24 June 2024


High Court of Bombay

Unique Trading Company and Ors. Vs. Income Tax Officer - 18(3)(5) and Ors. (Neutral Citation: 2024:BHC-AS:5572)



Direct Taxation

A penal statute is required to be construed strictly, it is not open to expand the scope of the words used in a penal statute so as to fasten liability

Present is an application under Section 482 of the Code of Criminal Procedure, 1973 (CrPC) to quash the complaint lodged by the Income Tax Authorities for an offence punishable under Section 276C(2) read with Section 278B of the Income Tax Act, 1961 (IT Act).The moot question that wrenches to the fore is, "whether a failure to pay any tax, interest or penalty can be construed as a wilful attempt to evade tax, interest or penalty, without anything more?

The text of sub-section (2) of Section 276C of IT Act is required to be construed keeping in view its evident nature and purport being penal. A penal statute is required to be construed strictly. It is not open to expand the scope of the words used in a penal statute so as to fasten liability on the persons who would otherwise not fall within the dragnet of the penal provision. The object of the penal provision cannot be lost sight of and it must be construed in such a manner as to advance the object of the enactment. In substance, both the text and the context deserve to be taken into account.

Section 276B punishes failure to pay tax to the credit of the Central Government, which has been deducted at source under Chapter XVIIB or the tax payable under Section 115-O or the second proviso to Section 194B. Likewise, Section 276BB provides punishment for failure to pay to the credit of the Central Government, the tax collected by a person as required under the provisions of Section 206C. Under these two sections, it is the act of mere failure to credit the tax, which has already been collected or deducted that entails punishment. The text of Section 276, on the other hand, professes to punish wilful attempt to evade payment of tax interest or penalty.

On a plain reading the provisions contained in Section 276C(2) of IT Act, do not indicate that mere failure to pay the tax, interest or penalty falls within the dragnet of the said provision. Even otherwise, it is a well settled rule of construction of penal statutes that, if two possible and reasonable constructions can be put upon a penal provision, the Court must lean towards that construction which exempts the subject from penalty rather than the one which imposes penalty.

There is material to indicate that within five days of the show cause notice, the applicants had deposited the tax due as declared in the return for AY-2010-2011. Since the applicants had declared the income and assessed the self-assessment tax, it cannot be urged that there was an attempt to evade the tax. It was neither a case of under reporting of income nor that of showing diminished tax liability. The action on the part of the applicants to pay the tax due under five days of the notice militates against the stand of the Income Tax Department that there was an intent to evade the tax throughout. It is not disputed on the date of the lodging of the complaint, no tax was due, and even the applicants deposited the amount of Rs.4,47,420 towards interest on the due amount.

The offence punishable under Section 276C(2) of the Act, 1961 cannot be said to have been made out. The proceedings in Criminal Case pending on the file of the learned Additional Chief Metropolitan Magistrate, stand quashed and set aside. Application allowed.

Tags : Penalty Confirmation Legality

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