITR 73 : 153 Taxman 509 (P&H)]
Financial
Hardship – No reasonable cause
Respondents initiated
prosecution proceedings against appellant under section 276B for its failure to
deposit tax deducted at source. On writ, Single Judge dismissed same. Provisions
of section 278AA would be available to appellant if it was proved that it had
sufficient and good reasons for committing default contemplated in section 200.
It was for appellant to produce sufficient evidence for non-deposit of tax
deducted at source during criminal trial to avail of benefit of section 278AA
and since except for pleading financial hardship, there was no other reason
provided by appellant for such default, Single Judge was justified in not
entertaining writ petition of appellant. The appeal was, accordingly, to be
dismissed. [In favour of revenue] (Related Financial years : 1995-96, 1997-98
to 1999-2000) - [Shaw Wallace & Co.
Ltd. v. CIT (2004) 136 Taxman 346 (Cal.)]
Unintentional TDS default is not punishable
In Union of India v.
Pyarelal Tarachand And Anr., the Hon’ble High Court declined to interfere
in the judgment where trial court acquitted the assessee because it was not
proved that the assessee has deliberately or intentionally committed the
default.
Criminal complaint was filed by
appellant against respondent for initiation of his prosecution on account of
violation of sections 276B and 278B. Trial court on appreciation of evidence
found that there was no intentional suppression of income by respondent and
interest paid to concerned depositors was duly shown in returns for relevant
assessment years but due to inadvertence Form No. 15A was not attached with
them and return in Form No. 20A as required under rule 37(2)(a) was not filed
and it was not proved that he had deliberately or intentionally committed above
default or there was mala fide intention in it. In view of above findings
recorded by Court below wherein benefit of doubt had been extended to
respondent, there was no case for any interference made out and no infirmity or
perversity could be pointed out against impugned judgment and, hence, being
without merit it was to be dismissed. [In favour of ssessee] (Related Assessment
years : 1978-79 to 1984-85) - [Union of India v. Pyarelal Tarachand And Anr.
(2003) 264 ITR 525 : 180 CTR 551: (2004) 135 Taxman 97 (MP)]
A company which cannot
be punished with imprisonment can be punished with fine only - Only harmonious
construction that could be given to section 276B is that the mandatory sentence
of imprisonment and fine is to be imposed where it can be imposed, namely, on
persons coming under categories of (i) every person, who at the time the
offence was committed, was incharge of, and was responsible to the company for
the conduct of business; and (ii) any director (who, in relation to a firm
means a partner, manager, secretary or other officer of the company with whose
consent or connivance or because of neglect attributable to whom the offence
has been committed but where it cannot be imposed, namely, on a company fine
will be the only punishment
The Commissioner filed a complaint
in the Special Court for Economic Offences, alleging commission of an offence
under section276B, read with section 278B, by the assessee-firm. While the
Trial Court discharged the firm on the ground that before sanctioning
prosecution under section 279(1) the firm was not given an opportunity of being
heard, the High Court held that if ultimately the court found the firm to be
guilty, the court could not legally impose the substantive sentence of
mandatory imprisonment on firm and as such, the prosecution was not maintainable.
On appeal to Supreme Court:
Held : From a plain reading of
section 276B, it is manifest that if an offence under the Act is committed by a
company, the persons who are liable to be proceeded against and punished are :
(1) the company (which includes a firm) ; (ii) every person, who at the time of
offence was committed, was incharge of, and was responsible to the company for
the conduct of the business; and (iii) any director (who in relation to a firm
means a partner), manager, secretary or other officer of the company with whose
consent or connivance or because of neglect attributable to whom the offence
has been committed The words 'as well as the company' appearing in the section
also make it unmistakably clear that the company alone can be prosecuted and
punished even if the persons mentioned in categories (ii) and (iii), who are to
all intents and purposes vicariously liable for the offence, are not arraigned,
for, it is the company which is primarily guilty of the offence. Even though in
view of the provisions of section 278B, a company can be prosecuted and
punished for an offence committed under section 276B (besides other offences
under the Act), the sentence of imprisonment which has got to be imposed thereunder
cannot be imposed, it being a juristic person. This apparent anomalous
situation can be resolved, needless to say, only by a proper interpretation of
the section.
Keeping in view the 47th Report of
the Law Commission which recommended punishment of fine in substitution of
imprisonment in the case of a corporation and the principles of interpretation
of statutes, the only harmonious construction that could be given to section 276B
is that the mandatory sentence of imprisonment and fine is to be imposed where
it can be imposed, namely, on persons coming under categories (ii ) and (iii)
above, but where it cannot be imposed, namely, on a company, fine will be the
only punishment. The two other alternative interpretations could also be given
: (i) that a company cannot be prosecuted; or (ii) that a company may be
prosecuted and convicted but not punished, but these interpretations will be de
hors section 278B or wholly inconsistent with its plain language.
For the foregoing discussion, the
High Court’s order that prosecution of the assessee-firm was legally
impermissible, could not be sustained. The appeal was, therefore, allowed. - [M.V.
Javali v. Mahajan Borewell & Co. (1998) 230 ITR 1 : (1997) 143 CTR 320 : 95
Taxman 306 (SC)]
Prosecution under
Section 276B should not normally be proposed when the amount involved and/or
the period of default is not substantial and the amount in default has also
been deposited in the meantime to the credit of the Government. No such
consideration will of course, apply to levy of interest under Section 201(1A)
The Assessing Officer filed a complaint against the petitioner
on 31.03.1991 under section 276B read with section 278B alleging that the
petitioner did not deduct the income-tax at source for the years 1982-83 and
1983-84. In fact before the prosecution proceedings were initiated the
petitioner had deducted the required tax and deposited the same.
On writ, the petitioner contended that in view of the
instructions issued by the CBDT dated 28.05.1980, the prosecution under section
276B should not normally be proposed when the amount involved and/or the period
of default, is not substantial and the amount in default has also been
deposited in the meantime to the credit of the Government and, therefore, the
petitioners were entitled to acquittal. The department contended that the
instructions in question cannot possibly replace the provisions of the statute
and once the relevant provisions of the statute provide punishment, the
departmental instructions have to make way and it is in the discretion of the
officer concerned depending upon the facts and circumstances of each case
whether the prosecution should be launched or not.
The words ‘not normally’ in instructions of CBDT dated 28.05.1980
precede the words 'be proposed when the amount involved and/or the period of
default is not substantial and the amount has also been deposited in the
meantime to the credit of the Government'. It is true that the word 'normally'
does not mean that it is necessary or incumbent upon the authorities concerned
so as not to launch proceedings under section 276B but when the conditions for
exempting the assessee from prosecution as spelled out in the instructions are
available, it will not be open to the authorities then also to have discretion
in the matter as otherwise, the authorities concerned may exempt an assessee
from prosecution in one set of circumstances and to prosecute other assessee on
the same or identical facts. That would undoubtedly be violative of article 41
of the Constitution of India, Discretion of the Assessing Officer to launch or
not to launch prosecution is restricted only to the extent that as to what
facts constitute the discretion for launching the prosecution and what facts
would entail exemption from prosecution shall always depend upon the facts of
each case with regard to amount involved or the period of default. That is
always in the discretion of the authorities concerned which, of course, again
is to be used in a judicial manner. Insofar as the other contention of the
department that it is the provisions of the statute which shall have precedence
and not the instructions concerned, no inconsistency was found in the relevant
provision of the statute and the instructions quoted above. The relevant
provision of the statute no doubt talks of prosecution but the instructions
provide an exception in limited matters and that too where the conditions
precedent in the instructions are available or in existence. It is no doubt
true that the assessee is liable for punishment if he makes a default in
deposit of tax. The instructions deal with the situation in which the department
in its discretion may not launch the prosecution.
Having held that even on facts and circumstances of the
instant case, it was the discretion of the authorities to apply the
instructions, this case would have normally been sent to the authorities concerned
for consideration but the fact that very insignificant amount of Rs. 9,428 in
one case and even lesser amount in another case was involved as also that the
prosecution came to be launched after a number of years since the default was
committed or even from the date when the tax was deposited, it would serve no
useful purpose in remitting the case to the authorities concerned. Therefore,
the complaint against the petitioners in each case was quashed. [In favour of
assessee] (Related Assessment years : 1982-83 and 1983-84). – [Bee Gee
Motors & Tractors & Anr. v. ITO (1996) 218 ITR 155 : (1995) 127 CTR 224
: 82 Taxman 493 (P&H)]
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