Cwp/10216/2000 Of Om Parkash & Anr v. The Commissioner Of Income Tax & Ors

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH CWP No.10216 of 2000Date of decision: 17.7.2014 Om Parkash and another| Vs, eee Petitione The Commissioner of Income Tax and others ....mespondent CORAM: HON BLE MR. JUSTICK AJAY KUMAR MITTALHON BLE MR. JUSTICE JASPAL SINGH Present: Mr. K.L.Goyal, Sr. Advocate withMr. Sandeep Goyal, Advocate for the petitioners. | Mr. G.S.Hooda, Advocate for the respondents.| Ajay Kumar Mittal,J, 1.Prayer in this petition filed under Articles 226/227 of theConstitution of India is for a direction to the respondents for compoundingof offence under section 279(2) of the Income Tax Act, 1961 (in short, “theAct’), ? A few facts relevant for the decision of the controversyinvolved as narrated in the petition may be noticed. Petitioner No.l waspartner of firm M/s Roshan Lal Om Parkash (petitioner No.2) upto31.3.1985. From 1.4.1985, the partnership firm was dissolved due tolfinancial problem on account of a fraud committed before that date by a CWP No.10216 of 2000 third party against whom criminal complaint was duly lodged. The firmpetitioner No.2 was responsible for deduction of income tax @ 10% of theamount payable to any person on account of interest during the accountingyear 1984-85. Therefore, certain deductions of income tax were made ondifferent dates. The deducted amounts were liable to be deposited inappropriate bank on different dates and there was slight delay in making thesaid payments. These amounts were deposited voluntarily in the treasurywithout any notice from the department. There were two reasons for thedelay i.e. firstly there was a fraud committed with the petitioners by a thirdparty and therefore there were financial constraints on account of which thefirm had to close down its business w.e.f 1.4.1985 and secondly on accountof closure of business, day to day affairs of the business could not beattended properly. After the filing of the return, when the matter came to}the notice of the Income Tax Officer, the said authority calculated interest ofLT426/- under Section 201(1A) of the Act vide order dated 7.3.1998,Annexure P.!| for this default. The assessee also deposited that amount 1n thtreasury. The petitioners were not aware of the fact that payment of taxdeducted at source was to be made within seven days. They were under theimpression that the amount could be deposited 1n the treasury at the time offiling of return. The Income Tax Officer on instructions from Commissionerof Income Tax, Jalandhar (CIT) filed a criminal complaint dated 24.4.1989in the court of Chief Judicial Magistrate, Bathinda under section 276B readwith section 278-B of the Act on the ground that petitioner No.2 hadcommitted a default in not depositing the tax in time. According to thepetitioners, as per departmental instructions, no complaint could be filed CWP No.10216 of 2000 CWP No.10216 of 2000 under the provisions of the Act if the total amount of tax involved wassmall/negligible. In the present case, the interest payable for default inmaking payment wasLi426/- only. On 13.3.1996, the complaint wastransferred to the court of Chief Judicial Magistrate, Mansa in view of thereorganization of Bathinda district. Meanwhile, the petitioner No.l wassuffering mental agony on account of criminal trial. He had undergonecardiac bypass surgery and was aged 62 years. On 21.9.1999, he moved anapplication to the CIT for compounding the offence under section 279(2) ofthe Act on the ground that he had been dealing with the department since1956 and was never penalised for any kind of offence. Thereafter, petitionerNo.1 was orally summoned by the Income Tax officer, Mansa asking him togive his consent to agree to pay fee of <a2192/- as a condition forcompounding the case to which he agreed. The matter remained pending fordecision with the CIT till 29.11.1999 when the complaint matter was takenup for decision by Chief Judicial Magistrate, Mansa. It was brought to thenotice of the trial court that since the matter regarding compounding ofoffence was pending before the authorities, the decision in the complaint bedeferred. However, the Chief Judicial Magistrate declined the request anddecided the matter holding the petitioner guilty of offence and awarding apunishment of one year six months plus a fine of44000/- vide order dated29.11.1999, Annexure P.4. Aggrieved by the order, the petitioners filedappeal before the Sessions Court, which 1s stated to be pending. Meanwhileit came to the notice of the petitioners that on the date of the decision dated29.11.1999, by the trial court, the Chief Commissioner of Income Tax(CCIT) wrote a letter Annexure P.6 to the CIT asking him to compound the CWP No.10216 of 2000 A offence after deposit ofL2192/- by the petitioners. The petitioners werenever communicated this decision. The petitioners have been given tounderstand that the departmental authorities are not compounding theoffence only for the reason that they have already been convicted and as perCBDT directions, the case cannot be compounded. On 3.7.2000, thepetitioners approached the Central Board of Direct Taxes with a prayer tocompound the offence on deposit of=2192/- but no action has been taken!so far. Hence the instant petition by the petitioners.3)Learned counsel for the petitioners submitted that there wasdelay in deposit of tax deducted at source amounting toL4870/- for whichthe petitioners had deposited the interest as well under Section 201(1A) ofthe Act. It was argued that the petitioners had filed an application forcompounding under section 279(2) of the Act which was approved by theCCIT on payment of compounding fee of<a2192/-. However, subsequently,the same was declined on 16.3.2000 vide Annexure P.8. It was urged thatPetitioner No.1! 1s 75 years of age and has been facing the agony for the lasmore than 25 years and the default relates to the year 1985 whereas theprosecution itself was filed by way of a complaint on 24.4.1989. Thedefault was for a short period upto maximum of six months for delay indepositing the amount and in such circumstances, Annexure P.8 be quashedand compounding in terms of Annexure P.6 be allowed. Reliance wasplaced on following judgments:- 1)Chairman, Central board of Direct Taxes and others vs. Smt.Umayal Ramanathan, (2009) 313 ITR 59Umayal Ramanathan, (2009) 313 ITR 59 11)Income Tax officer vs. Dr.K. Jagadeesan,(2002) 257 ITR 476111)YPChawla and others vy. M.P-Tiwarit and another,(1992) 195111)YPChawla and others vy. M.P-Tiwarit and another,(1992) 195 ITR SC 607, Iv)Bee Gee Motors and Tractors and another vs. Income Taxofficer,(1996) 218 ITR 155,officer,(1996) 218 ITR 155, v)Ganga Solvent and others Hanuman Rice and Oil Mills andothers v. State ofBihar and another,(1997) 226 ITR 401others v. State ofBihar and another,(1997) 226 ITR 401 1)Chairman, Central board of Direct Taxes and others vs. Smt.Umayal Ramanathan, (2009) 313 ITR 59Umayal Ramanathan, (2009) 313 ITR 59 11)Income Tax officer vs. Dr.K. Jagadeesan,(2002) 257 ITR 476111)YPChawla and others vy. M.P-Tiwarit and another,(1992) 195111)YPChawla and others vy. M.P-Tiwarit and another,(1992) 195 ITR SC 607, Iv)Bee Gee Motors and Tractors and another vs. Income Taxofficer,(1996) 218 ITR 155,officer,(1996) 218 ITR 155, v)Ganga Solvent and others Hanuman Rice and Oil Mills andothers v. State ofBihar and another,(1997) 226 ITR 401others v. State ofBihar and another,(1997) 226 ITR 401 V1)Vijay Singh vs. Union ofIndia and another(2005) 278 ITR 467V11)Bawa Mahesh Singh and others vs. Income Tax officer,(2005)273 TTR 404V11)Bawa Mahesh Singh and others vs. Income Tax officer,(2005)273 TTR 404 V111)Anil Tools and Forging and others v. CCIT and others, QOI1)334 [TR 2060334 [TR 2060 4On the other hand, learned counsel for the respondentssubmitted that the case of the petitioners was not covered by the CBDTinstructions and compounding had been rightly declined. 4]After hearing learned counsel for the parties, we find merit inthe contentions of learned counsel for the petitioners. 6.|It would be expedient to reproduce Sections 276B and 279(2)of the Act, which read thus:- *°)’76Failure to pay the tax deducted at source'_ Tf aperson fails to pay to the credit of the Central Government, thetax deducted at source by him as required by or under theprovisions of Chapter XVIIB, he shall be punishable withrigorous imprisonment for a term which shall not be less thanthree months but which may extend to seven years and withfine.’ “79, Prosecution to be at the tinstance ofChiefCommissioner or Commissioner,(1) xxxx,,,,,,,,,,,,(2)Any offence under this Chapter may, either before orafter theinstitution of proceedings, be compounded by theChief Commissioner or Director General.’ Under Section 276B, prosecution can be launched by the revenue where the 6 However, it is evident from section 279(2) of the Act that any offence underChapter XXII may either before or after the institution of proceedings becompounded by Chief Commissioner or Director General. | TdIn the present case, the application of the assessee forcompounding under Section 279(2) of the Act was accepted by the CCIT on29.11.1999 vide Annexure P.6 whereby compounding was accepted onlpayment of compounding fee of |=2192/-. However, the same wassubsequently reviewed on 16.3.2000. It was not disputed by learned counselfor the respondents that the amount of<4870/- alongwith interest ofTy8 !"<under Section 201(1A) of the Act has already been deposited. 8S.The Government of India, Ministry of Finance, Central Boardof Direct Taxes has issued instructions dated May 28, 1980 which readthus:- “The prosecution under section 276B should not normally beproposed when the amount involved and/or the period ofdefault 1s not substantial and the amount in default has alsobeen deposited in the meantime to the credit of theGovernment. No such consideration will, of course, apply tolevy of interest under Section 201(1A).” The amount of default of44870/- alongwith interest of —L4?6/- underSection 201(1A) of the Act stood paid and, therefore, case of the assesseefell within the parameters laid down in the instructions issued by the Board. Q |This Court in Bee Gee Motors and Tractors'scase (supra)wherein the default was of deposit of tax deducted at source amounting to >=9428/-, while quashing the complaint, had recorded as under:- -3. Mr. Mittal, learned counsel appearing, for the petitioners,vehemently contends that in view of the instructions (annexure The amount of default of44870/- alongwith interest of —L4?6/- underSection 201(1A) of the Act stood paid and, therefore, case of the assesseefell within the parameters laid down in the instructions issued by the Board. Q |This Court in Bee Gee Motors and Tractors'scase (supra)wherein the default was of deposit of tax deducted at source amounting to >=9428/-, while quashing the complaint, had recorded as under:- -3. Mr. Mittal, learned counsel appearing, for the petitioners,vehemently contends that in view of the instructions (annexure 'P-3') issued by the Government of India, Ministry of Finance,Central Board of Direct Taxes, dated May 28, 1980, theprosecution under Section 276B should not normally beproposed when the amount involved and/or the period ofdefault, is not substantial and the amount in default has alsobeen deposited in the meantime to the credit of theGovernment. He contends that these instructions are bindingand in view thereof, the petitioners are entitled to acquittal andthat being so, it shall be an exercise in futility to carry on withthe trial, the conclusion and result whereof is obvious. 4. Mr. Sawhney, learned senior standing counsel for theDepartment, has, however, joined issue with the petitioners’counsel and contends that the instructions in question cannotpossibly replace the provisions of the statute and once therelevant provisions of the statute provide punishment, theDepartmental instructions have to give way. He_ furthecontends that it is in the discretion of the officer concerneddepending upon the facts and circumstances of each casewhether the prosecution should be launched or not. 5. Before any comments on the merits of the points canvassedby learned counsel for the petitioners are made, it shall beuseful to see the relevant instructions. The same read thus : "The prosecution under Section 276B should not normallybe proposed when the amount involved and/or the period ofdefault 1s not substantial and the amount in default has alsobeen deposited in the meantime to the credit of theGovernment. No such consideration will, of course, apply tolevy of interest under Section 201(1A)." The words "not normally" precede the words "be proposedwhen the amount involved and/or the period of default is notsubstantial and the amount has also been deposited in themeantime to the credit of the Government". [t 1s true that theword "normally" does not mean that it is necessary orincumbent upon the authorities concerned so as not to launchproceedings under Section 276B but when the conditions for "The prosecution under Section 276B should not normallybe proposed when the amount involved and/or the period ofdefault 1s not substantial and the amount in default has alsobeen deposited in the meantime to the credit of theGovernment. No such consideration will, of course, apply tolevy of interest under Section 201(1A)." The words "not normally" precede the words "be proposedwhen the amount involved and/or the period of default is notsubstantial and the amount has also been deposited in themeantime to the credit of the Government". [t 1s true that theword "normally" does not mean that it is necessary orincumbent upon the authorities concerned so as not to launchproceedings under Section 276B but when the conditions for exempting the assessee from prosecution as spelled out in theinstructions are available, in the considered view of this court itwill not be open for the authorities then also to have discretionin the matter as otherwise, the authorities concerned mayexempt an assessee from prosecution in one set ofcircumstances and to prosecute another assessee 1n the same oridentical facts. That would undoubtedly be violative of Article14 of the Constitution of India. The argument of Mr. Sawhneywith regard to discretion of the officer concerned can beaccepted only to the extent that as to what facts constitute thediscretion for launching the prosecution and what facts wouldentail exemption from prosecution shall always depend uponthe facts of each case with regard to the amount involved or theperiod of default. That is always in the discretion of theauthorities concerned which, of course, again 1s to be used 1n ajudicious manner. In so tar as the first contention of Mr,Sawhney that it is the provisions of the statute which shall haveprecedence and not the instructions 1s concerned, suffice it tosay that the court does not find any inconsistency orcontradiction in the relevant provisions of the statute and theinstructions quoted above. The relevant provision of the statuteno doubt talks of prosecution but the instructions in theconsidered view of the court provide an exception in limitedmatters and that too where the conditions precedent in theinstructions are available or in existence. Mr. Sawhney reliedupon Jagmohan Singh v. ITO [1992] 196 ITR 473 (P & H);Madura Chit and Investments Pvt. Ltd. v. ITO [1994] 208 ITR 5(Mad) and Kerala Financial Corporation v. CIT11994] 210ITR 129 (SC). These judgments are for the proposition thatwhere there is conflict between the provisions of the statute andthe rules or the rules and the instructions, it 1s provisions of thestatute and the rules that would prevail and not the instructions,There cannot be any quarrel with the proposition as enunciatedin the aforementioned judgments. It is no doubt true that the assessee 1S liable for punishment 1f he makes a default indeposit of tax. As mentioned above, the instructions deal withthe situation in which the Department in its discretion may notlaunch the prosecution. Having held that even on the facts and circumstances of thiscase, it 1s the discretion of the authorities to apply theinstructions quoted above this court would have normally sentthis case to the authorities concerned for consideration but thefact that a very insignificant amount of Ly9.428 in one case andan even lesser amount 1n another case 1S involved as also thatthe prosecution came to be launched after a number of yearswhen the default was committed or even from the date when thetax was deposited as also that the matter 1s pending since 1993in this court only it will serve no useful purpose in remitting thecase to the authorities concemed.’’ Similar view has been expressed by different High Courts in the judgmentsrelied upon by learned counsel for the petitioners, Having held that even on the facts and circumstances of thiscase, it 1s the discretion of the authorities to apply theinstructions quoted above this court would have normally sentthis case to the authorities concerned for consideration but thefact that a very insignificant amount of Ly9.428 in one case andan even lesser amount 1n another case 1S involved as also thatthe prosecution came to be launched after a number of yearswhen the default was committed or even from the date when thetax was deposited as also that the matter 1s pending since 1993in this court only it will serve no useful purpose in remitting thecase to the authorities concemed.’’ Similar view has been expressed by different High Courts in the judgmentsrelied upon by learned counsel for the petitioners, 10...Ordinarily, the power to compound vests with the authoritiesunder the Act. It will not serve any useful purpose in referring back thematter to the competent authority particularly keeping in view the fact thatthe very insignificant amount of44870/- 1s involved which also stood paidand even interest under Section 20I1(1A)of the Act was paid by theassessee. Accordingly, letter dated 14.3.2000 withdrawing the compoundingis hereby quashed. As a necessary corollary, the Annexure P.6 whereby theCCIT had agreed for compounding of the offence on payment ofcompounding fee ofzy2192/- shall stand revived. ll.Learned counsel for the petitioners submitted that though theCCIT had determined the compounding fee atL2192/-, however, theassessee shall deposit an additional amount of4SO0O/- to show his CWP No.10216 of 2000 bonafides. It is directed that the petitioners shall deposit<a5000/- inaddition to the compounding fee of<a219?/- 1n order to avail the benefit ofcompounding vide order dated 29.11.1999 (Annexure P.6) passed by CCIT,It has been pointed out by the learned counsel for the petitioners that thecomplaint filed by the revenue had been decided holding the petitionersguilty under section 276B read with section 278B of the Act and hadsentenced petitioner No.1 to undergo RI for one year and six months and topay fine of44000/- and in default of payment of fine to undergo RI forthree months. Further, petitioner No.2 has also been sentenced for offenceunder Section 276B read with Section 278B of the Act for which fine of.L4000/- has been imposed. This Court vide order dated 9.8.2000 restrainedthe appellate court from passing final judgment. In view of our above order,the appellate authority shall pass order on the appeal accordingly inaccordance with law. The petition stands allowed. (Ajay Kumar Mittal)Judge July 17, 2014>=!/ (Jaspal Singh)Judge