Judgment

KULDIP SINGH:- Special leave granted.

2. Whether the Central Board of Direct Taxes, (the Board) under S. 119 of the Income-tax Act, 1962 (the Act) can issue instructions to control the discretion of the Commissioner of Income-tax under S. 279(2) of the Act, to compound the offences, is the short question for our consideration.

3. M. P. Tiwari and M. L. Passi are the respondents before us in these appeals. M. P. Tiwari is the Secretary and principal officer of M/ s. Hans Raj Gupta and Co. Pvt. Ltd. He along with other Directors of the said Company was prosecuted under S. 276-B of the Act on the charge that he committed defaults in depositing the income-tax deducted from the salaries of the employees of the Company during the assessment years 1979-80 to 198283. M. L. Passi was the Managing Director of M/ s. Inspi Auto Industry Pvt. Ltd. He was also prosecuted under S. 276-B of the Act for committing defaults in depositing the tax deducted at the source by the Company.

4. Both Tiwari and Passi applied to the Commissioner, Income-tax, invoking his power under S. 279(2) of the Act seeking composition of the offences against them. Section 279(2) of the Act as it was at the relevant time is as under:-

"The Commissioner may either before or after the institution of proceedings compound any such offences."

5. Section 119(1) which empowers the Board to issue orders, instructions and directions for the proper administration of the Act is reproduced hereunder:-

"119.(1) The Board may, from time to time, issue such orders, instructions and directions to other income-tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board:

Provided that no such orders, instructions or directions shall be issued-

(a) so as to require any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or

(b) so as to interfere with the discretion of the Deputy Commissioner (Appeals) or the Commissioner (Appeals) in the exercise of his appellate functions."

6. The Board issued instructions No. 1317 dated March 11, 1980 under S.119(1) of the Act providing guidelines for the exercise of power under S. 279(2) of the Act. The relevant part of the instructions is as under:-

"B. Cases which should not be compounded:

1. No compounding will be done if the assessee belongs to a monopoly or large industrial house or is a director of a company belonging to or controlled by such house.

2. Cases in which the prospects of a successful prosecution are good should not ordinarily be compounded.

3. Compouding will not be done in cases of second and subsequent offices (offences?).

C. Cases which may be compounded:

1. Except in cases falling within categories (1) and (3) of B above, compounding of an offence can be done with the consent of the Board, if the amount involved in the offence/default is less than Rupees one lakh.

2. Except in cases falling under categories (1) and (3) of B above, and category (1) of C, compounding may be done with the approval of the Minister, if, in view of developments taking place subsequent to the launching of the prosecution it is found, after consultation with the Minister of law, that the chances of conviction are not good.

D. Notwithstanding anything stated in B, the Board may approve compounding in deserving and suitable cases involving hardship with the approval of the Minister."

"6. While the above are only intended to provide broad guidelines to be followed before sending a proposal for compounding the previous approval of the Board should always be obtained before deciding the compounding of an offence. No assurance of any kind should be given to the assessee before obtaining the Boards approval."

7. Tiwari and Passi, by way of two separate writ petitions, challenged the abovequoted instructions before the Delhi High Court.