TaxTMI 
TaxTMI 
1990 (8) TMI 32
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.... years of petitioner No. 1 were the relevant financial years. During the course of its business, petitioner No. 1 raised and/or received loans and/or advances from different persons on interest. The accounts of the said creditors in the books of petitioner No. 1 used to be credited with the amount of accrued interest in every accounting year on the basis of the mercantile system of accountancy. On such credit for interest made in the accounts of the creditors, the petitioner-firm was required to deduct income-tax at source under section 194A of the said Act at the rate prescribed therein. In accordance with the mercantile system of accountancy, simultaneously with the crediting of interest to the accounts of the creditors, the petitioner-firm used to credit the Central Government with the amount of tax notionally deducted at source thereon every accounting year. The petitioner-firm was always in financial stringency. The balance-sheet of the petitioner-firm always showed debit balance in the capital accounts of its partners. In the premises, the petitioner-firm, as and when liquid funds were available with it, used to pay the tax deducted at source under section 194A of the said Ac....
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....tioner-firm. As and when the said cash funds were available, the petitioner-firm duly paid the said tax deducted at source. In the premises, the petitioners submitted that the delay in depositing the tax deducted at source was due to the difference in the mercantile system of accountancy and payments being made on cash basis as and when liquid funds were available. In the premises, the petitioners alleged that there was a reasonable and bona fide cause for the delay in depositing the tax deducted at source on the said interest which was credited to the accounts of the creditors in the mercantile system of accountancy. The said delay was bona fide. For the assessment years 1970-71 up to 1976-77, the petitioner-firm filed its returns on January 1, 1971, March 9, 1972, December 4, 1972, January 13, 1975, January 31, 1975, June 6, 1976 and March 30, 1977, respectively. Particulars of tax required to be deducted at source under section 194A of the said Act and credited to the Central Government were duly furnished by the petitioner-firm to the said Income-tax Officer, G-Ward District V(1), Calcutta, and/or respondent No. 1 herein in the course of the assessment proceedings for the relev....
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....years from 1968-69 to 1976-77, sought to levy and demand interest for delayed payment of tax deducted at source. It has been submitted that there is no reason whatsoever before respondent No. 1 for the aforesaid inordinate delay in passing the said order. All the relevant information relating to deduction of the tax at source and payment thereof were furnished by the petitioner-firm to the said respondent No. 1 in the course of the assessment proceedings and the said firm had also explained to the said respondent the reasons for the delayed payment. In the circumstances, the petitioners all along, bona fide and reasonably, believed that the said firm was not liable to pay any interest under section 201 (1A) of the said Act. After a lapse of 14 years, it was not reasonably possible for the petitioners to recollect the circumstances which caused delay in payment of the tax deducted at source. No opportunity of being heard was given before passing the said orders dated July 1, 1983. In the premises, passing of the said orders all dated July 1, 1983, beyond reasonable time extending from 6 years to 14 years and exercise of such powers was not bona fide and was an abuse of power and not....
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....allow some time to the petitioners to reply in the matter. Copies of the said seven show-cause notices under section 276B of the said Act all dated November 20, 1986, and the said letter dated December 17, 1986, and December 22, 1986, have been annexed and collectively marked with the letter "A" to the writ petition. Similar notices all dated December 1, 1986, issued by respondent No. 1 for the assessment years 1970-71 to 1976-77 were also received by petitioner No. 2 to show cause why prosecution under section 276B(ii) should not be initiated. In this writ petition, the petitioners have challenged all the aforesaid showcause notices. No affidavit in opposition has been filed disputing the aforesaid allegations and, as such, the allegations contained in the petition remain uncontroverted. It has been submitted on behalf of the writ petitioners that the alleged dues have all been paid although the said payments may have been delayed. It is the contention of the petitioners that, because of delayed payment of tax, there cannot be any criminal liability for prosecution. Moreover, both the firm and the partners cannot be prosecuted. If there be any liability at all, the same is f....
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....aid finding should be set aside and the said showcause notices should be quashed. Mr. Murarka, learned advocate for the petitioners, submitted that there cannot be any criminal liability for delayed payment. The Income-tax Act provides for imposition of penalty and interest under section 201(1A) of the Income-tax Act. In this connection, he referred to section 271(1)(a) and section 276(c) of the Income-tax Act. He also submitted that, under section 276B, delay in payment is not an offence. In support of his contention, learned advocate relied upon the following decisions : Calcutta Chromotype Pvt. Ltd. v. ITO [1971] 80 ITR 627 (Cal), CIT v. Anchor Pressing (P.) Ltd.[1982] 136 ITR 505 (All) and CIT v. Triveni Engineering Works Ltd. [1985] 154 ITR 561 (Delhi). It was contended on behalf of the petitioners that, for the assessment years 1970-71 to 1976-77, the provisions of section 276B were not available and, therefore, a partner of the firm could not be prosecuted for default of the firm. He also referred to the decision in the case of Parmeet Singh Sawney v. Dinesh Verma [1988] 169 ITR 5 (Delhi). In support of his contention as to whether the firm can be prosecuted, Mr. Mu....
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....s been defined in the Income-tax Act, 1961, in section 2(31) so as to include a firm. The first is an assessee under section 2(7) of the Income-tax Act, 1961. A partnership-firm as distinguished from a company is not a legal or juristic entity but it is an amalgam of individual partners who constitute a firm. Therefore, notices issued to a firm as well as to the managing partner of the firm to show cause as to why action under section 276B of the Income-tax Act, 1961, should not be initiated, as in this case, are valid notices. In the instant case, show-cause notices were issued only against the firm and the managing partner thereof being writ petitioners Nos. 1 and 2 above-named. In this connection, learned advocate for the respondent referred to the decision in the case of Rishikesh Balkishandas v. T. D, Manchanda, ITO [1987] 167 ITR 49 (Delhi) and the case of Municipal Corporation of Delhi v. J. B. Bottling Co. P. Ltd. [1975] Cr. LJ. 1148 (Delhi) [FB], in which it was held that proceedings under section 276B of the Income-tax Act, 1961, can be initiated against a firm. The punishment against the firm may be by way of fine and against the managing partner by way of imprisonment. ....
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....herent lack of jurisdiction nor any mala fides in the issuance of the show-cause notices and as such the said notices should not be quashed in this writ petition. It has further been submitted that although the writ petitioners have filed a petition pursuant to the order of this court in reply to the show-cause notices and the concerned officer dealt with the same and passed an order on February 17, 1989, it is open to the petitioner in case of conviction in the said criminal proceedings, if initiated, to prefer appeal or revision to this court. It was, accordingly, urged that, in view of the alternative legal remedy available to the petitioners, the writ petition should be dismissed. I have considered the respective submissions of the parties and decisions cited from the Bar. In the case of Vijaya Commercial Credit Limited v. Sixth ITO [1988] 170 ITR 55, (Kar), it was held that the expression "person" as defined under section 2(31) is wide enough to include a company or other juristic person. Having regard to the fact that a sentence of imprisonment has been made compulsory, it cannot be said that the expression "person" has been used in section 276B. In that sense, inasmuch....
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....here was no evidence to show that the amount had been assessed to tax in any previous year and that when this sum of Rs. 1,14,212 was added to the assessable income in the final assessment, the company did not prefer any objection to the inclusion of the amount. Therefore, the accused persons had made a false verification in the return knowing or believing it to be false or not believing it to be true. The petitioner-company filed an application before the High Court for quashing the proceedings pending against the company in the Court of the Chief Metropolitan Magistrate. It was held that, as the petitioner-company could not be attributed with the requisite mens rea, its prosecution in the court of the Metropolitan Magistrate for an offence under section 277 would tantamount to an abuse of the process of the court. Therefore, the proceedings pending against the petitioner-company were quashed. In the case of D. C. Goel v. B. L. Verma [1974] 93 ITR 63, it was held by the Delhi High Court that section 276B of the Act provides that person failing without reasonable cause or excuse to deduct or after deducting to pay the tax as required by the provisions mentioned therein shall ....
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....return, without reasonable cause, as required under section 5 of the Companies (Profits) Surtax Act, 1964. It does not include the failure to furnish the return within the time allowed and in the manner prescribed under sub-section (1) of section 5 or within the time allowed in the notice issued under sub-section (2) of section 5. It envisages a levy of penalty only for the failure to furnish a return as required under section 5. If no return has been filed as stipulated under sub-section (1) or within the time given by the notice issued under sub-section (2) of section 5 but is filed under sub-section (3) of section 5, before the assessment is made, there will be no default. If an assessee filed a return under sub-section (3) of section 5 of the Companies (Profits) Surtax Act, 1964, it would also be a return "required" by the provision. Simply because the word "required" does not occur in sub-section (3) it does not mean that it is only an enabling provision. The word "required", therefore, does not necessarily mean an imperative or authoritative demand to Me the return. It can be equated with "authorised" as well. In sub-section (3) of section 5, therefore, if a company liable....
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....ed upon by the petitioner, the facts were, inter alia, that the petitioner had to file a return under the Companies (Profits) Surtax Act, 1964, for the relevant year by September 30, 1969, but it actually filed it on January 31, 1970. The Income-tax Officer rejected the assessee's plea that the delay was on account of the fact that there were no chargeable profits and imposed a penalty of Rs. 1,02,765. The Appellate Assistant Commissioner cancelled the penalty following the decision of this court in Calcutta Chromotype (P.) Ltd. v. ITO [1971] 80 ITR 627 and this was upheld by the Tribunal. On an application to direct reference, it was held that under section 9 of the Companies (Profits) Surtax Act, 1964, penalty could be imposed only for the failure to file the return and not for late filing of the return. In the case of Calcutta Chromotype (P.) Ltd. v. ITO [1971] 80 ITR 627 (Cal) it was held that the Income-tax Officer is not entitled to impose a penalty on an assessee on the ground of failure to file a return under sub-section (1) of section 6 of the Super Profits Tax Act, 1963 (since superseded by the Companies (Profits) Surtax Act, 1964), within the time prescribed under....
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.... Court observed as follows : "Sections 276, 276A, 277 and 278 on which reliance was placed by counsel for the Revenue in support of his argument also do not assist him. These sections occur in a chapter relating to penalties, and they seek to penalise failure to carry out specific provisions mentioned therein. We are unable to hold that the expression 'person' in sections 276, 276A and 277 is used in the sense in which it is defined in section 2(31) of the Act. For each specific act which is deemed to be an offence under those provisions, an individual who without reasonable cause or excuse fails to do the acts prescribed by statute or acts in a manner contrary to the statute or makes a declaration on oath which he believed to be false or does not believe to be true, is made liable to be punished. Section 278 penalises the abetment or inducing any person to make and deliver an account, statement or declaration relating to any income chargeable to tax which is false and which he either knows to be false or does not believe to be true. In the context in which the expression 'person' occurs in sections 276, 276A, 277 and 278, there can be no doubt that it seeks to p....
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.... principal officer or company unless the Assessing Officer is satisfied that person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax." Prior to the insertion of section 278B, a partner of a partnership firm could not be prosecuted under section 276B of the Act. In the case of Rishikesh Balkishandas v. I. D. Manchanda, ITO [1987] 167 ITR 49 (Delhi), it was held that a firm, though a legal entity for purposes of tax laws, is liable to be prosecuted under section 276B of the Income-tax Act, 1961 for failure to deduct tax at source from interest paid or credited, even though the section provides a minimum punishment of imprisonment. In the case of conviction, sentence of fine only can be imposed on a firm. It was also held by the learned single judge of the Delhi High Court in the aforesaid decision that section 194A of the Income-tax Act, 1961, which requires the persons making any payment of interest to deduct the tax at the rates in force imposes an absolute liability and, for an offence under section 276B read with section 194A of deficient deduction or non-deduction which is a conscious act, mens rea i....
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....sory thereunder during the relevant year. In the instant case the essential ingredient of an offence under section 276B of the Act is wholly absent. The judgment and decision in the case of Kusum Products Ltd. v. S. K. Sinha, ITO [1980] 126 ITR 804 (Cal) and the case of Adding Machines (India) Pvt. Ltd. v. The State [1987] 167 ITR 171 (Cal) may be taken note of. The order dated February 17, 1989, passed by the Income-tax Officer did not consider or dispute the explanation given by the petitioner for the delay in depositing the tax. In the case of Adding Machines (India) Pvt. Ltd. v. The State [1987] 167 ITR 171 (Cal), it was held by the learned single judge of this court that though the word "person" as defined in section 2(31) of the Income-tax Act, 1961, includes a company, a company cannot be prosecuted for an offence under section 276B because a company cannot be committed to prison. However, the principal officer of a company can be prosecuted for an offence punishable under section 276B and in case he is found guilty, he has to suffer imprisonment but only for the offence committed by himself and not for any offence committed by the company. In the case of Parmeet Singh....