TMI Blog1999 (11) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... oner No. 1 had taken certain amounts as loans from (1) its managing director, (2) Marudhar Investment Pvt. Ltd. and (3) Jupiter Enterprises. During the assessment years 1985-86 and 1986-87, interest amounts of Rs. 18,000, Rs. 3,600 and Rs. 1,140 accrued due thereon had been credited to the interest accounts without deducting and paying to the Government tax (TDS) as required under section 194A of the Act and thereby having committed offence punishable under section 276B of the Act. In reply to the show-cause notice served on it, the petitioner took the plea that interest was neither paid nor credited to the accounts of the creditors but credited in the "interest payable account". This explanation was not found valid by the Income-tax Officer on the ground that it was a device to avoid payment of the tax, as according to him, the crediting of interest in the "interest payable account" amounts to the credit of interest to the account of the person concerned. These complaints have been filed by the Income-tax Officer having been authorised by the Commissioner of Income-tax under section 279(1) of the Act. The Income-tax Officer on assessment held against the petitioner-assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble account" was a camouflage to evade tax to Government in collusion with the creditors, one of whom is its managing director and two others are its sister concerns and the case squarely falls in the letter and spirit of section 194A of the Act. The petitioner had filed income-tax returns for the assessment years 1985-86 and 1986-87 comprising the accounting years ending on June 30, 1984, and June 30, 1985, and had debited Rs. 18,000, Rs. 3,600 and Rs. 1,140, i.e., in all Rs. 22,740 on account of interest for each year payable to the aforesaid three persons in the "interest payable account". The assessee did not deduct tax at source under section 194A of the Act. Its stand is that interest has neither been, paid in cash or by draft or by cheque to the creditors nor was credited to the account of the payee and as such section 194A of the Act was not applicable. This was not accepted by the Income-tax Officer who treated. the assessee as in default and under section 201(1A) and section 221 of the Act, penalty and interest were levied and demand of tax deducted at source with interest and penalty was raised. He filed two complaints for criminal prosecution under section 276B of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rosecution in the exercise of the inherent powers of the court under section 482 of the Code. The High Court refused to quash the prosecution on the ground that a criminal court is to independently go into the allegations mentioned in the complaint on the basis of evidence to be adduced before it by the Revenue as prosecutor and it is open to the accused persons to take any defence to prove their case. The matter was taken to the Supreme Court in a S. L. P. The S. L. P. was allowed and the prosecution of the accused persons was quashed. The Supreme Court held that on the appraisal of the entire material on the record, the said Smt. Janak Rani was found to be a partner of the assessee-firm and the firm was a genuine one and as such the assessee could not be prosecuted for filing a false return. The principle thus laid down in that case is that the prosecution once initiated may be quashed in the light of a finding favourable to the assessee recorded by an authority under the Act subsequently in respect of the assessment proceedings. This principle has been followed in S. P. Sales Corporation v. S. R. Sikdar [1993] 113 Taxation 203 (SC). In that case, the assessee had made purchases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under : "The criminal court no doubt has to give due regard to the result of any proceeding under the Act having a bearing on the question in issue and in an appropriate case it may drop the proceedings in the light of an order passed under the Act. It does not however, mean that the result of a proceeding under the Act would be binding on the criminal court. The criminal court has to judge the case independently on the evidence placed before it." In para. 6 it was further observed that : "It may be that in an appropriate case, a criminal court may adjourn or postpone the hearing of a criminal case in exercise of its discretionary power under section 309 of the Code of Criminal Procedure, if the disposal of any proceeding under the Act which has a bearing on the proceedings before it is imminent so that it may also take into consideration the order to be passed therein. Even here the discretion should be exercised judicially and in such a way as not to frustrate the object of the criminal proceedings. There is no rigid rule which makes it necessary for a criminal court to adjourn or postpone the hearing of a case before it indefinitely or for an unduly long period only becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. Explanation.---For the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called 'interest payable account' or 'suspense account' or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly." This Explanation was inserted by the Finance Act, 1987, with effect from June 1, 1987. Para. 38.2 of the Explanatory Note, for inserting this Explanation reads as under : "38.2 Under the existing provisions, deduction of tax at source from interest is to be made at the time of payment or credit to the account of the payee. With a view to prevent postponement of liability relating to such deduction of tax at source, section 194A has been amended to provide that tax will be deducted at source, on accrual of interest at the end of the accounting year or at the time of credit to the account of a payee or at the time of payment, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of the payee including credit given in the account called "interest payable account" or "suspense account". This obligation and liability to deduct and pay tax deducted at source has thus been created from June 1, 1987. The amount of interest in question was credited to the "interest payable account" prior to June 1, 1987. It did not attract provisions of section 194A as existing before the insertion of this Explanation and as such no criminal liability under section 276B of the Act also arises. This is also the view taken by the Punjab and Haryana High Court in the case of Punjab Business and Supply Co. Pvt. Ltd. [1991] 188 ITR 550, to which I with respect agree. The first appellate authority as also the Tribunal constituted under the Act have also taken the same view so far as liability for penalty is concerned. It is now settled law that where the allegations set out in the complaint or charge-sheet do not constitute any offence, the High Court in exercise of inherent power under section 482 of the Code would be competent to quash such FIR/charge-sheet. This court under revisional power would also be competent to quash the order passed by the magistrate taking cognizanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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