2019 (6) TMI 479 - HC - Income Tax

Court allows Accused Nos. 2 & 3 to Compound Tax Offence under Section 276-C

Shri Jetty Venkata Phanindra Reddy And Another Versus The Income Tax Officer

The Court allowed the petitioners, Accused Nos. 2 and 3, to represent for compounding the offence under Section 276-C of the Income-Tax Act, 1961, if ... Offence u/s 276-C - failure to pay tax to the credit of the Central Government under Chapter XVIIB for the financial year 2009-2010 - charges can be framed against the petitioners - petitioners were responsible and in-charge for day to day affairs of firm - HELD THAT:- The order passed by the trial Court does not suffer from any infirmity or illegality, therefore, there are no grounds for entertaining this Criminal Revision Case. However, in view of the submissions made by the learned counsel for the petitioners, the petitioners may make a representation to the authority concerned if the offence is compoundable in nature for getting the same compounded. With these observations, the Criminal Revision Case is disposed of. Issues:1. Discharge petition under Section 245 Cr.P.C. for the offence under Section 276-C of Income-Tax Act, 1961.2. Validity of reconstitution deed of partnership and liability of the petitioners.3. Prosecution against the petitioners based on their role in the firm and day-to-day affairs.4. Interpretation of provisions under Section 276-B and Section 278-AA of the Act.5. Compounding of the offence and the petitioners' liability.Analysis:1. The petitioners, Accused Nos. 2 and 3, sought discharge from the offence under Section 276-C of the Income-Tax Act, 1961, through a petition under Section 245 Cr.P.C. The allegation against them was failure to pay tax to the Central Government for the financial year 2009-2010.2. The petitioners argued that a reconstitution deed of partnership absolved the 2nd petitioner (A3) from any liabilities of the firm after his retirement, leaving only the 1st petitioner (A2) liable for 10% of the obligations. They contended that prosecuting A2 while ignoring the 90% partner's liability was unjust.3. The Public Prosecutor for Income-Tax argued that the reconstitution deed was invalid as it was unregistered, citing a bar under Section 69 of the Partnership Act. The prosecution maintained that the petitioners, being in charge of the firm's day-to-day affairs, were liable for the offences committed during the financial year in question.4. The Court considered the provisions under Section 276-B and Section 278-AA of the Act. The defense argued that since the tax was paid subsequently and there was no intent to evade, the petitioners should not be punished under Section 276-B. They also highlighted Section 278-AA, which exempts punishment in certain cases if reasonable cause for failure is proven.5. Despite finding no infirmity in the trial court's order, the Court allowed the petitioners to represent to the relevant authority for compounding the offence if it was compoundable. The petitioners' willingness to compound the offence and having already paid the tax were considered in determining their liability and the possibility of avoiding punishment under Section 276-B.This judgment highlights the complexities of tax liability, partnership agreements, and the legal nuances surrounding prosecution for tax-related offences under the Income-Tax Act, emphasizing the importance of legal provisions and principles of natural justice in determining culpability and potential remedies for the accused.