TMI Blog1989 (4) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act in time and the same resulted in non-payment of tax within the prescribed time to the credit of the Central Government. The amount of interest payable to seven different persons by the petitioner-firm (hereinafter referred to as "the assessee") was credited to their respective accounts on March 29, 1977, but the income-tax thereon was deducted only on July 29, 1977, and the same was paid to the credit of the Central Government on August 1, 1977, whereby two months' default was committed by the assessee in payment of the income-tax deducted or to be deducted at source (hereinafter referred to as the T. D. S.). Penalty proceedings were initiated under section 201 read with section 221 of the Act against the assessee in which notice was purported to have been served upon it and the Income-tax Officer imposed a penalty of Rs. 1,418 besides interest amounting to Rs. 113, total being Rs. 1,531. The assessee having learnt about the imposition of penalty preferred an appeal before the Appellate Assistant Commissioner of Income-tax who reduced the penalty to Rs. 500 by his order dated December 14, 1982. Being dissatisfied with the order of the Appellate Assistant Commissioner, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner was not justified in restricting the penalty to Rs. 500 as against Rs. 1,531 imposed by the Income-tax Officer under section 201 read with section 221. (ii) That no reasonable opportunity of being heard was given to the petitioner before the imposition of penalty. (iii) That due to non-receipt of the arhatia's account in time and the continued illness of the munim, there was delay in the finalisation of accounts. The advocate also cited the cases of the Income-tax Appellate Tribunal, Patna Bench, in the case of Dungarshi Das Mannalal Muzaffarpur (I. T. A. Nos. 679, 680 and 681 (Pat)) of 1983 and Paliwal Vastralaya, Muzaffarpur (I. T. A. Nos. 530, 531 and 532 (Pat)) of 1983 in his support. 3. I have considered the facts and circumstances of this case and think it was not a fit case for penalty. The penalty of Rs. 500 sustained by the Appellate Assistant Commissioner is deleted. 4. In the result, the petition is allowed." In view of the fact that the explanation of the assessee for not deducting and paying the T.D.S. within time was accepted by the Commissioner of Income-tax in statutory revision preferred before him and the entire amount of penalty was deleted, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the income by way of interest referred to in section 194A or the sum referred to in section 194C or the income by way of insurance commission referred to in section 194D is credited by a person carrying on a business or profession to the account of the payee as on the date up to which the accounts of such business or profession are made, within two months of the expiration of the month in which that date falls ; (2) in any other case, within one week from the last day of the month in which the deduction is made ; and (ii) in respect of sums deducted in accordance with the other provisions, within one week from the date of such deduction or date of receipt of the challan by the person making the deduction, as the case may be : Provided that the Income-tax Officer may, in special cases, and with the approval of the Inspecting Assistant Commissioner, (a) in cases falling under clause (i), permit any person to pay the income-tax deducted from any income by way of interest, other than income chargeable under the head 'Interest on securities' or any income by way of insurance commission quarterly on July 15th, October 15th, January 15th and April 15th, and (b) in cases fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax. (lA) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at fifteen per cent. per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid." (Emphasis supplied). "Section 221. (1) When an assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax is actually paid. Even if a person is able to show good and sufficient reasons for failure to deduct and pay the tax within time, he is liable to pay interest under the aforesaid provisions. The liability to pay interest is incurred automatically on the failure to deduct and pay the tax within time. Now, I take up the second liability incurred by such a person under which he or it has to pay by way of penalty a sum not exceeding the amount of tax in arrears. In the penalty proceeding, the Income-tax Department (hereinafter referred to as "the Revenue") has to only show that the assessee is deemed to be in default, meaning thereby that he has failed to deduct tax as required under section 194A of the Act or pay the same within time. Beyond this, in the penalty proceeding, nothing further has to be proved by the Revenue. So far as the assessee is concerned, for absolving himself from the liability of penalty, he is required to prove to the satisfaction of the Assessing Officer that there were good and sufficient reasons for the default. If the reasons were not good and sufficient, in that event, penalty is leviable ipso facto upon a mere finding that the assessee had failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding that the assessee had furnished good and sufficient reasons for failure to deduct and/or pay the tax, within time, and dropped the penalty proceeding or deleted the same, as the case may be, it can be said that he is still liable to be prosecuted under section 276B of the Act ? Can criminal court, in spite of a finding by the statutory authority under the Act that the assessee furnished good and sufficient reasons for not deducting and paying the tax within time, take a different view and hold that the failure on the part of the assessee was without reasonable cause or excuse ? My answer to the question posed by me is emphatically in the negative. Keeping in mind the language of section 276B, vis-a-vis sections 201 and 221, 1 am clearly of the view that the process of a criminal court should not be allowed to be abused in cases where an assessee has succeeded in proving good and sufficient reasons for his failure before an authority under the Act in a penalty proceeding. Of course, the penalty proceeding must be dropped or penalty must be deleted on the merits and not on any technical ground. In a case where the penalty proceeding is dropped or penalty imposed is deleted, not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny defence to prove their case. Thereafter, when the matter was taken to the Supreme Court, at the time of grant of special leave to prefer appeal, the appeal was allowed and the criminal prosecution of the accused-persons was quashed. The order of the Supreme Court runs : "Heard counsel, special leave granted. In view of the finding recorded by the Income-tax Appellate Tribunal that it was clear on the appraisal of the entire material on the record that Shrimati Janak Rani was a partner of the assessee-firm and that the firm was a genuine firm, we do not see how the assesses can be prosecuted for filing false return. We, accordingly, allow the appeal and quash the prosecution. There will be no order as to costs." (Emphasis added). From a bare perusal of the aforesaid judgment of the Supreme Court and the judgment of the Punjab and Haryana High Court, which has been also reported in the very same-volume of Income Tax Reports at page 911 (Volume 133), it would be clear that the apex Court has laid down the law that in cases where an authority under the Act having expert knowledge, after considering the entire materials on the record, has come to a conclusion in favour of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. On the basis of the aforesaid materials, reassessment proceedings were started and during the pendency of the same, a complaint was filed for prosecution of the assessee under sections 276C and 277 of the Act along with sections 193 and 196 of the Indian Penal Code (hereinafter referred to as the "Penal Code") on the allegations that the assessee had deliberately filed false return and had kept a false account with intention to use them as genuine evidence in the assessment proceedings. The assessee unsuccessfully moved the High Court of Madras for quashing his prosecution on the ground that during the pendency of the reassessment proceeding, prosecution could not have been launched. Thereafter, the matter was taken to the Supreme Court where the order of the High Court was affirmed and the prosecution of the assessee was allowed to continue. The apex Court in the light of the aforesaid facts laid down the law as follows (at p. 700) : "It is true that, as observed by this court in Uttam Chand v. ITO 1982] 133 ITR 909, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to the contention raised on behalf of the petitioner but rather, the same supports the petitioner and reiterates the law laid down in the case of Uttam Chand [1982] 133 ITR 909 (SC). In their Lordships' opinion, in appropriate cases, criminal prosecution should be dropped only where the authorities under the Act have decided in favour of the assessee. In my view, their Lordships have used the expression "appropriate cases" with some purpose. In cases where the authorities under the Act have not decided in favour of the assessee on merits but because of some technical reason, e.g., that the proceeding was not validly initiated under law or the same was initiated by an authority who had no jurisdiction to initiate the same, such cases only their Lordships meant as not appropriate cases for dropping the criminal proceeding ; otherwise, where the authorities under the Act have decided the matter on merits, in that event, the ratio laid down in the case of P. Jayappan [1984] 149 ITR 696 (SC), does not run counter to the law laid down in the case of Uttam Chand [1982] 133 ITR 909 (SC), rather the same is in consonance with the law laid down in the case of Uttam Chand [1982] 133 ITR 909 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secution against the petitioners merely because the penalty has been deleted on merits. So far as section 279(lA) of the Act is concerned, the petitioners are not claiming any protection under the same. Section 279(lA) is a bar to the launching of prosecution and with regard to cases covered by the said provision, no prosecution can at all be launched in any eventuality. Provisions have been made in different statutes, e.g., section 50 of the Indian Electricity Act, 1910, proviso to clause 6 of the Bihar Essential Articles (Display of Prices and Stocks) Order, 1977, issued under section 3 of the Essential Commodities Act, 1955, and section 20 of the Prevention of Food Adulteration Act, 1954, wherein it has been laid down that no prosecution shall be launched except with the sanction of the authority concerned. Likewise, under various statutes, e.g., sections 195, 196, 197, 198 and 199 of the Code and section 6 of the Prevention of Corruption Act, 1947, a bar has been put upon the powers of the court to take cognisance unless a complaint has been filed by a particular person or prosecution has been launched after obtaining requisite sanction. These provisions are not exactly on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of the judgment of the Supreme Court in the case of Uttam Chand [1982] 133 ITR 909. In ITO v. Kaluram [1985] 156 ITR 748, the Madhya Pradesh High Court was considering a case where prosecution was launched under section 277 of the Act along with other sections of the Penal Code on the ground that false return was filed and certain income which was assessable to tax was concealed. For income escaping assessment, action was taken against the assessee by issuing notice under section 148 of the Act. In that case, the Tribunal recorded a finding in favour of the assessee that there was no concealment at all of his income by the assessee. After the order of the Tribunal, an application was filed on behalf of the accused before the criminal court for discharge and the prayer was allowed against which, when the matter was taken to the High Court, the order of discharge was upheld. In Kanshi Ram Wadhwa v. ITO [1984] 145 ITR 109, the Punjab and Haryana, High Court was considering a case where, during the assessment proceeding, the Income-tax Officer passed an order imposing penalty on the assessee but the same was deleted by the Appellate Assistant Commissioner on merits in appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal trial in relation to the very same default which is the subject-matter of a criminal trial as well and the order has attained finality. I may indicate that there may be various modes of discontinuance. The criminal court, on being moved, is bound to discharge the accused. If an application is filed on behalf of the Revenue for withdrawal from prosecution before the learned Magistrate where the criminal trial is pending, the Magistrate, on these grounds, shall have no option but to accord permission for withdrawal. The other mode for discontinuance of the criminal proceeding is by moving this court and on this ground, the proceeding is liable to be quashed. Learned counsel appearing for the Revenue contended that the Cornmissioner of Income-tax, in his order passed under section 264 of the Act, has not deleted the penalty on merits, but deleted the same because no reasonable opportunity of hearing was afforded to the assessee before the imposition of penalty by the Income-tax Officer. It would be evident from the order of the Commissioner of Income-tax that this was one of the submissions urged on behalf of the assessee before him, but if this ground would have weighed with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paying the tax within time, had accorded sanction for launching prosecution in the present case. It was submitted that there is nothing to show that the order according sanction under section 279(1) of the Act, passed by the predecessor-Commissioner, was produced before the successor-Commissioner, while considering the revision application against penalty order and, as such, the order deleting penalty on merits is ipso facto illegal and can be of no avail to the accused in criminal case, even if the decision of the Supreme Court in the case of Uttam Chand [1982] 133 ITR 909 holds the field. There are three difficulties in accepting this submission. Firstly, the order under section 279(1) of the Act, according sanction, is an administrative order whereas the order passed under section 264 of the Act by the Commissioner of Income-tax is a quasi-judicial order in a revision arising out of a penalty proceeding which is quasi-criminal in nature. Secondly, the order passed under section 264 of the Act deleting the penalty on merits by the Commissioner of Income-tax after accepting the explanation of the assessee that he had good and sufficient reasons for not deducting and paying the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, in my view, has no force. Learned counsel appearing on behalf of the Revenue alternatively contended that even if this court holds that the decision of the Supreme Court in the case of Uttam Chand [1982] 133 ITR 909 holds the field, in the present case, the petitioners cannot take advantage of that decision as the same shall not apply to this case because their Lordships were dealing with section 276B of the Act as it stood prior to the amendment of 1986. It is said that by the amendment of 1986, the words "without reasonable cause or excuse" have been omitted from section 276B of the Act; as such, after the amendment, an accused incurs liability of prosecution no sooner it is shown that he has failed to deduct and/or pay the tax within time irrespective of the fact whether he had reasonable cause or not for not deducting and paying the tax within time. It is submitted that the amendment is retrospective. On the other hand, on behalf of the petitioners, it has been submitted that the amendment is neither retrospective nor could the same have been given retrospective operation, as a penal statute cannot be made retrospective. In my view, it is not necessary to decide this ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ege in the petition of complaint both the ingredients so as to constitute an offence under section 276B of the Act. It was necessary for the prosecution to prove also during the trial both the ingredients of the offence. If the prosecution was able to prove only the first ingredient and had either led no evidence or the evidence led was not found sufficient, in that event, an accused was not liable under section 276B of the Act. Now, it has to be seen as to what is the effect of the amendment. Can it be said that, after the amendment, the question whether an accused had any reasonable cause or not for not deducting and paying tax within time is only of academic importance and not relevant for a criminal court ? My answer is emphatically in the negative. Section 278AA is nothing else but proviso to section 276B of the Act, but a separate section has been inserted in the Act, as similar provisions have been made with respect to prosecution under sections 276A, 276AB, 276DD and 276E. The cumulative effect of the amendment, in my view, is that in case of prosecution under section 276B of the Act, two things have to be shown : firstly, that there was failure on the part of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A question arises as to whether the presumption against the accused for criminal prosecution under section 276B of the Act that he had no reasonable cause for his failure to deduct and pay the tax in time, stands rebutted by an order in his favour passed on merits by a statutory authority under the provisions of the Act relating to the same default by which it was held that the assessee had good and sufficient reasons for not deducting the tax or paying the same within time and the said order has attained finality. If, according to the case of Uttam Chand [1982] 133 ITR 909 (SC), the prosecution case that the accused had no reasonable cause or excuse for his failure stands dispelled by the finding of the statutory authority under the provisions of the Act, I do not think why, on the same analogy, after the amendment of 1986, a presumption in favour of the prosecution that the accused had no reasonable cause for his failure does not stand rebutted and the burden to prove, upon the accused, that there was reasonable cause for his failure does not stand discharged by an order of the statutory authority under the Act passed on merits relating to the very same default. Before the statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the course of criminal trial by leading oral and documentary evidence that there was reasonable cause for his failure and merely because he was able to prove before a statutory authority under the Act that he had good and sufficient reason for his failure, the obligation upon the accused under section 278AA of the Act does not stand discharged. From a bare perusal of section 278AA of the Act, it does not accused is required to prove before a criminal court by leading independent evidence in relation to reasonable cause for his failure. Such a contingency may arise in a case where no penalty proceeding is initiated, but a criminal prosecution is only launched. In that case, of course, to the satisfaction of the criminal court, the accused has to discharge his statutory obligation by leading evidence in support of his case that he had reasonable cause for failure. By the very same Amending Act of which section 278AA was inserted, section 278E was also inserted in the Act. From a bare perusal of the language of these two sections, it would appear that the Legislature has used different language therein. In section 278E of the Act, it has been laid down that culpable mental s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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