Taxpayer Is Absolved From Prosecution U/s 276B Of Income Tax Act If Entire Tax Along With Penal Interest Stands Paid: Kerala HC
The Kerala High Court held that taxpayer cannot be prosecuted u/s 276B of Income tax Act simply because of failure to deduct and pay TDS to the government, once the non-compliance was sorted out and the tax along with penalty was sufficiently deposited to the government, after being informed of the delinquency.
As per Section 276B of the Income Tax Act, 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 provision of Chapter XVII (B); or the tax payable by him as required by or u/s 115-O(2)(i); or the second proviso to Section 194B, then he shall be punishable with rigorous imprisonment for a term which shall not be less than 3 months but which may extend to 7 years and with fine.
Single Bench of Justice P.V. Kunhikrishnan observed that “the entire amount with penal interest is already paid by the petitioners. If that be the case, the continuation of prosecution is not necessary against the petitioners”.
Facts of the case
When an inspection was conducted in the premises of the accused taxpayer/ petitioner, it was found that the accused was making various payments during which were liable to tax deduction at source such as fees of artists and other contracts, professional and other consultancy charges, rents etc., without deducting tax and thereby not paying Rs.11,44,375/-. Since the accused committed the offence, he was visited with prosecution u/s 276B of Income tax Act.
Observation of the High Court
The Bench referred to the submission of the petitioner that during the beginning of its business operations, TDS were not deducted from the payment and remuneration effected during the first cinema produced by the Company, due to ignorance.
However, the Bench found that when the non-compliance was pointed out by the department, the entire amount of TDS which was liable to be paid i.e. Rs.11,44,375/- along with its penal interest were paid by the petitioner.
The Bench observed that Section 276B is intended for non-payment of already deducted amount of TDS alone, whereas the allegation is that, the petitioners never deducted tax at source.
Therefore, the Bench opined that petitioner cannot be visited with penalty & prosecution u/s 276B if he has not deducted TDS in the first instance.
Hence, the High Court quashed the proceedings against the petitioners on the file of Additional Chief Judicial Magistrate Court (Economic Offences), and allowed the Assessee's petition.
Counsel for Petitioner/ Assessee: C. Unnikrishnan
Counsel for Respondent/ Revenue: P.K.R. Menon, Jose Joseph, Renjith. T.R and V. Ganesan
Case Title: August Cinema (India) Pvt. Ltd. & ors. versus ITO & ors.
Case Number: CRL.MC NO. 359 OF 2015