OFFENCES UNDER SECTION 276B READ WITH SECTION 278B UNDER INCOME TAX ACT, 1961

[Mr. M. GOVINDARAJAN]

Tax deducted at Source

The Income Tax Act, 1961 (‘Act’ for short) provides for deduction of tax at source from the persons concerned and remit the same to the credit of the central exchequer within the time stipulated and also to file return within the prescribed period in the prescribed form.  Failure to pay the tax deducted at source would attract launching of criminal proceedings against the tax deductor.

Section 276B of the Act provides that if a person fails to pay-

1. pay to the credit of the Central Government, the tax deducted at source by him as required by or under the provisions of Chapter XVII-B (collection and recovery of tax); or
2. pay tax or ensure payment of tax to the credit of the Central Government, as required by or under—

1. sub-section (2) of section 115-O (Tax distributed on domestic companies);
2. the proviso to section 194B (winnings from lottery or cross word puzzle etc.);
3. the first proviso to sub-section (1) of section 194R (Deduction of tax on benefit or perquisite in respect of business or profession);
4. the proviso to sub-section (1) of section 194S (payment on transfer of virtual digital asset); or
5. sub-section (2) of section 194BA (winnings from online game),

he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.

Section 278B of the Act provides that where an offence under this Act has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.  Therefore the company is also liable for failure to pay tax deducted at source.

Punishment not imposed in certain cases

Section 278AA of the Act provides that  notwithstanding anything contained in the provisions of section 276A, section 276AB, or section 276B or section 276BB (Failure to pay the tax deducted at source) no person shall be punishable for any failure referred to in the said provisions if he proves that there was reasonable cause for such failure.

Case laws

In M/S. A.M. ENTERPRISES AND ANOTHER VERSUS THE STATE OF JHARKHAND AND ANOTHER - 2023 (9) TMI 70 - JHARKHAND HIGH COURT, the petitioner’s firm had deducted TDS to the tune of Rs. 2,02,117/- for the financial year 2015-16, Assessment year 2016-17 but failed to deposit the same with the department.  The Economic Offence Complaint Case No. 17 of 2018 was lodged alleging therein that complainant was posted as Deputy Commissioner (TDS) filed the complaint in his official capacity of the alleged offence committed under section 276B read with section 278B of Income Tax Act, 1961  The petitioner filed a writ petition before the High Court against the said prosecution.  The contention of the petitioner is that business operation of the petitioner’s firm started in the month of January, 2016 and the petitioner’s firm did not know about the TDS for the last quarter of the financial year 2015-16.  As soon as the provision of TDS has come in the knowledge of the petitioner, the petitioner immediately consulted his chartered accountant.  On getting the advice from the Auditor the    petitioner has taken TAN Number for deducting TDS and depositing the same with the Income Tax Department.   The petitioner replied to the notice issued by the Department submitting that the petitioner has stated the honest mistake and the amount deducted has already been deposited along with the interest with the Income Tax Department.    The petitioner further submitted that there is no occasion to launch prosecution case against the petitioner.  Even no penalty proceeding is started as yet against the petitioner in view of section 271(C) of the Act.

The Department contended that once the statutory provision is not fulfilled the case has been rightly lodged by the Income Tax Department.   Depositing of the said TDS amount along with the interest has nothing to do with the prosecution case.   The petitioner in the anticipatory bail application it has come that the petitioner is ready to face the trial and thereafter the present case has been lodged. On this ground he submits that the case is fit to be dismissed.

The High Court found that the prosecution was launched after much delay of depositing the said TDS amount along with the interest.  It is not a case that the prosecution was filed earlier and thereafter the T.D.S amount was deposited.  Further there is no penalty proceeding initiated against the petitioner.  The assessee has succeeded in proving that there is full and sufficient reasons for his failure before the authority under the Act by way of filing the said reply   The High Court held that  there was no occasion to proceed against the petitioner under section 276(B) of the Act. The High Court quashed the criminal proceedings.

In M/S FUSION ENGINEERING PRODUCTS PVT. LTD. VERSUS UNION OF INDIA, INCOME TAX DEPARTMENT THROUGH SHRI KOLLURU SRINIVAS, INCOME TAX OFFICER (TDS WARD) , JAMSHEDPUR AND GAUTAM MUKERJEE, RATAN DAS, JYOTIRMOY GHOSH VERSUS UNION OF INDIA, INCOME TAX DEPARTMENT THROUGH SHRI KOLLURU SRINIVAS, INCOME TAX OFFICER (TDS WARD) , JAMSHEDPUR - 2023 (10) TMI 709 - JHARKHAND HIGH COURT , a  prosecution complaint was lodged for the delay in depositing the TDS amount of Rs.2,89,844/- for the Financial Year 2011-12 and assessment year 2012-13.   The main allegation in the complaint is the tax deducted at source has been paid after 7 days stipulated in the Act.  Two writ petitions have been filed before the High Court to quash the criminal proceedings initiated against the company and the Directors of the Company. 

The main plea of the petitioner is that the entire TDS amount has been deposited even before the issuance of receipt of notice. The delay was not intentional since 1991 BIFR proceeding was pending against the company and due to industrial sickness of the company, the TDS amount could not be deposited within the stipulated time.   There is inordinate delay of six years in issuing the show cause notice. The TDS amount was already deposited in the year 2009 whereas the show cause notice was issued in the year 2014.  The Revenue contended that the provisions are express and emphatic that once the TDS has been made and the company fails to deposit, penal provision is attracted.   Section 22 of the Sick Industrial Company (Special Provisions) Act, 1985, certain coercive actions has been mentioned, but that does include criminal prosecution under Sections 276B of the Act.

The High Court observed that the Income Tax Department in the counter-affidavit has not disputed that the TDS amount has been deposited, although after a delay of 12 months. The High Court was of the view that pendency of BIFR proceeding against the company due to industrial sickness of the company, delay in deposit of the TDS amount within the stipulated time was a reasonable cause. In view of the reasonable cause, Section 278 AA of the Income Tax will apply. The High Court quashed the impugned order as well as the entire criminal proceeding against the petitioners.