2020 (3) TMI 1119 - HC - Income Tax

Non remittence of TDS in time - penal action initiated by the Income Tax Department against the petitioners - criminal proceedings - HELD THAT - The petitioners Company M/s.Vasan Health Care Private Limited has not remitted the TDS in time. It has partially remitted with interest but still remittence of TDS is due. Mere representation to defer action will not and cannot stop the authorities proceeding in accordance to law. The interim relief granted to the petitioners is to operate the bank account with minimum balance of ₹ 1.62 Crores by itself an indication that the petitioners have not cleared the entire due. Even otherwise, the interim order of the Court dated 08.01.2016, goes to show that only after the coercive measure of freezing the petitioners account, the Income Tax Department were able to recover about ₹ 8 Crores. While so, the petitioners, who have failed to pay TDS in time and what little paid was paid with delay and interest cannot stale the prosecution on frivolous and flimsy ground. In this case, the petitioners though deducted tax at source, not paid the same within the time prescribed. This action of initiating criminal prosecution after obtaining sanction from the appropriate authority cannot be termed as violative of principles of natural justice. Refer the case of Madhumilan Syntex Ltd 2007 (3) TMI 670 - SUPREME COURT wherein the Directors of the Company approached the Court seeking quash of the criminal prosecution on the ground that the tax deducted at source was paid with interest and there was reasonable cause of the belated payment, the Honourable Supreme Court after extracting the relevant provisions of the Income Tax Act once a statute requires to pay tax and stipulates period within which such payment is to be made, the payment must be made within that period. If the payment is not made within that period, there is default and an appropriate action can be taken under the Act. Interpretation canvassed by the learned counsel would make the provision relating to prosecution nugatory.' Following the dictum laid down by the Hon'ble Supreme Court in Madhumilan Syntex case supra , these Criminal Original Petitions are dismissed. Consequently, connected Miscellaneous Petitions are closed.

Summary

Issues:
Aggrieved by penal action for non-remittance of TDS, petitioners seek to quash criminal proceedings. Challenge to sanction order for prosecution under Section 279 of Income Tax Act. Violation of principles of natural justice alleged. Petitioners failed to pay TDS in time, leading to freezing of bank account. Legal question of whether prosecution for delayed TDS payment violates natural justice.

Analysis:
The petitioners filed criminal original petitions under Section 482 of Cr.P.C. to challenge the penal action by the Income Tax Department for non-remittance of TDS. The petitioners contested the sanction order for prosecution issued under Section 279 of the Income Tax Act, arguing that it violated principles of natural justice. Despite partial remittance with interest, TDS payment was still due, leading to coercive measures like freezing the bank account. The Court noted that the petitioners' failure to pay TDS on time, and the subsequent delayed payment with interest, did not justify stalling the prosecution on flimsy grounds.

The Court highlighted a previous case where the Supreme Court ruled on a similar matter concerning delayed TDS payment. In Madhumilan Syntex case, the Supreme Court held that failure to pay tax within the stipulated period constitutes default, allowing appropriate action under the law. The Court emphasized that statutory tax payments must be made within the specified period to avoid default, rejecting arguments that delayed payment of TDS should not lead to criminal liability.

Based on the precedent set by the Supreme Court in the Madhumilan Syntex case, the Court dismissed the Criminal Original Petitions, upholding the prosecution for delayed TDS payment. The petitioners' request to dispense with the personal appearance of certain parties before the trial court was considered, granting them the liberty to file a petition under Section 205 Cr.P.C. for the court's further consideration. The judgment reaffirmed the legal obligation to pay taxes within the prescribed period and the consequences of delayed payments under the Income Tax Act.