2024 (10) TMI 110 - HC - Income Tax

Criminal complaint u/s 200 of Cr.P.C. for the offence punishable u/s 276C (2) r.w.s. 278B of the Income Tax Act - Petitioners failed to deposit such tax assessed HELD THAT - The payment of the tax liability was deposited by the Petitioners about a year ago, prior to filing of the complaint. There is no whisper of such deposits made by the Petitioners in the entire complaint. The averments in the complaint would go to show that the Petitioners failed to pay the self-assessment tax together with interest and penalty. Thus, when the self-assessment tax was deposited much prior to the filing of the complaint and intimated to the department vide letter dated 28.03.2018, it was incumbent upon the complainant to obtain a fresh authorisation with regard to the delayed interest and penalty only. Besides, there is no response given to the request made by the Petitioners in the letter dated 28.03.2018 for waiver of interest and penalty. Thus, the authorisation obtained in the year 2017, no longer subsists when the Petitioners paid the self-assessment tax during the year 2017-2018. What remained at the time of filing of the complaint was only interest on delayed payment as well as penalty. Thus, it was necessary for the Department to obtain a fresh authorisation to launch the prosecution only for the purpose of interest and penalty. The question is whether there is any wilful default in making payment of the assessed tax. Applying the ratio in the case of Unique Trading Company 2024 (2) TMI 405 - BOMBAY HIGH COURT it is crystal clear that the Petitioners by filing returns, declaring the tax liability and also requesting the Department to grant installments, would certainly show that such attempts cannot be considered as wilful default in making the payment, which is sine qua non for launching prosecution. Even otherwise, the amount was deposited somewhere during the year 2017-2018 whereas the complaint is filed in the year 2019 and that too, without disclosing such payments. The prosecution which has been launched against the Petitioners has to be termed as an abuse of the process of law as no purpose would be served in continuing with such a complaint. The complaint which is launched by the Department, therefore, requires to be quashed and set aside by exercising extraordinary powers under Section 482 of Cr.P.C. The complaint is, therefore, quashed and set aside.

Summary

Issues:
1. Whether the petitioners' prosecution under the Income Tax Act is valid.
2. Whether the petitioners' actions constitute wilful default in making tax payments.

Analysis:
Issue 1:
The petitioners sought relief through a writ to quash a criminal complaint filed against them under Section 276C (2) read with Section 278B of the Income Tax Act. The petitioners argued that they had already paid the self-assessment tax and the tax assessed by the Department before the complaint was filed. The court examined the correspondence between the parties, noting that the petitioners had requested time to pay the assessed tax in installments and had also sought waiver of interest and penalty. Despite the payments made by the petitioners, the Department obtained authorization for prosecution in 2017, based on the self-assessment tax. The court found that the subsequent payments made by the petitioners were not considered, and the complaint filed in 2019 did not mention these payments. The court held that the authorization obtained in 2017 was no longer valid as the petitioners had paid the self-assessment tax in 2017-2018. Therefore, the court quashed the complaint, terming it an abuse of the legal process.

Issue 2:
The court analyzed the concept of "wilful act" under Section 276C and the requirement of establishing mens rea to prove tax evasion. Referring to previous judgments, the court emphasized that mere delayed payment, even if admitted liability is paid subsequently, does not constitute wilful default to evade tax. The court highlighted that there must be a deliberate attempt to evade tax, which was not evident in the petitioners' case. The court found that the petitioners' actions, including filing returns, requesting installment payments, and seeking waiver of interest and penalty, did not amount to wilful default. Considering the payments made by the petitioners before the complaint was filed and the lack of mention of these payments in the complaint, the court concluded that the prosecution against the petitioners was unjustified. As a result, the court quashed the complaint, stating it served no purpose to continue with the legal proceedings.

In conclusion, the court ruled in favor of the petitioners, quashing the criminal complaint against them under the Income Tax Act, citing lack of wilful default and abuse of legal process as grounds for the decision.