Entire TDS Along With Penal Interest Stands Paid By Taxpayer Upon Intimation By I-T Dept.: Kerala HC Quashes Proceedings U/s 276B Of Income Tax Act

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 accepted the contention of the petitioner 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.

The Bench also accepted that Section 276B of the Income Tax Act is not attracted in such scenario.

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.

Citation: 2024 LiveLaw (Ker) 605

Click here to read/ download the Order