2007 (8) TMI 200 - HC - Income Tax

Offences and prosecution - Revenue alleged that assessee-firm committed an offences by not deducting tax at source while interest payment to creditors and liable for prosecution u/s 276B but assessee contended that after change of law failure to deduct tax was not an offence - Held that prosecution not maintainable

Summary

Issues:
Challenge to order rejecting discharge of accused under section 482 of Cr.P.C.
Interpretation of section 276B of the Income Tax Act pre and post April 1, 1989.
Applicability of section 6 of the General Clauses Act to the case.
Maintainability of prosecution for failure to deduct tax at source post-amendment.
Effect of omission vs. repeal on legal proceedings.

Analysis:

The judgment involves the revisional jurisdiction of the court under section 482 of the Code of Criminal Procedure to challenge the rejection of the discharge of the accused in a case related to the failure to deduct tax at source. The applicants, a partnership firm and its partners, were prosecuted for not deducting tax while making interest payments exceeding Rs. 1,000/- in aggregate, in violation of section 276B of the Income Tax Act, 1961. The prosecution was initiated before the Addl. Chief Metropolitan Magistrate, leading to the filing of a discharge application by the applicants.

The key contention revolved around the amendment to section 276B of the Income Tax Act with effect from April 1, 1989, which altered the nature of the offense related to failure to deduct tax at source. The applicants argued that the prosecution was not maintainable post-amendment, as failure to deduct tax was no longer considered an offense. They relied on legal precedents highlighting the distinction between "omission" and "repeal" and the applicability of section 6 of the General Clauses Act to such cases.

In contrast, the Revenue contended that the prosecution was valid as the relevant section of the Income Tax Act was not omitted at the time of launching the prosecution, and the offense was committed before the amendment. The court analyzed the statutory provisions of section 276B both before and after April 1, 1989, to determine the legal implications of the amendment on the prosecution.

The court referred to various judicial decisions, including those by the Supreme Court and different High Courts, to establish the legal position regarding omissions in statutes and the applicability of section 6 of the General Clauses Act. It was observed that the change in section 276B post-amendment amounted to an "omission," leading to the conclusion that the prosecution initiated after the amendment was not maintainable.

Ultimately, the court held that the prosecution for failure to deduct tax at source, post-amendment, was not sustainable, and the impugned order rejecting the discharge application was quashed and set aside. The revision application was allowed, with the ruling in favor of the applicants, without any order as to costs.