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2018-04-16
A whopping 2225 prosecution complaints have been filed, with 1052 complaints compounded and 48 defaulters convicted by Courts during the period of April to November 2017 as per press release issued by the Finance Ministry on 12 January 2018. Some of the lapses which can attract prosecution provisions are wilful attempt to evade tax or payment of any tax, wilful failure in filing returns of income, failure or delay in depositing tax deducted/collected at source etc.There is sufficient jurisprudence on what constitutes ‘reasonable cause’, who is the ‘principal officer’, ‘sanction’ for initiation of prosecution etc. Madras HC recently rejected Revenue’s treatment of Mr.Kalanithi Maran as the ‘principal officer’ of Spicejet [TS-5215-HC-2018(
In this insight, we have compiled some recent and important rulings by High Courts on one of the most discussed topics of the day namely Prosecution for defaults in payment of TDS dealt with by Sec. 276B of the Income Tax Act. We have also culled out insightful commentary by Chaturvedi and Pithisaria on some of the consequential and litigated issues.
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Sr. No. |
Citation |
Conclusion |
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Prosecution along with recovery of interest and penalty |
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1. |
Criminal prosecution of the firm and its partners not to be affected due to fact of recovery of the amount with interest and penalty from the firm - recovery of the amount due and payable by the firm, which has defaulted to pay the tax deducted at source, to the Income-tax Department has nothing to do with the criminal prosecution under section 276B because it is a distinct provision inviting penal action for the default committed by the firm… |
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2. |
Upholds initiation of criminal proceedings against Kingfisher & Mallya for TDS default - HC dismisses Kingfisher Airlines & Vijay Mallya 's petitions against initiation of criminal proceedings u/s 276B by IT Dept for TDS default; Criminal proceedings independent of recovery proceedings, pendency of proceedings under Sec 201(1) and 201(1A) [for TDS default] not legal impediment to continue criminal prosecution… |
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3. |
Dismisses SLP; HC held Kingfisher liable for TDS non-compliances - SC dismisses Kingfisher Airlines’s SLP against Karnataka HC judgement; HC had held assessee in default for not depositing TDS into Government account for AYs 2009-10 to 2011-12… |
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Reasonable cause |
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4. |
The obligation which an accused has to discharge in a criminal prosecution u/s. 276B in showing that he had reasonable cause for not deducting the tax or paying the same within time is much lighter than the obligation to be discharged by him in a penalty proceeding u/s. 201 r/w Sec. 221… |
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5. |
It is for the appellant to produce sufficient evidence for non-deposit of the tax deducted at source during the criminal trial to avail of the benefit of reasonable cause u/s. 278AA |
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Compounding of offence |
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6. |
HC quashes CCIT order rejecting compounding of offence u/s. 279; Order passed without granting opportunity of being heard – HC allows assessee’s writ, quashes order passed by CCIT and restores the matter to the stage of hearing; Observes that the CCIT rejected assessee’s application for compounding u/s. 279 on the ground that the assessee had not paid compounding fees, without giving an opportunity to explain the non-payment as provided in CBDT instructions dt. 16th May, 2008... | |
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7. |
Power to grant/refuse 'compounding application', discretionary; CBDT's 'eligibility criteria', a mere guidance - Delhi HC allows assessee’s writ, sets-aside Chief Commissioner’s order refusing to consider assessee’s compounding application u/s 279(2); Pursuant to prosecution launched u/s 276B for failure to deposit TDS amount deducted from contractor payments, assessee filed compounding application which was rejected by Revenue holding that compounding was not permissible in view of CBDT guidelines of 2014 considering the ongoing CBI investigations… |
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8. |
Allows writ; Mere conviction against assessee-firm not sufficient to reject compounding application - Madras HC allows assessee-firm’s writ, sets aside CCIT’s order rejecting compounding application u/s 279(2) for AY 1983-84;Revenue had rejected compounding application for offence committed by the assessee u/s 276B (i.e. TDS default) citing conduct of assessee and conviction by Trial Court… |
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9. |
CBDT's 2014 guidelines on compounding of offence, not arbitrary; Imposes cost on taxpayer - Delhi HC dismisses assessee’s challenge to imposition, legality and validity of compounding fee charged u/s. 279 under CBDT guidelines dated December 23, 2014, confirms levy of compounding fees of Rs. 69.75 lakh and directs assessee to pay a cost of Rs. 50,000 to Revenue… |
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Prosecution against Principal Officers |
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10. |
HC convicts company directors, despite non-issuance of separate notices treating them ‘principal officers’ : HC upholds prosecution against directors u/s 276B for company's TDS default as directors' failed to show that offence occurred without their knowledge; Rejects lower court's view that mere non-issuance of notices separately to directors, treating them as 'principal officers' u/s 2(35) renders prosecution against them void… |
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11. |
In case the Income-tax Officer seeks to prosecute the director along with the company for an offence punishable under section 276B of the Act, he has to issue a notice under section 2(35) (b) expressing his intention to treat the director as principal officer of the company |
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12. |
Acquittal of director from prosecution does not imply acquittal of Company - The High Court held that even if a director of the company was acquitted of prosecution, it did not absolve the Company from penal consequences as per section 276B of the Income Tax Act |
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13. |
Rejects 'non-executive Chairman' Kalanithi Maran's culpability for Spicejet's TDS default; Quashes prosecution - Madras HC quashes AO’s order passed u/s. 2(35) treating Mr.Kalanithi Maran (then non-executive Chairman of airline SpiceJet Ltd.) as ‘principal officer’, holds assessee could not be prosecuted u/s. 276B for the TDS default committed by SpiceJet… |
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14. |
The directors of a company cannot be made responsible as principal officers unless they are so declared by issuance of a notice as contemplated by section 2(35) (b) by the Assessing Officer and informed him of his intention to treat him as principal officer of the company. |
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15. |
The word "person" referred to in section 276B does not include either a partnership firm or any partner thereof and the meaning of the word "person" in section 2(31) of the 1961 Act has no application to section 276B |
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Mere delay in making payment will attract prosecution |
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16. |
Prosecution can be launched for delayed payments of the tax deducted to the credit of the Government. Thus, the offence u/s. 276B is complete on the due date on which the tax deducted at source has to be deposited as per rule 30. The late deposit does not absolve the person concerned from the criminal charge. |
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17. |
Mens rea is not a requisite ingredient of offence u/s. 194A / 200 / 276B . If the accused fails to make deduction of tax at source, he is liable to be punished for the said offence. Further, that offence u/s. 276B is complete when tax deducted at source is not deposited in time. Even late deposit will not absolve the accused. |
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Validity of Sanction u/s. 279 |
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18. |
Prosecution for late deposit of TDS : Writ Court cannot, while examining sanction u/s. 279(1), examine merits of allegations made in criminal complaint and act as a fact finding authority – HC dismisses assessee’s writ of certiorari seeking set aside of sanction order of CIT(TDS) u/s. 279(1) passed consequent to late deposit of TDS deducted by the assessee; Holds that legality or validity of order granting sanction would be the subject matter of the review before the Criminal Court, even if the order was silent and application of mind does not appear from sanction… |
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19. |
Sanction u/s. 279 made mechanically by inserting a name of additional accused without considering whether such addition is warranted – HC allows assessee’s appeal; Holds sanction accorded by CIT u/s. 279 invalid; Holds that “...absence of reasonable and sufficient cause for failure is an essential ingredient of the default under s. 200 either for levy of penalty under s. 201 or for making out a case for punishment under s. 276B r/w s. 278AA”... |
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Others |
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20. |
Launching prosecution after 3 years lapse for delay in TDS deposit, mere harassment - Patna HC quashes prosecution proceedings u/s. 276B launched against assessee-company for committing TDS default, grants immunity u/s. 278AA for AY 2010-11… |
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21. |
Assessee being a nominee director cannot be held liable for non-deposit of TDS on interest paid on advances received - HC allows assessee’s petition; Holds that as assessee is appointed by Industrial Finance Corporation of India (IFCI) only to watch the interest of IFCI as huge amount was advanced to said company, he cannot be held responsible for managing day-to-day affairs of the company, and consequently, prosecution proceedings u/s. 276B cannot be initiated against him... |
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22. |
The change in section 276B with effect from 1-4-1989, amounts to omission and, thus, section 6 of the 1897 Act could not save the prosecution. Thus, all actions taken under the omitted part should stop at the point where the omission found them and, therefore, the prosecution was not maintainable |
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23. |
Prosecution not to be initiated in certain cases - Where penalty order passed by the AO u/s. 271(1) (c) has been set aside by the competent court, then the prosecution of the assessee u/s. 276C r.w. Sec. 278B has to be quashed automatically |
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24. |
Amount of tax due for AY 1989-90 had been fully paid by March, 1992. There was no evidence on record to show that the assessee had the resources, but had failed to pay. Still further, the manner in which the payments had been made was indicative of the assessee’s financial position. Prosecution u/s. 276C was not justified. |
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