Case Note & Summary
The petitioners, M/s Kingfisher Airlines Ltd. and its Chairman and Managing Director, Sri Vijay Mallya, filed three criminal petitions under Section 482 of the Code of Criminal Procedure, 1973, seeking quashing of proceedings in C.C. No. 49/2013, 77/2013, and 78/2013 pending before the Special Court for Economic Offences, Bangalore. The respondent, the Income Tax Department, had initiated these proceedings for offences punishable under Section 276-B read with Section 278-B of the Income Tax Act, 1961, alleging that the petitioners had deducted tax at source (TDS) for the financial years 2009-10, 2010-11, and 2011-12 but failed to remit the same to the government account, amounting to Rs. 400,56,08,659/-. The department conducted a survey under Section 133-A of the Act on 18.03.2011 and discovered the default. The petitioners contended that the entire TDS amount along with interest had been paid before the complaints were filed, and therefore, the offence under Section 276-B was not attracted. The court examined the provisions of Section 276-B, which penalizes failure to pay tax deducted at source to the government credit. It observed that the section requires that the tax deducted must not have been paid; if the tax is paid along with interest before the initiation of prosecution, the offence is not made out. The court also noted that for vicarious liability under Section 278-B, there must be specific allegations of consent, connivance, or negligence against the director. Since the tax was paid with interest prior to the filing of complaints, the court held that the proceedings were an abuse of process and quashed them.
Headnote
A) Criminal Law - Income Tax - TDS Default - Section 276-B read with Section 278-B of Income Tax Act, 1961 - Quashing of Proceedings - The petitioners, a company and its Chairman, were prosecuted for failure to remit TDS for financial years 2009-10, 2010-11, and 2011-12. The court held that since the deducted tax was paid along with interest before the complaints were filed, the essential ingredients of the offence under Section 276-B were not attracted. The proceedings were quashed under Section 482 Cr.PC. (Paras 2-10) B) Criminal Law - Income Tax - Vicarious Liability - Section 278-B of Income Tax Act, 1961 - The court noted that for vicarious liability to attach to the Chairman and Managing Director under Section 278-B, there must be a finding that the offence was committed with the consent or connivance of, or was attributable to the negligence of such person. In the absence of any such allegation, the prosecution against the second petitioner was also liable to be quashed. (Paras 8-10)
Issue of Consideration
Whether criminal proceedings under Section 276-B read with Section 278-B of the Income Tax Act, 1961 can be sustained against the petitioners for failure to remit TDS when the tax deducted at source was subsequently paid along with interest before the initiation of prosecution.
Final Decision
The court allowed the petitions and quashed the proceedings in C.C. No. 49/2013, 77/2013, and 78/2013 pending before the Special Court for Economic Offences, Bangalore.
Law Points
- Section 276-B of Income Tax Act
- 1961
- Section 278-B of Income Tax Act
- Section 133-A of Income Tax Act
- Section 482 of Code of Criminal Procedure
- 1973
- TDS default
- quashing of criminal proceedings
- mens rea
- vicarious liability
