2026 (2) TMI 97 - HC - Income Tax

Non-payment of TDS prosecution quashed after tax, interest and compounding paid; warrants and attachments vacated.

Criminal prosecution for alleged non-payment of TDS was held unnecessary once tax, interest and statutory compounding fee were fully recovered; the court ... Criminal prosecution initiated u/s 276B(ii) and 278B - alleged non-payment of Tax Deducted at Source (TDS) for the Assessment Year 1983-1984 - Revenue Department quantified the compounding fee which was promptly paid by the Petitioner. A warrant was issued against Accused No. 3, Mr. P.N.K. Sharma, despite the fact that he was long deceased AND Court ordered property attachment even after the Petitioner paid an additional interest amount of Rs. 2,07,935/- on July 5, 2017, to exhaust all possible claims HELD THAT:- In fiscal offenses where the exchequer has been satisfied through the recovery of tax, interest, and compounding fees, the public interest in continuing a criminal prosecution evaporates. Any attempt to revive such a trial—especially against deceased parties—constitutes a gross abuse of the process of law. The issuance of a warrant against a dead person is a nullity in the eye of the law. It reflects a reckless lack of application of mind by the Trial Court. Trial Court’s insistence on invoking Sections 82 and 83 of the Cr.P.C. for proclamation and attachment, particularly after the company’s appearance through an authorized representative and the full settlement of dues, indicates a malfunction of the judicial machinery as the process was being utilized as a tool of harassment. In fiscal offenses, where the exchequer has been satisfied through the recovery of the tax, interest, and compounding fees, the public interest in continuing a criminal prosecution evaporates. Any attempt to revive such a trial—especially against deceased parties—constitutes a gross abuse of the process of law. This Court is of view that in the event, a statutory compounding fee is accepted by the Revenue during the pendency of a stayed criminal proceeding, the offence is settled. Any subsequent attempt by a subordinate court to revive the trial on the grounds especially against deceased parties or after full financial restitution, constitutes an abuse of the process of law and a violation of the right to a speedy trial under Article 21 of the Constitution. ORDER - a) The entire proceedings are hereby quashed and set aside. b) All orders of attachment and warrants of arrest issued by the Learned Metropolitan Magistrate, 4th Court, Calcutta, are recalled and vacated with immediate effect. c) The Opposite Party is directed to treat the compounding of the offence as finalized in light of the payments made. d) The Officer-in-Charge of the concerned Police Station is directed to immediately cease all execution proceedings related to the attachment of the Petitioner’s property. Issues: Whether a prosecution under Sections 276B(ii) and 278B of the Income-tax Act, 1961 relating to non-payment of TDS can be continued or revived by the trial court after statutory compounding fees and interest have been accepted by the Revenue and after an inordinate delay, including issuance of warrants and attachment orders (including against deceased persons).Analysis: The matter involves the doctrine of compounding under Section 279(2) of the Income-tax Act, 1961, whereby acceptance of compounding fees and satisfaction of the compounding contract extinguishes the criminality of the offence. Where the Revenue has quantified and accepted compounding fees and additional payments to exhaust claims, the legal foundation for criminal prosecution is removed. Prolonged continuance of criminal proceedings spanning decades engages the right to a speedy trial under Article 21 of the Constitution, and continued proceedings after full financial restitution and compounding amount to an abuse of process. Invocation of Sections 82 and 83 Cr.P.C. for proclamation and attachment after such settlement, and issuance of warrants against deceased persons, are legally untenable and amount to nullities. The public interest in continuing prosecution is negated where exchequer demands have been satisfied and statutory compounding has been finalised.Conclusion: The prosecution is quashed and ancillary orders of arrest and attachment are recalled; this conclusion is in favour of the Assessee.