1984 (8) TMI 21 - HC - Income Tax

Summary

Issues Involved:
1. Competence of complaints without determination of liability by an authority under the Act.
2. Existence of any subsisting order of a competent authority under the Act.
3. Determination by a competent authority inconsistent with the liability on which the complaints are based.
4. Whether the proceedings before the criminal court constitute an abuse of the process of the court.

Detailed Analysis:

1. Competence of Complaints Without Determination of Liability by an Authority Under the Act:
The court concluded that there is no provision in the Income-tax Act, 1961, that bars the institution of a complaint for an offence under section 276B in the absence of a determination of liability by an authority under the Act. Section 293 of the Act bars suits to set aside or modify any assessment order, but the complaints in question do not fall within this scope. The court noted that section 276B penalizes failure to deduct or pay tax as required by section 194 of the Act, which mandates anticipatory deduction irrespective of the recipient's ultimate tax liability. Therefore, the absence of a determination of liability does not render the complaints incompetent.

2. Existence of Any Subsisting Order of a Competent Authority Under the Act:
The court found that there were no subsisting orders of competent authorities under the Act that could serve as a valid basis for the complaints. The orders of the Income-tax Officer and the Appellate Assistant Commissioner, which initially determined the amount paid to shareholders as "deemed dividend," had been set aside by the Tribunal on the ground of limitation. Consequently, these orders ceased to have any legal existence, and the prosecutions were filed after these orders were set aside.

3. Determination by a Competent Authority Inconsistent with the Liability on Which the Complaints Are Based:
The court acknowledged that three different Benches of the Delhi Circle of the Income-tax Appellate Tribunal had determined that the amounts received by shareholders could not be treated as "deemed dividends" but were taxable as "capital gains." These decisions, which became final as they were not challenged by the Department, are binding on the Department. This determination is inconsistent with the basis of the complaints, which allege that the payments were "deemed dividends."

4. Whether the Proceedings Before the Criminal Court Constitute an Abuse of the Process of the Court:
The court concluded that the prosecutions constituted an abuse of the process of the court for several reasons:
- The prosecution was initiated without a proper determination of liability under the Act, which is unjust and unfair, especially given the complex nature of taxation laws.
- The prosecutions were based on orders that had been set aside, rendering them void in the eyes of the law.
- There were binding decisions by the Tribunal in favor of the shareholders, which the Department did not challenge, indicating that the prosecutions were indiscreet.
- The company acted in a bona fide manner, obtaining legal opinions and consulting with major shareholders, and retained part of the sale price as a precautionary measure.
- The court emphasized that the retained amount should be paid to the shareholders or to the Government, subject to any directions from the Supreme Court in the pending special leave petition.

Conclusion:
The court quashed all the complaints and the orders summoning the petitioners, subject to the condition that the retained amount would be paid to the shareholders or the Government as directed by the Supreme Court or, if the proceedings in the Supreme Court are withdrawn, within four weeks with interest at 11% per annum from the date of retention to the date of payment.