Tax deduction default prosecution under Section 276B is independent of Section 201 adjudication, subject to reasonable-cause defence

Failure to remit tax deducted at source within the statutory time is treated as an offence under Section 276B, and prosecution is not dependent on prior adjudication or quantification of liability under Section 201. The reasonable-cause defence under Section 278AA remains available, but it is a matter for trial and does not prevent prosecution at the threshold. An asserted departmental circular extending time for deposit also gives no protection unless compliance with that concession is proved on record; on the stated facts, the circular-based defence was not established.

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Issues: (i) whether prosecution under Section 276B of the Income-tax Act, 1961 could be sustained without prior adjudication or quantification of liability under Section 201 of the Act; (ii) whether the departmental circular or instruction permitting deposit within an extended time insulated the petitioners from prosecution.

Issue (i): Whether prosecution under Section 276B of the Income-tax Act, 1961 could be sustained without prior adjudication or quantification of liability under Section 201 of the Act.

Analysis: Section 201 deals with the consequences of failure to deduct or pay tax and includes the deeming fiction of an assessee in default as well as liability to interest. The provision, however, does not exclude criminal prosecution. The offence under Section 276B is attracted when tax deducted at source is not credited within the prescribed time. The Court relied on the principle that prosecution under Section 276B is not controlled by Section 201(1A), and that once the statutory period for payment is breached, default is made out. Section 278AA preserves the defence of reasonable cause, but that is a matter for trial and does not bar prosecution at the threshold.

Conclusion: Prosecution under Section 276B was maintainable without prior determination under Section 201, and this contention failed.

Issue (ii): Whether the departmental circular or instruction permitting deposit within an extended time insulated the petitioners from prosecution.

Analysis: The petitioners relied on an administrative circular and subsequent instructions to contend that deposit within 12 months or within the extended period would avoid penal consequences. The Court held that the alleged circular was not placed on record for verification and no material established that the petitioners had complied with the extended timeline. On the facts alleged, the amount was deposited only after survey and reminders. In the absence of proof of compliance with the claimed administrative concession, the petitioners could not derive any benefit from it.

Conclusion: The circular-based defence was not established and did not bar prosecution.

Final Conclusion: The petition under challenge was held to be without merit, and the criminal proceedings for failure to remit tax deducted at source were allowed to continue.

Ratio Decidendi: Failure to remit tax deducted at source within the statutory time attracts prosecution under Section 276B, and such prosecution is not dependent on prior adjudication under Section 201, though the accused may still raise reasonable cause under Section 278AA at trial.

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