2000 (4) TMI 21 - HC - Income Tax

Summary

Issues Involved:
1. Legality and validity of the authorisation issued under section 279(1) of the Income-tax Act, 1961.
2. Maintainability of prosecution under section 276B of the Income-tax Act, 1961, after the amendment effective from April 1, 1989.
3. Applicability of section 6 of the General Clauses Act, 1897, to sustain prosecution proceedings initiated after the amendment.
4. Impact of the Income-tax Appellate Tribunal's decision on the prosecution proceedings.

Issue-wise Detailed Analysis:

1. Legality and Validity of the Authorisation Issued Under Section 279(1) of the Income-tax Act, 1961:
The petitioners challenged the authorisation issued by the Commissioner of Income-tax under section 279(1) of the Income-tax Act, 1961, for filing a complaint against them under section 276B of the Act, as it stood prior to the amendment effective from April 1, 1989. The authorisation was issued in March 1992, and the complaints were filed on March 31, 1992. The petitioners argued that the contracts were assigned entirely to other entities, and thus, there was no contractor-subcontractor relationship necessitating tax deduction at source under section 194C(1) of the Act. However, the Assessing Officer rejected this stand and levied penal interest under section 201(1A) of the Act.

2. Maintainability of Prosecution Under Section 276B of the Income-tax Act, 1961, After the Amendment Effective from April 1, 1989:
The petitioners contended that non-deduction of tax at source ceased to be a criminal offence with the amendment of section 276B, effective from April 1, 1989. They argued that the authorisation and subsequent filing of complaints were illegal and invalid. The court noted that the new section 276B, effective from April 1, 1989, omitted the default of non-deduction of tax at source from its ambit. Therefore, complaints filed after the insertion of the new section could not be sustained.

3. Applicability of Section 6 of the General Clauses Act, 1897, to Sustain Prosecution Proceedings Initiated After the Amendment:
The respondents argued that the complaints were saved by section 6(c) of the General Clauses Act, 1897, which provides that repeal of an enactment does not affect any obligation or liability incurred under the repealed enactment. The court, however, referred to the Supreme Court's decisions in Rayala Corporation (P.) Ltd. v. Director of Enforcement and Kolhapur Canesugar Works Ltd. v. Union of India, which clarified that section 6 applies to repeals and not to omissions. The court concluded that section 6 of the General Clauses Act was not applicable in this case since the amendment was an omission and not a repeal.

4. Impact of the Income-tax Appellate Tribunal's Decision on the Prosecution Proceedings:
The Tribunal, in its order dated February 23, 1995, concluded that no income-tax was ultimately payable by the payees, and thus, no interest could be recovered from the petitioners for not deducting tax at source. The Tribunal's order, which attained finality, was used by the petitioners to argue for discharge under section 245(2) of the Criminal Procedure Code. However, the court did not delve into this issue, as the petitioners succeeded on the primary ground of the non-maintainability of the complaints due to the amendment of section 276B.

Conclusion:
The court held that the complaints filed on March 31, 1992, under section 276B of the Act for failure to deduct tax at source were not maintainable and deserved to be quashed. The petition was allowed, and the petitioners were discharged. The court did not address the issue of the survival of prosecution proceedings initiated before the amendment, as it was not relevant to the present case. There was no order as to costs.