1984 (11) TMI 32 - HC - Income Tax

Summary

Issues Involved:
1. Quashing of prosecution proceedings.
2. Delay in depositing tax deducted at source.
3. Imposition and cancellation of penalty.
4. Effect of penalty cancellation on criminal prosecution.
5. Applicability of section 279(1A) of the Income-tax Act.

Summary:

1. Quashing of Prosecution Proceedings:
The petitioners sought to quash the prosecution proceedings initiated against them u/s 276B of the Income-tax Act, 1961, for failing to deposit tax deducted at source within the prescribed time. The trial court rejected their application, noting that the appeal against the penalty cancellation by the Commissioner of Income-tax was pending before the Income-tax Appellate Tribunal and that the findings of the Commissioner were not binding on the criminal court.

2. Delay in Depositing Tax Deducted at Source:
The petitioners, a private limited company, deducted income-tax at source on interest payments to eight parties but failed to deposit the deducted tax with the Central Government within the stipulated time. The delays ranged from one month to over a year.

3. Imposition and Cancellation of Penalty:
The Income-tax Officer initiated penalty proceedings u/s 201(1) and 221 of the Income-tax Act, imposing a penalty of Rs. 20,000 on the petitioners. However, the Commissioner (Appeals) quashed the penalty, citing financial stringency and notional deductions as "good and sufficient reasons" for the delay. The Income-tax Appellate Tribunal upheld this decision.

4. Effect of Penalty Cancellation on Criminal Prosecution:
The court observed that the Income-tax Act provides for separate provisions for interest, penalty, and criminal prosecution. The cancellation of the penalty by the Commissioner and the Tribunal, based on "good and sufficient reasons," was considered a valuable piece of evidence in favor of the petitioners. The court noted that while the criminal court is not bound by the findings of the income-tax authorities, such findings should be given due regard, especially when they establish reasonable cause for the delay.

5. Applicability of Section 279(1A) of the Income-tax Act:
The complainant argued that u/s 279(1A), prosecution cannot be maintained when penalties have been reduced or waived, but this provision does not apply to prosecutions u/s 276B. The court held that while section 279(1A) creates a legal bar, it does not preclude cases where the merits have already been adjudicated under the Income-tax Act.

Conclusion:
The court allowed the petitions and quashed the three prosecutions pending in the trial court, recognizing the findings of the Commissioner and the Tribunal as significant evidence of reasonable cause for the delay in depositing the tax deducted at source.