IN THE HIGH COURT OF KARNATAKA AT BENGALURU
\nDATED THIS THE 26TH DAY OF APRIL, 2019
\nBEFORE
\nTHE HON’BLE MR. JUSTICE JOHN MICHAEL CUNHA
\nCRIMINAL PETITION No.868\/2014
\nBETWEEN:
\n1. M\/s. Golden Gate Properties Ltd.,
\n820, Golden House, 80 feet Road,
\n8th Block, Koramangala,
\nBengaluru \u2013 560 095.
\n(A Company registered under Companies
\nAct, represented by its Director)
\n2. Sri. Pratap,
\nS\/o Kundu Satyanaryana,
\nEx-Director, M\/s Golden Gate Properties Ltd.,
\nR\/o 8-2-703\/4\/P, Street No.2,
\nAvenue-1, Road No.13,
\nBanjara Hills,
\nHyderabad.
\n3. Sri. Sanjay Raj,
\nDirector, M\/s Golden Gate Properties Ltd.,
\n820, Golden House, 80 Feet Road,
\n8th Block, Koramangala,
\nBengaluru \u2013 560 095. … Petitioners
\n(By Sri. Muniyappa, Advocate)
\nAND:
\nThe Income-Tax Department,
\nBy Deputy Commissioner of Income Tax,
\n2
\nTDS Circle-16(2), H.M.T. Bhavan,
\nBengaluru \u2013 560 032. … Respondent
\n(By Sri. Jeevan J. Neeralgi, Advocate)
\nThis Criminal Petition is filed u\/s.482 of Cr.P.C.
\npraying to quash the entire proceedings initiated by the
\nrespondent department against the petitioners which is
\npending before the Spl. Court for economic offences,
\nBengaluru in C.C.No.209\/2013 at Annexure-A1.
\nThis Criminal petition coming on for Admission, this
\nday, the Court made the following:
\nO R D E R
\nProsecution has been launched against the petitioners
\nby the Income Tax Department for the alleged offences
\npunishable under Sections 276B read with Section 278B of
\nthe Income Tax Act, 1961 (hereinafter referred to as \u2018the
\nAct\u2019).
\n2. Briefly stated, facts of the case are that
\npetitioner No.1 – Company was engaged in the business of
\nreal estate and property development. Complainant-
\nDepartment conducted a survey under Section 133A of the
\nAct in the premises of accused No.1-Company on
\n27.09.2011. During the course of survey, it was detected
\n3
\nthat accused No.1-Company had deducted tax at source for
\nthe Financial Years 2010-2011 and 2011-2012, but had
\nfailed to remit the same to the Central Government account
\nas per the provisions of Chapter XVII-B of the Act.
\nAssessing Officer issued show cause notice dated
\n03.11.2011 (Financial Years from 2010-2011 to 2011-
\n2012), calling upon accused No.1-Company to show cause
\nas to why prosecution should not be launched against them.
\nReply was submitted by accused No.1-Company on
\n14.11.2011 admitting default and sought time to remit the
\nadmitted TDS liability, but remitted tax amount partially and
\nfailed to discharge the entire liability as undertaken. Hence,
\nthe Assessing Officer issued letter dated 16.03.2012
\ndirecting accused No.1-Company to remit the outstanding
\nTDS liability on or before 25.03.2012. The accused filed
\nonline quarterly TDS statement and after verification of
\nonline payment system, it was found that accused No.1-
\ncompany had remitted TDS deducted by it after
\nconsiderable delay of more than one year, that too, in
\nconsequence of survey conducted by the Department and
\n4
\nrepeated reminders. For delay in remitting the TDS,
\naccused No.1-company had not paid any interest which is
\nmandatory under Section 201(1A) of the Act. The
\nAssessing Officer noticed that even for the Financial Year
\n2009-2010 and 2010-2011, the accused had committed
\nsimilar default. Hence, on 08.04.2013 an order came to be
\npassed under Section 201(1A) quantifying the interest for
\ndelayed remittance of TDS for both the financial years
\n(2009-2010 and 2010-2011). Since, the explanation given
\nby the accused for delay in remittance of TDS was not
\nacceptable, the Commissioner of Income Tax (TDS) after
\ngiving sufficient opportunity to the accused, passed an order
\nunder Section 279 of the Act authorizing the complainant-
\nDeputy Commissioner of Income Tax, TDS Circle 16(2),
\nH.M.T Bhavan, Bengaluru, to prosecute the accused for the
\noffence punishable under Section 276B read with Section
\n278B of the Act.
\n3. Heard learned counsel for the petitioners and
\nthe learned Standing counsel appearing for the respondent.
\n5
\n4. Learned counsel for the petitioners has urged
\nthree fold contentions. First, placing reliance on Section
\n201(1A) of the Act, learned counsel would submit that
\nwithout determining the liability of the accused in an
\nadjudication proceedings and without quantifying the
\npenalty, respondent-complainant should not have resorted
\nto prosecute the petitioners for the alleged offence. In
\nsupport of this submission, learned counsel has placed
\nreliance on the decisions of the Delhi High Court in the case
\nof Sequoia Construction Co. P. Ltd and Others vs.
\nP.P.Suri, ITO, Central Circle, XX, New Delhi reported in
\n1986 (158) ITR 496 and in the case of Indo Arya
\nCentral Transport Limited & Others vs. Commissioner
\nof Income Tax (TDS), Delhi-1 and Another reported in
\n2018 SCC Online Del 7995. Second, the TDS deducted by
\nthe petitioners was deposited with interest with the
\nDepartment within 12 months from the respective dates of
\nthe deductions. The said deposit was made in accordance
\nwith the circular\/instruction issued by the Central Board of
\n6
\nDirect Taxes (CBDT) dated 24.04.2008 in
\nF.No.285\/90\/2008-IT (Inv.)\/05. Under the said
\ncircular\/instruction, the assessee was permitted to deposit
\nthe tax deducted at source within 12 months from the date
\nof deductions to obviate any penal consequences.
\n5. Further, placing reliance on the decision of the
\nDelhi High Court in Indo Arya\u2019s case referred to supra, with
\nreference to para No.7 thereof, learned counsel would
\nsubmit that the said circular\/instruction has binding effect
\nand this view is also affirmed by the Hon\u2019ble Supreme Court
\nin the case of State of Kerala and Others vs. Kurian
\nAbraham (P) Ltd., and Another reported in (2008) 3
\nSCC 582. In view of this circular\/instruction, the petitioners
\nhaving made the deposits within the prescribed time limit,
\nno offences have been committed by the petitioners
\nentailing their prosecution under Section 276B of the Act.
\n6. Third, by a subsequent circular dated
\n07.02.2013, paragraph Nos.3.1(i) and (ii) of the earlier
\nguidelines were amended and a time limit of 60 days was
\n7
\nprescribed to make the deposit from the date of said
\ndeduction and the deduction of the said amount could not
\nhave been retrospectively made applicable to the petitioners
\nsince the violations are alleged to have been committed in
\nthe previous assessment years commencing from 2010-
\n2011 to 2013-2014. Therefore, the prosecution initiated
\nagainst the petitioners being wholly illegal and an abuse of
\nprocess of Court cannot be sustained.
\n7. Refuting the above contentions, learned
\nStanding Counsel appearing for respondent\/complainant
\nwould however submit that Section 200 of the Act read with
\nRule 30 of the Income Tax Rules, 1962 contemplate deposit
\nof the TDS deducted within the prescribed time limit and
\nfailure to deposit would entail the prosecution of the
\nassessee in terms of Section 276B of the Act. In the instant
\ncase, the petitioners do not dispute the fact that the tax
\ndeducted at source was not credited to the Complainant-
\nDepartment within the prescribed period of time. As held
\nby the Hon\u2019ble Supreme Court of India in Madhumilan
\n8
\nSyntex Ltd., and Others vs. Union of India and
\nAnother reported in (2007) 11 SCC 297 \u201c\u2026\u2026\u2026 wherever
\na company is required to deduct tax at source and to pay
\nit to the account of the Central Government, failure on the
\npart of the company in deducting or in paying such amount
\nis an offence under the Act and has been made punishable.
\nIt, therefore, cannot be said that the prosecution against a
\ncompany or its Directors in default of deducting or paying
\ntax is not envisaged by the Act.\u201d
\n8. Further referring to the very same decision
\nrelied to by learned counsel for the petitioners in Indo
\nArya\u2019s case referred to supra, with reference to para Nos.8
\nand 9 thereof, learned standing counsel has emphasized
\nthat \u201cthe issues raised by the petitioners are ex-facie factual
\nand could constitute defence of the petitioners, as
\nconstituting reasonable cause\u201d. In view of Section 278AA of
\nthe Act, the onus of proving the said defence is on the
\naccused and therefore, on this score also, the impugned
\nproceedings cannot be quashed.
\n9
\n9. On the question that the prosecution of the
\naccused could not have been launched without conducting
\nadjudication proceedings to determine the penalty is
\nconcerned, the learned standing counsel has referred to the
\ndecision of the High Court of Madras in the case of Rayaal
\nCorporation (P) Limited vs. V.M.Muthuramalingam,
\nITO reported in (1980) 4 Taxman 346 (Madras),
\nwherein it has held that \u201cso far as prosecution under
\nSection 276B is concerned, it is not controlled either by
\nSection 201(1A) or Section 221. All that the Section says is
\nthat if a person, without reasonable cause or excuse, fails to
\ndeduct or after deducting, fails to pay the tax, as required
\nby or under the provisions of Sub-Section (9) of Section 80E
\nor Chapter XVII-B, he shall be punishable with rigorous
\nimprisonment and shall also be liable to fine\u201d.
\n10. Insofar as the circular\/instruction relied on by
\nlearned counsel for the petitioners is concerned, learned
\nstanding counsel for the respondent would submit that the
\nsaid circular deals only with the Standard Operating
\n10
\nProcedure and does not extend the time limit for deposit of
\nTDS deducted nor does it absolve the accused from criminal
\nproceedings and thus, he seeks to dismiss the petition.
\n11. Having heard the learned counsel for the parties
\nand on considering the materials on record, the question
\nthat arises for consideration is whether the prosecution of
\nthe petitioners for the offence punishable under Section
\n276B of the Income Tax Act could be sustained without
\ndetermination of the liability of the petitioners under Section
\n201 of the Act?
\n12. Section 201 of the Act deals with the
\nconsequences of failure to deduct or pay. The Section reads
\nas under:-
\n\u201cConsequences of failure to deduct or pay.
\n201. [(1) Where any person, including the
\nprincipal officer of a company, –
\n(a) who is required to deduct any sum in
\naccordance with the provisions of this Act; or
\n(b) referred to in sub-section (1A) of section
\n192, being an employer, does not deduct, or does
\n11
\nnot pay, or after so deducting fails to pay, the
\nwhole or any part of the tax, as required by or
\nunder this Act, then, such person, shall without
\nprejudice to any other consequences which he may
\nincur, be deemed to be an assessee in default in
\nrespect of such tax:
\n[Provided that any person, including the principal
\nofficer of a company, who fails to deduct the whole
\nor any part of the tax in accordance with the
\nprovisions of this Chapter on the sum paid to a
\nresident or on the sum credited to the account of a
\nresident shall not be deemed to be an assessee in
\ndefault in respect of such tax if such resident-
\n(i) has furnished his return of income under
\nsection 139;
\n(ii) has taken into account such sum for
\ncomputing income in such return of income;
\nand
\n(iii) has paid the tax due on the income declared
\nby him in such return of income;
\nand the person furnishes a certificate to this effect
\nfrom an accountant in such form as may be
\nprescribed:]
\nProvided (further) that no penalty shall be
\ncharged under section 221 from such person,
\n12
\nunless the Assessing Officer is satisfied that such
\nperson, without good and sufficient reasons, has
\nfailed to deduct and pay such tax]
\n[(1A) Without prejudice to the provisions of subsection
\n(1), if any such person, principal officer or
\ncompany as is referred to in that sub-section does
\nnot deduct the whole or any pat of the tax or after
\ndeducting fails to pay the tax as required by or
\nunder this Act, he or it shall be liable to pay simple
\ninterest,-
\n(i) at one per cent for every month or part of a
\nmonth on the amount of such tax from the
\ndate on which such tax was deductible to the
\ndate on which such tax is deducted; and
\n(ii) at one and one-half per cent for every month
\nor part of a month on the amount of such tax
\nfrom the date on which such tax was
\ndeducted to the date on which such tax is
\nactually paid,
\nand such interest shall be paid before furnishing
\nthe statement in accordance with the provisions of
\nsub-section (3) of section 200:]
\n[Provided that in case any person, including the
\nprincipal officer of a company fails to deduct the
\nwhole or any part of the tax in accordance with the
\n13
\nprovisions of this Chapter on the sum paid to a
\nresident or on the sum credited to the account of a
\nresident but is not deemed to be an assessee in
\ndefault under the first proviso to sub-section (1),
\nthe interest under clause (i) shall be payable from
\nthe date on which such tax was deductible to the
\ndate of furnishing of return of income by such
\nresident.]
\n(2) Where the tax has not been paid as aforesaid
\nafter it is deducted, (the amount of the tax
\ntogether with the amount of simple interest
\nthereon referred to in sub-section (1A) shall be a
\ncharge upon all the assets of the person, or the
\ncompany, as the case may be, referred to in subsection
\n(1).
\n[(3) No order shall be made under sub-section (1)
\ndeeming a person to be an assessee in default for
\nfailure to deduct the whole or any part of the tax
\nfrom a person resident in India, at any time after
\nthe expiry of seven years from the end of the
\nfinancial year in which payment is made or credit is
\ngiven.]
\n(4) The provisions of sub-clause (ii) of sub-section
\n(3) of section 153 and of Explanation 1 to section
\n14
\n153 shall, so far as may, apply to the time limit
\nprescribed in sub-section (3).]
\n[Explanation \u2013 For the purposes of this section, the
\nexpression \u201caccountant\u201d shall have the meaning
\nassigned to it in the Explanation to sub-section (2)
\nof section 288.]\u201d
\n13. A bare reading of the aforesaid Section makes it
\nclear that without prejudice to any other consequences,
\nwhich the accused may incur, he is deemed to be \u201can
\nassessee in default\u201d in respect of such deduction. Therefore,
\nit follows that in case of failure to deduct or to pay the tax
\ndeducted at source, accused may invite penalty consequent
\nupon the adjudication or it may also \u201cwithout prejudice to
\nany other consequences\u201d, lead to prosecution of the
\naccused. This view is expounded by the Hon\u2019ble Supreme
\nCourt in Madhumilan\u2019s case referred supra, wherein while
\ndealing with identical set of facts in para Nos.47 and 48, the
\nApex Court has observed as under:-
\n\u201c47. The next contention that since TDS had
\nalready been deposited to the account of the
\nCentral Government, there was no default and no
\n15
\nprosecution can be ordered cannot be accepted.
\nMr.Ranjith Kumar invited our attention to a decision
\nof the High Court of Calcutta in Vinar & Co. v. ITO.
\nInterpreting the provisions of Section 276-B, a
\nSingle Judge of the High Court observed that: (ITR
\np.135)
\n\u201c[T]here is no provision in the Income Tax
\nAct imposing criminal liability for delay in
\ndeduction or for non-payment in time. Under
\nSection 276-B, delay in payment of income
\ntax is not an offence\u201d.
\nAccording to the learned Judge, such a provision is
\nsubject to penalty under Section 201(1) of the Act.
\n48. We are unable to agree with the above
\nview of the High Court. Once a statute requires to
\npay tax and stipulates period within which such
\npayment is to be made, the payment must be made
\nwithin that period. If the payment is not made
\nwithin that period, there is default and an
\nappropriate action can be taken under the Act.
\nInterpretation canvassed by the learned counsel
\nwould make the provision relating to prosecution
\nnugatory.\u201d
\n16
\n14. Similar preposition is laid down in Rayala
\nCorporation\u2019s case referred supra, wherein it is held that
\n\u201cSo far as prosecution under section 276B is concerned, it is
\nnot controlled either by section 201(1A) or section 221. All
\nthat the section says is that if a person, without reasonable
\ncause or excuse, fails to deduct or after deducting fails to
\npay the tax, as required by or under the provisions of subsection
\n(9) of section 80E or Chapter XVII-B, he shall be
\npunishable with rigorous imprisonment and shall also be
\nliable to fine. If it was the intention of the legislature, that
\nprosecution can be resorted to only in respect of those
\ncases where charging of interest or levy of penalty will not
\nmeet the ends of justice, then the legislature would have
\nindicated its intention in the section. On the other hand,
\nwhat we find is that the power of prosecution given under
\nsection 276B is not restricted to a particular type of cases
\nalone\u201d.
\n17
\n15. In this context, it may also be beneficial to refer
\nSection 278AA of the Act. The Section opens with nonobstante
\nclause and reads as under:-
\n[Punishment not to be imposed in certain
\ncases.
\n\u201c278AA. Notwithstanding anything contained in
\nthe provisions of section 276A, section 276AB, [or
\nsection 276B,] no person shall be punishable for
\nany failure referred to in the said provisions if he
\nproves that there was reasonable cause for such
\nfailure.]
\n16. This provision makes it clear that in order to get
\nover the penal consequences that follow on account of nonpayment
\nof tax deducted at source, it is open for the
\naccused persons to come clean of the said charge by
\nshowing reasonable cause for failure to deposit the said
\namount. In the light of this provision, contentions urged by
\nthe learned counsel for the petitioners cannot be accepted.
\nSince the material placed on record prima facie discloses
\nthat the petitioners have deducted tax at source but failed
\nto credit the same to the account of the Central
\n18
\nGovernment within the prescribed time, the petitioners
\ncannot escape from the rigour of Section 276B of the Act.
\n17. The alternative argument canvassed by the
\nlearned counsel for the petitioners that without determining
\nthe penalty, the respondent was not entitled to resort to
\ncriminal prosecution of the petitioners under Section 276B
\nof the Act, also cannot be accepted for the reason that the
\npetitioners\/accused have not disputed their liability. The
\nquestion of determining the liability and consequent
\nimposition of penalty would arise only in case of dispute
\nwith regard to the liability to remit the deducted tax. In the
\ninstant case, the facts alleged in the complaint clearly
\nindicate that the amount was credited subsequent to the
\nsurvey. As a result, even this defence is not available to the
\npetitioners.
\n18. Lastly, the contention urged by the petitioners
\nthat the circular\/instruction issued by the department have
\nbinding force though needs to be accepted as a principle of
\nlaw, but in the instant case, none of the parties have placed
\n19
\nthe said instruction or circular for perusal of this Court. No
\nmaterial is available to show that the petitioner No.1-
\nCompany has deposited the amount within the extended
\ntime. On the other hand, the allegations are to the effect
\nthat survey itself was conducted on 27.09.2011. According
\nto prosecution, the amount was deposited subsequent to
\nsurvey conducted by the Department. Under the said
\ncircumstances, even on question of fact, the above principle
\ndoes not come to the aid of the petitioners. As a result, I do
\nnot find any merit in the contentions urged by petitioners.
\nConsequently, the petition is dismissed. It is made
\nclear that the observations made in this order shall not
\ninfluence the trial Court while dealing with the matter on
\nmerits.
\nSd\/-
\nJUDGE
\nSV<\/p>\n","protected":false},"excerpt":{"rendered":"
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<\/p>\n