Case Law Details
SKS MC Joint Venture Vs State of Jharkhand (Jharkhand High Court)
Jharkhand High Court has quashed criminal proceedings initiated under the Income Tax Act, 1961, against SKS MC Joint Venture and its partner for the delayed deposit of Tax Deducted at Source (TDS). The court’s decision, delivered under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023, emphasized that once the principal TDS amount along with applicable interest has been paid, continuing prosecution for a compoundable offence amounts to an abuse of the legal process, especially when the complaint is filed significantly after the payment.
The case revolved around a TDS amount of Rs. 21,72,670/- that the petitioner No. 1, SKS MC Joint Venture (a partnership firm), through its partner, petitioner No. 2, failed to deposit to the Central Government’s credit by the due date of April 30, 2014. While the deposit was indeed delayed, the petitioners subsequently paid the full deducted TDS amount along with interest on September 17, 2014. Despite this payment, an Economic Offence Case (No. 14 of 2018) was instituted on April 13, 2018, leading to the Special Judge, Economic Offences, Ranchi, taking cognizance of offences punishable under Section 276B (failure to pay tax to the credit of Central Government) read with Section 278B (offences by companies) of the Income Tax Act, 1961, on August 10, 2022.
The petitioners’ counsel argued that the prosecution was unwarranted and an act of harassment, particularly since the offence is compoundable under Section 279(2) of the Income Tax Act, 1961. They highlighted that the full amount with interest had been deposited well before the institution of criminal proceedings. In support of their argument, they relied on a co-ordinate Bench decision of the Jharkhand High Court in M/s Dev Multicom Private Ltd. vs. The State of Jharkhand & Another (Cr.M.P. No.2941 of 2018, dated February 28, 2022). This judgment, in turn, had relied upon the Patna High Court’s ruling in Sonali Autos (P) Ltd. vs. State of Bihar (Criminal Miscellaneous No.16498 of 2014, dated August 2, 2017). Both these judicial precedents had observed that prosecution is not in accordance with law when the deducted TDS amount, along with requisite interest, has been received by the department prior to the institution of the prosecution. The Dev Multicom case, like the present one, involved quashing proceedings under Sections 276B and 278B when TDS and interest were paid before the criminal proceedings commenced.
The Additional Public Prosecutor for the State and counsel for the Income Tax Department opposed the petition. However, the Department’s counsel conceded that the TDS amount of Rs. 21,72,670/- with interest was indeed deposited on September 17, 2014, approximately less than five months after the due date. They further admitted that the complaint was instituted on April 13, 2018, more than three years after the deposit. The Department’s primary contention for not compounding the offence was the petitioners’ failure to submit a formal application for composition as per the prescribed format under the Central Board of Direct Taxes (CBDT) guidelines.
The High Court, after reviewing the submissions and records, emphasized the power vested in senior Income Tax officers (Principal Chief Commissioner, Chief Commissioner, etc.) under Section 279(2) of the Income Tax Act, 1961, to compound any offence either before or after the institution of proceedings. The court interpreted the legislative intent behind this provision, stating that its basic purpose is to deter TDS default. However, it also clearly implied that if the defaulting party deposits the amount with stipulated interest before the complaint is filed, the offence should ideally be compounded.
The court further elucidated that Section 279(2) allows for suo motu exercise of the compounding power by the senior authorities. It noted that while CBDT guidelines prescribe an application format, they “nowhere debars” these authorities from suo motu compounding, particularly when the amount with interest has been deposited prior to the complaint. The court found it significant that the complaint was not filed immediately after the deposit but after a substantial delay of over three years.
In light of these facts and the preceding judicial pronouncements, the Jharkhand High Court concluded that the continuation of criminal proceedings against the petitioners would amount to an “abuse of process of law.” Consequently, the court quashed and set aside the cognizance order dated August 10, 2022, passed by the learned Special Judge, Economic Offences, Ranchi, in Economic Offence Case No.14 of 2018, allowing the Criminal Miscellaneous Petition.
FULL TEXT OF THE JUDGMENT/ORDER OF JHARKHAND HIGH COURT
Heard the parties.
2. This Criminal Miscellaneous Petition has been filed invoking the jurisdiction of this Court under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 with a prayer to quash and set aside the order dated 10.08.2022 passed by the learned Special Judge, Economic Offences, Ranchi in Economic Offence Case No.14 of 2018 whereby and where under the learned Special Judge has taken cognizance of the offence punishable under Section 276B read with Section 278B of the Income Tax Act, 1961 against the petitioners.
3. The brief facts of the case is that the petitioner No.2 being the partner and the person responsible for the acts of the petitioner No.1- partnership firm, has failed to pay to the credit of the Central Government, the T.D.S. amount deducted by him, to the tune of Rs. 21,72,670/- by the end of the month; after deducting such tax at source, i.e. by 30.04.2014.
4. Learned counsel for the petitioners submits that the undisputed fact remains that the petitioners have deposited the deducted T.D.S. from the payment made with interest thereon till the date of such deposit on 09.2014 but after receipt of such payment with interest, instead of compounding the offences, which is compoundable under Section 279 (2) of the Income Tax Act, 1961, just to harass the petitioners knowing pretty well the facts of this case, this prosecution has been instituted. Learned counsel for the petitioners relies upon the judgment passed by a co-ordinate Bench of this Court in the case of M/s Dev Multicom Private Ltd. vs. The State of Jharkhand & Another in Cr.M.P. No.2941 of 2018 and other allied cases dated 28.02.2022; wherein the co-ordinate Bench of this Court relied upon the judgment of the Hon’ble Patna High Court in the case of Sonali Autos (P) Ltd. vs. State of Bihar passed in Criminal Miscellaneous No.16498 of 2014 dated 02.08.2017 and inter alia considering the fact that the prosecution was instituted after receipt of the deducted T.D.S. amount with requisite interest; it was observed that such a prosecution is not in accordance with law. Hence, it is submitted that the prayer as prayed for by the petitioners, in the instant Cr.M.P., be allowed.
5. Learned Addl.P.P. appearing for the State and the learned counsel for the opposite party No.2 oppose the prayer of the petitioners made in the instant Cr.M.P. but learned counsel for the opposite party No.2 fairly submits that the petitioners have deposited the said deducted T.D.S. amount of Rs. 21,72,670/- with stipulated interest thereon, on 17.09.2014 after a delay of less than five months from the due date of the deposit. It is also fairly submitted by the learned counsel for the opposite party No.2 that after deposit of the said amount, this case being Economic Offence Case No. 14 of 2018 has been instituted on 13.04.2018. Though, it is fairly submitted by the learned counsel for the opposite party No.2 that the Principal Chief Commissioner or Chief Commissioner or Principal Director General or a Director General of Income Tax Act has been vested with the power of compounding any offence either before or after the institution of the proceedings but since a format is prescribed in Form No.1 under the Central Board of Direct Taxes (C.B.D.T) guidelines; which prescribes a format for the application to be made by the applicant desirous of compounding of any offence, hence, the petitioners having not made any application for composition of the offence, therefore, the complaint has been instituted. Hence, it is submitted that this Cr.M.P., being without any merit, be dismissed.
6. Having heard the rival submissions made at the Bar and after carefully going through the materials available in the record, it is pertinent to mention here that Section 279 (2) of the Income Tax Act, 1961 in no uncertain manner, vests the power upon the Principal Chief Commissioner or Chief Commissioner or a Principal Director General or a Director General of Income Tax Act for compounding any offence either before or after institution of the proceedings. A conjoint reading of Section 276 B and 279 (2) of the Income Tax Act, 1961, makes it crystal clear that the basic purpose of introduction of such provision of law is to create a deterrence against failure in deposit of the T.D.S. within the stipulated period. But it is obvious that, the very purpose of vesting the power of compounding the offence upon the senior officers of the Income Tax Department, as already indicated above in this judgment, is that in case the defaulting person deposits the amount before institution of the complaint, the offence is required to be compounded; instead of instituting a complaint and thereby harassing the person who has deposited the amount with stipulated interest before filing of the complaint and wasting the precious time of the courts as well as the officers concerned of the Income Tax Department.
8. The verbatim of Section 279 (2) of the Income Tax Act, 1961 makes it crystal clear that the Principal Chief Commissioner or Chief Commissioner or Principal Director General or a Director General of Income Tax Act may also suo motu exercise their power of compounding the offence. The instructions to the subordinate authorities in terms of Section 119 of the Income Tax Act, 1961 by the Central Board of Direct Tax, is obviously for the purpose of proper administration of the provisions of the Income Tax Act. A form has been prescribed for an application to be made by any person desiring for compounding of any offence but even the instructions of the Central Board of Direct Taxes, nowhere debars the Principal Chief Commissioner or Chief Commissioner or Principal Director General or a Director General of Income Tax Act to suo motu exercise the power of composition of the offences; more so when the amount has been deposited with stipulated interest before filing of the complaint. Under such circumstances, this Court is of the considered view that since the complainant did not file the complaint before deposit of the T.D.S. amount with interest by the petitioners and also not even immediately after that; may be with ignorance that such amount has been deposited; after a period of more than three years of the deposit of the said defaulted amount with stipulated interest thereon, the complaint case was filed. In such facts of the case, this Court is of the considered view that the continuation of this criminal proceeding against the petitioners will amount to abuse of process of law. Therefore, this is a fit case where the prayer of the petitioner, as prayed for by the petitioners, be allowed.
9. Accordingly, the order dated 10.08.2022 passed by the learned Special Judge, Economic Offences, Ranchi in Economic Offence Case No.14 of 2018 is quashed and set aside against the petitioner.
10. Accordingly, this Criminal Miscellaneous Petition stands allowed.
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