IMPORTANT POINT
Section 276B of the Income Tax Act does not apply when tax was never deducted at source, and prosecution is unnecessary if tax liability is settled.

ORDER :

1. The petitioners are accused Nos. 1 to 4 in CC No. 637/2014 on the file of Additional Chief Judicial Magistrate Court (Economic Offences) Ernakulam. It is a complaint filed against the petitioners by the Income Tax Officer (TDS), alleging offence under Section 276B of the Income Tax Act.

2. The allegation in the complaint in brief is that, when an inspection was conducted on 03.02.2012 in the premises of the accused, it was found that the accused was making various payments during 2010-11 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/-. Hence, it is alleged that the accused committed the offence. According to the petitioners, even if the entire allegations are accepted, no offence is made out.

3. Heard the learned counsel appearing for the petitioners. Eventhough, this case was posted for hearing on two occasions, there was no representation for the 1st and 2nd respondents. Therefore, this Court heard the learned Public Prosecutor.

4. The offence alleged in this case is under Section 276B of the Income Tax Act. It is submitted by the petitioners that, during the financial year 2010-11, which at the beginning of the operations of the petitioners Company, TDS were not deducted from the payment and remuneration effected during the 1st Cinema namely ‘Urumi’ produced by the Company. According to the petitioners, this happened due to ignorance. When it 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 on 14.03.2012, 28.03.2012 and 29.03.2012, as evident by Annexure-A3. Hence, it is alleged that there is no necessity at all to initiate prosecution under Section 276B of the Income Tax Act. It is also contented that, Section 276B is intended for non-payment of already deducted amount of TDS alone. I think, there is force in the above argument. Section 276B of the Income Tax Act is extracted hereunder:

“S.276(B) - If a person fails to pay to the credit of the Central Government:

(a) the tax deducted at source by him as required by or under the provision of Chapter XVII (B).

(b) the tax payable by him as required by or under:

(i) sub-sec (2) of Section 115 - O.

(ii) the second proviso to Section 194 B.

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.”

5. As per the above Section, 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 or under sub-section (2) of Section 115 - O or the second proviso to Section 194B, shall be punishable with imprisonment not less than three months but which may extend to 7 years and with fine.

6. In this case, the allegation is that, the petitioners never deducted tax at source. If that be the case, I think, there is force in the argument of the petitioners that Section 276B of the Income Tax Act is not attracted. Moreover, 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.

7. Therefore, this Criminal Miscellaneous Case is allowed. All further proceedings against the petitioners in CC No. 637/2014 on the file of Additional Chief Judicial Magistrate Court (Economic Offences) Ernakulam are quashed.