1997 (3) TMI 55 - HC - Income Tax

Central Government, Interest Payable, Offences And Prosecution, Retrospective Operation, Tax At Source, Tax Deducted At Source, Taxing Statutes

Summary

Issues:
1. Framing of charges under section 276B of the Income-tax Act, 1961 by the Special Magistrate.
2. Interpretation of the Explanation to section 194A of the Act.
3. Retrospective effect of the Explanation and strict construction of provisions imposing penal liability.
4. Argument regarding ignorance of law and its relevance in penal provisions.

Detailed Analysis:
1. The judgment involves the framing of charges under section 276B of the Income-tax Act, 1961 by the Special Magistrate against the petitioners. The petitioners, partners of a firm, had deducted interest payable to a creditor and paid the tax due within the prescribed time. However, the Income-tax Officer alleged that the tax on interest payable was not paid within the specified time, leading to the filing of complaints. The petitioners challenged the charges, arguing that they had complied with the law as it stood before an amendment in 1987 to section 194A of the Act.

2. The court considered the interpretation of the Explanation to section 194A of the Act, which was inserted in 1987. The petitioners contended that the Explanation created a fresh penal liability, different from the previous understanding of the law. They relied on a previous decision to support their argument. The court agreed with the petitioners' interpretation, emphasizing that an Explanation is usually clarificatory and retrospective, but provisions imposing penal liability must be strictly construed.

3. The judgment discussed the retrospective effect of the Explanation and the principle of strict construction in penal provisions. It highlighted that penal provisions should be interpreted strictly, and any ambiguity should be resolved in favor of the subject. The court noted that prior to the amendment, the law allowed the assessee to pay tax within a specified period after crediting the interest amount to the creditor's account, which was the practice followed by the petitioners in this case.

4. The court addressed the argument regarding ignorance of law and its relevance in penal provisions. While acknowledging that ignorance of law is not an excuse, it emphasized that there is no presumption that everyone knows the law. The court considered the circumstances before the amendment and the understanding of the law at that time. Ultimately, the court set aside the charges against the petitioners, finding that they had not committed an offense under section 276B of the Act. The complaints filed by the respondent were dismissed, and the petitioners were discharged of the offenses.