2007 (10) TMI 283 - HC - Income Tax

Court quashes trial order for tax offense due to timing technicality

The court quashed the order summoning the accused petitioners to face trial and dismissed the criminal complaint under section 276B of the Income-tax Act ... Tax deducted at source was not fully deposited in the treasury – impact of amendment in the section 195(1) in year 1987- A bare perusal of s.s. (1) of section 195 as it existed in the AY 1983-84 reveals that tax had to be deducted at source at the time of making payment to the payee - In the complaint filed by the revenue there is no averment that the accused persons made any payment to the foreign company to whom royalty was payable – royalty not actually paid to non-resident in financial year relevant to AY 1983-84 - no offence committed by the petitioners – prosecution not valid Issues:Accused petitioners charged under section 276B of the Income-tax Act for alleged violation of tax deduction provisions for the assessment year 1983-84.Analysis:The petitioners were accused of not fully depositing the tax at source under section 195(1) of the Income-tax Act for an amount payable as royalty to a foreign national. The complaint alleged that only Rs. 86,340 out of Rs. 2,25,690 was deposited with the treasury. The petitioners argued that tax deduction at source was required only at the time of making payment, not when money was credited, and due to RBI restrictions, the money was not remitted to the foreign company. The court examined the legislative provisions in force during the assessment year and noted that as per section 195(1) of the Income-tax Act for the relevant year, tax had to be deducted at the time of making payment to the payee, not when credited. The provision was later amended in 1987 to require tax deposit at the time of credit to the payee's account. Since the complaint did not allege any actual payment to the foreign company but only a debit entry, the court found no offense committed by the petitioners under the law applicable during the assessment year 1983-84.The court, therefore, quashed the order summoning the petitioners to face trial and dismissed the criminal complaint, as no offense was disclosed under the legislative provisions in force during the relevant assessment year. The judgment clarified the timing of tax deduction at source as per the Income-tax Act provisions applicable for the year in question, highlighting the importance of compliance with the specific requirements of the law at the relevant time.