Punjab-Haryana High Court
Punjab Business And Supply Co. Pvt. Ltd. ... vs Income-Tax Officer And Anr. on 13 November, 1990
Equivalent citations: [1991]188ITR550(P&H)
JUDGMENT J.S. Sekhon, J.
1. Criminal Miscellaneous Nos. 6954-M, 6956-M, 6958-M and 6960-M, all of the year 1984, shall be disposed of by this order as these involve the same legal and factual controversy. In all these petitions filed under Section 482 of the Code of Criminal Procedure, 1973, the accused-petitioners seek the quashment of the proceedings instituted by the income-tax authorities for offences under Sections 276B and 278B of the Income-tax Act, 1961, pertaining to the returns filed for 1977-78, 1978-79, 1979-80 and 1980-81, by deliberately showing the payment of interest to different payees in the interest payable account instead of crediting it to the respective payee's accounts for avoiding the lapse of non-deduction of tax on the interest payable.
2. A brief resume of facts relevant for the disposal of the petition is that the concerned Income-tax Officer, Yamunanagar, filed a complaint against the petitioner which is a private limited company, besides Shri S.L. Dosaj, former managing director, K.R. Malhotra, former general manager, R.P. Sikka, S.K. Mahajan, directors, and K.L. Sehgal, former secretary of the company, alleging that, for the relevant assessment years, the interest pay-able to the depositors on specific amounts was shown by the company under the head of account "Interest payable", although the company being aware of the depositors and particulars of the payees should have credited the amount to the accounts of the payees. Thus, it is maintained that the company and its officials have violated the provisions of Section 194A of the Income-tax Act read with Rule 30 framed under the said Act according to which 10 per cent. of the amount paid had to be deposited with the Revenue as advance income-tax and, after deducting this amount of income-tax, the interest ought to be, credited in favour of the payee. Thus it was maintained that the petitioners have committed offences punishable under Sections 276B and 278B of the Income-tax Act.
3. In all these petitions, the petitioners seek the quashment of the respective complaints and the proceedings resulting therefrom, inter alia, on the ground that, before the amendment of Section 194A, vide Finance Act, 1987, which came into force on June 1, 1987, there was no provision like the present Explanation to Sub-section (1) of this section making the crediting of any interest to any account, whether called "interest" payable account" or "suspense account", would amount to crediting the interest payable to the depositor and thus the petitioners have not committed any offence. Mr. H.L. Sibal, learned senior advocate, further elaborated this point contending that this Explanation has created a penal offence by filling up the lacuna in the existing provisions of Section 194A of the Income-tax Act and that its operation would be prospective and not retrospective as the provisions of law at the time of commission of the offence had to be seen in order to ascertain whether the petitioners had committed any offence. He also relied upon the explanatory notes on the provisions relating to direct taxes while introducing the Finance Act, 1987 (see [1987] 168 ITR (St) 87). Mr. Sibal also relied upon the decisions of the apex court in CIT v. T. V. Sundaram Iyengar and Sons P. Ltd. [1975] 101 ITR 764 ; AIR 1976 SC 255 and Goodyear India Ltd. v. State of Haryana [1991] 188 ITR 402 ; AIR 1990 SC 781, in support of the proposition that the penal provisions of the statute should be strictly interpreted. Reliance has also been placed on the decision of the Supreme Court in G.P. Nayyar v. State (Delhi Admn.), AIR 1979 SC 602 ; [1979] Cr. LJ 587, in support of the proposition that a penal offence cannot be created with retrospective effect.
4. Mr. A.K. Mittal, learned counsel for the respondent, on the other hand, stated that the Explanation inserted by the Finance Act of 1987 to Sub-section (1) of Section 194A simply explains the existing provisions of law and had not created any new offence and that, under the mercantile accounting system, the accused-petitioner was bound to show the interest payable to the depositors for every assessment year and thus was bound to credit interest payable to the payee's account for every assessment year and its conduct in showing the interest in interest payable account instead of crediting it into the payee's account is a deliberate and well-thought design to thwart the provisions of Section 194A of the Act. Thus, he maintained that the company and its managing officers are ex facie liable for the above-referred to offence.
5. It is not disputed that fiscal laws have to be strictly construed. The apex court in T. V. Sundaram Iyengar's case [1975] 101 ITR 764, while interpreting the provisions of Section 23A, Explanation 2, of the Indian Income-tax Act, 1922, had observed that these provisions being penal in nature should be strictly construed and the onus lies on the Revenue to prove that conditions laid therein are satisfied and lead only to the one and only reasonable interpretation that the assessee is liable to pay additional super tax. The above-referred view was again reiterated by the apex court in Goodyear India Ltd.'s case [1991] 188 ITR 402 while interpreting the provisions of Section 9(1)(b) of the Haryana General Sales Tax Act, 1973. In para No. 21 of the judgment, it was observed that the apex court had said, and said on numerous occasions, that fiscal laws must be strictly construed, words must say what they mean. It was further held that nothing should be presumed or implied and the true test for interpreting fiscal legislation was always the language used therein by the Legislature.
6. In the case in hand, the provisions of the unamended Section 194A of the Income-tax Act would be applicable in view of the protection enshrined in Article 20, Clause (i), of the Constitution of India, which reads as under :
"(1) No person shall be convicted of any offence except for violation of the law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence."
7. Thus there is absolutely no doubt that Article 20, Clause (1), jealously safeguards the liberty of an offender by providing that no person shall be convicted for an offence except for violation of the law in force at the time of the commission of the act charged as an offence. The alleged violation in all the present four petitions pertains to the assessment years 1977-78, 1978-79, 1979-80 and 1980-81, that is, much prior to the insertion of the Explanation to Section 194A(1) in the year 1987. Consequently, the provisions of this Explanation would not be attracted to make the accused petitioners liable for offences under Sections 276B and 278B for not deducting income-tax from the interest payable to different depositors at the time of crediting the same in the interest payable account.
8. The question then arises as to whether it can be read in the un-amended provisions of Section 194A of the Income-tax Act that the crediting of the interest in the interest payable account would be deemed to be payment to the different depositors and the company would be liable for non-deduction of 10 per cent. tax on this amount. This question has to be answered in the negative in view of the provisions of Section 194A(1) of the Income-tax Act, 1961, which reads as under :
"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 by way of 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 :
Provided that no such deduction shall be made in a case where the person (not being a company or a registered firm) entitled to receive such income furnishes to the person responsible for making the payment-
(a) an affidavit, or
(b) a statement in writing, declaring that his estimated total income assessable for the assessment year next following the financial year in which the income is credited or paid will be less than the minimum liable to income-tax."
9. A bare glance through the above-referred provisions leaves no doubt that failure to deduct income-tax from interest payable to different depositors is visited with penal consequences only if such deduction is not made at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or through cheque or draft or by any other mode. The term "by any other mode" pertains to the actual payment of interest, to depositors and thus cannot be said to cover showing such interest in a general interest payable account. Thus, by no stretch of imagination, can it be said that showing of the bove interest to different payees in the general interest payable accobnt by the company would be deemed payment of interest to different depositors. As a matter of fact, this interpretation cannot be disputed because while introducing the Finance Bill, 1987, the Explanatory Note clearly provides that the Legislature had filled up a lacuna in the existing provisions of Section 194.
10. Paras Nos. 38.1 and 38.2 of the Explanatory Note relating to modification of the provisions relating to tax deduction at source reads as under (see [1987] 168 ITR (St.) 87,114) :
"38.1 With a view to rationalise the provisions of Sections 194, 194A and 194D, the limits up to which no tax is to be deducted have been raised as under :
Sl.
No. Type of payment Present limit up to which no tax is deductible Amended limit (Rs.) (Rs.)
1.
Dividend (section 194) 1,000 2,500
2. Interest other than interest on securities (section 194A) 1,000 2,500
3. Insurance commission (section 194D) Nil 5,000 38.2 Under the existing provisions, deduction of tax at source from interest is to be made at the time of payment or credit to the account of the payee. With a view to prevent postponement of liability relating to such deduction of tax at source, Section 194A has been amended to provide that tax will be deducted at source, on accrual of interest at the end of the accounting year or at the time of credit to the account of a payee or at the time of payment, whichever is earlier. Similarly, Section 195 has been amended to ensure that deduction of tax at source from payments to nonresidents will have to be made at the time of payment or at the time of giving credit to the account of the non-resident, whichever is earlier. Any sum credited to 'suspense account' or 'interest payable account' shall be deemed to be credited for the purpose of tax deduction at source,"
11. A bare glance through the above-referred notes leaves no doubt that Section 194A has been amended to provide that the tax will be deducted at source on accrual of interest at the end of the accounting year or at the time of crediting it to the account of the payee or at the time of payment, whichever is earlier, and it further states that it was done with a view to prevent postponement of liability relating to such deduction of tax at source. Thus, the explanatory note itself reveals that there was a lacuna or loophole in the unamended provisions of Section 194A which enabled the concerned person to postpone the liability relating to such deduction of tax at source and thus dwindling the tax collection.
12. For the reasons stated above, there is absolutely no doubt that the Explanation to Sub-section (1) of Section 194A has created a fresh penal liability and it cannot be said to be a simple Explanation of the existing provisions of this section. If that is so, then this Explanation cannot have retrospective operation.
13. Consequently, it cannot be said that the petitioners had violated the provisions of Section 194A by showing the interest accruing to different depositors in their interest payable account instead of crediting it to the payees account. In view of this legal position, the pendency of the proceedings resulting from the afore-referred complaints would certainly amount to abuse of the process of the criminal court and call for quashment It is ordered accordingly by accepting these petitions.