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Is it fair to invoke prosecution proceedings so rampantly?

Subject : Income Tax Law
Month-Year : Sep 2012
Author/s : C.N.Vaze
Chartered Accountant
Topic : Is it fair to invoke prosecution proceedings so rampantly?
Article Details :


All of us are aware that under the tax laws, any default or contravention of the provisions attract various types of consequences such as interest, penalty, fee (new section 234E), disallowance and even prosecution. Prosecution implies a criminal offence and may invite punishment of rigorous imprisonment. It is expected that while administering any law, the authorities should use discretion and a sense of proportion. The penal consequence should not be disproportional to the nature of default or offence. This is an elementary principle of jurisprudence. However, of late, there are notices issued rampantly invoking prosecution in terms of section 276B of the Income-tax Act, 1961 (‘the Act’) even for delays in payment of tax deducted at source. This article proposes to bring out the unfair part of administering this provision.

Text of section 276 B

It is worthwhile examining the wording of the relevant provision closely. The text is as follows:

276B. Failure to pay tax to the credit of Central Government under Chapter XIID or XVIB

“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 provisions of Chapter XVII B; or

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

(i) s/s (2) of section 115 – O; or

(ii) the second proviso to section 194B,

he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.”


Firstly, the very heading suggests that there should be a failure to pay the tax. Secondly, the placement of clause (a) in the section, makes it clear that it pertains to the tax deducted as per the provisions of Chapter XVII B – and not the ‘payment as per provisions of Chapter XVII B. Thus, failure to pay is on a different footing. Put differently, payment need not be within the time specified in that Chapter.

In short, the section contemplates total failure and not mere delay. As against this, even if the tax is already paid with interest, the notices for prosecution are being issued. The notices also mention the fact of prior payment! This then, is clearly against the wording and spirit of the provision.

It is pertinent to note that CBDT has issued instruction no. 1335 of CBDT, dated 28-5-1980 to the effect that prosecution should not normally be proposed when the amounts involved are not substantial and the amount in default has also been deposited in the meantime to the credit of the Government.

The Hon’ble Punjab and Haryana High Court, taking cognizance of this instruction, has already struck down the prosecution in the case of Bee Gee Motors & Tractors v ITO (1996) 218 ITR 155.

It is necessary to compare the text of section 276B with provisions of section 40(a)(ia). Section 40(a)(ia) contemplates a time limit for the payment of tax as well; and not merely the deduction as per Chapter XVII B. For mere delay, there are already adequate provisions viz. section 40(a) (ia) disallowance; 201(1A) – interest, 271 C and 221 – penalty. Thus, section 276B clearly applies to total failure and not a mere delay.

Incidentally, even under Service Tax, the Central Board of Excise & Customs has issued a circular no. 14/2011 dated 12.05.2011 stating that, “provisions relating to prosecution are to be exercised with due diligence, caution and responsibility after carefully weighing all the facts on record. Prosecution should not be launched merely on matters of technicalities. Evidence regarding the specified offence should be beyond reasonable doubt, to obtain conviction. The sanctioning authority should record detailed reasons for its decision to sanction or not to sanction prosecution, on file.” In its introductory paragraphs, it also mentions the purpose of prosecution stating that, “While minor technical omissions or commissions have been made punishable with simple penal measures, prosecution is meant to contain and tackle certain specified serious violations” It is all the more unfair that in certain jurisdiction, the limit fixed for prosecution is as low as Rs. 25,000/-.


The harassment by Revenue Authorities has become a rule of the day. Notices contrary to the express provisions of law, spirit behind the law and in disregard of the CBDT instructions are clearly unfair and objectionable. A suitable clarification from CBDT will help avoiding redundant paper work and botheration.

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