Golden Gate Properties Ltd vs. DCIT (Karnataka High Court)

IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 26TH DAY OF APRIL, 2019
BEFORE
THE HON’BLE MR. JUSTICE JOHN MICHAEL CUNHA
CRIMINAL PETITION No.868/2014
BETWEEN:
1. M/s. Golden Gate Properties Ltd.,
820, Golden House, 80 feet Road,
8th Block, Koramangala,
Bengaluru – 560 095.
(A Company registered under Companies
Act, represented by its Director)
2. Sri. Pratap,
S/o Kundu Satyanaryana,
Ex-Director, M/s Golden Gate Properties Ltd.,
R/o 8-2-703/4/P, Street No.2,
Avenue-1, Road No.13,
Banjara Hills,
Hyderabad.
3. Sri. Sanjay Raj,
Director, M/s Golden Gate Properties Ltd.,
820, Golden House, 80 Feet Road,
8th Block, Koramangala,
Bengaluru – 560 095. … Petitioners
(By Sri. Muniyappa, Advocate)
AND:
The Income-Tax Department,
By Deputy Commissioner of Income Tax,
2
TDS Circle-16(2), H.M.T. Bhavan,
Bengaluru – 560 032. … Respondent
(By Sri. Jeevan J. Neeralgi, Advocate)
This Criminal Petition is filed u/s.482 of Cr.P.C.
praying to quash the entire proceedings initiated by the
respondent department against the petitioners which is
pending before the Spl. Court for economic offences,
Bengaluru in C.C.No.209/2013 at Annexure-A1.
This Criminal petition coming on for Admission, this
day, the Court made the following:
O R D E R
Prosecution has been launched against the petitioners
by the Income Tax Department for the alleged offences
punishable under Sections 276B read with Section 278B of
the Income Tax Act, 1961 (hereinafter referred to as ‘the
Act’).
2. Briefly stated, facts of the case are that
petitioner No.1 – Company was engaged in the business of
real estate and property development. Complainant-
Department conducted a survey under Section 133A of the
Act in the premises of accused No.1-Company on
27.09.2011. During the course of survey, it was detected
3
that accused No.1-Company had deducted tax at source for
the Financial Years 2010-2011 and 2011-2012, but had
failed to remit the same to the Central Government account
as per the provisions of Chapter XVII-B of the Act.
Assessing Officer issued show cause notice dated
03.11.2011 (Financial Years from 2010-2011 to 2011-
2012), calling upon accused No.1-Company to show cause
as to why prosecution should not be launched against them.
Reply was submitted by accused No.1-Company on
14.11.2011 admitting default and sought time to remit the
admitted TDS liability, but remitted tax amount partially and
failed to discharge the entire liability as undertaken. Hence,
the Assessing Officer issued letter dated 16.03.2012
directing accused No.1-Company to remit the outstanding
TDS liability on or before 25.03.2012. The accused filed
online quarterly TDS statement and after verification of
online payment system, it was found that accused No.1-
company had remitted TDS deducted by it after
considerable delay of more than one year, that too, in
consequence of survey conducted by the Department and
4
repeated reminders. For delay in remitting the TDS,
accused No.1-company had not paid any interest which is
mandatory under Section 201(1A) of the Act. The
Assessing Officer noticed that even for the Financial Year
2009-2010 and 2010-2011, the accused had committed
similar default. Hence, on 08.04.2013 an order came to be
passed under Section 201(1A) quantifying the interest for
delayed remittance of TDS for both the financial years
(2009-2010 and 2010-2011). Since, the explanation given
by the accused for delay in remittance of TDS was not
acceptable, the Commissioner of Income Tax (TDS) after
giving sufficient opportunity to the accused, passed an order
under Section 279 of the Act authorizing the complainant-
Deputy Commissioner of Income Tax, TDS Circle 16(2),
H.M.T Bhavan, Bengaluru, to prosecute the accused for the
offence punishable under Section 276B read with Section
278B of the Act.
3. Heard learned counsel for the petitioners and
the learned Standing counsel appearing for the respondent.
5
4. Learned counsel for the petitioners has urged
three fold contentions. First, placing reliance on Section
201(1A) of the Act, learned counsel would submit that
without determining the liability of the accused in an
adjudication proceedings and without quantifying the
penalty, respondent-complainant should not have resorted
to prosecute the petitioners for the alleged offence. In
support of this submission, learned counsel has placed
reliance on the decisions of the Delhi High Court in the case
of Sequoia Construction Co. P. Ltd and Others vs.
P.P.Suri, ITO, Central Circle, XX, New Delhi reported in
1986 (158) ITR 496 and in the case of Indo Arya
Central Transport Limited & Others vs. Commissioner
of Income Tax (TDS), Delhi-1 and Another reported in
2018 SCC Online Del 7995. Second, the TDS deducted by
the petitioners was deposited with interest with the
Department within 12 months from the respective dates of
the deductions. The said deposit was made in accordance
with the circular/instruction issued by the Central Board of
6
Direct Taxes (CBDT) dated 24.04.2008 in
F.No.285/90/2008-IT (Inv.)/05. Under the said
circular/instruction, the assessee was permitted to deposit
the tax deducted at source within 12 months from the date
of deductions to obviate any penal consequences.
5. Further, placing reliance on the decision of the
Delhi High Court in Indo Arya’s case referred to supra, with
reference to para No.7 thereof, learned counsel would
submit that the said circular/instruction has binding effect
and this view is also affirmed by the Hon’ble Supreme Court
in the case of State of Kerala and Others vs. Kurian
Abraham (P) Ltd., and Another reported in (2008) 3
SCC 582. In view of this circular/instruction, the petitioners
having made the deposits within the prescribed time limit,
no offences have been committed by the petitioners
entailing their prosecution under Section 276B of the Act.
6. Third, by a subsequent circular dated
07.02.2013, paragraph Nos.3.1(i) and (ii) of the earlier
guidelines were amended and a time limit of 60 days was
7
prescribed to make the deposit from the date of said
deduction and the deduction of the said amount could not
have been retrospectively made applicable to the petitioners
since the violations are alleged to have been committed in
the previous assessment years commencing from 2010-
2011 to 2013-2014. Therefore, the prosecution initiated
against the petitioners being wholly illegal and an abuse of
process of Court cannot be sustained.
7. Refuting the above contentions, learned
Standing Counsel appearing for respondent/complainant
would however submit that Section 200 of the Act read with
Rule 30 of the Income Tax Rules, 1962 contemplate deposit
of the TDS deducted within the prescribed time limit and
failure to deposit would entail the prosecution of the
assessee in terms of Section 276B of the Act. In the instant
case, the petitioners do not dispute the fact that the tax
deducted at source was not credited to the Complainant-
Department within the prescribed period of time. As held
by the Hon’ble Supreme Court of India in Madhumilan
8
Syntex Ltd., and Others vs. Union of India and
Another reported in (2007) 11 SCC 297 “……… wherever
a company is required to deduct tax at source and to pay
it to the account of the Central Government, failure on the
part of the company in deducting or in paying such amount
is an offence under the Act and has been made punishable.
It, therefore, cannot be said that the prosecution against a
company or its Directors in default of deducting or paying
tax is not envisaged by the Act.”
8. Further referring to the very same decision
relied to by learned counsel for the petitioners in Indo
Arya’s case referred to supra, with reference to para Nos.8
and 9 thereof, learned standing counsel has emphasized
that “the issues raised by the petitioners are ex-facie factual
and could constitute defence of the petitioners, as
constituting reasonable cause”. In view of Section 278AA of
the Act, the onus of proving the said defence is on the
accused and therefore, on this score also, the impugned
proceedings cannot be quashed.
9
9. On the question that the prosecution of the
accused could not have been launched without conducting
adjudication proceedings to determine the penalty is
concerned, the learned standing counsel has referred to the
decision of the High Court of Madras in the case of Rayaal
Corporation (P) Limited vs. V.M.Muthuramalingam,
ITO reported in (1980) 4 Taxman 346 (Madras),
wherein it has held that “so far as prosecution under
Section 276B is concerned, it is not controlled either by
Section 201(1A) or Section 221. All that the Section says is
that if a person, without reasonable cause or excuse, fails to
deduct or after deducting, fails to pay the tax, as required
by or under the provisions of Sub-Section (9) of Section 80E
or Chapter XVII-B, he shall be punishable with rigorous
imprisonment and shall also be liable to fine”.
10. Insofar as the circular/instruction relied on by
learned counsel for the petitioners is concerned, learned
standing counsel for the respondent would submit that the
said circular deals only with the Standard Operating
10
Procedure and does not extend the time limit for deposit of
TDS deducted nor does it absolve the accused from criminal
proceedings and thus, he seeks to dismiss the petition.
11. Having heard the learned counsel for the parties
and on considering the materials on record, the question
that arises for consideration is 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 of the Act?
12. Section 201 of the Act deals with the
consequences of failure to deduct or pay. The Section reads
as under:-
“Consequences of failure to deduct or pay.
201. [(1) Where any person, including the
principal officer of a company, –
(a) who is required to deduct any sum in
accordance with the provisions of this Act; or
(b) referred to in sub-section (1A) of section
192, being an employer, does not deduct, or does
11
not pay, or after so deducting fails to pay, the
whole or any part of the tax, as required by or
under this Act, then, such person, shall without
prejudice to any other consequences which he may
incur, be deemed to be an assessee in default in
respect of such tax:
[Provided that any person, including the principal
officer of a company, who fails to deduct the whole
or any part of the tax in accordance with the
provisions of this Chapter on the sum paid to a
resident or on the sum credited to the account of a
resident shall not be deemed to be an assessee in
default in respect of such tax if such resident-
(i) has furnished his return of income under
section 139;
(ii) has taken into account such sum for
computing income in such return of income;
and
(iii) has paid the tax due on the income declared
by him in such return of income;
and the person furnishes a certificate to this effect
from an accountant in such form as may be
prescribed:]
Provided (further) that no penalty shall be
charged under section 221 from such person,
12
unless the Assessing Officer is satisfied that such
person, without good and sufficient reasons, has
failed to deduct and pay such tax]
[(1A) Without prejudice to the provisions of subsection
(1), if any such person, principal officer or
company as is referred to in that sub-section does
not deduct the whole or any pat of the tax or after
deducting fails to pay the tax as required by or
under this Act, he or it shall be liable to pay simple
interest,-
(i) at one per cent for every month or part of a
month on the amount of such tax from the
date on which such tax was deductible to the
date on which such tax is deducted; and
(ii) at one and one-half per cent for every month
or part of a month on the amount of such tax
from the date on which such tax was
deducted to the date on which such tax is
actually paid,
and such interest shall be paid before furnishing
the statement in accordance with the provisions of
sub-section (3) of section 200:]
[Provided that in case any person, including the
principal officer of a company fails to deduct the
whole or any part of the tax in accordance with the
13
provisions of this Chapter on the sum paid to a
resident or on the sum credited to the account of a
resident but is not deemed to be an assessee in
default under the first proviso to sub-section (1),
the interest under clause (i) shall be payable from
the date on which such tax was deductible to the
date of furnishing of return of income by such
resident.]
(2) Where the tax has not been paid as aforesaid
after it is deducted, (the amount of the tax
together with the amount of simple interest
thereon referred to in sub-section (1A) shall be a
charge upon all the assets of the person, or the
company, as the case may be, referred to in subsection
(1).
[(3) No order shall be made under sub-section (1)
deeming a person to be an assessee in default for
failure to deduct the whole or any part of the tax
from a person resident in India, at any time after
the expiry of seven years from the end of the
financial year in which payment is made or credit is
given.]
(4) The provisions of sub-clause (ii) of sub-section
(3) of section 153 and of Explanation 1 to section
14
153 shall, so far as may, apply to the time limit
prescribed in sub-section (3).]
[Explanation – For the purposes of this section, the
expression “accountant” shall have the meaning
assigned to it in the Explanation to sub-section (2)
of section 288.]”
13. A bare reading of the aforesaid Section makes it
clear that without prejudice to any other consequences,
which the accused may incur, he is deemed to be “an
assessee in default” in respect of such deduction. Therefore,
it follows that in case of failure to deduct or to pay the tax
deducted at source, accused may invite penalty consequent
upon the adjudication or it may also “without prejudice to
any other consequences”, lead to prosecution of the
accused. This view is expounded by the Hon’ble Supreme
Court in Madhumilan’s case referred supra, wherein while
dealing with identical set of facts in para Nos.47 and 48, the
Apex Court has observed as under:-
“47. The next contention that since TDS had
already been deposited to the account of the
Central Government, there was no default and no
15
prosecution can be ordered cannot be accepted.
Mr.Ranjith Kumar invited our attention to a decision
of the High Court of Calcutta in Vinar & Co. v. ITO.
Interpreting the provisions of Section 276-B, a
Single Judge of the High Court observed that: (ITR
p.135)
“[T]here is no provision in the Income Tax
Act imposing criminal liability for delay in
deduction or for non-payment in time. Under
Section 276-B, delay in payment of income
tax is not an offence”.
According to the learned Judge, such a provision is
subject to penalty under Section 201(1) of the Act.
48. We are unable to agree with the above
view of the High Court. Once a statute requires to
pay tax and stipulates period within which such
payment is to be made, the payment must be made
within that period. If the payment is not made
within that period, there is default and an
appropriate action can be taken under the Act.
Interpretation canvassed by the learned counsel
would make the provision relating to prosecution
nugatory.”
16
14. Similar preposition is laid down in Rayala
Corporation’s case referred supra, wherein it is held that
“So far as prosecution under section 276B is concerned, it is
not controlled either by section 201(1A) or section 221. All
that the section says is that if a person, without reasonable
cause or excuse, fails to deduct or after deducting fails to
pay the tax, as required by or under the provisions of subsection
(9) of section 80E or Chapter XVII-B, he shall be
punishable with rigorous imprisonment and shall also be
liable to fine. If it was the intention of the legislature, that
prosecution can be resorted to only in respect of those
cases where charging of interest or levy of penalty will not
meet the ends of justice, then the legislature would have
indicated its intention in the section. On the other hand,
what we find is that the power of prosecution given under
section 276B is not restricted to a particular type of cases
alone”.
17
15. In this context, it may also be beneficial to refer
Section 278AA of the Act. The Section opens with nonobstante
clause and reads as under:-
[Punishment not to be imposed in certain
cases.
“278AA. Notwithstanding anything contained in
the provisions of section 276A, section 276AB, [or
section 276B,] 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.]
16. This provision makes it clear that in order to get
over the penal consequences that follow on account of nonpayment
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
18
Government within the prescribed time, the petitioners
cannot escape from the rigour of Section 276B of the Act.
17. The alternative argument canvassed by the
learned counsel for the petitioners that without determining
the penalty, the respondent was not entitled to resort to
criminal prosecution of the petitioners under Section 276B
of the Act, 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 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.
18. Lastly, the 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
19
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 27.09.2011. 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, I do
not find any merit in the contentions urged by petitioners.
Consequently, the petition is dismissed. It is made
clear that the observations made in this order shall not
influence the trial Court while dealing with the matter on
merits.
Sd/-
JUDGE
SV