High Court Of Madras
M.P. Purusothaman & Ors. vs. Assistant Director Of Income Tax (Prosecution) & Ors.
Sections 279(2), 279(3)
Asst. Year 1982-83
R. Jayasimha Babu, J.
W.P. Nos. 8806 & 8807 of 1999 & W.M.P. Nos. 12454 & 12456 of 1999
24th November, 2000
T.S. Sridharan for M/s Pais, Lobo and Alvares & Irwin Aaron, for the Petitioners : Mrs. Chitra Venkataraman, for the Respondents
R. JAYASIMHA BABU, J. :
It is counselâs contention that under s. 279(2) of the IT Act, 1961, a person against whom prosecution is launched for having committed an offence under the Act in respect of any offence in Chapter XXII of the Act has a right to be heard before his application for compounding the offence is rejected. The Explanation under s. 279(3) provides that the power of the CBDT to issue orders, instructions or directions under this Act shall include and shall be deemed always to have included the power to issue instructions or directions (including instructions or directions to obtain the previous approval of the Board) to other IT authorities for the proper composition of the offences under that section.
2. The authority to whom the application to compound was made had sought the prior approval of the Central Board after obtaining the willingness of the petitioner to pay the compounding fee. Such approval apparently was not given by the Central Board. By the impugned communication, the petitioner was informed that the compounding petition dt. 23rd Oct., 1997, filed by the petitioner before the CIT (Central) and the subsequent petition dt. 24th Sept., 1998, addressed to the Chairman, CBDT, requesting for stay of the prosecution proceedings had been rejected. The compounding had been sought in respect of the offence committed by the petitioner under ss. 276C(1) and 277 of the IT Act and under ss. 193, 196 and 420 r/w s. 511 of the IPC. The prosecution has been launched against the petitioner after a search in his premises after which he filed the returns for the asst. yr. 1982-83. Prior to such rejection of the petitionerâs request to compound, the respondent Asstt. Director of IT (Prosecution) had asked the petitioner to intimate his willingness to pay the amount of compounding fee. The petitioner had agreed to pay the compounding fee and the matter thereafter appears to have been referred to the Central Board. The subsequent order declining to compound appears to have been made after the Central Board had declined to permit compounding. Learned counsel for the petitioner/assessee contended that the Central Board has a duty under s. 279(2) to hear the applicant before rejecting the application for compounding and since no such hearing had been given to the petitioner, the order rejecting the compounding is not tenable in law. Counsel referred to the petition that was filed under s. 279(2) before the CIT wherein he had sought a hearing before the final order was made on the application. The grievance now expressed by the petitionerâs counsel is not that the CIT did not give the opportunity, but that the opportunity was not given by the Central Board. There was no prayer in the petition seeking such opportunity of being heard before the Central Board.
It is difficult to accept the submission made that a duty to hear should be read into under s. 279 (2) and that the obligation to hear should be cast upon the CBDT. Normally the consequence of failure to abide by the law, is the imposition of the penalty provided for under the law. One of the ways in which the authority can proceed against the assessee who has violated the provisions of the Act is by way of prosecution. The prosecution is not to be launched lightly as provided in s. 279 (1). The prosecution is to be launched in respect of the offences committed under the proceedings referred to therein only with the previous sanction of the CIT or the CIT (A) or the appropriate authority. The Central Board does not come into the picture at that stage. It is only after the prosecution is launched, that a provision is made for compounding the offences at the discretion of the Chief CIT or Director-General. The discretion so given to the Chief CIT or the Director-General is a qualified one. It is subject to that authority obtaining the previous approval of the Board. Compounding after the prosecution is launched, therefore, is clearly an exception and is not the rule.
5. The prosecution once launched is to continue before the Court in which the prosecution is initiated and in which the accused will have all the protection available to him under the ordinary law of the land. The provision permitting the compounding of the offence and thereby bringing the prosecution to an end is a provision which vests a discretion in the authority at a high level, namely, the Chief CIT or the Director-General who may act only after securing the prior approval of the Central Board. The provisions requiring the consideration of any proposal for compounding at that level would indicate that it is not the policy of the law to permit compounding as a matter of course but that the compounding would be permitted only where the Chief CIT or the Director-General and also the Central Board are of the view that the facts and circumstances of the case are such that the compounding may be permitted.
The facts and circumstances of the given case are required to be set out by the person who invokes the exercise of the power under s. 279(2). For the purpose of explaining his case more fully he may seek a hearing before the Chief CIT, but, it is difficult to accept the claim that he would also have a right to be heard by the Central Board which is required to consider the materials placed before it by the Chief CIT and then decide as to whether compounding is to be permitted or not permitted.
6. It is not possible to agree with the submission that any right of the petitioner has been denied to him by making the impugned order rejecting his request. The fact that the Central Board has the power to issue directions including instructions or directions to obtain its prior approval does not carry with it an obligation to hear the applicant for compounding, having regard to the scheme of s. 279 and the purpose for which that section was enacted.
7. Learned counsel, however, contended that any power given to any authority carries with it a duty to exercise that power reasonably and not in an arbitrary way and also hear the affected party. Counsel referred to a decision of this Court in the case of Tiam House Service Ltd. vs. CBDT (2000) 163 CTR (Mad) 22 : (2000) 242 ITR 539 (Mad). That was a case where the assessee who omitted to file tax deduction certificates along with the returns, subsequently produced those certificates and had requested the CIT to revise the order. The CIT did not find that the certificates were not genuine, but still declined to examine the matter on the ground that no appeal had been preferred against the order of assessment. Thereafter the assessee approached the Central Board, which rejected that application without stating any reason. This Court observed that the power given to the Central Board under s. 119 is required to be exercised in cases where genuine hardship will result if the assessee is not granted the relief sought in respect of the matters even by the petitionerâs revision petitions. It was also noticed by the Court that s. 237 of the Act embodies a very salutary principle that the right of the Revenue to receive and collect tax under the Act is limited to what is properly due and payable as tax and that the amounts collected in excess are not to be treated as tax and retained by the State. The Court further observed that the power vested in the authority is required to be exercised consistently with the requirements of the Act and in the manner which will advance the purpose of the provision under which the power is vested.
8. The observations made by me in that case are not of much assistance to the petitioner here, having regard to the scheme and the purpose of s. 279 unlike s. 119 which enables the assessee to obtain relief from the Central Board in cases of undue hardship resulting from the strict application of the provisions of the Act. Sec. 279(2) and the Explanation to s. 279(3) is only intended to enable the Revenue to accept the amount determined as the compounding fee instead of prosecuting the offender. The role of the Central Board under this provision is indirect. Having regard to this position, it is not possible to extend the principle referred to in the case of Tiam House Service Ltd. vs. CBDT (supra) to the case on hand.
The writ petitions are therefore dismissed. No costs. Consequently W.M.P. Nos. 12454 and 12456 are also dismissed.
[Citation : 252 ITR 603]