2024 (1) TMI 1440 - HC - Income Tax

Offence punishable u/s 276B - TDS (Tax Deducted at Source) was collected by the company but not deposited into the Central Government account in time - delay of payment on 39 occasions as per the online data available - HELD THAT - The entire amount of TDS along with interest was paid to the income tax department. The delay occurred on 39 occasions and since the payments were delayed the interest component was collected. The petitioners had clarified that the delay in crediting TDS amount to the Central Government account was on account of crisis in the company. In the said circumstanes it cannot be said that company entertained any fraudulent intention to avoid the TDS collected. No useful purpose would be served at this length of time to criminally prosecute the petitioners. In the peculiar facts and circumstances of the present case when the entire amount of TDS along with interest was paid even prior to the first communication from the Department and the balance interest amount was paid after the notice this Court deems it appropriate to quash the proceedings against the petitioners. Proceedings against the petitioners on the file of Special Judge for Economic Offences at Hyderabad are hereby quashed. Criminal Petition is allowed.

Summary

The petitioners challenged the prosecution initiated by the Income Tax Department for alleged evasion and non-payment of Tax Deducted at Source (TDS) by their company. The complainant alleged that the TDS collected for the assessment year 2011-12 was not deposited into the Central Government account on time, resulting in multiple delayed payments. The petitioners were accused of deliberately not crediting the tax to the Central Government, constituting an offense under section 276B of the Income Tax Act.The Income Tax Officer notified the petitioners of the outstanding TDS amount and interest payable due to delays in payment. The petitioners subsequently paid the balance amount as directed. Despite this, the Commissioner of Income Tax proposed prosecution, which was sanctioned in 2016, leading to the filing of a complaint in 2017.The petitioners argued that they had paid the entire TDS amount before being notified of the outstanding interest, emphasizing their lack of intent to violate tax laws. They cited legal precedents, including a Supreme Court judgment emphasizing a considerate administration of tax laws and a Rajasthan High Court case where proceedings were quashed under similar circumstances.On the other hand, the Income Tax Department contended that the violation came to light during a survey and relied on legal principles establishing corporate criminal liability for failure to deduct or pay taxes. They also referred to a Division Bench order emphasizing adherence to prescribed legal procedures.The Court considered the timeline of events, noting that the petitioners had paid the TDS and interest amounts before being formally notified by the Income Tax Officer. Despite the delay in crediting the TDS to the Central Government account, the petitioners had eventually settled the outstanding amounts without objection from tax authorities.In its analysis, the Court highlighted the provisions of section 276B of the Income Tax Act, which penalize failure to credit TDS amounts to the government account. It distinguished the Madhumilan Syntex Limited case cited by the Income Tax Department, clarifying that the Supreme Court had not decided on the merits but only on the maintainability of the complaint.Considering the circumstances, including the reasons for the payment delays attributed to the company's financial crisis, the Court concluded that prosecuting the petitioners at that stage would serve no purpose. It noted that the entire TDS amount, along with interest, had been paid before and after notifications from the tax authorities. Therefore, the Court deemed it appropriate to quash the proceedings against the petitioners.In the final ruling, the Court allowed the Criminal Petition, thereby quashing the proceedings against the petitioners in the Economic Offences court. The judgment emphasized the unique facts of the case and the timely settlement of the tax dues as reasons for its decision.