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TMI Blog1998 (3) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... plaints were filed for the above violations under the abovesaid provisions and all the cases were clubbed and the learned Additional Chief Metropolitan Magistrate after trial, has found that all the charges relating to the offences mentioned above have been proved against the first accused company and sentenced it to pay a fine of Rs. 200 for each count for the offence under section 276B of the Act for non-deduction of the income-tax on salary of the directors and also to pay a fine of Rs. 100 for each of the sixty counts for non-deduction of the tax on the interest credited to the account of the creditors. The same sentence was imposed upon the second accused, who is the director of the first accused company. The total fine amount for each of the accused Nos. 1 and 2 is Rs. 10,800. Accused Nos. 3 to 5 have been acquitted holding that there is no proof on their part for their participation in the affairs of the company. Aggrieved of this conviction and sentence of fine only imposed on accused No. 2, the Income-tax Department has filed Crl. R. C. No. 314 of 1989 for the imposition of the minimum sentence prescribed under the Act as it was not awarded to the second accused, who has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to as the respondent. Mr. K. A. Panchapagesan, learned counsel for the revision petitioners, contended that the evidence before the court and the orders passed by the Income-tax Appellate Tribunal make it clear that these revision petitioners have not committed the offences, that the materials before the court are not adequate to find them guilty of the offences with which they have been charged and therefore, the conviction of these revision petitioners is bad in law. Learned counsel for the revision petitioners would further submit that the directors of the first accused, who are accused Nos. 2 to 5 before the trial court, were partners of Ashok Electrical Company and Kumar Brothers, which are partnership firms, that these partnership firms have shares in the first accused company, that on account of their position as partners of the said firms, the remuneration that was payable to the directors were actually payable only to the partnership firms as these directors were appointed as directors of the revision petitioner company only by virtue of their interest in those two partnership firms, that therefore, whatever remuneration was credited to the accounts was actually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the undivided Hindu family and, therefore, the remuneration earned by the member of the Hindu undivided family must be the income of the family itself. Learned counsel for the petitioners relying upon this decision, would contend that the remuneration credited by a company in the name of the karta of the undivided Hindu family was invested in the company and the apex court has treated the remuneration as the income of the family and the karta cannot be assessed to tax treating it as his separate income, and that here also the same analogy is applicable because Ashok Electrical Company and Kumar Brothers, partnership firms, were represented by the directors, who were accused Nos. 2 to 5 and the services rendered by them as directors were only on behalf of those two firms and, therefore, the remuneration credited to their account is actually the income of the said firms and when the income is payable to Ashok Electrical Company and Kumar Brothers, the accused cannot be prosecuted for the failure to deduct income-tax on the remuneration payable to the directors and, therefore, the charges must fail. Learned counsel for the revision petitioners raised another contention th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of fact, in this decision this court has referred to the ratio laid down by the apex court in Patnaik and Co. Ltd. v. CIT [1986] 161 ITR 365, wherein the apex court would observe that the court has no jurisdiction to go behind the findings of facts made by the Tribunal in its appellate order, but the court may do so only if there is no evidence to support them or the Appellate Tribunal has misdirected itself in law in arriving at the finding of fact. In the same decision, this court has relied upon another decision of the apex court in P.Jayappan v. S. K. Perumal, First ITO [1984] 149 ITR 696, which also would observe that the criminal court has to give due regard to the result of any proceeding under the Act having a bearing on the question in issue and in an appropriate case, it may drop the proceedings passed under the Act, that it does not, however, mean that the result of a proceeding under the Act would be binding on the criminal court. and the criminal court has to judge the case independently on the evidence placed before it. The apex court would further observe as follows : "Otherwise, there is a danger of a contention being advanced that whenever an assessee or any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal have no hearing on this case because in that case, the question arose as to who was entitled to the remuneration whether the karta of the Hindu undivided family in his capacity as representative of the undivided family or in his individual capacity as a person, who rendered service to the company in which huge investments were made by the Hindu undivided family. Taking into consideration the investments made by the Hindu undivided family, which were brought to the accounts of the company and also in appreciation of the services rendered by the karta of the Hindu undivided family to the company, for which certain fully paid-up shares were allotted to him, the apex court took the view that the remuneration credited in the accounts of the company was actually payable only to the Hindu undivided family and it was not the personal income of the karta. There the question was whether the amount credited by the company is to be taxed as the personal income of the karta of the family or as the income of the Hindu undivided family. But that is not the question in this case irrespective of the question as to who is entitled to the remuneration. Section 192 of the Act requires that w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinued only in the name of the directors, accused Nos. 2 to 4, the charges can be framed only against the persons in whose names the entries have been made. Absolutely, there is no entry anywhere in the account books of the first accused that the so-called firms, Ashok Electrical Company and Kumar Brothers, have received the remuneration at any point of time. Even though it was argued by learned counsel, Mr. Panchapagesan, that the partnership firms have submitted their income-tax returns paying the tax on the remuneration received from the first accused company, we are not concerned with the accounts maintained by the partnership firms. As the disbursing person is the first accused through its directors and the entries in the account books mention only the names of the directors, the first accused cannot contend contrary to the entries in their own accounts to the effect that the remuneration was payable only to the partnership firms. Even assuming for argument's sake that actually the remuneration was payable to the partnership firms, when the entries are in the names of the directors, it has to be treated that the payments were made only to the directors and, therefore, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is referred to. It is also the evidence of P.W. 2 that the directors have drawn the interest on the undrawn remuneration. Therefore, it cannot be disputed that the remunerations were not paid to the directors. When it was argued by Mr. Panchapagesan that the partnership firms have paid income-tax on the remuneration received by it from the first accused company, it is contrary to his argument that the remuneration was not received by the directors. Anyhow, the documents referred to above are the statements and the account books of the first accused company proving the payment of the remuneration. In exhibit P-116, the memorandum and articles of association, clause 45 reads, "The remuneration of each of the directors including the chairman for attending meetings shall not exceed Rs. 250 as the directors may think fit for each meeting of the board attended by them. Such reasonable additional remuneration as may be fixed by the directors may be paid to any one or more of their number, monthly or otherwise for the services rendered by him or them as may be fixed from time to time." Therefore, this clause also adds strength to the contention of the respondent that the remuneratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. Explanation.---For the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called 'interest payable account' or "suspense account' or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly." Under this section, if the person responsible for payment, makes any credit entries in the accounts for payment or actually the amount was paid in cash or by cheque or draft, the income-tax on the said amount is to be deducted. The Explanation makes it clear that even if the entries are made such as "interest payable account" or "suspense account" or by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... core v. CIT [1986] 158 ITR 102, the Supreme Court has ruled that the circulars issued by the Central Board of Direct Taxes are executive in character and they cannot alter the provisions of the Act. In CIT v. Hero Cycles Pvt. Ltd. [1997] 228 ITR 463, also the apex court would observe that the circulars issued by the Central Board of Direct Taxes can bind the Income-tax Officer but will not bind the appellate authority or the Tribunal or the court or even the assessee. This court also has considered this aspect in CIT v. O. M. S. S. Sankaralinga Nadar and Co. [1984] 147 ITR 332, holding that the courts are not bound by the circulars issued by the Central Board of Direct Taxes on the subject. In Kerala Financial Corporation v. CIT [1994] 210 ITR 129, also once again the apex court has observed that the circular of the Central Board of Direct Taxes under section 119 of the Act cannot override or detract from the provisions of the Act. The view of the apex court is reflected by this court also in Saroja Mills Ltd. v. CIT [1996] 220 ITR 626, observing that the Central Board of Direct Taxes by its circulars cannot pre-empt a judicial interpretation of the provisions of the Act and the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 1979-80, in the ledger page of Kushal Chand Protap Chand Singhi, Rs. 1,485.40 is entered in the credit column, however, mentioning "the interest payable 1978-79". Similarly, in page 22, in the ledger page of Miss Rekha, a sum of Rs. 1,011.08 is entered in the credit column mentioning as interest payable. Similarly, in page 24, the ledger page of Mahendra Kumar, entries are made in the credit column for a sum of Rs. 2,623.13 though mentioning it as interest payable for 1978-79. In page 59, under the head "Interest on unsecured loans", the debit entry is made to a total sum of Rs. 1,23,530.20. Apart from the named persons mentioned above in whose ledger pages credit entries have been made, another sum of Rs. 1,23,530.20 also had been disbursed towards the interest for the year 1979-80. In exhibit P-89, relating to the accounting year 1980-81, in the ledger page of Nirmal Kumar Kumbhat, the interest amount of Rs. 77,230.81 is credited to his account and in page 17, in the ledger page of Suresh Kumar Kothari, Rs. 1,251.50 is credited though mentioning it as interest payable and in page 22 in the ledger page of Miss Rekha, credit entry is made describing it as interest payable and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collection. In CIT v. Oriental Power Cables Ltd. [1993] 203 ITR 237, the Rajasthan High Court has held that the inclusion of the Explanation to section 194A is an amendment to the section and it has no retrospective effect and, therefore, when the interest is credited to the suspense account in the assessment year 1978-79, the assessee is not liable to deduct the income-tax. Learned counsel also refers to another decision of the Rajasthan High Court in Laxmi Industries Ltd. v. ITO [1998] 231 ITR 514, wherein following the decision in CIT v. Oriental Power Cables Ltd. [1993] 203 ITR 237 (Raj), it has held that prior to the amendment for the interest that was credited either to the payable account or to the suspense account, the assessee could not be prosecuted. Mr. K. Ramasamy, learned counsel for the respondent, would contend that this Explanation, though inserted in the year 1987, will not amount to an amendment of the section but it is an enabling provision to enlighten and clarify the scope of the existing provision and, therefore, there is no question of prospective effect to this Explanation as section 194A, which is already there, is applicable in the light of the Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port and intendment of the enactment, and (e) it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming a hindrance in the interpretation of the same." From what is expressed by the apex court, the Explanation cannot be treated as an amendment because the purpose of the Explanation is to explain or, in the words of the apex court, to clear any mental cobwebs surrounding the meaning of a statutory provision and to prevent the controversial interpretations without giving the true meaning of the provision. That is why the apex court further emphasised by saying that such Explanations were intended more as a legislative exposition or clarification of the existing law than as a change in it. When the Explanation serves the purpose of the clarification of the existing law, there is no question of any prospective or retrospective operation of the Explanation. Hence, in this case, in the year 1987, the Legislature has expressed the intention or scope of section 194A of the Act by making it clear that even the suspense account or interest payable account has to be deemed only as the account w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by appropriate entries in the books of account, on a mere ipse dixit of the assessee, no reversal of the situation can be brought about." In page 147, the Supreme Court would observe : "... The existence of the right to receive, i.e., accrual, is important and that is a matter of the reality of the situation keeping the terms and conditions and the conduct of the parties..." Again at page 151, the Supreme Court would observe: "Even if in a given circumstance, the amounts may be treated as interest suspense account for accountancy purpose, that would hot affect the question of taxability as such. This must be determined by well-settled legal principles and principles of accountancy which have been referred to hereinbefore." Finally, at page 154, the apex court would observe: "What has really accrued to the assessee has to be found out and what has accrued must be considered from the point of view of real income taking the probability or improbability of realisation in a realistic manner and dovetailing of these factors together but once the accrual takes place, on the conduct of the parties subsequent to the year of closing an income which has accrued cannot be made 'no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery 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, (iii) any director (who in relation to a firm means a partner), manager, secretary or other officer of the company with whose consent or connivance or because of neglect attributable to whom the offence has been committed. In ITO v. Dinesh K. Shah [1997] 223 ITR 68, the Bench of this court has held: "... a person 'in charge' must mean a person in overall control of the day-to-day business of the company or firm or other association. Therefore, any person who at the time the offence was committed was in charge of and was responsible to the company, which includes a firm, for the conduct of the business, can be proceeded against under section 278B of the Act notwithstanding the fact that the person proceeded against may not be either the 'principal officer' or the 'person responsible for paying'." In this case, admittedly, the second accused was the principal officer and, therefore, certainly, he is also liable to be punished under section 278B of the Act. The trial court has convicted the accused for the payment of fine of Rs. 200 on ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO [1994] 209 ITR 797; [1995] Crl. L. J. 629, wherein the trial court did not award the minimum sentence of six months rigorous imprisonment for the offences under sections 278 and 278A of the Income-tax Act. The High Court has found that the accused for his inability to pay the fine amount imposed on him, underwent the default sentence for seven months and thereafter, the entire fine amount also was paid. The court took the view that as the offence was committed about 41/2 years prior to the appeal, it felt that the minimum sentence need not be imposed on the accused. Learned counsel also argued on compassionate grounds submitting that the second petitioner is an aged man having ill-health and he also underwent surgery some time ago and still he is undergoing treatment in the hospital and therefore, the minimum sentence, which was not awarded by the trial court, need not be imposed by this court. He also cited a decision in Suhasini Baban Kate v. State of Maharashtra [1986] Crl. L. J. 876, wherein a woman having three children when committed the offence under the Protection of Civil Rights Act, was dealt with compassionately though a minimum of one month imprisonment was prescrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax as required by or under the provisions of sub-section (9) of section 80E or Chapter XVIIB, he shall be punishable... indicating that only in cases where a person had deliberately failed to deduct the tax, he was punishable but if he had any reason or reasonable excuse and on that ground, he failed to deduct, he shall not be punished for the offence under section 276B and in this case, in view of the circular issued by the Central Board of Direct Taxes, which read that for the account interest payable, no tax was deductible, the revision petitioners bona fide thought that they were not bound to deduct the tax and, therefore, when there is a reasonable cause for the non-deduction of the tax on the interest, these revision petitioners cannot be punished under section 276B of the Act. I have already discussed about the conduct of the accused persons, who though made actual payments of the interest by making debit entries, deliberately, for the purpose of evading the obligation under the statute, have added the word, "payable" and this cannot be treated is a reasonable cause or excuse on the part of the accused persons. When actually they have already paid the interest to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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