Case Note & Summary
The matter arose from a criminal complaint filed by the Income Tax Department against a hospitality company and its directors for failing to remit Tax Deducted at Source (TDS) for financial years 2010-2011 to 2013-2014, thereby allegedly committing offences under Sections 276B read with 278B of the Income Tax Act, 1961. A survey under Section 133A conducted on 20.01.2014 revealed that the company had deducted tax but had not deposited it with the Central Government within the prescribed time. Despite show cause notices issued on 06.02.2013 and 11.07.2014, and a subsequent notice on 04.09.2013, the assessee failed to respond. The Commissioner of Income Tax (TDS) thereafter passed an order under Section 279 authorising prosecution, leading to Complaint No.38/2015 before the Special Court for Economic Offences, Bangalore. The petitioners approached the High Court under Section 482 of the Code of Criminal Procedure, 1973 seeking to quash the complaint. They raised three primary contentions: first, that prosecution under Section 276B cannot be launched without first determining liability and quantifying penalty under Section 201(1A) of the Act; second, that the TDS amount had been deposited with interest within 12 months, in accordance with a CBDT circular dated 24.04.2008, which they argued obviates penal consequences and has binding effect as per rulings in Indo Arya Central Transport Limited and State of Kerala v. Kurian Abraham; and third, that a subsequent CBDT circular dated 07.02.2013 prescribing a 60-day time limit could not be applied retrospectively to them. The respondent countered that Section 200 read with Rule 30 of the Income Tax Rules, 1962 mandates deposit within prescribed time, and failure attracts prosecution under Section 276B, as held by the Supreme Court in Madhumilan Syntex Ltd. The department argued that questions regarding the CBDT circular are factual defences and that under Section 278AA the onus to prove reasonable cause is on the accused; moreover, prosecution under Section 276B is not contingent upon adjudication under Section 201(1A) or Section 221, relying on Rayaal Corporation (P) Ltd. v. Muthuramalingam. The court examined the interplay between Sections 201 and 276B, noting that Section 201 deeming an assessee in default is without prejudice to other consequences, and that independent criminal liability arises under Section 276B as clarified in Madhumilan Syntex. The court also took note of the CBDT circular arguments but did not deliver a final ruling in the provided excerpt, leaving the petition pending.
Headnote
A) Income Tax - Prosecution under Section 276B - Requirement of prior adjudication under Section 201 - Income Tax Act, 1961 (Sections 201, 276B) - The court considered whether a criminal complaint for failure to remit TDS could proceed in the absence of an adjudicatory determination of default under Section 201. Examining Section 201, the court observed that the deeming of an assessee in default is “without prejudice to any other consequences”, which includes prosecution under Section 276B. The Supreme Court in Madhumilan Syntex Ltd. v. Union of India clarified that failure to pay deducted tax is an offence under the Act and that Section 276B operates independently of penal provisions under Section 201(1A). (Paras 11-13) B) Income Tax - CBDT Circulars and Reasonable Cause - Section 278AA - Income Tax Act, 1961 (Section 278AA) - The petitioners argued that TDS was deposited within 12 months as permitted by CBDT circular dated 24.04.2008, which they claimed absolves them from penal consequences. The respondent contended that the circular is merely a Standard Operating Procedure and does not create immunity from prosecution. The court noted that the applicability of the circular and whether it establishes reasonable cause involves factual enquiry, and under Section 278AA the burden of proving such defence lies on the accused. (Paras 4-5, 8)
Issue of Consideration
Whether prosecution of the petitioners for the offence punishable under Section 276B of the Income Tax Act could be sustained without determination of the liability of the petitioners under Section 201 of the Act?
Law Points
- prosecution under Section 276B does not require prior adjudication under Section 201
- failure to remit TDS after deduction is an independent offence
- CBDT circular providing for deposit within 12 months may constitute a factual defence of reasonable cause
- onus on accused under Section 278AA to prove reasonable cause
- Section 201 deeming assessee in default is without prejudice to criminal proceedings
