2019 (9) TMI 54 - HC - Income Tax

Offences punishable u/s 276B r.w.s. 278B of the Income-tax Act, 1961 - non-payment of tax deducted at source - whether the prosecution of the petitioners for the offence punishable under section 276B of the Income-tax Act could be sustained without determination of the liability of the petitioners under section 201? - HELD THAT - In order to get over the penal consequences that follow on account of non-payment of tax deducted at source, it is open for the accused persons to come clean of the said charge by showing reasonable cause for failure to deposit the said amount. In the light of this provision, contentions urged by the learned counsel for the petitioners cannot be accepted. Since the material placed on record prima facie discloses that the petitioners have deducted tax at source but failed to credit the same to the account of the Central Government within the prescribed time, the petitioners cannot escape from the rigour of section 276B of the Act. The alternative argument canvassed by petitioners that without determining the penalty, the respondent was not entitled to resort to criminal prosecution of the petitioners under section 276B also cannot be accepted for the reason that the petitioners/ accused have not disputed their liability. The question of determining the liability and consequent imposition of penalty would arise only in the case of dispute with regard to the liability to remit the deducted tax. In the instant case, the facts alleged in the complaint clearly indicate that the amount was credited subsequent to the survey. As a result, even this defence is not available to the petitioners. Contention urged by the petitioners that the circular/instruction issued by the Department have binding force though needs to be accepted as a principle of law, but in the instant case, none of the parties have placed the said instruction or circular for perusal of this court. No material is available to show that the petitioner No. 1-company has deposited the amount within the extended time. On the other hand, the allegations are to the effect that survey itself was conducted on September 27, 2011. According to prosecution, the amount was deposited subsequent to survey conducted by the Department. Under the said circumstances, even on question of fact, the above principle does not come to the aid of the petitioners. As a result, no merit in the contentions urged by the petitioners. Consequently, the petition is dismissed.

Summary

Issues Involved:
1. Legality of prosecution without adjudication of liability and penalty.
2. Compliance with CBDT circular/instruction regarding TDS deposit timeline.
3. Applicability of amended guidelines retrospectively.
4. Validity of prosecution under section 276B without prior determination under section 201.

Detailed Analysis:

1. Legality of Prosecution Without Adjudication of Liability and Penalty:
The petitioners contended that prosecution under section 276B should not proceed without first determining the liability through adjudication and quantifying the penalty as per section 201(1A). They referenced decisions from the Delhi High Court (Sequoia Construction Co. P. Ltd v. P. P. Suri and Indo Arya Central Transport Limited v. CIT) to support this argument. However, the court noted that section 201 of the Act clearly states that failure to deduct or pay tax leads to the person being "deemed to be an assessee in default" without prejudice to other consequences, which include prosecution. The Supreme Court in Madhumilan Syntex Ltd. v. Union of India affirmed that non-payment of tax within the stipulated period constitutes a default warranting prosecution, irrespective of penalty adjudication.

2. Compliance with CBDT Circular/Instruction Regarding TDS Deposit Timeline:
The petitioners argued that they deposited the TDS within 12 months as per the CBDT circular dated April 24, 2008, thus avoiding penal consequences. They relied on the Delhi High Court's decision in Indo Arya's case and the Supreme Court's ruling in State of Kerala v. Kurian Abraham (P.) Ltd. The court, however, emphasized that the circular only detailed standard operating procedures and did not extend the statutory time limits for TDS deposit or absolve criminal liability under section 276B. The court found no evidence that the petitioners deposited the TDS within the extended time frame stipulated by the circular.

3. Applicability of Amended Guidelines Retrospectively:
The petitioners contended that the amended guidelines issued on February 7, 2013, which prescribed a 60-day limit for TDS deposit, should not apply retrospectively to their case (violations alleged from 2010-11 to 2013-14). The court did not find merit in this argument, noting that the statutory obligation to deposit TDS within the prescribed time was not fulfilled, and the subsequent deposit post-survey did not negate the default.

4. Validity of Prosecution Under Section 276B Without Prior Determination Under Section 201:
The court addressed whether prosecution under section 276B could proceed without prior determination of liability under section 201. It cited the Madras High Court's decision in Rayala Corporation (P.) Limited v. V. M. Muthuramalingam, which held that prosecution under section 276B is not contingent upon section 201(1A) or section 221. The court concluded that the failure to deduct or pay TDS as required by Chapter XVII-B of the Act itself justifies prosecution under section 276B, independent of any penalty proceedings.

Conclusion:
The court dismissed the petition, affirming that the prosecution under section 276B is valid without prior adjudication under section 201. The petitioners' failure to remit TDS within the prescribed period, despite subsequent deposits, constituted an offence warranting prosecution. The court clarified that its observations should not influence the trial court's merits assessment.