Rayala Corporation P... v. V.M Muthuramalingam,...

Natarajan, J.:— This petition under s. 482 of the Code of Criminal Procedure has been filed to quash the complaint in C.C No. 2562 of 1974 on the file of the Chief Metropolitan Magistrate, Madras.

2. The complaint under s. 276B of the I.T 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 s. 2(35) of the Act. The first petitioner had in its employ several persons getting taxable salary during the financial year ended March 31, 1971. Under the provisions of s. 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 Govt, within a week from the date of such deductions as prescribed by s. 200 of the Act read with r. 30 of the I.T Rules, 1962 (hereinafter referred to as “the Rules”). The complaint was with reference to tax deductions made at source on February 15, 1971, February 26, 1971, and March 31, 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 94 days and in respect of the third deduction there was a delay of 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 under s. 276B read with s. 200 of the Act. Consequently, the ITO, 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.

3. 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:

(1) The words “failure to pay” occurring in s. 276B 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 payments;

(2) If before prosecution is launched, there has been full payment but with delay and the delay is not due to any reasonable cause or excuse, the delayed payment will only attract levy of simple interest at 12 per cent, per annum as laid down in s. 201(1A); and

(3) Even if the assessee is treated as an assessee in default for failure to pay as provided under s. 201(1A), it is open to the department to adopt one of the two following courses:

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

(b) prosecution under s. 276B which provides for punishment extending up to rigorous imprisonment for a term of six months and fine which shall not be less than a sum calculated at the rate of 15 percent, 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.

4. According to the petitioners' counsel, a combined reading of sections 201(1A), 221 and 276B will show that the words “failure to pay” occurring in s. 276B can only mean refusal to pay, and not delayed payment made before 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 wilful failure or, alternatively, that the failure was due to a reasonable cause. Inasmuch as 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, the 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 Saunders' Words and Phrases (2nd Edn., Vol. 2). At p. 219 of the volume, the words “fails to make any payment so ordered” have been held as 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. v. State Of Orissa†., [1972] 83 ITR 26, 29; [1970] 25 STC 211 (SC). “Default” means “failure to pay”—vide Saunders' Words and Phrases (2nd Edn., Vol. 2, p. 29), On the other hand, “delay” means, “putting of!” or “deferring”—“postponment of performance of some actor step beyond the point of time when the act or step should have been performed”—vide Saunders' Words and Phrases (2nd. Edn., Vol. 2, p. 35).

5. 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 under s. 276B.

6. It was the further argument of Mr. Raghavachari that the words “fails to pay” occurring in s. 276B should be construed in a manner harmonious with the provisions contained in the other sections of the Act such as, ss. 221, 271, 276C, 276D, etc., and if so construed, a prosecution under s. 276B 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 somewhat belatedly. In support of this argument, learned counsel referred to various authorities throwing light as to how a penal statute should be construed.

7. 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 rule 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 QBD 629, 638, 645 (CA), Tolar am Relumal v. State of Bombay, [1955] 1 SCR 158, 164; AIR 1954 SC 496, 497 and In re H.P.C Productions Ltd., [1962] 1 All ER 37 (Ch D). 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 be if considered alone, and apart from the rest of the Act—vide Colquhoun v. Brooks, [1889] 14 App Cas 493, 506 (HL). If the language of the section is ambiguous, the person charged 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 King v. Chapman, [1931] 2 KB 606 (CCA) and Rosenbaum v. Burgoyne, [1964] 2 All ER 988, 991 (HL). It is a sound rule of construction that when any penalty or disability is imposed by a 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 QBD 152, 154 (QB):

“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…”

8. The rule of construction is ‘to intend the Legislature to have meant what they have actually expressed.’—vide Maxwell's Interpretation of Statutes, 12th Edn., p. 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 expedient The duty of the court is to expound the law as it stands, and to leave the remedy toothers”—vide Maxwell's Interpretation of Statutes, 12th Edn., p. 29.

9. 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 under s. 276B of the Act is for failure to deduct or failure to pay the tax deducted as required by Chap. XVII-B. Hence, a complaint under this section for delay in paying a tax deducted is incompetent and ultra vires of the section. As s. 276B is now worded, no prosecution can lie for making delayed payment. Section 200 which is comprised in Chap. XVII-B requires that a person, deducting any sum, in accordance with the provisions of ss. 192, 194, 194A and 195B shall pay, within the prescribed time, the sums so deducted, to the credit of the Central Govt, or as the Board directs. Section 276B, 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 ss. 276, 271, 221, etc. There being no specific reference in s. 276B to any delay in payment, it is clear the Legislature had not contemplated any punishment for belated payment under s. 276B The punishment stipulated under s. 276B 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 s. 201(1A). Section 201(1 A) and s. 276B deal with the consequences of failure to deduct or failure to pay tax 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 under 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 s. 276B will ensue. A combined reading of ss. 200 and 201(1A) will make it clear that the provisions thereof apply only to cases 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.

10. In respect of belated payment, even penalty is not leviable under 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 under s. 276B can be launched in cases of belated payments. To commit an offence under s. 276B 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 the Government, albeit, in a belated manner.

11. Section 276B refers to failure to pay the tax as required by Chap. XVII-B. The time within which the tax deducted is to be paid is a requirement of the Rules framed under the Act and not a requirement of Chap. XVII-B itself. Section 276B does not refer to the Rules prescribed, or 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 Chap. XVII-B, no offence under s. 276B has been committed.

12. Wherever a prosecution for violation of the Rules is also contemplated, there is a reference to the Rules in the sections concerned (vide s. 277). In the absence of such a reference in s. 276B it is clear that any violation of a rule is not contemplated by s. 276B and a prosecution under the section, on the ground of a violation of the rule is not maintainable.

13. The punishment provided under s. 27, 6B 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 s. 276B cannot, therefore, be invoked against a company. On this one ground alone, the complaint is liable to be quashed.

14. Having regard to the phrase, “a person” used in s. 276B, prosecution under the section can be only 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.

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

16. From a reading of the section, it may be seen that the deduction and payment of tax is to be in accordance with sub-s. (9) of s. 80E or Chap. XVII-B. We are not now concerned with sub-s. (9) of s. 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 Chap. XVII-B. The sections comprised in this chapter are ss. 192 to 206A. 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 other sums, the sections following s. 192 contain directions, as indicated below:

S. 193: Interest on securities;

S. 194: Dividends;

S. 194A: Interest other than “Interest on securities”;

S. 194B: Winnings from lottery or crossword puzzle;

S. 194C: Payments to contractors and sub-contractors;

S. 194D: Insurance commission; and

S. 195: Other sums.

17. Section 200 casts a duty on persons making deductions, under s. 192 or under any of the other sections referred to above, to remit the amounts so_ deducted to the credit of the Central Govt.

18. Section 200 is worded thus:

“Any person deducting any sum in accordance with the provisions of sections 192 to 194, section 194A, section 194B, sectiou 194C, section 194D 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.”

19. The wording of the section shows that not only the sums deducted have to be paid to the credit of the Central Govt, or as per the direction of the Board, but such payment should be made within the prescribed time. (Emphasis1 supplied). The word “prescribed” has been defind in s. 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. Raghavachari have to be discountenanced. The argument that s. 276B 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 s. 276B refers to the provisions contained in Chap. XVII-B and s. 200 which is one of the 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 prescription contained in the Rules under the Act. It is, therefore, futile to contend that in the absence of specific words in s. 276B itself, the petitioners cannot be prosecuted for delayed payment of tax deductions.

20. 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. Under s. 221 penalty is imposable on an assessee in default or an assessee deemed to be in default. Such penalty can be imposed in addition to the assessee in default being called upon to pay interest. The proviso to s. 201(1) stipulates that penalty under s. 221 shall not be charged unless the ITO is satisfied that the failure to deduct and pay the tax was without good and sufficient reasons. Section 201(1A) provides for simple interest being charged at 12% per annum on the amount that should have been deducted and paid to the Government. The charging of interest is not subjected to any exception and is an automatic incidence of non-compliance 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 petitioner's counsel cannot) therefore, be heard to say that in respect of delayed payments interest alone can be charged and even penalty cannot be levied. This 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.

21. So far as prosecution under s. 276B is concerned, it is not controlled either by s. 201(1 A) or s. 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-s. (9) of s. 80E or Chap. 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 those 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 prosection given under s. 276B is not restricted to a particular type of cases alone.

22. As regards the extreme contention of Mr. Raghavachari that the words “fails to pay the tax” occurring in s. 276B will have reference only to those cases where tax has been contumaciously refused to be paid and not to those cases where there has been only 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 s. 276B referring to the provisions contained in Chap. XVII-B and as to how s. 200 refers to the tax being paid within the prescribed time.

23. Then, taking up the argument that the phrase “a person”, used in s. 276B, 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 ss. 192 and 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 sections 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 s. 276B must be construed in juxtaposition to the word “person” mentioned in s. 192 and s. 200 of the Act. If so construed, there is no scope for the argument that the words “a person” occurring in section 276B have reference only to a proprietary 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 under s. 276B will not lie against a company, has to fall to the ground, because none of the sections, namely, ss. 192, 200 and 276B, 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 s. 276B have reference only to a company and since a company cannot be punished as indicated in s. 276B, that section will have no application to contraventions committed by a company.

24. Hence, none of the contentions raised by the petitioners' counsel to assail the complaint under s. 276B can be countenanced. The ratio laid down in the various cases cited by the 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.

25. 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 under s. 276B 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, under s. 276B of the Act, since the phrase “principal officer” or “person responsible to pay” is omitted in s. 276B. In view of the omission of the expression, “person responsible for paying” in s. 276B and the non-inclusion of s. 276B under 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 s. 276B is “a person”, the definition of which does not encompass the “principal officer” or “the person responsible for paying The offence under s. 276B can attach itself 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 proceeded against. The managing director of a company, not being the principal officer of the company, the complaint against the second petitioner under s. 276B 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 s. 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 a 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 a 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 ITO v. Joseph, [1972] 83 ITR 362 (Ker) and Kapurchand Shrimal v. TRO, [1969] 72 ITR 623 (SC).

26. Even these contentions do not merit acceptance. As already pointed out, s. 276B 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 ss. 192 and 200 of the Act. Though the words “principal officer” or “person responsible to pay” do not find place in s. 276B, we must look to s. 204 for finding out the meaning to be given to the words “person responsible for paying” occurring in ss. 192 to 194 and other sections. It is enough if we consider cl. (i) of s. 204 in this behalf. That clause reads as follows i

“204. For the purposes of sections 192 to 194, section 194A, 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.”

(Emphasis2 supplied).

27. 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 s. 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 ITO has served a notice of his intention of treating him as the principal officer thereof. A combined reading of s. 204 and s. 2(35) will, therefore, go to show that a director or managing director will also fall within the definition of “principal officer” provided the ITO 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 s. 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 to the petitioners' case that the second petitioner has not been issued notice by the ITO 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 ITO v. Joseph, [1972] 83 ITR 362 (Ker) was rendered under different circumstances. That was a case where the managing director had not been served with a notice by the ITO of his intention of treating him as the principal officer. There was also no evidence that the managing director had personally effected the deductions towards tax from the dividends declared to the shareholders. It was in those circumstances that the acquittal of the managing director of offences under ss. 276(d) and 276B was confirmed by the Kerala High Court. Kapurchand Shrimal v. TRO, [1969] 72 ITR 623 (SC) was a case where the manager of an HUF was prosecuted for non-payment of tax by the family. Since the HUF, which is a distinct taxable entity, was the assessee, it was held that the manager cannot, for the purpose of s. 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.

28. 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 put forth other defenses, if any, with reference to the evidence adduced in the case, about their not being guilty of contravention of s. 276B.