High Court Of Calcutta
Vinar & Co. & Anr. vs. Income Tax Officer & Ors.
Sections 80E, 276B
Shyamal Kumar Sen, J.
Matter No. 336 of 1987
17th August, 1990
Counsel Appeared
R. K. Murarka & Jaydeb Chandra Saha, for the Assessee : S. K. Mitra, for the Revenue
SHYAMAL KUMAR SEN, J.:
It is the contention of the writ petitioners that, until the death of its partner, Sri H. P. Nevatia, on 15th Oct., 1977, the business and the accounts of petitioner No. 1 firm were solely looked after and maintained by and under the instructions of the said Sri H. P. Nevatia. Other partners of the said firm did not at any time have any significant participation in the activities of petitioner No. 1. Petitioner No. 1, at all material times, maintained and still maintains its accounts in accordance with the mercantile system of accountancy. This application relates to purported criminal proceedings sought to be initiated by respondent No. 1 against the petitioners for alleged failure to pay the tax deducted at source under s. 194A of the said Act within time, under s. 276B of the said Act, for the asst. yrs. 1970-71 to 1976-77. The previous years of petitioner No. 1 were the relevant financial years. During the course of its business, petitioner No. 1 raised and/or received loans and/or advances from different persons on interest. The accounts of the said creditors in the books of petitioner No. 1 used to be credited with the amount of accrued interest in every accounting year on the basis of the mercantile system of accountancy. On such credit for interest made in the accounts of the creditors, the petitioner-firm was required to deduct income-tax at source under s. 194A of the said Act at the rate prescribed therein. In accordance with the mercantile system of accountancy, simultaneously with the crediting of interest to the accounts of the creditors, the petitioner-firm used to credit the Central Government with the amount of tax notionally deducted at source thereon every accounting year. The petitioner-firm was always in financial stringency.
The balance-sheet of the petitioner-firm always showed debit balance in the capital accounts of its partners. In the premises, the petitioner-firm, as and when liquid funds were available with it, used to pay the tax deducted at source under s. 194A of the said Act to the Central Government as follows: Details of tax deducted at source on interest payable to creditors.
2. In the accounting year relevant to the asst. yr. 1976-77, Hindusthan Sugar Mills Ltd., by a letter, informed the said firm that, on and from 1st April, 1975, no interest is chargeable on their loan. In the premises, the said firm, although initially credited interest on the said account for the said accounting year, later on, after the receipt of the said letter, wrote back the interest credited and thus filed a revised return under the said Act and, therefore, no tax was deductible at source for the said asst. yr. 1976-77. The amount of tax required to be deducted at source on interest payable under s. 194A of the said Act could not be deposited or paid to the credit of the Central Government within the time specified in r. 30 of the IT Rules, 1962, i.e., within two months from the date of such credit due to paucity of funds. The accounts of the creditors used to be credited with accrued interest thereon under the mercantile system of accountancy whereas the tax deducted at source thereon could be paid only on the basis of cash funds available with the petitioner-firm. As and when the said cash funds were available, the petitioner-firm duly paid the said tax deducted at source. In the premises, the petitioners submitted that the delay in depositing the tax deducted at source was due to the difference in the mercantile system of accountancy and payments being made on cash basis as and when liquid funds were available. In the premises, the petitioners alleged that there was a reasonable and bona fide cause for the delay in depositing the tax deducted at source on the said interest which was credited to the accounts of the creditors in the mercantile system of accountancy. The said delay was bona fide. For the asst. yrs. 1970-71 up to 1976-77, the petitioner-firm filed its returns on 1st Jan., 1971, 9th March, 1972, 4th Dec., 1972, 13th Jan., 1975, 31st Jan., 1975, 6th June, 1976 and 30th March, 1977, respectively. Particulars of tax required to be deducted at source under s. 194A of the said Act and credited to the Central Government were duly furnished by the petitioner-firm to the said ITO, G-Ward District V(1), Calcutta, and/or respondent No. 1 herein in the course of the assessment proceedings for the relevant assessment year under the said Act. The said ITOs were also furnished with the particulars of the payments of the said tax deducted at source by the petitioner-firm for the aforesaid years under s. 194A of the said, Act in the course of the relevant assessment proceedings. In the premises, the petitioners alleged that the said ITOs were all along aware of the said particulars and details regarding the deduction or regarding the crediting of the accounts of the creditors with accrued interest every year and the tax required to be deducted at source thereon and the dates of payment of such tax by the petitioner-firm for the said asst. yrs. 1970-71 to 1976-77. The petitioner-firm was assessed under the said Act by orders of assessment dt. 17th March, 1973, 8th April, 1974, 2nd Dec., 1974, 22nd Aug., 1975, 10th March, 1976, 28th May, 1977, and 31st March, 1979, respectively. The assessments for the asst. yrs. 1970-71 and 1976-77 were made afresh by orders dt. 28th May, 1977, and 1st July, 1983 respectively. It has also been alleged that respondent No. 1 was duly satisfied as regards the reason for the delay in payment of the tax required to be deducted at source on the accrued amount of interest credited to the accounts of the creditors in the mercantile system of accountancy and, therefore, respondent No. 1 did not at any time initiate any proceeding or pass any order imposing penalty under s. 221 r/w s. 201 (1) of the said Act for any of the aforesaid assessment years. In the course of the said assessment proceedings, respondent No. 1 also did not charge any interest whatsoever under s. 201 (1 A) of the said Act. Thereafter, all of a sudden, petitioner No. 1 received on 7th Dec., 1983, a bunch of orders all dt. 1st July, 1983, for the assessment years from 1968-69 to 1976-77 imposing interest under s. 201(1A) of the said Act on the said firm. Petitioners further state that all the said orders were passed on one day, i.e., 1st July, 1983, for several years at a time. The order for the asst. yr. 1968-69 has been made after 14 years and the order for the last assessment year, i.e., 1976-77, has been made after 6 years from the end of the relevant assessment year. By the said several orders under s. 201 (1A) of the said Act, all dt. 1st July, 1983, respondent No. 1, for the assessment years from 1968-69 to 1976-77, sought to levy and demand interest for delayed payment of tax deducted at source. It has been submitted that there is no reason whatsoever before respondent No. 1 for the aforesaid inordinate delay in passing the said order. All the relevant information relating to deduction of the tax at source and payment thereof were furnished by the petitioner-firm to the said respondent No. 1 in the course of the assessment proceedings and the said firm had also explained to the said respondent the reasons for the delayed payment. In the circumstances, the petitioners all along, bona fide and reasonably, believed that the said firm was not liable to pay any interest under s. 201 (1A) of the said Act. After a lapse of 14 years, it was not reasonably possible for the petitioners to recollect the circumstances which caused delay in payment of the tax deducted at source. No opportunity of being heard was given before passing the said orders dt. 1st July, 1983. In the premises, passing of the said orders all dt. 1st July, 1983, beyond reasonable time extending from 6 years to 14 years and exercise of such powers was not bona fide and was an abuse of power and not reasonable and could not be sustained in law. The delay in passing the said orders under s. 201(1A) of the said Act could not be attributable to the petitioners and there is and could not be any explanation for the said delay on the part of the said respondent No. 1. It has been submitted that the said orders all dt. 1st July, 1983, made under s. 201 (1A) of the said Act are bad in law without and/or in excess of jurisdiction and authority of law. Being aggrieved by the said orders all dt. 1st July, 1983, under s. 201 (1A) of the said Act, the said firm preferred appeals before the AAC, Range VI, Calcutta, on the ground, inter alia that, before passing the said order, the ITO did not give the petitioners any opportunity of being heard in the matter and exercise of power under s. 201(1A) of the said Act by respondent No. 1 in the instant case had not been made within a reasonable time and the imposition of interest under s. 201(1A) of the said Act for the aforesaid periods was wholly unreasonable, unjust and improper, illegal and unsustainable and there was sufficient reason for the delayed payment. The AAC, Range VI, Calcutta, by a consolidated appellate order dt. 27th Sept., 1985, dismissed all the said appeals. The said firm preferred appeals from the said appellate order dt. 27th Sept., 1985, before the Tribunal, Calcutta, which are still pending. One of the grounds of appeal therein is that there was a reasonable cause for the delay in payment of the tax deducted at source and that no interest is leviable under s. 201 (1A) of the said Act. The said issue, therefore, is sub judice. On 8th Dec., 1986, seven show-cause notices all dt. 20th Nov., 1986, were received from respondent No. 1 for the asst. yrs. 1970-71 to 1976-77 directing the said petitioner-firm to show cause why prosecution under s. 276B of the said Act should not be initiated against the said petitioner-firm for failure to pay the tax deducted at source under s. 194A of the said Act r/w s. 200 of the said Act within the stipulated time as per r. 30 of the IT Rules, 1962. The petitioners thereafter by letters dt. 17th Dec., 1986, and 22nd Dec., 1986, requested the said respondent No. 1 to allow some time to the petitioners to reply in the matter. Copies of the said seven show-cause notices under s. 276B of the said Act all dt. 20th Nov., 1986, and the said letter dt. 17th Dec., 1986, and 22nd Dec., 1986, have been annexed and collectively marked with the letter “A” to the writ petition. Similar notices all dt. 1st Dec., 1986, issued by respondent No. 1 for the asst. yrs. 1970-71 to 1976-77 were also received by petitioner No. 2 to show cause why prosecution under s. 276B(ii) should not be initiated. In this writ petition, the petitioners have challenged all the aforesaid show-cause notices.
3. No affidavit in opposition has been filed disputing the aforesaid allegations and, as such, the allegations contained in the petition remain uncontroverted.
4. It has been submitted on behalf of the writ petitioners that the alleged dues have all been paid although the said payments may have been delayed. It is the contention of the petitioners that, because of delayed payment of tax, there cannot be any criminal liability for prosecution. Moreover, both the firm and the partners cannot be prosecuted. If there be any liability at all, the same is for penalty and interest. But the Tribunal has quashed the proceedings for interest initiated by the authority concerned and no penalty proceeding has yet been initiated.
5. In the instant petition, the petitioners challenged the said show-cause notices on various grounds. It was submitted that the said show-cause notices were issued under a misconceived notion of law and moreover the said notices were issued after a long lapse of 10/15 years. The learned advocate for the respondent, however, submitted that it was open to the petitioners to give reply to the show-cause notices and, in case the petitioners still give reply to the show-cause notices, they will be duly considered and disposed of in accordance with law.Accordingly, after hearing the respective submissions of the parties on 13th Dec., 1988, an order was passed by me directing the respondents-authorities to consider the representations of the petitioners which would be submitted within a week from date. It was also provided in the said order that the authorities would give a hearing to the writ petitioners and would dispose of such representations within four weeks after the date of receipt of such representations. The authorities were further directed to pass a speaking order.
6. Pursuant to the said order dt. 13th Dec., 1988, a written representation was submitted on behalf of thepetitioners on 19th Dec., 1988. Thereafter, on 16th Feb., 1989, the said representation was considered by the ITO, Ward-IV (7), Calcutta, and the writ petitioners were duly given hearing. On 17th Feb., 1989, the ITO passed an order rejecting the contentions of the writ petitioners. Thereafter, on 15th Sept., 1989, the following order was passed: “Leave is granted to the writ petitioner to file supplementary affidavit challenging the order dt. 17th Feb., 1989. Such affidavit to be filed by 27th Sept., 1989. AO if any by 23th Nov., 1989. Matter be treated as part heard liberty to mention.”
7. Accordingly, the petitioners filed a supplementary affidavit challenging the said order. No affidavit-in- opposition, however, has been filed by the respondent dealing with the said supplementary affidavit.
8. It is the contention of the writ petitioners that the said finding of the ITO is perverse and there is an error apparent on the said finding for which the said finding should be set aside and the said show-cause notices should be quashed.
9. Mr. Murarka, learned advocate for the petitioners, submitted that there cannot be any criminal liability for delayed payment. The IT Act provides for imposition of penalty and interest under s. 201(1A) of the IT Act. In this connection, he referred to s. 271(1)(a) and s. 276(c) of the IT Act. He also submitted that, under s. 276B, delay in payment is not an offence. In support of his contention, learned advocate relied upon the following decisions : Calcutta Chromotype (P) Ltd. vs. ITO (1971) 80 ITR 627 (Cal), CIT vs. Anchor Pressing (P.) Ltd. (1982) 26 CTR (All) 447 : (1982) 136 ITR 505 (All) and CIT vs. Triveni Engineering Works Ltd. (1984) 41 CTR (Del) 97 : (1985) 154 ITR 561 (Delhi).
10. It was contended on behalf of the petitioners that, for the asst. yrs. 1970-71 to 1976-77, the provisions of s. 276B were not available and, therefore, a partner of the firm could not be prosecuted for a default of the firm. He also referred to the decision in the case of Parmeet Singh Sawney vs. Dinesh Verma (1988) 169 ITR 5 (Delhi). In support of his contention as to whether the firm can be prosecuted, Mr. Murarka also relied upon the following decisions : Kusum Products Ltd. vs. S. K. Sinha, ITO (1980) 126 ITR 804 (Cal), Vijaya Commercial Credit Ltd. vs. ITO (1987) 65 CTR (Kar) 74 : (1988) 170 ITR 55 (Kar) and D. C. Goel vs. B. L. Verma (1974) 93 ITR 63 (Delhi).
11. He also referred to the judgment and decision in the case of S. M. Badsha vs. ITO (1987) 65 CTR (Ker) 266 : (1987) 168 ITR 332 (Ker). He further submitted that the show-cause notice issued after such a long lapse of time cannot be held to be valid. In support of his contention, he relied upon a judgment in the case of Amin Chand and Sons vs. State of Punjab, AIR 1965 Punj 441.
12. Learned advocate for the respondent, on the other hand, contended that r. 30 of the IT Rules provides for the time limit for payment of taxes deducted which is two months from the date of deduction. In view of the fact that the tax deducted was not paid to the IT Department within the said period of two months, s. 276B of the IT Act,
1961, applies. Learned Advocate also referred to s. 194A(4) of the IT Act and the time limit mentioned therein. In this connection, learned advocate also relied upon the judgment and decision in the case of Rishikesh Balkishandas vs. I. D. Manchanda, ITO (1987) 167 ITR 49 (Delhi) wherein it was held that the payment of taxes has to be made during the financial year. Learned advocate also relied upon the judgment and decision in the case of Rayala Corporation (P) Ltd. vs. V. M. Muthuramalingam, ITO (1980) 14 CTR (Mad) 316 : (1981) 129 ITR 675 (Mad), wherein it was held that even in a case of delayed payment of tax already deducted and paid before initiation of proceedings, although not in time, the Department can take action under s. 276B of the IT Act. Learned advocate, accordingly, submitted that the prosecution under s. 276B of the IT Act is, therefore, possible and valid even in the case of delayed payments as well. Learned advocate for the respondent further submitted that the contention of the petitioners to the effect that s. 276B of the IT Act, 1961, does not apply in respect of the firm and that the firm cannot be prosecuted even in case of non-payment of tax deducted at source is not correct. In this connection, learned advocate for the respondent made the following submissions :
The word ‘person’ (appearing in s. 276B of the IT Act, 1961) has been defined in the IT Act, 1961, in s. 2(31) so as to include a firm. The first is an assessee under s. 2(7) of the IT Act, 1961. A partnership-firm as distinguished from a company is not a legal or juristic entity but it is an amalgam of individual partners who constitute a firm. Therefore, notices issued to a firm as well as to the managing partner of the firm to show cause as to why action under s. 276B of the IT Act, 1961, should not be initiated, as in this case, are valid notices. In the instant case, show-cause notices were issued only against the firm and the managing partner thereof being writ petitioners Nos. 1 and 2 above-named. In this connection, learned advocate for the respondent referred to the decision in the case of Rishikesh Balkishandas vs. T. D, Manchanda, ITO (supra) and the case of Municipal Corporation of Delhi vs. J. B. Bottling Co. P. Ltd. (1975) Cr. LJ. 1148 (Delhi) (FB), in which it was held that proceedings under s. 276B of the IT Act, 1961, can be initiated against a firm. The punishment against the firm may be by way of fine and against the managing partner by way of imprisonment.
13. According to learned advocate for the respondent, an individual partner can also be proceeded against under s.
276B of the IT Act, 1961, and penalty/imprisonment can be imposed. In the instant case, show-cause notices have only been issued against the petitioner-firm (petitioner No. 1 ) and petitioner No. 2. V. K. Nevatia, as managing partner of the firm, has verified all income-tax returns of the firm for 1970-71 and 1976-77. It has been contended that, under s. 276B of the IT Act, 1961, which came into force from 1st Oct., 1975, initiation of proceedings against the director of a company or a partner of a firm is possible but, in this case, the default has been committed prior to 1st Oct., 1975, and as such the said amended s. 276B will have no application. Such contention, it has been submitted, is not tenable. It has further been submitted that a company is a juristic entity but a firm is not. In any event, some of the offences have been committed by the petitioners after coming into force of the amended section, as the default continued until the date of payment (i.e., in case of deduction at source in March, 1975, and payment thereof being made in April, 1976, the default continued till April, 1976). Learned advocate, in this connection, referred to the judgment and decision in the case of Jagannath Prasad Jalani vs. Regional Provident Fund Commissioner (1987) 63 CTR (Del) 312 : (1987) 168 ITR 341 (Delhi). It has been submitted that the default continues and terminates only when the tax deducted is paid.
14. It has also been submitted that liability under s. 276B is an absolute liability and a partner in charge of affairs/business of the firm is liable in law for the defaults of the firm. It has also been submitted by learned advocate for the respondent that it is settled law that, by filing a writ petition, criminal proceedings should not be stopped or prevented unless the said notices are ipso facto mala fide or there is inherent lack of jurisdiction. According to learned advocate, in the instant case, admittedly, the petitioners have failed to pay taxes deducted at source within time as required under s. 194A of the IT Act r/w r. 30 of the IT Rules although they have paid the said sums later on and thereby an offence under s. 276B has been committed. In the circumstances, it is apparent that there is no inherent lack of jurisdiction nor any mala fides in the issuance of the show-cause notices and as such the said notices should not be quashed in this writ petition. It has further been submitted that although the writ petitioners have filed a petition pursuant to the order of this Court in reply to the show-cause notices and the concerned officer dealt with the same and passed an order on 17th Feb., 1989, it is open to the petitioner in case of conviction in the said criminal proceedings, if initiated, to prefer appeal or revision to this Court. It was, accordingly, urged that, in view of the alternative legal remedy available to the petitioners, the writ petition should be dismissed. I have considered the respective submissions of the parties and decisions cited from the Bar.
15. In the case of Vijaya Commercial Credit Ltd. vs. ITO (supra), it was held that the expression “person” as defined under s. 2(31) is wide enough to include a company or other juristic person. Having regard to the fact that a sentence of imprisonment has been made compulsory, it cannot be said that the expression “person” has been used in s. 276B. In that sense, inasmuch as it is not possible to impose a sentence of imprisonment on a company, since there is no statutory compulsion to prosecute a company alongside of the officers or persons in charge of and responsible to the company and such officers or the persons responsible to the company may be prosecuted without prosecuting the company, criminal proceedings instituted against a company under s. 277 are futile and should be quashed. In the case of Kusum Products Ltd. vs. S. K. Sinha, ITO (1980) 126 ITR 804 (Cal), considering the provision, the Division Bench of the Court observed as follows : “That mens rea is an essential ingredient of an offence under s. 277 of the Act is clear from the section itself and only an actual person who does any of the acts indicated therein with a specific knowledge or intent can be made liable. Although, under s. 2(31) of the Act, the definition of a person is wide enough to include a company or any juristic person, the word
‘person’ could not have been used by Parliament in s. 277 of the Act in the sense given in the definition clause. That this was the intention of Parliament is clear because imprisonment has been made compulsory for an offence under s. 277 of the Act. A company or a juristic person cannot possibly be sent to prison, and it is not open to a Court to impose a sentence of fine or not award any punishment if the Court finds a company guilty under the said section. If the Court does so, it would be altering the very scheme of the Act and usurping the legislative function.”
The petitioner-company filed a return of income for the asst. yr. 1974-75 under the signature of its accountant who was also the constituted attorney of the company. The ITO filed a petition of complaint in the Court of the Chief Metropolitan Magistrate against the company and the accountant, alleging the commission of an offence punishable under s. 277 on the grounds that, in the return, the company had shown a total profit from its business amounting to Rs. 66,62,114 from which a total deduction amounting to Rs. 12,89,107 was claimed. The deduction included a sum of Rs. 1,14,212 which was received by the company as interest on advance tax paid for the asst. yr. 1967-68. In claiming the deduction, it was stated in the return that it had already been assessed in an earlier year although there was no evidence to show that the amount had been assessed to tax in any previous year and that when this sum of Rs. 1,14,212 was added to the assessable income in the final assessment, the company did not prefer any objection to the inclusion of the amount. Therefore, the accused persons had made a false verification in the return knowing or believing it to be false or not believing it to be true. The petitioner-company filed an application before the High Court for quashing the proceedings pending against the company in the Court of the Chief Metropolitan Magistrate. It was held that, as the petitioner-company could not be attributed with the requisite mens rea, its prosecution in the Court of the Metropolitan Magistrate for an offence under s. 277 would tantamount to an abuse of the process of the Court. Therefore, the proceedings pending against the petitioner- company were quashed.
In the case of D. C. Goel vs. B. L. Verma (1974) 93 ITR 63 (Del), it was held by the Delhi High Court that s. 276B of the Act provides that a person failing without reasonable cause or excuse to deduct or after deducting to pay the tax as required by the provisions mentioned therein shall be punishable with rigorous imprisonment for a term which may extend to six months, and shall also be liable to fine which shall not be less than the sum calculated at the rate of 15per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. It was also held that a company or a firm being a juridical person is not liable to be prosecuted under s. 276B inasmuch as it could not have been imprisoned. The provision left no discretion to the Court to impose the fine contemplated by it as an alternative to imprisonment. The accused was in any case punishable with rigorous imprisonment for a term which could extend to six months. A juridical person could not have been imprisoned and could not have been prosecuted for the purpose of being prosecuted under s. 276B of the Act.
It was further held that where a company and its managing directors are accused of the offences under s. 276D and s. 276B, the Court cannot impose a sentence of fine or an alternative sentence of simple imprisonment on both the accused.
In the case of CIT vs. Anchor Pressing (P.) Ltd. (supra), it was held by the Division Bench of the Allahabad High Court, inter alia, as under (headnote) : “The Companies (Profits) Surtax Act, 1964, envisages a levy of surtax on the excess profits of companies, other than those which have no share capital over and above a certain figure. Such a company has to file its return for purposes of assessment to income-tax under sub-s. (1) or sub-s. (2) of s. 139 of the IT Act, 1961, as the case may be. Under s. 271(1)(a) of the IT Act, 1961, penalty is leviable on the failure, without reasonable cause, to furnish a return of total income under sub-s. (1) of s. 139 or by notice given under sub-s. (2) of s. 139 or s. 148 or within the time allowed and in the manner required by sub-s. (1) of s.
139 or by such notice, as the case may be. Under the WT Act, 1957, also, for failure to furnish a return under sub- s. (1) of s. 14 as required or under sub-s. (2) of s. 14, if notice is given, penalty is provided for in s. 17 of that Act. In s. 9 of the Companies (Profits) Surtax Act, 1964, however, the levy of penalty has been provided only for failure to furnish a return, without reasonable cause, as required under s. 5 of the Companies (Profits) Surtax Act, 1964. It does not include the failure to furnish the return within the time allowed and in the manner prescribed under sub-s. (1) of s. 5 or within the time allowed in the notice issued under sub-s. (2) of s. 5. It envisages a levy of penalty only for the failure to furnish a return as required under s. 5. If no return has been filed as stipulated under sub-s. (1) or within the time given by the notice issued under sub-s. (2) of s. 5 but is filed under sub-s. (3) of s. 5, before the assessment is made, there will be no default. If an assessee filed a return under sub-s. (3) of s. 5 of the Companies (Profits) Surtax Act, 1964, it would also be a return “required” by the provision. Simply because the word “required” does not occur in sub-s. (3) it does not mean that it is only an enabling provision. The word “required”, therefore, does not necessarily mean an imperative or authoritative demand to file the return. It can be equated with “authorised” as well. In sub-s. (3) of s. 5, therefore, if a company liable to tax under the Surtax Act has not furnished a return during the time allowed under sub-s. (1) or sub-s. (2) of s. 5, it may furnish a return at any time before the assessment is made. Therefore, s. 9 provides for a levy of penalty only on failure to furnish the return required under s. 5 and not for the default in the filing of the return within the time allowed under sub-s. (1) of s. 5 or by notice under sub-s. (2) of s. 5. Moreover, under s. 9 of the Surtax Act, 1964, the penalty is leviable of a sum not exceeding the amount of surtax while for a default under s. 271(1)(a) of the IT Act, 1961, the penalty leviable is the sum equal to two per cent. of the assessed tax for every month during which the default continued. Further, Chapter XXII of the IT Act, 1961, provides for offences and prosecutions. Failure to furnish returns of income is one such offence. Similarly, ss. 20 to 22 of the Companies (Profits) Surtax Act, 1964, make provision for offences and prosecutions. These offences are failure to deliver returns, etc., furnishing of false statements and abatement of false returns, etc. Sec. 20 of the Surtax Act, 1964, which governs the case of a failure to furnish returns, etc., specifically makes the failure without reasonable cause “to furnish in due time any return under sub- s. (2) of s. 5″, a default. It is, therefore, evident that the Legislature intended to penalise only a default in filing the return. Therefore, looking to the scheme of the Companies (Profits) Surtax Act, 1964, the purpose which it was intended to serve and the clear language used in the relevant provisions, s. 9 of the Surtax Act, 1964, envisages a levy of penalty for the failure to file a return under s. 5 without reasonable cause and not for the failure to file a return within the time prescribed under sub-s. (1) or sub-s. (2) of s. 5. The ITO is not entitled to impose penalty on the ground of failure to file a return within the time prescribed under sub-s. (1) or sub-s. (2) of s. 5 when the return is filed before the assessment is made and the ITO accepts it and completes the assessment on the basis of such a return.”
In the case of CIT vs. Triveni Engineering Works Ltd. (supra), which was relied upon by the petitioner, the facts were, inter alia, that the petitioner had to file a return under the Companies (Profits) Surtax Act, 1964, for the relevant year by 30th Sept., 1969, but it actually filed it on 31st Jan., 1970. The ITO rejected the assessee’s plea that the delay was on account of the fact that there were no chargeable profits and imposed a penalty of Rs. 1,02,765. The AAC cancelled the penalty following the decision of this Court in Calcutta Chromotype (P.) Ltd. vs. ITO (1971) 80 ITR 627 (Cal) and this was upheld by the Tribunal. On an application to direct reference, it was held that under s. 9 of the Companies (Profits) Surtax Act, 1964, penalty could be imposed only for the failure to file the return and not for late filing of the return.
In the case of Calcutta Chromotype (P.) Ltd. vs. ITO (supra) it was held that the ITO is not entitled to impose a penalty on an assessee on the ground of failure to file a return under sub-s. (1) of s. 6 of the Super Profits Tax Act, 1963 (since superseded by the Companies (Profits) Surtax Act, 1964), within the time prescribed under that sub- section, when the return is filed before the assessment is made, as permitted by sub-s. (3) of s. 6. There are no specific words in s. 10 imposing penalty in such cases as there are in the corresponding provisions of the IT Act.
In the case of Amin Chand and Sons vs. State of Punjab, AIR 1965 Punj 441, levy of damages were imposed up to six years upon an employer for not making payment in the scheduled time in terms of the Employees’ Provident Funds Act. It was held that levy of damages not immediately after default but after allowing accumulation of defaults for years together is arbitrary exercise of discretion.
It may be worthwhile to consider in this connection s. 276B of the IT Act, both before and after amendment. Sec. 276B of the IT Act originally provided as follows : “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-s. (9) of s. 80E or Chapter XVII-B, he shall be punishable :- (i) in a case where the amount of tax which he has failed to deduct or pay exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine ; (ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine.”
25. Sec. 276B which provides that for failure to deduct and to pay tax as required under the provision of sub-s. (9) of s. 80E as punishable was introduced w.e.f. 1st Oct., 1975 (sic). The relevant period for alleged default was earlier to 1st Oct., 1975, and as such the said provisions of s. 276B cannot be made applicable there to the case of the petitioner. (sic).
26. It appears to me on a proper construction of s. 276B of the IT Act that the word “person” referred to in the said section does not mean to include either a partnership firm or any partner thereof and the meaning of the word “person” in s. 2(31) of the said Act has no application to s. 276B of the said Act. In this connection, I take note of the judgment and decision of the Supreme Court in the case of Kapurchand Shrimal vs. TRO (1969) 72 ITR 623 (SC). The Supreme Court observed as follows : “Secs. 276, 276A, 277 and 278 on which reliance was placed by counsel for the Revenue in support of his argument also do not assist him. These sections occur in a chapter relating to penalties, and they seek to penalise failure to carry out specific provisions mentioned therein. We are unable to hold that the expression ‘person’ in ss. 276, 276A and 277 is used in the sense in which it is defined in s. 2(31) of the Act. For each specific act which is deemed to be an offence under those provisions, an individual who without reasonable cause or excuse fails to do the acts prescribed by statute or acts in a manner contrary to the statute or makes a declaration on oath which he believed to be false or does not believe to be true, is made liable to be punished. Sec. 278 penalises the abetment or inducing any person to make and deliver an account, statement or declaration relating to any income chargeable to tax which is false and which he either knows to be false or does not believe to be true. In the context in which the expression ‘person’ occurs in ss. 276, 276A, 277 and 278, there can be no doubt that it seeks to penalise only those individuals who fail to carry out the duty cast by the specific provisions of the statute; or are otherwise responsible for the acts done. For the default of the HUF, therefore, in payment of tax, the Karta cannot be arrested and detained in prison.
The High Court, we think, took a somewhat technical view in declining to allow the contention raised by the appellant in the first writ petition presented before the High Court that he was not liable to be arrested and imprisoned for non-payment of the tax arrears, since he was not an assessee, and then in treating the judgment of the High Court in the first writ petition as operating constructively as res judicata in the second petition.”
27. Sec. 276B of the IT Act, as originally provided, has been substituted by a subsequent amendment to the following effect : Amended s. 276B.—”If a person fails to pay to the credit of the Central Government, the tax deducted at source by him as required by or under the provisions of Chapter XVII-B, he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.”
28. It appears to me that there is no provision in the IT Act imposing criminal liability for delay in deduction or for non-payment in time. Under s. 276B, delay in payment of income-tax is not an offence. There is, however, provision for penalty as a consequence of failure to deduct or pay under s. 201 (1) of the IT Act. Sec. 200 of the IT Act provides as follows : “Any person deducting any sum in accordance with the provisions of ss. 192 to 194, s. 194A, s. 194B, s. 194C, s. 194D and s. 195 shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs.”
29. Sec. 201 provides as follows : “If any such person and in the cases referred to in s. 194, the principal officer and the company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax : Provided that no penalty shall be charged under s. 221 from such person, principal officer or company unless the AO is satisfied that person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax.”
30. Prior to the insertion of s. 278B, a partner of a partnership firm could not be prosecuted under s. 276B of the Act. In the case of Rishikesh Balkishandas vs. I. D. Manchanda, ITO (supra), it was held that a firm, though a legal entity for purposes of tax laws, is liable to be prosecuted under s. 276B of the IT Act, 1961 for failure to deduct tax at source from interest paid or credited, even though the section provides a minimum punishment of imprisonment. In the case of conviction, sentence of fine only can be imposed on a firm. It was also held by the learned single Judge of the Delhi High Court in the aforesaid decision that s. 194A of the IT Act, 1961, which requires the persons making any payment of interest to deduct the tax at the rates in force imposes an absolute liability and, for an offence under s. 276B r/w s. 194A of deficient deduction or non-deduction which is a conscious act, mens rea is not required for constituting such an offence. The learned single Judge came to the aforesaid conclusion relying upon the decision of the Supreme Court in the case of State of Maharashtra vs. Mayor Hans George (1965) 35 Comp Cas 557. The decision in the case of Kapurchand Shrimal vs. TRO (1969) 72 ITR 623 (SC) was not considered in the aforesaid decision by the Delhi High Court probably because the Court’s attention was not drawn to the said decision and as such the principles decided in that decision of the Delhi High Court cannot have binding effect. It may be noted that, subsequently, the Delhi High Court, in the case of Parmeet Singh Sawney vs. Dinesh Verma (1987) 63 CTR (Del) 84 : (1988) 169 ITR 5 (Del), after considering the provisions of s. 276B and s. 278B, held that partners of a firm could not be prosecuted. A special leave petition of the Department against the said aforesaid decision was rejected by the Supreme Court as appears from (1988) 171 ITR (St.) 257. It appears to me that the provisions of s. 278B of the said Act cannot have ex post facto application and, therefore, the partner of a firm could not be prosecuted. There is no justifiable cause shown for such unreasonable delay in issuing the aforesaid show-cause notices. The order dt. 17th Feb., 1989, also does not furnish any explanation for the delay. Although the IT Act did not prescribe any limitation for initiating the proceedings, it is well settled by numerous judicial decisions already noted that such proceedings have to be initiated within a reasonable time and a lapse of 10 to 16 years could not be said to be reasonable and initiation of proceedings after a lapse of such a long time would be contrary to public policy and abuse of process of law for the obvious reason that, after lapse of such a long time, the evidence, facts and other materials could not be available. Therefore, proper justice could not be rendered. Therefore, such delayed proceedings should not be allowed. It is also a well established principle of criminal law that, without mens rea, there cannot be criminal liability. The payments in this case have all been duly made although such amounts were deducted out of time. But no mens rea could have been proved or established. It may be noted that a partnership firm is not a natural person and, therefore, cannot be prosecuted under s. 276B of the Act inasmuch as punishment by way of imprisonment is compulsory thereunder during the relevant year. In the instant case the essential ingredient of an offence under s. 276B of the Act is wholly absent. The judgment and decision in the case of Kusum Products Ltd. vs. S. K. Sinha, ITO (supra) and the case of Adding Machines (India) (P) Ltd. vs. The State (1987) 167 ITR 171 (Cal) may be taken note of. The order dt. 17th Feb., 1989, passed by the ITO did not consider or dispute the explanation given by the petitioner for the delay in depositing the tax.
In the case of Adding Machines (India) (P) Ltd. vs. The State (1987) 67 CTR (Cal) 250 : (1987) 167 ITR 171 (Cal), it was held by the learned single Judge of this Court that though the word “person” as defined in s. 2(31) of the IT Act, 1961, includes a company, a company cannot be prosecuted for an offence under s. 276B because a company cannot be committed to prison. However, the principal officer of a company can be prosecuted for an offence punishable under s. 276B and in case he is found guilty, he has to suffer imprisonment but only for the offence committed by himself and not for any offence committed by the company.
In the case of Parmeet Singh Sawney vs. Dinesh Verma (1987) 66 CTR (Del) 130 : (1988) 169 ITR 5 (Delhi), the facts, inter alia, are that the petitioners (including a person who was a minor at the time of the alleged offence) who were partners of a firm, were charged, along with the firm, for the failure to deduct income-tax at source from interest paid by the firm to certain parties and deposit it within time. The failure related to the accounting years 1970-71 and 1973-74, when the minor was 6 and 9 years of age respectively. The prosecution was actually initiated on 29th March, 1984. The petitioners, i.e., the partners, applied to the High Court under s. 482 of the CrPC, 1898, for having the prosecution quashed. It was held by the Delhi High Court that the prosecution ought to be quashed for two reasons : firstly, because, prior to s. 278B of the IT Act, 1961, coming into force, i.e., on 1st Oct., 1975, the firm alone could have been proceeded against and the partners could not be prosecuted. Secondly, it was held that there was non-application of mind because even a six year old boy was, according to the complaint, in charge and responsible for the conduct of the firm’s business. As already noted, the special leave petition against the said judgment stands dismissed.
In the instant case, it appears from the order dt. 17th Feb., 1989, passed by ITO, Ward 4(7), Calcutta, that the first show-cause notice contemplating prosecution was issued on 8th Nov., 1976, for the asst. yrs. 1968-69 to 1974-75. Relevant portion of the said order in this connection is set out hereinbelow: “Next issue raised by the assessee was that proceedings for launching prosecution have been initiated after more than 10 to 16 years and that there was no lawful justification for initiating such proceedings after such a long lapse of time. Firstly, in this regard, I have to state that there is no question of any limitation for launching of prosecution under the IT Act. The last payment was made as late as on 22nd April, 1976 and the first show-cause notice contemplating prosecution was issued as far back as on 8th Nov., 1976, for the asst. yrs. 1968-69 to 1974-75. Hence, the assessee’s contention in this regard is not accepted.”
34. It has been submitted by learned advocate for the petitioner that as no steps were taken pursuant to the aforesaid show-cause notice the proceedings relating thereto were ultimately dropped or lapsed. It appears to me that once a show-cause notice was already issued which was not given effect to ultimately, there is no reason again to issue a fresh show-cause notice on the same cause of action and the fresh show-cause notice issued for the same assessment years on the same ground after 10 years cannot have any basis whatsoever. For the reasons aforesaid, the petitioners succeed in this writ petition.
35. Accordingly, the rule issued herein should be made absolute and the impugned show-cause notices dt. 20th Nov., 1986, and 1st Dec., 1986, and also the order dt. 17th Feb., 1989, passed by the ITO, Ward 4(7), Calcutta, stand quashed and set aside and appropriate writ of mandamus to issue accordingly. There will be no order as to costs.
[Citation : 193 ITR 300]
