Bombay High Court
R.M. Donde, Income-Tax Officer vs Mukundrai Kuberdas Katakia And Another on 2 August, 1988
Equivalent citations: (1988)90BOMLR502, [1989]176ITR381(BOM)
JUDGMENT Daud, J.
1. These are companion appeals directed against a like number of verdicts of acquittal flowing from complaints lodged against respondent No. 1 ascribing to him the commission of an offence punishable under section 276B of the Income-tax Act, 1961 ("the Act").
2. Respondent No. 1, also referred to as the accused, is the managing partner of a firm doing business in the name and style of Universal Export and Import Agency. This firm has three sub-concerns and the profits and losses sustained by the said concerns are brought into the account of the parent firm, viz., the Universal Export and Import Agency. While scrutinising the account books of the Universal Export and Import Agency, it was noticed that accounts of certain parties (creditors) had been credited with interest, each such entry corresponding to a debit entry against the cash balance of the Universal Export and Import Agency. The firm maintained its books in accordance with the mercantile system. The aforementioned entries spanned the accounting years 1966-67 to 1972-73. Allegedly, after having paid interest which was not "interest on securities", the firm - in effect, accused - should have submitted the return prescribed by section 285 of the Act. This return requires a specification of the names and addresses of the creditors together with the details of sums paid to them. No such returns were submitted and, therefore, the complaints for six annual omissions said to amount to offences punishable under section 276B of the Act have been filed.
3. Accused pleaded not guilty. He denied that the credit/debit entries were within the ambit of section 285. It was not admitted that the entries were of interest other than "interest on securities". In any case, it could not be said that in omitting to submit section 285 returns, he had acted without reasonable cause or excuse. In good faith, he believed that these returns were required only in cases where interest had been paid in cash and not by incurring of liability, vide book-keeping according to the mercantile system.
4. the Additional Chief Metropolitan Magistrate having sustained the defence, the complainant-appellant has come up in appeal. Having regard to the submissions made at the Bar, the points for decision would be :
I. Whether the appeals are within limitation ?
II. Whether respondent No. 1 had committed six offences punishable under section 276B of the Act ?
III. What order ?
5. The verdicts assailed were pronounced on January 20, 1981. That very day certified copies of the judgment were applied for on behalf of the appellant. The copies were ready on February 2, 1981, and sent/delivered on February 5, 1981. The applications seeking leave to appeal were lodged in this court on July 22, 1981. Leave was accorded and the appeals admitted on July 28, 1981. Counsel for the accused formulates this contention, vide, limitation, thus : Section 378(5) of the Code of Criminal Procedure, 1973, which governs these appeals, prescribes a period of six months for moving an application to impugn an acquittal. The said period has to be computed from the date of acquittal. There are no exceptions or concessions to the mode of computation. Provisions of the Limitation Act, 1963, such as sections 5 and 12 are not applicable. In support of this argument, counsel relies on the Supreme Court's decision reported in Kaushalya Rani v. Gopal Singh, . The decision relied upon construed section 417(4) of the Code of Criminal Procedure, 1898, which is somewhat similar to section 378(5) of the 1973 Code. To the extent of the exclusion of section 5 of the Limitation Act, Kaushalya Rani, , is applicable. But the decision nowhere excludes the time spent in obtaining a certified copy in the computation of the period prescribed for limitation. Counsel argues that the appeals could have been preferred on the basis of uncertified copies as is done quite frequently. In cases of an urgency, appeals preferred on uncertified copies are entertained. This, however, does not mean that the filing of certified copies is dispensed with or that the six-month period mentioned in section 378(5) should disregard he time so spent. Even if section 12(2) of the Limitation Act be inapplicable in the strict sense of the word, I do not see why the principle underlying it should not be given credit for. Until a party gets the certified copy of the aggrieving decision, it would not be in a position to make a final decision to appeal or formulate the grounds in support thereof. Clauses governing limitation constitute fetters on the rights of litigants and are, therefore, to be construed strictly. If the interests of those not appealing are not to be overlooked, also not to be disregarded are the interests of those aggrieved and desirous of appealing. I hold that the time spent in obtaining a certified copy has to be excluded when computing the six-month period for preferring an application under section 378(5) of the 1973 Code. Thus reckoned, the contention that the appeals are time-barred has to be negatived.
The second issue covers three related questions arising from the words used in sections 276(b) and 283 of the Act. For our purposes, these sections read as follow :
"285. Information by persons responsible for paying interest. - The person responsible for paying any interest, not being 'Interest on securities', shall, on or before the fifteenth day of June in each year, furnish to the Income-tax Officer having jurisdiction to assess him, a return in the prescribed form and verified in the prescribed manner of the names and addresses of all person to whom during the previous financial year he has paid interest or aggregate interest exceeding such amount, not being less than four hundred rupees, as may be prescribed. In this behalf, together with the amount paid to each such person.
276. If a person fails without reasonable cause or excuse - ....
(b) to furnish in due time any of the returns or statements mentioned in section 133, section 206, section 285 or section 286; ....
he shall be punishable with fine which may extend to en rupees for every day during which the default continues."
6. The appellant's accusation is that the offence is established as (i) the system of accounting chosen by the accused being the mercantile system, accrual was as good as actual payment, (ii) the entries related to interest other than "Interest on securities", and (iii) the accused had not submitted the section 285 returns and there was no reasonable cause or excuse for the omission. The accused counters this by contending that (i) the system of accounting has no relevance to the application of section 285, for, that section applies only where there is a payment in fact, (ii) there is no reason of exclude the possibility of the entries representing interest on securities, and (iii) the existence of a bona fide belief in him that section 285 related only to actual payments.
7. To take up the second point first, the appellant relies on section 18 which specifies the different amounts chargeable to income-tax under the head "Interest on Securities". The securities detailed may be broadly categorised as gilt-edged securities or Government paper. For respondent No. 1, it was argued that the appellant had not excluded the possibility of the credit entries being interest on securities. This is an extreme stand to take, for having regard to section 18, such interest could not be paid by persons other than he issuers of the securities. A private party like the accused could not be paying interest on Government paper. When section 285 speaks of paying interest other than "Interest on securities", the aim is to make it abundantly clear that it relates to all types of interest other than "Interest on securities". To put it differently, the issuers of such securities, though liable to pay interest, are not within the ambit of section 285.
8. the first point has generated a lively debate. It is argued that section 285 takes within its purview credit entries to the account of the creditors, in relation to such assessees as follows the mercantile system of accounting. In support of this submission, reliance is placed upon sections 145 and 43 of the Act. In section 43, the word "paid" has been defined thus :
"'Paid' means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head 'Profits and gains of business or profession'."
9. Counsel for the appellant presses this definition for construing the same word occurring in section 285. But section 43 itself starts with the words indicating a different intent. The starting words are "In sections 28 to 41 and in this section, unless the context otherwise requires". Therefore, the definition given in section 43 does not appear to be a key utilisable for interpreting section 285. Section 145 places the assessing authorities under an obligation to compute he income in accordance with the method of accounting regularly employed by the assessee. At this stage, it is necessary to pinpoint he distinction between the mercantile system of accounting as opposed to the cash system of Book-keeping. The distinction has been well brought out in Keshav Mills Ltd. v. CIT in these words (at page 239) :
"The mercantile system of accounting or what is otherwise known as the double entry system is opposed to the system of book-keeping under which a record is kept of actual cash receipts and actual cash payments, entries being made only when money is actually collected or disbursed. That system brings into credit what is due, immediately it becomes legally due and before it is actually received and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed. The profits or gains of the business which are thus credited are not realised but having been earned are treated as received though in fact there is nothing more than an accrual or arising of the profits at that stage. They are books profits. Receipt being not the sole test of chargeability and profits and gains that have accrued or arisen or are deemed to have accrued or arisen, being also liable to be charged for income-tax, the assessability of these profits, which are thus credited in the books of account, arises not because they are received but because they have accrued or arisen."
10. Counsel for the appellant pleads for a liberal interpretation of the word "paid" appearing in section 285, submitting that this is in consonance with decided case which distinguish between a machinery section and a charging section. He argues that section 285 is a machinery section and, therefore, deserves to be literally interpreted. Therefore, when it uses the word "paid" what is meant is payment received according to he mercantile system of book-keeping. As against this, counsel for the accused submits that failure to comply with section 285 generates an offence and, therefore, he same has to be strictly construed. A number of decided cases and passages from various treatises have been brought to my notice. I see no reason to burden this judgment by a reference to these. To my mind, section 285 is clear and, therefore, the principle of interpretation applicable will be the primary rule, also known as the rule of literal construction. Simply stated, the rule is that where the language is plain and admits of but one meaning, he task of interpretation can hardly be said to arise. In Shop and Store Developments Ltd. v. IRC [1967] 1 AC 472 (HL), Lord Morris of Borth-Y-Gest defined the rule and its rationale thus (at page 493) :
"The decision in this case calls for a full and fair application of particular statutory language to particular facts as found. The desirability or the undesirability of one conclusion as compared with another cannot furnish a guide in reaching a decision."
11. That section 285 excludes notional payments is made more than clear if one looks at another section in the Act, viz., section 194A. That deals with deduction of income-tax in relation to interest other than "Interest or securities". Clause (1) thereof say :
"Any person not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income chargeable under the head 'Interest on securities', shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force."
12. The words "credit of such income to the account of the payee" are used in contradistinction to payment in cash, by a cheque, draft or any other mode. Significantly, the first sent of words do not appear in section 285. That section speaks of interest having been paid when I says "he has paid interest". The same intent is made crystal clear by the use of the words "amount paid to each such person" at the end of section 285. Notional payments are thus excluded from the ambit of section 285. Paid according to the dictionary (Chambers 20th Century Dictionary, New Edition 1983, reprint of 1985, page 909) means "paid in full; satisfied". The notional debit and credit as per the mercantile system of accounting would thus not be payment in terms of section 285. Agreeing with the Magistrate on this point, I hold that inasmuch as the appellant has failed to prove actual payment of the interest represented by the credit entries, the accused cannot be said to be guilty of the offence punishable under section 276B.
13. Last, there remains the submission that the failure of respondent No. 1 was not without reasonable cause or excuse. In other words, respondent No. 1 bona fide believed that as he had not paid interest in cash, he was not under an obligation to submit the returns under section 285. The words "reasonable cause or excuse" appearing in section 276 would not take in its sweep an error or misconception of law. The cause or excuse contemplated by the section would be a cause or excuse founded on facts. I need not dilate further on this point, for, the crucial point has gone against the appellant.
14. The result of the foregoing discussion is that the appeals fail. Acquittal of respondent No. 1 in the six cases is hereby confirmed and the appeals dismissed.