2024 (9) TMI 974 - HC - Income Tax

Offence u/s 276B - accused was making various payments such as fees of artists and other contracts, professional and other consultancy charges, rents etc., without deducting tax at source (TDS) - HELD THAT - As per section 276B if a person fails to pay to the credit of the Central Government, the tax deducted at source by him as required by or under the provision of Chapter XVII(B) or the tax payable by him as required or under sub Section (2) of Section 115-O or the second proviso to Section 194B, shall be punishable with imprisonment not less than three months but which may extend to 7 years and with fine. In this case, the allegation is that, the petitioners never deducted tax at source. If that be the case, there is force in the argument of the petitioners that Section 276B is not attracted. Moreover, the entire amount with penal interest is already paid by the petitioners. If that be the case, the continuation of prosecution is not necessary against the petitioners. Therefore, this Criminal Miscellaneous Case is allowed. All further proceedings against the petitioners on the file of Additional Chief Judicial Magistrate Court (Economic Offences) Ernakulam are quashed.

Summary

Issues:
1. Allegation of non-deduction of tax at source by the accused.
2. Interpretation of Section 276B of the Income Tax Act.
3. Necessity of prosecution under Section 276B.

Detailed Analysis:
The judgment by the High Court of Kerala involved the case of accused Nos. 1 to 4 in CC No.637/2014, where they were accused of not deducting tax at source as required by the Income Tax Act. The complaint was filed by the Income Tax Officer (TDS), alleging an offence under Section 276B of the Income Tax Act. The petitioners argued that even if the allegations were accepted, no offence was made out. The petitioners contended that during the financial year 2010-11, TDS was not deducted due to ignorance, but the entire amount along with penal interest was paid upon realization of the mistake (para. 2-4).

The court examined Section 276B of the Income Tax Act, which stipulates punishment for failure to pay tax deducted at source or tax payable to the Central Government. The section provides for imprisonment ranging from three months to seven years along with a fine for non-compliance. The court noted that the petitioners had paid the entire outstanding amount with penal interest upon being informed by the department (para. 4-5).

The court considered the argument put forth by the petitioners that Section 276B is intended for non-payment of already deducted TDS and since the amount was paid in full, the prosecution under this section was not warranted. The court agreed with this argument, stating that if the petitioners had rectified the mistake by paying the outstanding amount along with interest, the continuation of the prosecution was unnecessary. Consequently, the court allowed the Criminal Miscellaneous Case and quashed all further proceedings against the petitioners in CC No.637/2014 (para. 6).