2014 (9) TMI 583 - HC - Income Tax

Failure to deduct TDS Offence u/s 194A Complaint u/s 482 Cr.P.C read with section 276B of IT Act petitioner argued that the complaint was filed under Section 276-B, which provision has been amended after 01.04.1989 and only failure to pay tax deducted at source has been made offence. - Held that - Petitioner S.C. Kumar was appointed as a nominee Director in M/s Sukhna Paper Mills Limited by the Industrial Finance Corporation of India - There is also nothing in the complaint to show that the present petitioner was responsible for managing day-to-day affairs of that company - a person appointed as a Director on behalf of the corporation will not be liable to incur any obligation or liability. Amendment to section 194A - retrospective or prospective - Held that - Section 194A has been amended to provide that the tax will be deducted at source on accrual of interest in the end of the accounting year or at the time of crediting to the account of payee or at the time of payment, whichever is earlier and it further states that it was done with a view to prevent postponement of liability relating to such deduction of tax at source. Thus the explanatory note itself reveals that there was a lacuna or loop hole in the unamended provisions of Section 194A which enabled the concerned person to postpone the liability relating to such deduction of tax at source and thus dwindling the tax collection. - there is absolutely no doubt that Explanation to subsection (1) of Section 194A has created a fresh penal liability and it cannot be said to be a simple Explanation of the existing provisions of this section. If that is so, then this Explanation cannot have retrospective operation. Scope of section 276B Held that - The perusal of amended Section shows that now mere failure to deduct tax is no longer offence under Section 276-B of the Income Tax Act. The Hon ble Supreme Court also in M/s General Finance Company vs. Assistant Commissioner of Income Tax, 2002 (9) TMI 3 - SUPREME Court while examining the provisions of Section 269SS concluded that even if the offence was committed at the time of filing of the complaint, the same could not be continued after the omission of the provision. - after the omission of the provision of failure to deduct tax at source, the trial cannot be continued against the petitioners. - Decided in favour of assessee.

Issues Involved:
1. Quashing of the complaint and summoning order.
2. Liability of a nominee director.
3. Applicability of Section 194-A of the Income Tax Act.
4. Applicability of Section 276-B of the Income Tax Act.
5. Abuse of the process of the court.

Issue-wise Detailed Analysis:

1. Quashing of the Complaint and Summoning Order:
The petitioner sought quashing of the complaint filed by the Income Tax Officer on 26.03.1987 and the subsequent summoning order issued by the Chief Judicial Magistrate (CJM), Chandigarh. The petitioner argued that the complaint disclosed no offence against the law and facts, and the summoning order was a non-speaking and cryptic order. However, the court found that since the complaint was filed by a public servant acting in the discharge of official duties, there was no necessity to examine the complainant or witnesses in preliminary evidence as per the proviso to Section 200 Cr.P.C. Therefore, the summoning order dated 26.03.1987 was held valid.

2. Liability of a Nominee Director:
The petitioner, a nominee director appointed by the Industrial Finance Corporation of India, argued that he was not concerned with the day-to-day affairs of the company and thus could not be held responsible for the conduct and affairs of the company. The court found that the petitioner attended only the Board meetings and was appointed to watch the financial interests of the Industrial Finance Corporation of India. The complaint did not show that the petitioner was responsible for managing the day-to-day affairs of the company. Furthermore, Sections 25 and 30-A of the Industrial Finance Corporation Act provided that a person appointed as a director on behalf of the corporation would not incur any obligation or liability.

3. Applicability of Section 194-A of the Income Tax Act:
The complaint alleged that M/s Sukhna Paper Mills Limited failed to deduct tax at source on interest payments for the assessment year 1984-85. However, the explanation to Section 194-A, which deemed crediting interest to an "Interest Payable" account as crediting to the payee's account, was inserted by the Finance Act 1987, effective from 01.06.1987. The court noted that this explanation created a fresh penal liability and could not be applied retrospectively. Thus, the complaint for the year 1984-85 was without jurisdiction and contrary to the provisions of the Act.

4. Applicability of Section 276-B of the Income Tax Act:
The petitioner argued that Section 276-B was amended with effect from 01.04.1989 to make only the failure to pay tax deducted at source an offence. The court observed that the amended Section 276-B no longer considered mere failure to deduct tax as an offence. Citing precedents, the court held that the trial could not continue based on the unamended provision, and the complaint under Section 276-B for the year 1984-85 was invalid.

5. Abuse of the Process of the Court:
The court concluded that the continuation of the complaint proceedings against the petitioner amounted to an abuse of the process of the law. The petition was found to have merit, and consequently, the complaint dated 26.03.1987, the summoning order dated 26.03.1987, and the subsequent proceedings against the petitioner were quashed.

Conclusion:
The court allowed the petition, quashing the complaint and summoning order against the petitioner, and held that the continuation of the proceedings was an abuse of the process of the court.

← Previous Next →