Rayala Corporation Private Limited and Another vs Income Tax Officer

Natarajan, J.—This petition u/s 482 of the Code of Criminal Procedure has been filed to quash the complaint in Calander Case No. 2562 of

1974 on the file of the Chief Metropolitan Magistrate, Madras.

The complaint u/s 276-B of the income tax Act, 1961 (hereinafter referred to as the Act) has been filed against the Petitioners in the following

circumstances. The first Petitioner is a company having its registered office at Madras and the second Petitioner is the principal officer of the

company within the meaning of Section 2(35) of the Act. The first Petitioner had in its employ several persons getting taxable salary during the

financial year ended 31st March, 1971. Under the provisions of Section 192 of the Act, several sums of money had been deducted by the

Petitioners as income tax from the salaries of those employees. The amounts so deducted were however not paid to the credit of the Central

Government within a week from the date of such deductions as prescribed by Section 200 of the Act read with Rule 30 of the income tax Rules,

1962 (hereinafter referred to as the Rules). The complaint was with reference to tax deductions made at source on I5th February, 1971, 26th

February, 1971 and 31st March, 1971. In respect of the first deduction there was a delay of 105 days, in respect of the second deduction there

was a delay of 9 days and in respect of the third deductions there was 61 days in making the deposit. The failure to deposit the amount within the

prescribed period was without reasonable cause or excuse and hence the Petitioners have committed offences punishable u/s 276-B read with

Section 200 of the Act. Consequently, the income tax Officer, Central Circle III, Madras, who is the complainant, preferred the complaint for the

case being taken on file and the Petitioners dealt with according to law.

In this petition, the Petitioners contend that the facts mentioned in the complaint do not disclose the commission of any offence and therefore,

this Court, in exercise of its inherent powers, should quash the complaint. The case of the Petitioners runs on the following lines:

(i) The words, failure to pay occurring in Section 276-B of the Act would apply only to a case where there has been a refusal to pay and they will

not apply to a case of delayed payment.

(ii) If, before prosecution is launched, there has been full payment but with delay and the delay is net due to any reasonable cause or excuse, tie

delayed payment will only attract levy of simple interest at 12 per cent per annum as laid down in Section 201(1A); and

(iii) Even if the Assessee is treated as an Assessee in default for failure to pay as provided u/s 201(1A), it is open to the Department to adopt one

of the two following courses:

(a) imposition of penalty, u/s 221, of a sum which may total up to the amount of tax in arrears; or

(b) prosecution u/s 276-B which provides for punishment extending upto rigorous imprisonment tat a term of six months and fine which shall not be

less than a sum calculated at the rate of 15 per cent per annum on the amount of such tax from the date on which such tax was deductible to the

date on which the tax is actually paid.

According to the Petitioner''s Counsel, a combined reading of Sections 201(1A), 221 and 276-B will show that the words failure to pay

occurring in Section 276-B can only mean refusal to pay, and not delayed payment made before a notice imposing penalty was issued or

prosecution was launched. The further contention is that even after notice of prosecution is issued, it is open to the Assessee to show that there

was no willful failure or alternatively, that the failure was due to a reasonable cause. Inasmuchas no notice of prosecution had been issued to the

Petitioners in this case, the Petitioners have been deprived of an opportunity of showing cause against the prosecution and on that score too

complaint should be quashed.

Mr. N.C. Raghavachari, learned Counsel for the Petitioners, elaborated these contentions by referring to some of the sections of the Act and

quoting case law in support of the propositions. Learned Counsel sought to establish a distinction between the words, delay and refusal to pay, by

referring to Sounder''s Words and Phrases (second edition) (volume II). At page 219 of the volume, the words fails to make any payment so

ordered have been held equivalent to such terms as:

(i) refuses to pay; (ii) wilfully abstains from paying or (iii) knowingly omits to pay.

Failure to carry out a statutory obligation, which words would include in their ambit failure to pay, would not attract the imposition of penalty unless

the party obliged was guilty of conduct contumacious and dishonest--vide: Hindustan Steel Ltd. Vs. State of Orissa, . Default means, failure to pay

vide Sounder''s Words and Phrases (second edition) (volume II) page 29. On the other hand, delay means, putting off or defferring, postponement

of performance of some act or step beyond the point of time when the act or step should have been performed--vide Saunders Words and

Phrases (second edition) (volume II) page 35.

Laying stress upon the meaning given to the words, failure to pay and default on the one hand and delay on the other, Mr. Raghavachari

submitted that inasmuch as the Petitioners had not refused to make the payment or even committed any default in making the payment, but had

only made the payment belatedly, the Respondent is not entitled to treat the Petitioners as defaulters and file a criminal complaint against them u/s

276-B.

It was the further argument of Mr. Raghavachari that the words fails to pay occurring in Section 276-B should be construed in a manner

harmonious with the provisions contained in the other sections of the Act such as, Sections 221, 271, 276-C, 276-D etc., and if so construed a

prosecution u/s 276-B can be resorted to only in those cases where there has been a refusal or total failure to pay, and not in cases where the

payment has not been refused, but has only been made some what belatedly. In support of this argument, learned Counsel referred to various

authorities throwing light as to how a penal statute should be construed.

The Court must be very careful in construing a provision which imposes a penalty. If there is a reasonable interpretation which will avoid the

penalty in any particular case, the Court must adopt that construction. If there are two reasonable constructions, the one which is more lenient must

be given, and that is a settled role of construction of a penal provision. The well settled rule is that the Court will not hold that the penalty has been

incurred unless the language of the clause which is said to impose it, is so clear that the case must be necessarily within it. Vide: Tuck & sons v.

Priester (1887) 19 Q.B.D. 629, 638, 645, Tolaram Relumal and Another Vs. The State of Bombay, , and Re. H.P.C. Productions Limited

(1962) 1 All. E.R. 37. It is beyond dispute that the Court is entitled, and indeed bound when construing the term of any provision found in a

statute, to consider any other parts of the Act which throw light upon the intention of the Legislature and which may serve to show that the

particular provision ought not to be construed, as it would if considered alone, and apart from the rest of the Act--Vide: Colcuhoun v. Brooks

(1889) 14 A.C. 493, 506. If the language of the section is ambiguous, the person charges is entitled to the benefit of the doubt and, where an

equivocal word or ambiguous sentence leaves a reasonable doubt of its meaning which the canons of interpretation fail to solve, the benefit of

doubt should be given to the subject and against the Legislature which failed to explain itself,--vide: The King v. Chapman (1931) 2 K.B. 606 and

Rosenbaum v. Burgoyne (1964) 2 All. E.R. 988, 991. It is a sound rule of construction that when any penalty or disability is imposed by statute on

any subject, the Court before which any charge is preferred must be able to see clearly what the conduct is which will render a person liable to the

penalty so imposed. Vide Crane v. Lawrence (1890) 25 O.B.D. 152, 154. The first and most elementary rule of construction is that it is to be

assumed that the words and phrases of technical legislation are used in their technical meaning if they have acquired one, and otherwise, in their

ordinary meaning, and the second is that the phrases and sentences are to be construed according to the rules of grammar; the rule of construction

is to intend the Legislature to have meant what they have actually expressed.--Vide: Maxwel''s Interpretation of Statutes twelfth edition page 28.

Where the language is plain and admits of but one meaning, the task of interpretation can hardly be said to arise. The interpretation of a statute is

not to be collected from any notions which may be entertained by the Court as to what is just and expedien. The duty of the Court is to expound

the law as it stands and to leave the remedy to others.--Vide Maxwel''s Interpretation of Statutes (twelfth edition) page 29.

I shall now proceed to consider the contentions of Mr. Raghavachari which were as follows: In the first place, it was pointed out that the

punishment u/s 276-B of the Act is for failure to deduct or failure to pay the tax deducted as required by Chapter XVII-B. Hence a complaint

under this section for delay in paying a tax deducted is incompetent and ultra-vires of the section. As Section 276-B is now worded, no

prosecution can lie for making delayed payment. Section 200 which is comprised in Chapter XVII-B requires that a person, deducting any sum, in

accordance with the provisions of Sections 192, 194, 194-A and 195-B, shall pay, within the prescribed time, the sums so deducted, to the credit

of the Central Government or as the Board directs. Section 276-B, however, does not refer to payment being made within the prescribed time, but

only refers to the failure without reasonable cause, to deduct the tax or after deduction, to pay the tax so deducted. Wherever the statute has

contemplated a punishment for delay, as for example, in the filing of a return or payment of tax, there is a specific reference to the delay and

punishment is also clearly prescribed for the delay, as would be obvious by a reference to the provisions of Sections 276, 271, 221 etc. There

being no specific reference in Section 276-B to any delay in payment, it is clear the legislature had not contemplated any punishment for belated

payment u/s 276-B. The punishment stipulated u/s 276-B is rigorous imprisonment for a term which may extend to six months and also imposition

of fine at the rate of 15 per cent per annum on the amount of tax from the date on which such tax was deductible to the date on which such tax is

actually paid. Having regard to the stringent punishment that has been provided the section should be construed strictly and not liberally, because,

in the latter case, even a delay of one day in making the payment will automatically entail prosecution leading to imprisonment and imposition of

heavy fine. On the other hand, it can be seen that in such cases of delayed payment, the act contemplates only the levy of interest at 12 per cent

per annum from the date on which the tax is deductible to the date on which the tax is actually paid. This may be seen from Section 201(1-A).

Section 201(1-A) and Section 276-B deal with consequences of failure to deduct or failure to pay ax after deduction. The former deals with the

delay in paying the tax deducted, whereas the latter speaks-only of a person who fails to deduct or, after deduction, fails to pay the tax. It will,

therefore, be reasonable to hold that for belated payment of tax collected the consequences u/s 201(1-A) viz., levy of interest will ensue, whereas

if there is a total failure to collect or total failure to pay the tax collected, more serious consequences viz., prosecution and punishment specified in

Section 276-B will ensue. A combined reading of Section 200 and 201(1-A) will make it clear that the provisions thereof apply only to case of

belated payment, and not to total failure to pay. A charge of not paying the tax within the prescribed time can be made only against a person who

has paid the tax belatedly and not against a person who has not paid the tax at all. It therefore follows that for all cases of belated payment, only

interest can be charged and a prosecution cannot be launched.

In respect of belated payments, even penalty is not leviable u/s 221, because the penalty provisions will be attracted only in regard to

continuing default. If that be the position, it will be most inequitable to hold that a prosecution u/s 276-B can be launched in cases of belated

payments. To commit as offence u/s 276-B, there must be mens rea or a guilty mind. Such a situation can never exist where a person who has

collected the tax has remitted the same to Government, albeit, in a belated manner.

Section 276-B refers to failure to pay the tax as required Chapter XVII-B. The time within which tax deducted is to be paid is a requirements

of the rules framed under the Act and not a requirement of Chapter XVII-B itself. Section 276-B does not refer to the rules prescribed, as to the

time within which the tax has to be paid. In so far as the rules framed under the Act cannot be said to be a requirement of Chapter XVII-B, no

offence u/s 276-B has been committed.

Wherever a prosecution for violation of the rules is also contemplated, there is a reference to the rules in the sections concerned (vide: Section

277). In the absence of such a reference in Section 276-B, it is clear that any violation of a rule is not contemplated by Section 276-B and a

prosecution under the section on the ground of a violation of the rule is not maintainable.

The punishment provided u/s 276-B is incapable of being awarded against a company which is a juridical person. The statute gives no

discretion to the Court to award partial punishment. The provisions of Section 276-B cannot, therefore fee invoked against a company. On this

one ground alone the complaint is liable to be quashed.

Having regard to the phrase, a person used in Section 276-B, prosecution under the section can only be against a person and not against more

than one person. The definition of a person in the Act, no doubt, includes a company, but the provisions of the section are incapable of being

invoked against a company which is a juridical person. The definition of a person does not include a director or managing director of a company

and therefore, they cannot be proceeded against. In terms of the language employed in the section, the provisions can be applicable only to an

individual employer such as a sole proprietor in a proprietary concern.

On a careful consideration of the several contentions of Mr. Raghavachari, I am of opinion that none of them is sustainable. Section 276-B is

worded in the following manner:

If a person, without reasonable cause or excuse fails to deduct or after deducting fails to pay the tax as required by or under the provisions of Sub-

section (9) of Section 80E or Chapter XVII-B, he shall be punishable with rigorous imprisonment for a term which may extend to six months, and

shall also be liable to fine which shall be not less than a sum calculated at the rate of fifteen per cent per annum on the amount of such tax from the

date on which such tax was deductible to the date on which such tax is actually paid.

From a reading of the section, it may be seen that the deduction and payment of tax is to be in accordance with Sub-section (9) of Section 80E or

Chapter XVII-B. We are not now concerned with Sub-section (9) of Section 80E which deals with tax deductions in respect of payments by way

of annuity or otherwise. We are now concerned only with the provisions contained in Chapter XVII-B. The sections comprised in this chapter are

Sections 192 to 206-A. Section 192 casts a duty upon any person responsible for paying any income chargeable under the head, Salaries to

deduct, at the time of payment, income tax on the amount payable at the relevant rate. In respect of deductions that have to be made with

reference to other sums, the sections following Section 192 contain directions, as indicated below:

Section 192: Interest on securities;

Section 194: Dividend;

Section 194-A: Interest other than ""Interest on securities"";

Section 194-B: Winnings from lottery or cross word puzzle;

Section 194-C: Payments to contractors and sub-contractors;

Section 194-D: Insurance Commission; and

Section 195: Other sums.

Section 200 casts a duty on persons making deductions, under, Section 192 or under any of the other sections referred to above to remit the

amounts so deducted to the credit of the Central Government. Section 200 is worded thus:

Any person deducting any sum in accordance with the provisions of Sections 192 to 194, Sections 194-A, Section 194-B, Section 194-C,

Section 194-D and Section 195 shall pay within the prescribed time, the sum so deducted to the credit of the Central Government, or as the

Board directs.

The wording of the Section 200 shows that not only the sums deducted have to be paid to the credit of the Central Government or as per the

directions of the Board, but such payments should be made within the prescribed time. (Emphasis supplied). The word prescribed has been

defined in Section 2(33) of the Act, as prescribed by the Rules made under this Act, if these provisions are borne in mind, most of the arguments

of Mr. N.C. Ragavachari have to be discountenanced.

The argument that Section 276-B does not refer to the payment being made within the prescribed time or does not refer to the time fixed under the

rules, cannot be successfully projected, because Section 276-B refers to the provisions contained in Chapter XVII-B and Section 200 which is

one of title sections in that chapter clearly lays down that the payments will have to be made within the prescribed time, and the word prescribed

means, the prescriptions contained in the rules under the Act. It is therefore futile to contend that in the absence of specific words in Section 276-B

itself, the Petitioners cannot be prosecuted for delayed payment of tax deductions.

With reference to the argument that total failure to pay the tax deducted will alone attract prosecution and a mere delay in making the payment

will not attract prosecution, but will only attract charging of interest, I do not find any support for the contention in the provisions of the Act.

Section 201 deals with the consequences of failure to deduct or pay. Sub-section (1) of that section states that if there is failure to deduct or failure

to pay the tax after deduction, then the principal officer and the company shall, without prejudice to any other consequences which he or it may

incur, be deemed to be an assesses in default in respect of the tax. u/s 221 penalty is impessible on an Assessee in default or an Assessee deemed

to be in default. Such penalty can be imposed in addition to he Assessee in default being called upon to pay interest. The proviso to Section 201(1)

stipulates that penalty u/s 221 shall not be (sic) unless the income tax Officer is satisfied that tie failure to conduct and pay the tax was without good

and sufficent reasons. Section 201(1A) provides for simple interest being charged at 12 per cent per annum on the amount that should have been

deducted and paid to Government. The charging of interest is not subjected to any exception and is an automatic incidence of noncompliance with

the provisions of the Act, i.e., failure to deduct the tax or failure to pay the tax after deduction. Therefore, the charging of interest is compulsory

while the imposition of penalty is discretionary depending upon the facts and circumstances of each case. The Petitioners'' Counsel cannot,

therefore, he heard to say that in respect of delayed payments interest alone can be charged and even penalty cannot be levied. The only restriction

contained in the Act for imposition of penalty is that before penalty is levied, a show cause-notice must be given to the person concerned and

thereafter the imposition can be made only if the non-compliance with the provisions of the Act was not due to any just or reasonable cause.

So far as prosecution u/s 276-B is concerned, it is not controlled either by Section 201(1A) or Section 221. All that the section says is that if a

person, without reasonable cause or excuse, fails to deduct or after deducting, fails to pay the tax as required by or under the provisions of Sub-

section (9) of Section 80E Chapter XVII-B, he shall be punishable with rigorous imprisonment and shall also be liable to fine. If it was the intention

of the Legislature that prosecution can be resorted to only in respect of these cases where charging of interest or levy of penalty will not meet the

ends of justice, then the Legislature would have indicated its intention in the section. On the other hand what we find is that the power of

prosecution given u/s 276-B is not restricted to particular type of cases alone.

As regards the extreme contention of Mr. Raghavachari that the words fails to pay the tax occurring in Section 276-B will have reference only

to those cases where tax has been contumaciously refused to be paid and not to those cases where there has only been a failure to pay within time,

I am not in the least persuaded by the said argument. The wording of the section does not afford scope for treating the words fails to pay as

confined only to those cases where there is a total failure to pay the tax and not having application to those cases where there has been failure to

pay within the prescribed time. I have already adverted above to Section 276-B referring to the provisions contained in Chapter XVII-B and as to

how Section 200 refers to the tax being paid within the prescribed time.

Then, taking up the argument that the phrase a person used in Section 276-B, would mean that prosecution can be launched only against the

company and not against a principal officer of the company like the second Petitioner herein, the contention fails to take note of the words

contained in Section 192 and Section 200 of the Act. Section 192 says that:

any, person responsible for paying...salaries shall at the time of payment deduct income tax on the amount payable.

Section 200 lays down that:

any person deducting any sum in accordance with the provisions of Section 192 to Section 194...shall pay, within the prescribed time, the sum so

deducted to the credit of the Central Government or as the Board directs.

Therefore, the words, a person occurring in Section 276-B must be construed in juxta-position of the word person mentioned la Section 192 and

Section 200 of the Act. If so construed, there is no scope for the argument that the words a person occurring in Section 276-B have reference

only to a proprietory concern and not to a company as the first Petitioner or its principal officer, the second Petitioner. Similarly, the argument that

since a company cannot be, punished with imprisonment, a prosecution u/s 276-B will not lie against a company, has to fail to the ground, because

none of the sections, namely Sections 192, 200 and 276-B, uses the word company. They only use the words a person. Merely because the word

person has been defined to include, among others, a company also, the Petitioners cannot contend that the words a person occurring in Section

276-B have reference only to a company and, since a company cannot be punished as indicated in Section 276-B, that section will have no

application to contraventions committed by a company.

Hence nose of the contentions raised by the Petitioners Counsel to assail the complaint u/s 276-B can be countenanced. The ratio laid down in

the various cases cited by die Petitioners'' Counsel is not attracted, because the section is not ambiguous or equivocal in its terms, nor does it lay

itself open to a plurality of constructions.

The second ground on which a quashing of the complaint is sought for, is with reference to the liability of the second Petitioner to answer a

charge u/s 276-B of the Act. The contentions of the second Petitioner in this behalf are as set out below: The principal officer of a company,

cannot be proceeded against u/s 276-B of the Act, since the phrase principal officer or person responsible to pay is omitted in Section 276-B. In

view of the omission of the expression, person responsible for paying in Section 276-B and the non-inclusion of Section 276-B - u/s 204, the

principal officer of a company does not come under the mischief of this section, and he is clearly beyond its purview. The expression used in

Section 276-B is a person, the definition of which does not encompass the principal officer or the person responsible for paying. The offence u/s

276-B can attach it; elf only to a person demonstrated to be actually in charge of and responsible for deducting and paying the tax and such a

person alone is liable to be prosecuted and proceded against. The managing director of a company, not being the principal officer of the company,

the complaint against second Petitioner u/s 276-B is ex facie invalid and ought to be quashed. The second Petitioner being the managing director of

the first Petitioner, cannot be termed its principal officer, because the Act makes a distinction between principal officer and director. Even in the

definition of the term, principal officer in Section 2(35) the term director is not included. Wherever the statute has intended to make the director or

the managing director of a company responsible for an act, there is specific reference to the director or managing director in the sections

concerned. Similarly, wherever the statute has sought to impose an obligation or liability on the principal officer of a company, there is specific

reference to the said officer in the concerned section itself. Hence the complaint cannot be filed against the second Petitioner. In support of these

contentions, Mr. Raghavachari placed reliance on Income Tax Officer Vs. Joseph and Others, and Kapurchand Shrimal Vs. Tax Recovery

Officer, Hyderabad and Others, .

Even these contentions do not merit acceptance. As already pointed out, Section 276-B does not use the word company or principal officer. It

only uses the term a person, and these words have to be construed with reference to the words contained in Sections 192 and 200 of the Act.

Though the words principal officer or person responsible to pay do not find place in Section 276-B, we must look to Section 204 for finding out

the meaning to be given to the words person responsible for paying occurring in Sections 192 to 194 and other sections. It is enough if we

consider Sub-section (i) of Section 204 in this behalf. That Sub-section reads as follows:

For the purposes of Sections 192 to 194, Section 194-A, Section 194B, Section 194C, Section 194D and Sections 195 to 203 and Section

285, the expression ''person responsible for paying'' means:

(i) in the case of payments of income chargeable under the head ''Salaries'' other than payments by the Central Government or the Government of

a State, the employer himself or, if the employer is a company, the company itself, including the principal officer thereof;

(emphasis supplied);

(ii) ....

(iii) ....

Thus, it may be seen that if the employer is a company the company as well as the principal officer thereof have to be treated as person responsible

for paying. In Section 2(35) the term principal officer has been defined. The definition takes within its fold, not only (a) a secretary, treasurer or

manager or agent of the authority, company, association or body, but also (b) any person connected with the management or administration of

the...company...upon whom the income tax Officer has served a notice of his intenion of treating him as the principal officer thereof. A combined

reading of Section 204 and Section 2(35) will, therefore, go to show that a director or managing director will also fall within the definition of

principal officer provided the income tax Officer has served a notice of his intention of treating him as such. If, therefore, the second Petitioner had

been issued a notice as contemplated in Section 2(35)(b) and treated as the principal officer, then notwithstanding the fact that he is the managing

director, he can be treated as the principal officer Similarly, notwithstanding the fact that he is not actually the person making deductions of income

tax on the salaries paid to the employees, he will still constitute a person responsible for paying. In that view of the matter, the second contention of

the Petitioners, has also to fail. It is not the Petitioner''s, case that the second Petitioner has not been issued notice by the income tax Officer and

treated as the principal officer of the company. The situation may, however, be different if such a notice had not been given to the second

Petitioner. But, that is a matter to be gone into by the trial Court, because it involves taking of evidence.

The two cases cited by the Petitioners Counsel do not advance the Petitioners'' case in any manner. The judgment in Income Tax Officer Vs.

Joseph and Others, was rendered under different circumstances. That was a case where the managing director had not been, served with a notice

by the income tax Officer of his mention of treating him as the principal officer. There was also no evidence that the managing director had

personally ejected the deductions towards tax from the dividends declared to the share-holders. It was in those circumstances, the acquittal of the

managing director of offences under Sections 276-(d) and 276-B was confirmed by the Kerala High Court, Kapurchand Shrimal Vs. Tax

Recovery Officer, Hyderabad and Others, was a case where the manager of a Hindu undivided family was prosecuted for non-payment of tax by

the family. Since the Hindu undivided family, which is a district taxable entity, was the Assessee, it was held that the manager cannot, for the

purpose of Section 222, be deemed to be the Assessee and proceeded against for non-payment of tax. The ratio in that case can have no

application to the proceedings on hand.

For the aforesaid reasons, the petition has to fail and will accordingly stand dismissed. The Chief Metropolitan Magistrate is directed to

dispose of the complaint expeditiously. It is, however, open to the Petitioners to putforth other defences, if any, with reference to the evidence

adduced in the case, about their not being guilty of contravention of Section 276-B.