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High Court Of Delhi
SEQUOIA CONSTRUCTION COMPANY - Appellant
Versus
P.P.SURI (ITO) - Respondent
Criminal Miscellaneous 326 of 1984
Decided On : 11/19/1984
INCOME TAX ACT - SECTION 276B - PROSECUTION FOR FAILURE TO DEDUCT TAX AT SOURCE - QUASHING OF PENALTY UNDER SECTION 201(1) - EFFECT ON CRIMINAL PROCEEDINGS - REASONABLE CAUSE - RES JUDICATA - PRINCIPLE OF ISSUE ESTOPPEL.
Fact of the Case:
The petitioners, a private limited company and its directors, were charged with an offence under Section 276B of the Income Tax Act, 1961, for failing to deduct tax at source from interest payments made to creditors. The Income Tax Officer had earlier levied a penalty under Section 201(1) for the same default, but the Commissioner of Income Tax and the Income Tax Appellate Tribunal subsequently quashed the penalty on the ground that the company had good and sufficient reasons for the delay in depositing the tax.
Finding of the Court:
The court held that the quashing of the penalty under Section 201(1) had a bearing on the criminal proceedings under Section 276B. While the findings of the Commissioner and the Tribunal were not binding on the criminal court, they were valuable pieces of evidence and circumstances in favor of the accused. The court further held that the principle of issue estoppel, which prevents the relitigation of issues that have been finally decided in a previous proceeding, applied in favor of the accused. Since the issue of whether the company had reasonable cause for the delay in depositing the tax had already been adjudicated in the penalty proceedings, the court held that it would be a sheer exercise in futility and harassment to allow the criminal prosecution to continue.
Issues: 1. Whether the quashing of the penalty under Section 201(1) had any effect on the criminal proceedings under Section 276B. 2. Whether the principle of issue estoppel applied in favor of the accused.
Ratio Decidendi: 1. The court held that the quashing of the penalty under Section 201(1) had a bearing on the criminal proceedings under Section 276B because the issue of whether the company had reasonable cause for the delay in depositing the tax had already been adjudicated in the penalty proceedings. The court further held that the findings of the Commissioner and the Tribunal, though not binding on the criminal court, were valuable pieces of evidence and circumstances in favor of the accused. 2. The court held that the principle of issue estoppel applied in favor of the accused because the issue of whether the company had reasonable cause for the delay in depositing the tax had already been finally decided in the penalty proceedings.
Final Decision: The court allowed the petitions and quashed the three prosecutions pending in the trial court.
( 1 ) THESE three criminal petitions havebeen moved against similar orders. dated 28/02/1984 ofadditional Chief Metroropolitan. Magistrate whereby the application of the petitioners in each of the three cases pendingagainst them for quashing of prosecution proceedings wasrejected.
( 2 ) BRIEFLY staled the allegations against the petitioners asper complaints filed against them by Mr. P. P. Suri, Income-tax. Officer, Control Circle XX, New Delhi are that the petitioner No. 1 which is a private limited company paid interestto 8 parties who had effected deposits with the company orwere its creditors While doing so. income-tax deductions weremade by the petitioner No. 1 from the amount of interest paidto them. In other words, income-tax was. deducted at source bythis petitioner on interest payments effected. Under the law thedeductions so made should have been deposited with the Centralgovernment within one week of the payments. However, thiswas not done and the deposits were effected much later Theposition in this regard has been as under :a Since there were aef!iu!ts in the case of ,-, credit-ors, one Com-plaini case was Ck\l with regard to 3 crc,l iors. second withregard to the other 3 and the third quo the remaining 2 creditors. The complaints have been under Section 276 B ol the Inconietax Act. 1961, which reads as under :if a person, without reas .)riab!. , cause or excuse, tailsto deduct or after dedlieting. tails to pay the l:i\as required by or under the provisions of si. sh-eclion 1. 9) of beetion 80e or Chapter XV!!-U. njshall be punishable :
(I) In case where the amount of tax which hehas failed to deduct or pay exceeds one handred thousand rupees, with rigorous inipris^n-
(I)MEIIL for a term which shall noi be less thansix iiioiiths but which may extend To sev^nvears ai . d with fine:
(II) in any other ease with rigorous imprisonmmentfor a term which shall not be less lthan threemonths but which may extend to thice yearsarid with fine. "petitioner Nos. 2 to 4 were impleaded as directors of the petitioner No. 1company and they are also sought to be madecriininiiilv liable.
( 3 ) THE Income Tax Officer had well commenced penaltyproceedings under Section 201 (1) and 22] of the Income Taxact for the failure of the petitioner No. 1 to deposit the saiddeductons of tax at soruce within the timeprescribed. Thatsection 201 (1) rearts as under :
"if any such person and in the case referred to in section 194 the principal otticer and the company ofwhich he is the principal officer does not deduct orafter deducting fails to pay the tax as required byor under this Act. he or it shuit, wilhout prejui-lieeto any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax :provided that no penalty shall be charged undersection 221 from such person, prinicipal oificer orcompany unless the Income-tax Officer is satisfiedthat such person or principal officer or company,as the case may be, has (without good and sufficientreasons) failed to deduct and pay the tax. "a penalty of Rs. 20,000 was then levied by the Income-taxofficer under these provisions against the petitioner no. 1. Thelatter, however, went in appeal before the Commissioner whoi) by an order dated 24-3-83 quashed that panelty. The relevantoperative part of that order was as under :
"however, the contention of the learned representativethat there had been good and sufficient reason for non-payment of the tax on account of the financialstringency appears to be correct. The appellantcompany in fact did not pay the creditors out theiraccounts were only credited with the amounts reduced by the tax that would have been deductable in respect thereof. Moreover, the deduction of taxin these cases was notional only. Further the I. T. O. had charged interest u/s 201 (IA) in respect ofthe delay of payment of tax deducted at source. The appeal against the order u/s 201 (ia) hasbeen rejected by me in a separate order upholdingthe
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