TMI Blog1990 (8) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the course of its business, petitioner No. 1 raised and/or received loans and/or advances from different persons on interest. The accounts of the said creditors in the books of petitioner No. 1 used to be credited with the amount of accrued interest in every accounting year on the basis of the mercantile system of accountancy. On such credit for interest made in the accounts of the creditors, the petitioner-firm was required to deduct income-tax at source under section 194A of the said Act at the rate prescribed therein. In accordance with the mercantile system of accountancy, simultaneously with the crediting of interest to the accounts of the creditors, the petitioner-firm used to credit the Central Government with the amount of tax notionally deducted at source thereon every accounting year. The petitioner-firm was always in financial stringency. The balance-sheet of the petitioner-firm always showed debit balance in the capital accounts of its partners. In the premises, the petitioner-firm, as and when liquid funds were available with it, used to pay the tax deducted at source under section 194A of the said Act to the Central Government as follows : Details of tax deducte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y a letter, informed the said firm that, on and from April 1, 1975, no interest is chargeable on their loan. In the premises, the said firm, although initially credited interest on the said account for the said accounting year, later on, after the receipt of the said letter, wrote back the interest credited and thus filed a revised return under the said Act and, therefore, no tax was deductible at source for the said assessment year 1976-77. The amount of tax required to be deducted at source on interest payable under section 194A of the said Act could not be deposited or paid to the credit of the Central Government within the time specified in rule 30 of the Income-tax Rules, 1962, i.e., within two months from the date of such credit due to paucity of funds. The accounts of the creditors used to be credited with accrued interest thereon under the mercantile system of accountancy whereas the tax deducted at source thereon could be paid only on the basis of cash funds available with the petitioner-firm. As and when the said cash funds were available, the petitioner-firm duly paid the said tax deducted at source. In the premises, the petitioners submitted that the delay in depositing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te any proceeding or pass any order imposing penalty under section 221 read with section 201 (1) of the said Act for any of the aforesaid assessment years. In the course of the said assessment proceedings, respondent No. 1 also did not charge any interest whatsoever under section 201 (1 A) of the said Act. Thereafter, all of a sudden, petitioner No. 1 received on December 7, 1983, a bunch of orders all dated July 1, 1983, for the assessment years from 1968-69 to 1976-77 imposing interest under section 201(1A) of the said Act on the said firm. Petitioners further state that all the said orders were passed on one day, i.e., July 1, 1983, for several years at a time. The order for the assessment year 1968-69 has been made after 14 years and the order for the last assessment year, i.e., 1976-77, has been made after 6 years from the end of the relevant assessment year. By the said several orders under section 201 (1A) of the said Act, all dated July 1, 1983, respondent No. 1, for the assessment years from 1968-69 to 1976-77, sought to levy and demand interest for delayed payment of tax deducted at source. It has been submitted that there is no reason whatsoever before respondent No. 1 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the said appellate order dated September 27, 1985, before the Income-tax Appellate Tribunal, Calcutta, which are still pending. One of the grounds of appeal therein is that there was a reasonable cause for the delay in payment of the tax deducted at source and that no interest is leviable under section 201 (1A) of the said Act. The said issue, therefore, is sub judice. On December 8, 1986, seven show-cause notices all dated November 20, 1986, were received from respondent No. 1 for the assessment years 1970-71 to 1976-77 directing the said petitioner-firm to show cause why prosecution under section 276B of the said Act should not be initiated against the said petitioner-firm for failure to pay the tax deducted at source under section 194A of the said Act read with section 200 of the said Act within the stipulated time as per rule 30 of the Income-tax Rules, 1962. The petitioners thereafter by letters dated December 17, 1986, and December 22, 1986, requested the said respondent No. 1 to allow some time to the petitioners to reply in the matter. Copies of the said seven show-cause notices under section 276B of the said Act all dated November 20, 1986, and the said letter dated De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19, 1988. Thereafter, on February 16, 1989, the said representation was considered by the Income-tax Officer, Ward-IV (7), Calcutta, and the writ petitioners were duly given hearing. On February 17, 1989, the Income-tax Officer passed an order rejecting the contentions of the writ petitioners. Thereafter, on September 15, 1989, the following order was passed: Leave is granted to the writ petitioner to file supplementary affidavit challenging the order dated February 17, 1989. Such affidavit to be filed by September 27, 1989. A/O if any by November 23, 1989. Matter be treated as part heard liberty to mention. Accordingly, the petitioners filed a supplementary affidavit challenging the said order. No affidavit-in-opposition, however, has been filed by the respondent dealing with the said supplementary affidavit. It is the contention of the writ petitioners that the said finding of the Income-tax Officer is perverse and there is an error apparent on the said finding for which the said finding should be set aside and the said showcause notices should be quashed. Mr. Murarka, learned advocate for the petitioners, submitted that there cannot be any criminal liability for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he judgment and decision in the case of Rayala Corporation (P) Ltd. v. V. M. Muthuramalingam, ITO [1981] 129 ITR 675 (Mad), wherein it was held that even in a case of delayed payment of tax already deducted and paid before initiation of proceedings, although not in time, the Department can take action under section 276B of the Income-tax Act. Learned advocate, accordingly, submitted that the prosecution under section 276B of the Income-tax Act is, therefore, possible and valid even in the case of delayed payments as well. Learned advocate for the respondent further submitted that the contention of the petitioners to the effect that section 276B of the Income-tax Act, 1961, does not apply in respect of the firm and that the firm cannot be prosecuted even in case of non-payment of tax deducted at source is not correct. In this connection, learned advocate for the respondent made the following submissions : The word 'person' (appearing in section 276B of the Income-tax Act, 1961) has been defined in the Income-tax Act, 1961, in section 2(31) so as to include a firm. The first is an assessee under section 2(7) of the Income-tax Act, 1961. A partnership-firm as distinguished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Fund Commissioner [1987] 168 ITR 341 (Delhi). It has been submitted that the default continues and terminates only when the tax deducted is paid. It has also been submitted that liability under section 276B is an absolute liability and a partner in charge of affairs/business of the firm is liable in law for the defaults of the firm. It has also been submitted by learned advocate for the respondent that it is settled law that, by filing a writ petition, criminal proceedings should not be stopped or prevented unless the said notices are ipso facto mala fide or there is inherent lack of jurisdiction. According to learned advocate, in the instant case, admittedly, the petitioners have failed to pay taxes deducted at source within time as required under section 194A of the Income-tax Act read with rule 30 of the Incometax Rules although they have paid the said sums later on and thereby an offence under section 276B has been committed. In the circumstances, it is apparent that there is no inherent lack of jurisdiction nor any mala fides in the issuance of the show-cause notices and as such the said notices should not be quashed in this writ petition. It has further been submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the court finds a company guilty under the said section. If the court does so, it would be altering the very scheme of the Act and usurping the legislative function. The petitioner-company filed a return of income for the assessment year 1974-75 under the signature of its accountant who was also the constituted attorney of the company. The Income-tax Officer filed a petition of complaint in the court of the Chief Metropolitan Magistrate against the company and the accountant, alleging the commission of an offence punishable under section 277 on the grounds that, in the return, the company had shown a total profit from its business amounting to ₹ 66,62,114 from which a total deduction amounting to ₹ 12,89,107 was claimed. The deduction included a sum of ₹ 1,14,212 which was received by the company as interest on advance tax paid for the assessment year 1967-68. In claiming the deduction, it was stated in the return that it had already been assessed in an earlier year although there was no evidence to show that the amount had been assessed to tax in any previous year and that when this sum of ₹ 1,14,212 was added to the assessable income in the final a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies, other than those which have no share capital over and above a certain figure. Such a company has to file its return for purposes of assessment to income-tax under sub-section (1) or sub-section (2) of section 139 of the Income-tax Act, 1961, as the case may be. Under section 271(1)(a) of the Income-tax Act, 1961, penalty is leviable on the failure, without reasonable cause, to furnish a return of total income under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139 or section 148 or within the time allowed and in the manner required by sub-section (1) of section 139 or by such notice, as the case may be. Under the Wealth-tax Act, 1957, also, for failure to furnish a return under sub-section (1) of section 14 as required or under sub-section (2) of section 14, if notice is given, penalty is provided for in section 17 of that Act. In section 9 of the Companies (Profits) Surtax Act, 1964, however, the levy of penalty has been provided only for failure to furnish a return, without reasonable cause, as required under section 5 of the Companies (Profits) Surtax Act, 1964. It does not include the failure to furnish the return within the time al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder sub-section (2) of section 5 , a default. It is, therefore, evident that the Legislature intended to penalise only a default in filing the return. Therefore, looking to the scheme of the Companies (Profits) Surtax Act, 1964, the purpose which it was intended to serve and the clear language used in the relevant provisions, section 9 of the Surtax Act, 1964, envisages a levy of penalty for the failure to file a return under section 5 without reasonable cause and not for the failure to Me a return within the time prescribed under sub-section (1) or sub-section (2) of section 5. The Income-tax Officer is not entitled to impose penalty on the ground of failure to file a return within the time prescribed under sub-section (1) or subsection (2) of section 5 when the return is filed before the assessment is made and the Income-tax Officer accepts it and completes the assessment on the basis of such a return. In the case of CIT v. Triveni Engineering Works Ltd. [1985] 154 ITR 561 (Delhi), which was relied upon by the petitioner, the facts were, inter alia, that the petitioner had to file a return under the Companies (Profits) Surtax Act, 1964, for the relevant year by September ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a term which shall not be less than three months but which may extend to three years and with fine. Section 276B which provides that for failure to deduct and to pay tax as required under the provision of sub-section (9) of section 80E as punishable was introduced with effect from 1st October, 1975 (sic). The relevant period for alleged default was earlier to October 1, 1975, and as such the said provisions of section 276B cannot be made applicable there to the case of the petitioner. (sic). It appears to me on a proper construction of section 276B of the Income-tax Act that the word person referred to in the said section does not mean to include either a partnership firm or any partner thereof and the meaning of the word person in section 2(31) of the said Act has no application to section 276B of the said Act. In this connection, I take note of the judgment and decision of the Supreme Court in the case of Kapurchand Shrimal v. TRO [1969] 72 ITR 623. At page 629 of the said report, the Supreme Court observed as follows : Sections 276, 276A, 277 and 278 on which reliance was placed by counsel for the Revenue in support of his argument also do not assist him. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B, delay in payment of income-tax is not an offence. There is, however, provision for penalty as a consequence of failure to deduct or pay under section 201 (1) of the Income-tax Act. Section 200 of the Income-tax Act provides as follows : Any person deducting any sum in accordance with the provisions of sections 192 to 194, section 194A, section 194B, section 194C, section 194D and section 195 shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs. Section 201 provides as follows : If any such person and in the cases referred to in section 194, the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax : Provided that no penalty shall be charged under section 221 from such person, principal officer or company unless the Assessing Officer is satisfied that person or principal officer or company, as the case may be, has without good and sufficient reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings, it is well settled by numerous judicial decisions already noted that such proceedings have to be initiated within a reasonable time and a lapse of 10 to 16 years could not be said to be reasonable and initiation of proceedings after a lapse of such a long time would be contrary to public policy and abuse of process of law for the obvious reason that, after lapse of such a long time, the evidence, facts and other materials could not be available. Therefore, proper justice could not be rendered. Therefore, such delayed proceedings should not be allowed. It is also a well established principle of criminal law that, without mens rea, there cannot be criminal liability. The payments in this case have all been duly made although such amounts were deducted out of time. But no mens rea could have been proved or established. It may be noted that a partnership firm is not a natural person and, therefore, cannot be prosecuted under section 276B of the Act inasmuch as punishment by way of imprisonment is compulsory thereunder during the relevant year. In the instant case the essential ingredient of an offence under section 276B of the Act is wholly absent. The judgment and decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer, Ward 4(7), Calcutta, that the first show-cause notice contemplating prosecution was issued on November 8, 1976, for the assessment years 1968-69 to 1974-75. Relevant portion of the said order in this connection is set out hereinbelow : Next issue raised by the assessee was that proceedings for launching prosecution have been initiated after more than 10 to 16 years and that there was no lawful justification for initiating such proceedings after such a long lapse of time. Firstly, in this regard, I have to state that there is no question of any limitation for launching of prosecution under the Incometax Act. The last payment was made as late as on April 22, 1976 and the first show-cause notice contemplating prosecution was issued as far back as on November 8, 1976, for the assessment years 1968-69 to 1974-75. Hence, the assessee's contention in this regard is not accepted. It has been submitted by learned advocate for the petitioner that as no steps were taken pursuant to the aforesaid show-cause notice the proceedings relating thereto were ultimately dropped or lapsed. It appears to me that once a show-cause notice was already issued which was not given effect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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