2002 (11) TMI 84 - HC - Income Tax

Failure To Deduct Tax At Source And Deposit - order of conviction - offence punishable under section 276B/278B - On behalf of the Income-tax Department, arguments were advanced before the Supreme Court that in view of the provision of section 6 of the General Clauses Act, pending proceedings will be saved in the absence of any specific provision in the amended Act, since the amended Act is silent about retrospective applicability. The Supreme Court has answered this, holding that, section 6 of the General Clauses Act will not apply to omission of any provision in the Act but will apply only to repeal. In the present case penal provision was completely omitted, therefore, it would be considered as if it had never been in the statute book and for the same no prosecution could be launched or continued. In view of the aforesaid legal position about the effect of applicability of the Amendment Act of 1987 omitting the provision 276B from the statute book, the applicants could not have been held guilty of the offence on the date of delivery of judgment by the trail court on April 12, 1996. On that date, the act of not deducting and not depositing tax deducted at source, was not an offence and for this only penalty was prescribed. Therefore, conviction and sentence of the applicants as imposed by the trial court is hereby set aside.

Summary

Issues:
Conviction under section 276B/278B of the Income-tax Act, 1961 for failure to deduct and deposit tax deducted at source within time frame. Interpretation of the amended provisions of the Act post-April 1, 1989. Application of the principle of retrospective applicability of penal provisions.

Analysis:
The case involved the applicants, partners of a business entity, who were convicted for failing to deduct and deposit tax deducted at source within the prescribed time frame. The trial court and the appellate court upheld the conviction. The applicants argued that the amended provisions of the Income-tax Act post-April 1, 1989, made failure to deduct tax at source a penalty offense rather than a punishable offense. They contended that the delay in depositing the tax was unintentional and not deliberate, thus no offense was committed. The prosecution relied on the charge that the applicants failed to deduct and deposit tax from payments made to various creditors for the assessment year 1986-87.

The applicants further argued that the omission of section 276B from the Act, replaced with section 271C post-April 1, 1989, meant that failure to deduct tax at source attracted a penalty rather than prosecution. They cited relevant case laws to support their position. The non-applicants contended that there was no saving clause in the amended Act for retrospective applicability, and thus the complaint was filed under the old law, making the applicants liable. The Supreme Court's interpretation of the effect of repealing a provision without a saving clause was considered, emphasizing that pending proceedings may not continue under the new provision without a saving clause for ongoing cases.

The Income-tax Department argued for the application of section 6 of the General Clauses Act for saving pending proceedings in the absence of specific provisions in the amended Act. However, the Supreme Court clarified that section 6 applies to repeal and not omission of provisions. As section 276B was completely omitted post-April 1, 1989, it was deemed as if it never existed, and no prosecution could be initiated or continued under it. Therefore, the conviction and sentence of the applicants were set aside, as failure to deduct tax deducted at source was not an offense post-April 1, 1989, but attracted a penalty instead.

In conclusion, the judgment allowed the revision in favor of the applicants based on the retrospective interpretation of the amended provisions of the Income-tax Act, clarifying that failure to deduct tax at source post-April 1, 1989, attracted a penalty and not prosecution. The omission of section 276B without a saving clause meant that the applicants could not be held guilty of the offense, and their conviction was overturned.