1998 (3) TMI 91 - HC - Income Tax

Company and Directors Convicted for Tax Violations, Imprisonment and Fines Imposed

Income Tax Officer Versus D. Manohar Lal Kothari

Income Tax Officer Versus D. Manohar Lal Kothari - [1999] 236 ITR 357, 155 CTR 619, 104 TAXMANN 139 Issues Involved:1. Conviction and sentencing under Section 276B read with Sections 192, 194A, 200, and 204 of the Income-tax Act, 1961.2. Failure to deduct income-tax on directors' remuneration and interest credited to creditors.3. Validity of the Tribunal's findings and its impact on criminal prosecution.4. Application of the Explanation to Section 194A and its retrospective effect.5. Imposition of minimum sentence as prescribed under the Act.Summary:1. Conviction and Sentencing under Section 276B:The first accused company and its directors were prosecuted for not deducting income-tax on remuneration paid to directors and interest credited to creditors. The trial court found the charges proved and imposed fines. The Income-tax Department sought the imposition of the minimum sentence prescribed under the Act, which was not awarded to the second accused.2. Failure to Deduct Income-Tax:The prosecution established that the first accused company credited remuneration to directors' accounts and paid interest to creditors without deducting income-tax, violating Sections 192 and 194A of the Act. The defense argued that the remuneration was payable to partnership firms, not the directors, and the mere credit entries did not attract Section 192.3. Validity of Tribunal's Findings:The defense cited the Income-tax Appellate Tribunal's order, which accepted that the remuneration was payable to partnership firms, not directors, and thus, no tax deduction was required. However, the court emphasized that criminal prosecution is independent and must be judged on evidence presented in court, not solely on Tribunal findings.4. Explanation to Section 194A:The defense contended that the Explanation to Section 194A, inserted in 1987, was not retrospective and did not apply to prior periods. The court clarified that the Explanation served to clarify existing law rather than change it, and thus, the credit entries in the accounts, even if labeled as 'interest payable,' were deemed credit entries requiring tax deduction.5. Imposition of Minimum Sentence:The trial court imposed fines without the minimum imprisonment sentence prescribed under the Act. The court, citing the General Clauses Act and Supreme Court precedents, held that the minimum sentence must be imposed. The second accused, as the principal officer, was sentenced to three months' imprisonment in addition to the fine.Conclusion:The court dismissed the revisions by the accused and allowed the revision by the Income-tax Department, imposing the minimum sentence of three months' imprisonment on the second accused, in addition to the fines already imposed. The judgment emphasized the independent assessment of criminal liability and the mandatory nature of statutory penalties.