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