2018 (10) TMI 1964 - HC - Income Tax

Compounding of offences punishable u/s 276B r.w.s.278B - admitted default in deposit of TDS - lapse of over 12 to 17 months - Proof of mens rea to deprive the State or to withhold public monies for private good - petitioner retained and misappropriated the monies for that period and illegally enjoyed the benefits therefrom - petitioner submits that upon the petitioner realising its mistake on its own it paid all the monies into the Treasury - HELD THAT - Court is not persuaded by the petitioner s arguments because the monies belong to the Government and the petitioner could not have held on it because it knew fully well of the imperative to deposit it as per statutory requirements. Instead it misused the government monies for its private benefits. If it had discovered that it had to pay the monies after 6 months or 8 months or 12 months or 17 months or whenever the so-called realization dawned upon it it should have explained the same to the Income Tax Department prior to the issuance of the show-cause notice. It is only upon the petitioner s taking such action its plea of bona fides may have been considered. There could be no bona fides when a petitioner is issued a show-cause notice after 4 or 5 years of such default. The Court would note that the monies were due in the Government Treasury in the year 2009 which was offered in the year 2011 or so. Income Tax Department noticed the anomaly in the refund of monies much later. If the petitioner raises the plea of financial inability as a constraint for not paying the collected TDS earlier on account of bankruptcy of his importers then the submission implies that it surely was aware of its statutory liability to deposit the TDS with the Income Tax Department. The argument of absence of mens rea is untenable in view of the conflicting pleas of inadvertent lapse and simultaneous financial hardship. Hence a show-cause notice was issued on 28.07.2014. It was open to the petitioner to have intimated the Income Tax Authorities about his alleged lapse and the difficulties in recovering such monies from his importers who had become bankrupt. Be that as it may the bankruptcy of a foreign company has nothing to do with the TDS in India - the Court finds no infirmity in the aforesaid reasoning. There is no merit in the petitions. Accordingly the petitions alongwith pending applications stand dismissed.

Summary

Issues:
Impugning order under section 276-B of the Income Tax Act 1961 for failure to deposit tax deducted at source into the Government Treasury.

Analysis:
The petitioner was found guilty under section 276-B of the Income Tax Act for not depositing tax deducted at source into the Government Treasury, holding government/public monies in trust until deposit, which was not done for over 12 to 17 months. The petitioner retained and misappropriated the monies during this period, enjoying illegal benefits. The petitioner argued for a lenient interpretation of "reasonable cause" under section 278AA of the Act, claiming no mens rea to deprive the State or withhold public monies for private gain. Reference was made to the Sequoia Construction Co. case to differentiate between "reasonable cause" and "good and sufficient reasons" in tax deposit defaults.

The defense contended that penalty proceedings under income tax law are quasi-criminal, requiring a higher standard of proof compared to criminal trials. The defense's argument emphasized that if the assessed established "good and sufficient reason" for default in penalty proceedings, it should be considered as "reasonable cause" in criminal trials. The defense highlighted the Commissioner's finding of sufficient and good cause for the default in depositing tax deducted at source.

The Income Tax Department argued that willful default in TDS payment is evidence of criminality, emphasizing the clear statutory requirements for timely deposit and the consequences of non-compliance. Referring to the Madhumilan Syntex case, the Department asserted that failure to pay tax within the stipulated period constitutes default, justifying appropriate action under the Act. The court rejected the petitioner's arguments, noting that the monies belonged to the government and should have been deposited as per statutory obligations, without misuse for private benefits.

The court dismissed the petitioner's arguments of financial constraints and lack of mens rea, highlighting the importance of timely payment of collected TDS. The court emphasized that the petitioner should have informed the Income Tax Authorities about any difficulties in recovering monies from importers. The court found no merit in the petitioner's plea of reasonable cause under section 278AA, considering the company's turnover and expenses, concluding that the delay in depositing TDS was not justified by financial losses or operational constraints. The court upheld the impugned order, dismissing the petitions and pending applications.