1999 (11) TMI 30 - HC - Income Tax

Summary

Issues Involved:
1. Continuation of prosecution after favorable appellate decisions.
2. Applicability of section 194A before the insertion of the Explanation.
3. Retrospective effect of the Explanation to section 194A.
4. Reasonable cause for not deducting and paying TDS.

Summary:

1. Continuation of prosecution after favorable appellate decisions:
The petitioners argued that since the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal held there was no violation of section 194A, the prosecutions should not continue. The Tribunal's decision, which followed the Punjab and Haryana High Court's judgment in Punjab Business and Supply Co. Pvt. Ltd. v. ITO, set aside the penalty and interest imposed by the Income-tax Officer. The court noted that the prosecution initiated under section 276B of the Income-tax Act should be quashed in light of these favorable findings, as the foundation for prosecution had been nullified.

2. Applicability of section 194A before the insertion of the Explanation:
The petitioners contended that before the Explanation was inserted, crediting interest to the "interest payable account" did not amount to payment to the creditors or credit to their accounts. The court agreed, stating that the Explanation inserted by the Finance Act, 1987, effective from June 1, 1987, widened the scope of section 194A and created a new obligation. Therefore, the interest credited before this date did not attract the provisions of section 194A.

3. Retrospective effect of the Explanation to section 194A:
The court held that the Explanation to section 194A, which was inserted with effect from June 1, 1987, could not be given retrospective effect. Applying it retrospectively would violate Article 20(1) of the Constitution, which prevents ex post facto laws. The court emphasized that fiscal laws must be strictly construed, and penal provisions should be interpreted in a way that avoids penalties if reasonably possible.

4. Reasonable cause for not deducting and paying TDS:
The petitioners argued that there was a reasonable cause for not deducting and paying TDS as the interest was credited to the "interest payable account" and not to the creditors' accounts. The court found this explanation valid for the period before June 1, 1987, as the obligation to deduct TDS on such credits was created only after the insertion of the Explanation.

Conclusion:
The court quashed the criminal prosecutions under section 276B of the Income-tax Act, setting aside the impugned order of the Additional Chief Metropolitan Magistrate and allowing the petitioners' applications u/s 245 of the Code of Criminal Procedure. The criminal complaints No. 808-A/1 and 808-B/1 of 1987 were dismissed.