1989 (4) TMI 55 - HC - Income Tax

Summary

Issues Involved:
1. Whether the petitioners should be discharged from the charge u/s 276B of the Income-tax Act, 1961.
2. Whether the prosecution of the petitioners should be quashed in light of the deletion of penalty by the Commissioner of Income-tax.
3. Interpretation of statutory provisions including sections 194A, 200, 201, 221, and 276B of the Income-tax Act, and sections 245 and 482 of the Code of Criminal Procedure, 1973.
4. The impact of the amendment of section 276B in 1986 on the prosecution.

Summary:

1. Discharge from the Charge u/s 276B:
The petitioners sought discharge from the charge u/s 276B of the Income-tax Act, 1961, based on the deletion of the penalty by the Commissioner of Income-tax. The Special Court had refused to discharge the petitioners, leading to the present application.

2. Quashing of Prosecution:
The prosecution was initiated due to the petitioners' failure to deduct income-tax u/s 194A in time and the resultant non-payment to the Central Government. The Commissioner of Income-tax, in a revision application, deleted the penalty on merits, accepting the petitioners' explanation for the delay. The court held that if a statutory authority under the Act has recorded a finding in favor of the assessee on merits, the prosecution cannot continue.

3. Interpretation of Statutory Provisions:
The court analyzed sections 194A, 200, 201, 221, and 276B of the Income-tax Act. It emphasized that under section 276B, prosecution requires proving the failure to deduct/pay tax and that the failure was without reasonable cause or excuse. The court noted that the burden of proving reasonable cause lies on the prosecution in a criminal trial, whereas in penalty proceedings, the assessee must prove good and sufficient reasons.

4. Impact of the 1986 Amendment to Section 276B:
The amendment omitted the words "without reasonable cause or excuse" from section 276B. The court held that the amendment did not change the principle that an order by a statutory authority on merits in favor of the assessee should lead to the discontinuation of prosecution. Sections 278AA and 278E were also discussed, with the court concluding that the amendment does not affect the principle that prosecution should be discontinued if the statutory authority has decided in favor of the assessee on merits.

Conclusion:
The court allowed the application, set aside the impugned order, and quashed the prosecution of the petitioners, emphasizing that continuing the prosecution would amount to an abuse of the process of the court.