The Income Tax Act, 1961, harbors many complexities, but the most debated lately has been Section 276B. This section, concerning the delay in the payment of Tax Deducted at Source (TDS), has seen the legal fraternity take sides, especially after the Dev Multicom Pvt Ltd case.
Section 276B of the Income Tax Act 1961: Implications of TDS Delay
Tax laws in India, especially those involving Tax Deducted at Source (TDS), are comprehensive and stringent. Section 276B of the Income Tax Act 1961 stands as a testament to the emphasis laid on timely payments and the gravity of the repercussions in case of delays.
Key Provisions of Section 276B:
-
- Liability for Prosecution: If any individual or entity, after deducting TDS, fails to deposit it into the Central Government’s account within the stipulated period, they become liable for prosecution. This liability exists regardless of other penalties or responsibilities that the person might have incurred.
- Distinct Nature of Penalty and Prosecution: The Act makes a clear demarcation between penalty proceedings and prosecutions. Their existence is independent, meaning an entity can face both simultaneously.
- Severity of the Punishment: A defaulting individual or entity can face rigorous imprisonment ranging from a minimum of three months to a maximum of seven years. Moreover, this comes with an added financial penalty.
Ease of Detection: The Income Tax Department can effortlessly identify delays in TDS payment. The TDS returns themselves serve as self-explanatory evidence of any default. Consequently, the department doesn’t require any additional evidence or references before issuing a notice under section 276B.
Proportionality Concerns: While the section emphasizes the importance of timely TDS deposits, its punitive measures, especially when coupled with the interest collection and penalty imposition under Section 221, bring forth questions. Are these punishments proportionate? Does the Act’s stringent approach deter voluntary compliance or promote it?
Analysis of the Supreme Court’s Decision in Dev Multicom Pvt Ltd & ors Vs. State of Jharkhan Case
Case Background: The Supreme Court recently reviewed an appeal against a Jharkhand High Court’s ruling involving Dev Multicom Pvt Ltd & others, and the State of Jharkhan. The core of the case revolved around the Income-tax Act, 1961’s provisions, particularly Section 276B in conjunction with sections 278AA and 278B.
Nature of the Offence and Prosecution: The Income-tax Act’s Section 276B, when read alongside sections 278AA and 278B, addresses the legal consequences of not paying tax on the distributed profits of domestic companies or when tax deducted at source is not deposited. The assesse-firm and its primary officer faced prosecution for failing to deposit the Tax Deducted at Source (TDS) amount for the fiscal year 2016-17 into the Central Government’s account. Consequently, the prosecution was initiated under section 276B, paired with section 278B.
High Court’s Stance: The Jharkhand High Court, after examining the evidence and circumstances, ruled that the TDS amounts in these cases had already been deposited with the added interest before the commencement of criminal proceedings. Furthermore, barring one or two exceptions, the deducted TDS amount in these cases was no more than Rs. 50,000. Given these findings, the High Court determined that the ongoing criminal proceedings were inappropriate and should be nullified.
Supreme Court’s Judgment: The central question presented before the Supreme Court was whether the Special Leave Petition (SLP) against the Jharkhand High Court’s decision should be dismissed. After thorough review and deliberation, the apex court concurred with the High Court’s decision, dismissing the SLP and ruling in favour of the assessee.
Extract from the Supreme Court Judgment: Section 276B, read with sections 278AA and 278B, of the Income-tax Act, 1961 – Offence and prosecution – Failure to pay tax on distributed profits of domestic companies/deducted at source (Illustrations) – Complaint was filed against assessee-firm and its principal officer for failure to deposit TDS amount for financial year 2016-17 to account of Central Government – Prosecution was launched under section 276B read with section 278B – High Court by impugned order held that since TDS amount in all these cases were deposited with interest prior to initiation of criminal proceedings and apart from one or two cases deducted amount was not more than Rs. 50,000, criminal proceedings were liable to be quashed – Whether SLP filed against impugned order of High Court was to be dismissed – Held, yes [Para 3] [In favour of assessee]
Analysis of Jharkhand High Court’s Decision in the case of Dev Multicon Pvt. Ltd. & ors Vs. State of Jharkhand
Background: The assessee approached the Jharkhand High Court with a petition to quash the criminal complaint arising due to delays in the deposit of TDS for the fiscal year 2016-17.
Deposition of TDS Amount with Interest: Paragraph 17 of the decision acknowledges that the TDS amount for all cases under consideration was deposited with interest. The Income-tax Department’s annexed counter affidavit chart confirms the dates of deduction and deposit, affirming the delay in TDS deposit. Notably, barring one or two exceptions, the deducted TDS amounts were not more than Rs. 50,000.
Relevance of CBDT Instructions: The sanctioning authority did not consider the CBDT’s instruction (No. 255/339/79-IT (Inv.) dated 28/05/1980) while sanctioning the prosecution under section 279(1) of the Act. This CBDT instruction makes it clear that prosecution under section 276B of the Act shouldn’t typically be proposed if the TDS amount or the period of default isn’t significant and the default amount has subsequently been deposited to the government. Such CBDT guidelines have been regarded as pivotal in prior cases, as seen in the case of Sonali Autos (P.) Ltd.
Launch of Prosecution: The prosecution against the petitioners was initiated only after the deducted amount with interest had been received, which was not in line with the law’s provisions. Ideally, if the petitioners hadn’t deposited the TDS amount within the specified timeline (by the 7th day of the subsequent month), the prosecution should have been launched promptly, which wasn’t done in these cases.
Section 278(AA) of the Act: The section states that no person can be punished under the provisions of section 276(B) if they can provide a valid reason for the failure in question.
Conclusion by the Court: The Jharkhand High Court observed that since the TDS was deposited with interest, there was no justification to continue with the criminal proceedings, especially after the amounts were received. The court ruled that such prosecution, given the circumstances, equates to an abuse of court processes, emphasizing the principle that legal actions should be proportionate to the alleged default.
Relevant Extract from Judgment: The following is relevant extract from the decision of High Court in case of Dev Multicon Pvt. Ltd. & ors Vs. Statement of Jharkhand (2023) 454 ITR 48 (Jharkhand) dated 28/02/2022:
17. It is an admitted fact that the TDS amount in all these cases were deposited with interest and the chart with respect to the same is also annexed with the counter affidavit of the Income-tax Department, wherein the date of deduction and date of depositing the said amount has been mentioned. However, some delay occurred in depositing the TDS. Apart from one or two cases, the deducted amount are not more than 50,000/-. While passing the sanction under section 279(1) of the Act, the sanctioning authority has not considered the CBDT instructions, bearing F. No. 255/339/79-IT (Inv.) dated 28-5-1980, issued in this regard by the CBDT. The CBDT guidelines was considered by the Patna High Court in the case of Sonali Autos (P.) Ltd.(supra) and after considering this guidelines, the Court has interfered with the matter and quashed the entire criminal proceedings. In CBDT instructions, it is mentioned that prosecution under section 276(B) of the Act shall not normally be proposed when the amount involved and/or the period of default is not substantial and the amount in default has also been deposited in the meantime to the credit of Government. No such consideration will, of course, apply to levy of interest under section 201(1A) of the Act. This is quoted in the case of Sonali Autos (P.) Ltd. (supra). Moreover after receiving the deducted amount with interest, the prosecution has been launched against the petitioners, which is not in accordance with law. If the petitioners failed to deposit the amount in question within the stipulated time, i.e. by the 7th day of the subsequent month, it was required to launch the prosecution immediately, which has not been done in the cases in hand. Moreover section 278(AA) of the Act clearly states that no person for any failure referred to under section 276(B) of the Act shall be punished under the said provisions, if he proves that there was reasonable cause for such failure. The judgment relied by Ms Amrita Sinha, the CBDT guidelines were not considered. On this ground these cases are distinguishable in view of the facts and circumstances of the cases relied upon by Ms. Amrita Sinha.
18. The amount has already been deposited with interest and there is no reason why the criminal proceeding shall proceed and the criminal proceeding was launched after receiving the said amount with interest, had it been a case that the case was immediately instituted and thereafter the TDS amount has been deposited with interest, the matter would have been different. As such the continuation of the proceedings will amount to an abuse of the process of the Court.
19. Accordingly, the entire criminal proceedings and the cognizance orders in their respective cases, passed by the learned Special Economic Offices, Dhanbad, in the respective C.O. Cases, whereby cognizance has been taken against the petitioners for the offences under sections 276(B) and 278(B) of the Income-tax Act, pending in the Court of learned Special Judge, Economic Offences, Dhanbad, are hereby, quashed.
20. This criminal miscellaneous petition is allowed and disposed of.”
-
-
- The facts of aforesaid case are that the Assessee has filed petition to quash the criminal complaint. The Jarkhand High Court has allowed the petition with the following key notes:
- Instruction NO. 255/339/79-IT (Inv.) dated 28/05/1980 issued by the CBDT that prosecution under section 276B of the Act shall not normally be proposed when the amount of tax deducted at sources involved or the period of default is not substantial and the amount in default has also been deposited to the credit of Central Government. Excluding one or two cases, the TDS amount was less than Rs. 50,0000/-.
- The TDS was deposited with interest and there was no reason to proceed with criminal proceedings after receiving the amount with interest though the delay had occurred in depositing the amount. The continuation of criminal proceedings nothing but the abuse of powers.
-
Conclusion: The recent Supreme Court ruling in Dev Multicom Pvt Ltd’s case (supra) has highlighted the need for a comprehensive review of the relevant provisions. The recent rulling is prominent and emphasis on balance between compliance and stringency, which is key to fostering a fair and effective tax system that encourages voluntary compliance. On the basis of aforesaid ruling, one can very well argue that after deposit of TDS though with interest for delay in deposit, prosecution under section 276B of the Act is uncalled for.
Author Bio
Hello. Very good morning. I am legal consultant of UCN Company. We are also going through the same cases. Can you please share the supreme court judgement or give me the date of supreme judgement or case no. of supreme court case in Dev Multicom and State of Jharkhand TDS case. Please.