India: Deposit Of TDS With Interest Beyond Stipulated Period Is Not An Alibi In Criminal Prosecution For Belated Filing Of Tds Under Section 276 B Of The Income Tax Act, 1961

Last Updated: 19 September 2019
Article by Vijay Pal Dalmia, Partner and Rajat Jain


Vijay Pal Dalmia, Advocate

Supreme Court of India & Delhi High Court

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Mobile No.: +91 9810081079



Twitter: @vpdalmia


Rajat Jain, Advocate

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Mobile No. 9953887311


In the case tilted as Golden Gate Properties Ltd. and Ors. Vs. The Income Tax Department, Criminal Petition No. 868/2014, MANU/KA/3316/2019, the High Court of Karnataka has again clarified the settled position of law that a person can be prosecuted for filing the TDS (Tax Deducted at Source) belatedly, despite the fact that the said person has filed the TDS amount along with interest before the initiation of the criminal proceedings for such default.

In the instant case, the Petitioners filed a petition for quashing of the prosecution, that has been launched against the Petitioners by the Income Tax Department for the alleged offences punishable under Sections 276B read with Section 278B of the Income Tax Act, 1961 (hereinafter referred to as "IT Act").

The section 276B reads as under:

Section 276B - Failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B

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 XVIIB ; or

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

(i) sub-section (2) of section 115-O ; or

(ii) 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.

In the present case, the Petitioners have primarily taken 2 grounds for quashing of the present prosecution:

  1. That without determining the liability of the accused in an adjudication proceedings and without quantifying the penalty, Income Tax Department should not have resorted to prosecute the petitioners for the alleged offence.
  1. That the TDS deducted by the petitioners was deposited with interest with the Department within 12 months from the respective dates of the deductions. The said deposit was made in accordance with the circular/instruction issued by the Central Board of Direct Taxes (CBDT) dated 24.04.2008 in F. No. 285/90/2008-IT (Inv.)/05. Under the said circular/instruction, the assessee was permitted to deposit the tax deducted at source within 12 months from the date of deductions to obviate any penal consequences. That by a subsequent circular dated 07.02.2013, paragraph Nos. 3.1(i) and (ii) of the earlier guidelines were amended and a time limit of 60 days was prescribed to make the deposit from the date of said deduction and the deduction of the said amount could not have been retrospectively made applicable to the petitioners

The Hon'ble High Court dismissed the present petition on the following grounds:

a) That a bare reading of the Section 201 of the IT Act, makes it clear that in case of failure to deduct or to pay the tax deducted at source, accused may invite penalty consequent upon the adjudication or it may also "without prejudice to any other consequences", lead to prosecution of the accused. The Hon'ble Judge also relied on the judgment of the Hon'ble Supreme Court in Madhumilan Syntex Ltd., and Others vs. Union of India and Another, MANU/SC/1620/2007: (2007) 11 SCC 297, wherein it was held as under:

"47. The next contention that since TDS had already been deposited to the account of the Central Government, there was no default and no prosecution can be ordered cannot be accepted. Mr. Ranjith Kumar invited our attention to a decision of the High Court of Calcutta in Vinar & Co. v. ITO. Interpreting the provisions of Section 276-B, a Single Judge of the High Court observed that: (ITR p. 135)

"[T]here is no provision in the Income Tax Act imposing criminal liability for delay in deduction or for non-payment in time. Under Section 276-B, delay in payment of income tax is not an offence".

According to the learned Judge, such a provision is subject to penalty under Section 201(1) of the Act.

48. We are unable to agree with the above view of the High Court. Once a statute requires to pay tax and stipulates period within which such payment is to be made, the payment must be made within that period. If the payment is not made within that period, there is default and an appropriate action can be taken under the Act. Interpretation canvassed by the learned counsel would make the provision relating to prosecution nugatory."

The Hon'ble while discarding the 1 contention of the Petitioners, held as under:

"This provision makes it clear that in order to get over the penal consequences that follow on account of nonpayment of tax deducted at source, it is open for the accused persons to come clean of the said charge by showing reasonable cause for failure to deposit the said amount. In the light of this provision, contentions urged by the learned counsel for the petitioners cannot be accepted. Since the material placed on record prima facie discloses that the petitioners have deducted tax at source but failed to credit the same to the account of the Central Government within the prescribed time, the petitioners cannot escape from the rigour of Section 276B of the Act."

b) With respect to the 2 contention urged by the Petitioners, the Hon'ble High Court held that the circular/instruction issued by the department are binding as a principle of law, but in the instant matter, none of the parties have placed the said instruction or circular for perusal of this Court. No material is available to show that the Petitioner No. 1 Company had deposited the amount within the extended time as per the material available before the Court, due to which the Hon'ble Court rejected the 2 contention of the Petitioner.

The judgment passed by the Hon'ble High Court is just reiterating the already settled law that deposit of TDS with interest beyond stipulated period is not an alibi in criminal prosecution for belated filing of TDS under section 276 B of the IT Act.

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