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High Court Of Delhi
P.N.B FINANCE AND INDUSTRIES LIMITED - Appellant
Versus
GITA KRIPALANI - Respondent
Criminal Miscellaneous (Main) 532 of 1983
Decided On : 10/01/1984
INCOME TAX - Prosecution for offence under Section 276B of the Income-tax Act, 1961 - Maintainability - Determination of liability by authority under the Act - Necessity - Scope of Section 293 of the Act - Prosecution before judicial determination of liability - Propriety - Prosecution based on determination of liability which is contrary to the hypothesis on which the complaints are based - Competence - Abuse of process of court - Quashing of proceedings - Conditions to be imposed.
Fact of the Case:
The petitioners, a company and its principal officers, were prosecuted for an offence under Section 276B of the Income-tax Act, 1961, for failure to deduct tax at source on the payment made to the shareholders on the reduction of its capital. The complaints were filed on the ground that the payment to the shareholders, in excess of the face value of the share, was "deemed dividend" within the meaning of Section 2(22) of the Act and the amount retained by the Company was tax deducted at source on the said dividend, which the Company and its principal officers, failed to deposit without reasonable cause or excuse in Government account and were thus liable to be punished under Section 276B of the Act. The petitioners challenged the validity of the complaints on various grounds, including the ground that there was no determination of liability by any authority under the Act, which could be the basis of the allegations constituting the offence.
Finding of the Court:
The Court held that: (i) In the absence of determination of liability by an authority under the Act, complaints, based on such liability, are incompetent. (ii) There was no subsisting order of a competent authority under the Act which could provide a valid basis for the complaints. (iii) There was a determination by a competent authority under the Act which was contrary to the hypothesis on which the complaints were based. (iv) Having regard to all the circumstances, the proceedings before the criminal court would be an abuse of the process of the court and it would be in the interests of justice to quash the proceeding.
Issues: 1. Whether prosecution for an offence under Section 276B of the Income-tax Act, 1961 is maintainable in the absence of determination of liability by an authority under the Act? 2. Whether Section 293 of the Act bars prosecution for an offence under Section 276B of the Act? 3. Whether prosecution before judicial determination of liability is proper? 4. Whether prosecution based on determination of liability which is contrary to the hypothesis on which the complaints are based is competent? 5. Whether the proceedings before the criminal court would be an abuse of the process of the court and it would be in the interests of justice to quash the proceeding?
Ratio Decidendi: 1. Prosecution for an offence under Section 276B of the Income-tax Act, 1961 is not maintainable in the absence of determination of liability by an authority under the Act. 2. Section 293 of the Act does not bar prosecution for an offence under Section 276B of the Act. 3. Prosecution before judicial determination of liability is not proper. 4. Prosecution based on determination of liability which is contrary to the hypothesis on which the complaints are based is not competent. 5. The proceedings before the criminal court would be an abuse of the process of the court and it would be in the interests of justice to quash the proceeding.
Final Decision: The Court quashed all the complaints and the orders summoning the petitioners in each of these cases subject, however, to the condition that the retained amount would be paid to such persons or authorities and within such time and with such interest as may be directed by the Supreme Court in the proceedings pending before it, unless the aforesaid proceedings are withdrawn by the Income-tax authority, in which case the retained amount would be paid to the shareholders concerned, within 4 weeks of the withdrawal, with interest at 11 per cent per annum on the amount from the date of retention to the date of payment.
( 1 ) THIS is acomposite petition, under Section 482 of the Code, by P. N. B. Finance and Industries Ltd, for short, the Company, its Chairman, Director, and Secretary, to quash 220 complaints against them by the Income-tax Officer, Company Circle, respondent herein, for an offence under Section 276b of the Income-tax Act 1961, for short, the Act, and the orders summoning the petitioners in the complaints to stand their trial not only for an offence under the Act but also for an offence under- Section 409 of the Indian Penal Code.
( 2 ) PRIOR to July 19, 1969, the Company, which was then known as The Punjab National Bank Ltd. , was a banking company, and the banking business of the company was transferred to and vested with the Punjab National Bank, a Corporation, wholly owned by the Government, with effect from the aforesaid date by virtue of an Ordinance, which was later replaced by the Companies (Acquisition and Transfer of the Undertakings) Banking Act 1970. The Company was paid a sum of Rs. 10. 20 crores as compensation for the take over of its banking business. The Company, which has since chanaged its name and objects, has been carrying on other undertakings. Pursuant to the acquisition, the Company, by a Circular of February 28, 1973, gave option to its shareholders to sell to it shares held by them in it at Rs. 381- per share, inclusive of dividend for the year 1972, in case they did not wish to continue to be its shareholders. It is claimed by the Company that before issuing the Circular it had obtained legal opinion of a former Chief Justice of India to the effect that the amount payable by the Company for the purchase of its own shares could not be considered as "deemed dividend", within the meaning of Section 2 (22) of the Act. It is further claimed that to put the matter beyond doubt before issuing the Circular the Company addressed a letter to the Central Board of Direct Taxes seeking their confirmation that the amount would not be "deemed dividend". The Life Insurance Corpotation of India, and the Unit Trust of India, were the major share-holders of the Company, and on their suggestion the price was raised from Rs. 381- per share to Rs. 40. 00 per share, exclusive of dividend that might be dedared till the date of the payment of the price. Parmanant to the Circular,sharehoders holding a total of 11. 98. 711. 5 shares in the company exercised the option to sell the shares, as a result of which the Company resolved to purchase these shares at the aforesaid price, subject to the consequent reduction of capital being confirmed by this Court. This Court eventually gave necessary confirmation. The Central Board of Direct Taxes, however, took no decision with regard to the question of a number of reminders. Meanwhile, the Life Insurance Corporation of India expressed the opinion that there was no question of deduction of any tax in the payment of the price since the payment was to be made to the shareholders on sale of their shares. It was further the view of the Corporation that the Company need not treat the difference between the sale price and the face value of the shares as "dividend" and had no right to deduct tax on such payment at source. This was the view which was generally shared by the shoreholders, who had exercised the option to sell. It furtheir appears that in the absence of any confirmation from the Board doubt lingered as to whether the price payable, or any part of it, could be considered "deemed dividend" and on the suggestion of the Corporation, the Company made payments on account @rs. 33,10 per share In the shareholders, who had exercised the option, and the balance of Rs. 6. 90 per share, out of the purchase price payable to them, was retained by the Company on the specific condition and understanding that the Company will be entitled to treat it as "tax deducted at source", in case it was ultimately held to be subject to tax, failing which, the retained amount would be paid to the
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