M/s.KSR PROPERTIES PVT.LTD., hyd and another vs. INCOME TAX OFFICER (TDS)

Crl.P'No '2558 of 2018 is filed by the petitioners-accused seekingtoquashtheproceedingsagainsttheminC.C.No.2TS of2OlTonthefileofthelearnedSpecialJudgeforEconomic offences,Hyderabad,registeredfortheoffencesunderSection 276Bread with Sect ion 278F}(1) & (2) of the lncome Tax Act' 1961 (for short'the lT Act' 1961') 3.Sincethepartiesinboththepetitionsareoneandthe same,boththepetitionsarebeingdisposedofbywayofthis common order'

Brief facts of the case are that Accused No. 1 is a company' [u/s' KsR Properties pvt. Ltd., registered under the lndian companies Act, 1956, and is in the business of construction of comprexes and earning rentar income. Accused No' 2 is the r\4anaging Director of t\r/s. KsR properties pvt. Ltd. The company, in its day_to_day operations, has to make payments for various transactions, such as sararies to staff, payments for works executed rike construction activities, professional charges, rent, and others. While making such payments, the accused company is bound to deduct income tax at the prescribed rates, in accordance with the rerevant provisions under chapter xvil-B of the rncome Tax Act, 1961 (hereinafter referred to as the ,rr Act,), i.e., deduction of income tax at source under the provisions of sections 1g4A, 1g4c, 194r, 194J, and 1g4H of the rr Act, for the different categories, during the rerevant financiar years in which the payments were made' Upon verification of the justification report of the assessee company by the lncome Tax Officer (TDS), Ward_1 (4), Hyderabad, it was found that the accused company had failed to deposit the taxes within the prescribed time limit as Crl.P.Nos.2556-2558-2018 mentioned in the !T Act. There was a delay in all payments made, and, as per the data available on the TDS module of the lncome Tax Department (lTD) applications, it was noted that the accused company had failed to remit the TDS amount on time to the credit of the Central Government Account. Specifically, the TDS was deposited beyond the due dates for payments made to 358 persons/entities, with delays ranging from one month to eighteen months. The total TDS amount which has been remitted with a delay was Rs. 21,64,265/- in C.C. No. 275 of 2017 and Rs.21,80,1571- in C.C. No. 276 of 2017. Thus, even though the company had deducted the tax as required under the Act, it failed to deposit the tax under Section 200 of the lncome Tax Act to the credit of the Central Government within the prescribed time. This failure to deposit timely TDS constitutes a default, which shows a willful attempt to evade tax, as prescribed under section 2l6c of the lr Act and is punishable under the Act. consequenfly, a show-cause notice was issued to the principal officer of the company on 08.03.2017, calling upon the company and its officers to explain why prosecution should not be initiated under sections 4

The contentions of the petitioner are that there is no provision for launching prosecution for delayed filing of Forms 24Q and 260, nor for belated payment of TDS' The prosecution under Section 2768 may be attracted only when there is a failure to pay the TDS without any reasonable cause'

The respondent has filed a counter' wherein it is submittedthattheCommissioneroflncomeTax(TDS)has rightlygrantedsanctionunderSection2TgofthelncomeTax Act for prosecuting the petitioner under section 276B., read with t / .-\-l.r1.. 8

Further the penalty under Section 271C of the Act and prosecution under Section 2768 of the Act are independent proceedings. The penalty under Section 271C is for non- deduction of TDS, while prosecution under Section 2768 is for non-payment or delayed payment of TDS deducted. The petitioner has delayed remitting the TDS for reasons best known to it, and the interest charged under Section 201(1A) is mandatory. The intimation under Section 2004 is correct, and the assessee may not have filed an appeal for the same reason. Although the assessee paid interest on delayed remittances before filing the quarterly returns of TDS, the interest charged is shown as paid, and hence no demand is arrived at as payable. Horarever, this does not mean that no interest was charged under Section 201(1A) of the Act while processing the quarterly returns by the Centralized Processing Centre (CPC). There is a clear default on the part of the petitioner, as per the provisions of Chapter XVll-B of the Act. The respondent concludes that the contentions raised by the petitioners are not tenable, and the petitioners are liable to be prosecuted.

Heard the submissions of Sri C.P.Ramaswami, learned counsel for the petitioners and Sri Raja Shekar Rao, learned Senior Standing Counsel for lncome Tax appearing for the respondent.

The learned counsel for the petitioners submitted that the petitioners have never committed any default in the payment of tax, but there was only a delay in payment. The delayed payment cannot be equated with a failure to pay at all' He further submitted that the interest payable on delayed payment was also paid by the petitioner, and thus, the petitioner has not committed any offence under the Act. Although the levy of interest under Section 201(14) of the Act is attracted for delayed payments, such a levy is appealable, which means the levy of interest is discretionary and not mandatory' He further submitted that the due dates, as per various provisions of the Act for payment of TDS to the credit of the Government are many, extending up to the due date for filing the returns of income for the relevant assessment year' Consequently, Rule 30 of the Act cannot be said to be mandatory' He argued that i / Crl.P.Nos.2556 2558 2018 l3 no penalty is attracted under Section 2T1C(1)(a) of the Act for failure to pay tax deducted in terms of Chapter XVll-B of the Act. The penalty is leviable only when there is a failure to deduct tax at source. He further argued that the decision of the Apex Court relied upon by the complainant, M/s. Madhumilan Syntex Ltd. v. Union of Indial, does not lay down any ratio for the interpretation of Section 276P and, therefore, it is not applicable to their case.

He further submitted that a tsoard Circular No.24 of 20.19 dated 09.09.2019 was issued on the subject procedure for identification and processing of cases for prosecution under direct Tax Laws, has directed vide para 2 (i) as under:

Prosecution is a criminal proceeding. Therefore, based upon evidence gathered, offence and crime as defined in the relevant provision of the Act, the offence has to be proved beyond reasonable doubt. To endure that only deserving cases get proseCuted lhe Cenkal Board of Direct Taxes in exercise of powers under Section 119 of the Act lays down the following criteria for launching prosecution in respect of the following categories of offences. i) Offences under section 2768'. Failure to pay tax to the credit of Central Government under Chapter Xll-D or XVll-B. Cases where non-payment of tax deducted at source is Rs.25 Lakhs or below. and the delay in deposit is less than 60 days from the due date, shall not be processed for prosecution in normal circumstances. ln case of exceptional cases like, habitual defaulters, based on particular facts and circumstances of each case, prosecution may be initiated only with the previous administrative aporoval of the Coliegium of two CCIT/DGIT rank officers as mentioned in para 3." ' lzolz; r i scc zez

He further submitted that the present prosecution has been arbitrarily launched and that the culpable mental state is the basis for the impugned prosecutions, which cannot be made applicable to the present case. The culpable mental state is not attracted in this case, as it is a venial offence, not a substantive offence. lf a person willfully attempts to commit an offence under the Act, then the prosecution under Section 2788 can be raised, but not in the case of a venial offence. He

The learned counsel for the respondent submitted that it is the authority that has to take a decision as to prosecuting the petitioners for any offences under the Act, and such a decision cannot be taken in quash proceedings. There is a reasonable cause to launch prosecution against the petitioners, who are habitual defaulters. He further submitted that the principle laid down by the Apex Court in Madhurnilan' Syntex Ltd.'s case holds good in the present case. When a show-cause notice was served on the petitioner, the petitioner resorted to EIO,J C.l.P.Noe.2s55-2558_2018 l5 interpreting the statute but did not explain the reasons for the delay that occurred in respect of 'each payment. He also submitted that the department has ample material and supporting evidence to prove the offence against the petitioners, and therefore, he prayed to dismiss the petition.

Perused the record. 18. ln the simplest of terms, the case of the complarnant is that the petitioner has committed a default in depositing the tax deducted at source into the account of the Central Government, and that the said default was committed with regard to the financial years 2013-14 and 2014-15. The allegations point out that the petitioner has been regularly comrnitting defaults in depositing the tax that was deducted at his end into the account of the Government.

The contention raised by the petitioner is that, even without there being any demand notice, he used to pay the same along with interest, and that once he has paid the interest Crl.P.Nos.2555-2558-2018 for the delay, he need not be prosecuted, as he did not entertain any malafide intention.

Learned counsel for the petitioner relied upon a decision of the Punjab and Haryana High Court in Bee Gee Motors and Tracfors and another v. lncome Tax Officef, wherein it was held that 'a very insignificant amount of Rs.9,428l- in one case and an even lesser amount in another case is involved as also that the prosecution came to be launched after a number of years when the default was committed or even from the date when the tax was deposited as also that the matter is pending since 1993 in the Court only it will serve no useful purpose in remitting the case to the authorities concerned. Hence, the petition was allowed and the proceedings are quashed.'

He also relied upon the decision of the Patna High Court in Sonati Autos Pvt.Ltd. v, State of Bihar and others3, wherein it was held that 'on the basis of explanation submitted by the petitioner, the petitioner has been able to prove the reasonable cause for not depositing the aforesaid tax amount 2 rJggq 218 rrR r55 (P & H) ' (2017) 396 rrR 636 (Patna)

He further relied upon the decision of the Delhi High Court in PNB Finance and lndusfres Ltd., and others y. Miss Gita Kripalani, lncome Tax Officer, Company Circle X, New Delhf , wherein it was held that 'clamping a criminar prosecution for an offence, which is not part of the normal penal law of the country, but is a creature of a special statute dealing primarily with fiscal matters, designed to collect revenues for the exchequer without determination of liability under the Act, is neither just nor fair, particularly where the prosecution would involve intricate questions of interpretation of taxation concepts.'

He further relied upon the decision of the Apex court in G.L.Didwania and another v. lncome Tax officer and o ltsao) r,i7 tlR 385 (Del)

The respondent, on the other hand, contends that the payment of interest is only for the delay that has occurred in making the payment, but that does not exempt the petitioner from being prosecuted for the offences committed under the Act. A show-cause notice was issued to the petitioner on 08.03.2017, wherein it is clearly stated that it was mandatory on the part of the petitioner to deposit the tax deducted by him into the Government account within the prescribed statutory time limit 51tslz; z24111687 (sc)

From the facts of the case, it is pointed out that the petitioner is a habitual defaulter, and that the petitioner was deducting TDS on payments but not depositing the same into the Government account, as required under Section 200(1) of the Act, and had misused the Government funds with a deliberate intention to use them either for personal or business purposes,

Thus, rt is alleged that the petitioner has defaulted against the revenue with deliberate and malafide intention. lt is borne out by record that, before granting sanction for launching prosecution under Section 2768 of the Act, in view of Section 279(1) of the Act. an opportunity of being heard was accorded to the petitioner to show cause as to why necessary sanction shouid not h,e granted for launching prosecution. The petitioner replied to the said show-cause notice on 06.03.20.1 7, stating that they do not fall within the mischief of Section 2768, for the simple reason that they have not faited to pay the tax declucted at s'eurce to the credit of the Central Government, and requested the respondent to drop the proceedings. ,/ J

Sections 2OO(1) and 276:c^ of the Act are extracted hereunder for the sake of reference: "200. Duty of person deducting tax - 11il11Sectron 200 renumbtered as sub-section (1) thereof by Act 20 ot 2oO2)'56ction aa @.e.f. 1.6.2002).1 Any person deducting any sum in accordance with [the ioregoing provisions of this Chapter] [ Substituted by Act 23 of 2004, Section 42, for the portion beginning with words and figure " the provisions of section 192" and ending with the word, figures and letter " section 196-D" (w.e.f. 1.10.2004).1shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs. 2768. I Failure to pay tax to the credit of Central Government under Cnapter Xll-D or XVll-B. I Subsfifufed by Act 26 of 1997, Secfion 54 for Section 276-8 (w.e.f. 1.6.1997).1 - lf a person fails to pay to the credit of the Central Government,- (a.) the tax deducted at source by him as required by or under the provisions of Chapter XVll-B; or(b)the tax payable by him, as required by or under,-(i)sub-section (2) of section 115-0; or (ii) the [*"*] proviso to section 194-8, 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.l"

Thus, it is primarily contended by the petitioners that since they have made the payments, though with a delay, they are not liable for prosecution and, also, that they have paid interest on the delayed payments. However, the contention of the respondent is that the payment of interest does not absolve them from tiability for prosecution, and that the petitioner is a habitual defaulter and, therefore, is liable to be prosecuted. I / \

Respondent has placed ample material on record disclosing that delay has occurred in remitting the TDS pertaining to various transactions, thus, the said contention is triable in nature.

Further, the contention of the petitioner's counsel is that a circular was issued vide Circular No. 24 of 2019 dated 09.09.2019, regarding the procedure for identification and processing of cases for prosecution under Direct Tax Laws.

A perusal of the said circular reveals that in cases where the non-payment of tax deducted at source is Rs. 25 lakhs or below, and the delay in deposit is less than 60 days from the due date, shall not be processed for prosecution in normal circumstances. ln cases of exceptional situations, like habitual defaulters, based on the parlicular facts and circumstances of each case, prosecution rnay be initiated only with the previous administrative approval of a Collegium consisting of two CCIT/DGIT rank officers. Thus the petitioners contend that, admittedly, the non-payment of TDS by the petitioner company is to the extent of Rs.22,28,768/- for the financial year 2013-14

However, it is pertinent to note that the complaint in the present case is dated 19.08.2017, whereas the circular instructions were issued on 09.09.2019, therefore, the same is not applicable to the present case.

The learned counsel for the respondent has relied upon the decision of the Apex Court in Madhumilan Syntex Ltd.,'s case, wherein it was held that:

The next contention that since TDS had already been deposited to the account of the Central Government, there was no default and no prosecution can be ordered cannot be accepted. Mr Ranjit Kumar invited our attention to a decision of the High Court of Calcutta in y,nar & Co.v. ITO l(1992) 193 ITR 300 (Cal)l lnterpreting the provisions of Section 276-8, a Single Judge of the High Court observed that: (lTR p. 31s) "fllhere is no provision in the lncome Tax Act imposing criminal liability for dilay in deduction or for non-payment in time. Under Section 276-8, delay in pryment of income tax is not an offence.' Accoiding to the learned Judge, such a provision is subject to penalty under Section 201(1 ) of the Act.

We are unable to agree with the above view of the High Court. Once a statute requires to pay tax and stipulates period within which such payment is to be made, the payment must be made within that period. lf the payment is not made within that period, there is default and an appropriate action can be taken under the Act. lnterpretation canvassed by the learned counsel would make the prcvision relating to prosecution nugaiory.

As to contention that the case is squarely covered by Section 27g_AA of the Act and that no offence has been committed in view of ,,reasonable cause" shown by the appellants, we may state that the question can be decided on the basis of evidence which would be adduced by the parties before a competent court. Hence, even that contention, does not detain us. 51. lt is true that the Act provides for imposition of penalty for non_payment of tax. That, however, does not take away the power to prosecute accused persons if an offence has been committed by them...' \ The present case squarely gets attracted with the principle laid down in the above case. 34. ln view of the above held discussion it is opined that the matter needs adjudication before the trial Court. Hence, it is not just and proper to quash the proceedings. However, it is deemed appropr.iate to dispense with the attendance of the petitioners before the trial Court. 35. ln the result, both the Criminal petitions are disposed of dispensing with the presence of the petitioners before the triar Court prov,ided that they are represented by a counsel before the trial court on every date of hearing and shal appear before Crl.P.Nos.2556-2558-2018 the trial Court whenever their presence is required during the course of trial. Miscellaneous applications pending, if any, shall stand closed SDT P.C. SULEKHA DEVI ASSISTANT REGISTRAR /// SECTION OFFICER