Final departmental findings can defeat tax prosecution where they remove the factual basis of the alleged TDS default.

A prosecution for failure to deduct and deposit tax at source under the Income-tax Act was held unsustainable where a final Tribunal order had already found that tax liability for expatriate employees rested on the Indian Railways under the agreement. The Court noted that a criminal court is not strictly bound by the Tribunal's finding and must decide on its own evidence, but a final departmental or appellate adjudication that negates the factual foundation of the offence carries decisive weight. Because the basis of the alleged default stood displaced, continuation of the criminal proceedings was quashed as unjust and unfair.

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Issues: Whether prosecution under the Income-tax Act for failure to deduct and deposit tax at source could continue when the Income-tax Appellate Tribunal had, in a final order, held that the tax liability in respect of expatriate employees rested on the Indian Railways under the agreement.

Analysis: The Tribunal's order had attained finality and recorded that the Indian Railways had undertaken responsibility for the tax liabilities and compliance relating to the expatriate employees, effectively stepping into the role of the employer for that purpose. Although the criminal court is not strictly bound by the Tribunal's order and must decide the criminal case on its own evidence, a final departmental finding directly negating the foundation of the prosecution carries significant weight. Where the very basis of the alleged offence is displaced by a final adjudication, continuation of prosecution would be unjust and unfair.

Conclusion: The prosecution could not be sustained and the proceedings were quashed in favour of the petitioner.

Ratio Decidendi: Where a final unchallenged departmental or appellate finding removes the factual foundation on which a prosecution under the Income-tax Act is based, continuation of the criminal proceedings is unwarranted.

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