TaxTMI 
TaxTMI 
2001 (3) TMI 8
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.... reply of the company, the Commissioner of Income-tax vide his order dated March 13, 1991, sanctioned the prosecution of the company and its two joint managing directors and two directors named in the order to be prosecuted under section 276B and directed the Deputy Commissioner of Income-tax (Assessment) to file a complaint in the court of the special judge for economic offences. In furtherance of this order issued under section 279(1) of the Income-tax Act, 1961, the successor-in-office of the then Commissioner of Income-tax, authorised inclusion of the name of the petitioner also in the order dated March 13, 1991, for being prosecuted under section 276B of the Income-tax Act, 1961, for the alleged default for the assessment year 1982-83. As they would be relevant for the purpose of the present case, the two orders are produced hereinbelow: ---------------------------------------------------------------------------------- ANNEXURE 3 -------------------------------------------------------------------....
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.... the managing directors, Svs. S.M. Kankaria and S.C. Kankaria, and directors, Svs. P. M. Kankaria and L.K. Kankaria who were in charge of and responsible to the company for the conduct of the business. It was carrying on business of woolen mill and gwar gum during the material period relevant to the assessment year. 2. On going through the details available on record it was noticed that the assessee had deducted at source (TDS) of Rs. 1,38,197 for the assessment year 1982-83 from the payment of interest to various parties, but failed to deposit the amount of tax so deducted to the credit of the Central Government within the prescribed time limit under section 80 (sic) of the Income-tax Act, 1961, read with rule 30 of the Income-tax Rules, 1962. Thus, the company as well as its directors are liable for prosecution under section 276B read with section 278B(1) of the Income-tax Act, 1961. 3. A show-cause notice was issued from this office dated August 3/4, 1989, to the assessee-company in response to which the company filed its written reply dated September 15, 1989, through its authorised representative. The explanation put forth by the company is not tenable. 4. In view of ....
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....y tax to be deducted at source from the interest payments made to its creditors within one month in the treasury of the Central Government as required under section 200 of the Income-tax Act. Consequent thereto, proceedings for levy of penalty on failure to deposit the tax deducted at source within the time prescribed, were initiated against the company of which the petitioner was an accountant. In the said proceedings, the Inspecting Assistant Commissioner of Income-tax (Assessment), Jodhpur, made the following order: "So far as penalty is concerned, in view of the explanation of the asses see the same is not imposed as there was no deliberate attempt on the part of the assessee to avoid payment of tax deducted at source but it failed to deposit the same because of financial difficulties." Thus penalty for breach of section 200 was not found imposable and no penalty for such breach was imposed. This order was made on May 21, 1985, and related to the assessment year 1982-83 for which the impugned sanctioned/authorisation has been made by the Commissioner of Income-tax in exercise of its powers under section 279(1) of the Income-tax Act, 1961. The petition had been admit....
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....y ought to be given by issuing notice to the assessee either to avail the benefit of the provisions contained in section 279(2) for compounding the offence or to obtain the orders under section 273A from the Commissioner for reducing or waiving the penalty which is imposed or imposable for the alleged offences, in which contingency no prosecution can take place. Moreover, it has to be taken note of that the petitioner is being prosecuted only as an officer of the company, the alleged defaulter. The company was in fact given a notice before issuing sanction, to which reply was also filed by the company. Therefore, the question of breach of principles of natural justice on the basis that no opportunity of hearing was given before issuing sanction does not arise to the petitioner either in fact or in law. It is next contended by learned counsel for the petitioner that even if prior hearing is not necessary, or it is held that opportunity of hearing given to the company fulfils the requirement of such opportunity, the grant of sanction does not depend on subjective satisfaction, but can only be granted after taking into account all relevant material and satisfying about prima fac....
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.... the need to apply mind to the facts of the case before discharging the obligation of deciding whether to give or withhold a sanction. The board opined: "The sanction to prosecute is an important matter; it constitutes a condition precedent to the institution of the prosecution and the Government have an absolute discretion to grant or withhold their sanction. They are not as the High Court seem to have thought, concerned merely to see that the evidence discloses a prima facie case against the person sought to be prosecuted. They can refuse sanction on any ground which commends itself to them, for example that on political or economic grounds they regard a prosecution as inexpedient. Looked at as a matter of substance it is plain that the Government cannot adequately discharge the obligation of deciding whether to give or withhold a sanction without a knowledge of the facts of the case." Post independence, the matter came up before the apex court in Jaswant Singh v. State of Punjab, AIR 1958 SC 124. The court was considering the requirement of sanction as a condition precedent for prosecution under the Prevention of Corruption Act, 1947. Approving the opinion expressed by the....
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....fore the sanctioning authority and the fact that all the relevant facts, material and evidence have been considered by the sanctioning authority. Consideration implies application of mind. The order of sanction must ex facie disclose that the sanctioning authority had considered the evidence and other material collected during investigation and placed before it. This fact can also be established by extrinsic evidence by placing relevant files before the court to show that all relevant facts were considered by the sanctioning authority." Since the validity of the sanction depends on the application of mind by the sanctioning authority to the facts of the case as also the material evidence collected during the investigation, it must follow that the sanctioning authority has to apply its own mind for generation of genuine satisfaction whether the prosecution has to be sanctioned or not. Thus, the principle being well settled, the reason which prevailed with the sanctioning authority having been documented in annexure 3, if the case on the present facts is analysed, it leaves but one impression in the mind that the sanction has been accorded without due application of mind to the re....
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....an assessee in default in respect of the tax: Provided that no penalty shall be charged under section 221 from such person, principal officer or company unless the Assessing Officer is satisfied that such person or principle officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax. (1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at eighteen per cent. per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid..." From the aforesaid provision, it is apparent that notwithstanding treating a company which has not deposited the tax to the credit of the Central Government within the prescribed time as an assessee in default to be liable to penalty, it further makes it clear that such penalty is not to be imposed on any person, whether in his own capacity as a company or as principal officer of the company unless the Asse....
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....each of obligation under section 200 of the Act. But it is a statutory mandate that unless the Assessing Officer is satisfied about want of good and sufficient cause in making default, no penalty can be imposed. The mandate in the proviso to section 201 is couched in negative expression and must be held to be mandatory and not directory. With such provision it is reasonable to infer that in cases where for the reason stated in the proviso to section 201 no penalty is imposable, for the default of obligation under section 200, then no prosecution can also be launched. It will be highly discordant to attribute to legislation that while it took care not to visit with penal consequence envisaged under section 201 for breach of section 200 without satisfaction about the absence of good and sufficient cause for non-compliance with the provision, and it has been found that penalty is not imposable for that reason, still such person can be subjected to prosecution and visited with punishment of imprisonment and penalty. In this connection, it may further be noticed that while levy of penalty is inhibited by the condition discussed above, specific provision was also made under sub-section (....
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....ll not be less than six months but which may extend to seven years and with fine; (ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine." By the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, which came into force with effect from September 10, 1986, the words "without reasonable cause or excuse" were omitted from section 276B. Then existing section 276B was substituted by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989, and reads as under: "276B. Failure to pay the tax deducted at source.--If a person fails to pay to the credit of the Central Government, the tax deducted at source by him as required by or under the provisions of Chapter XVII-B, he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine." Simultaneously with effect from April 1, 1989, in section 278AA reference to section 276B was also added. Section 278AA was inserted with effect from September 10, 1986, vide the Taxation Laws (Amendment and Miscellaneous Provision....
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....179 ITR 387. In that case, the question that arose before the court was: "whether, in a penalty proceeding, where an authority under the Act who has expert knowledge of the subject has recorded a finding that the assessee had furnished good and sufficient reasons for failure to deduct and/or pay the tax, within time, and dropped the penalty proceeding or deleted the same, as the case may be, it can be said that he is still liable to be prosecuted under section 276B of the Act?" The question was answered in the negative by the Patna High Court. It observed: "Now, it has to be seen as to what is the effect of the amendment. Can it be said that, after the amendment, the question whether an accused had any reasonable cause or not for not deducting and paying tax within time is only of academic importance and not relevant for a criminal court? My answer is emphatically in the negative. Section 278AA is nothing else but a proviso to section 276B of the Act, but a separate section has been inserted in the Act, as similar provisions have been made with respect to prosecution under sections 276A, 276AB, 276DD and 276E. The cumulative effect of the amendment, in my view, is that in case o....
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....tioning prosecution or continuance of the prosecution but a favourable termination of the proceedings having relevant bearing on the issue is certainly relevant for considering whether to grant sanction for prosecution or even continue the prosecution after such favourable finding has been recorded in favour of the assessee by any competent authority under the Act. As discussed above, the absence of reasonable and sufficient cause for failure is an essential ingredient of the default under section 200 either for levy of penalty under section 201 or for making out a case for punishment under section 276B read with section 278AA, the order of the Assessing Officer under section 201 finding the penalty not imposable because the default was not held to be deliberate, was existing material to which no mind was applied by the sanctioning authority. The distinction which exists between a case in which no proceedings at all has been initiated under section 201 for levy of penalty before sanctioning the prosecution and a case where the penalty proceedings have been initiated and terminated favourably in favour of the assessee by recording a finding of existence of reasonable and suffi....