Madras High Court
M/S.Tulip Clothing Pvt. Ltd vs The Government Of India on 30 June, 2021
W.P. No.26599 of 2017
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 30.06.2021
CORAM
THE HONOURABLE MR. JUSTICE S.M.SUBRAMANIAM
W.P.No.26599 of 2017
and W.M.P.Nos.28308 & 28309 of 2017
M/s.Tulip Clothing Pvt. Ltd.,
Rep. By its Director Smt.S.Kalavathi,
No.9, M.P.Nagar, Kongu Nadu Extension,
Tiruppur 641 602. ..Petitioner
Vs.
1.The Government of India,
Assistant Commissioner of Income Tax,
TDS Circle, Coimbatore,
1510, Mayflower Midcity,
Trichy Road, Coimbatore 641 018.
2.The Income Tax Officer,
TDS Ward, Tiruppur,
“Aadams Plaza” No.121, 60 Feet Road,
Tiruppur 641 602. ..Respondents
Prayer: Writ Petition filed under Article 226 of the Constitution of India, to
issue a Writ of Certiorarified Mandamus, calling for the entire records
relating to the impugned proceedings of the 1st respondent pursuant to the
impugned letter No.CMBT04254F/TDS CIRCLE/2016-17, dated
21.02.2017 and that of the impugned proceedings of the 2nd respondent
1/12
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W.P. No.26599 of 2017
pursuant to the impugned letter F.No.Compounding/CMBT04254F/2017-
18, dated 21.08.2017 and quash both the proceedings dated 21.02.2017 and
21.08.2017 and consequently, forbear the respondents from in any way
proceeding further in this regard so far as the petitioner and in particular, the
deponent is concerned.
(Prayer amended as per the order of this Court dated 10.08.2018 in
W.M.P.No.4927 of 2018 in W.P.No.26599 of 2017)
For Petitioner : Mr. M.N.Bharathi
for M/s.M.Sriram
For Respondents : Mr. S.Rajesh
(Junior Standing Counsel for IT)
ORDER
The relief sought for in the present Writ Petition is to call for the
records relating to the impugned proceedings of the 1st respondent, pursuant
to the impugned letter No.CMBT04254F/TDS CIRCLE/2016-17, dated
21.02.2017, and that of the impugned proceedings of the 2nd respondent,
pursuant to the impugned letter F.No. Compounding/CMBT04254F/2017-
18, dated 21.08.2017 and quash both the proceedings dated 21.02.2017 and
21.08.2017 and consequently, forbear the respondents from in any way
proceeding further in this regard so far as the petitioner and in particular, the
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W.P. No.26599 of 2017
deponent is concerned.
2.The petitioner, an Income Tax Assessee, was carrying on
business of manufacturing Hosiery garments for about 12 years. Due to
various reasons, the petitioner could not carry on the business profitably and
faced setbacks, which forced the petitioner to close the business from the
year 2011. Accordingly, the petitioner-Company was closed and the assets
were sold and adjusted to Bank loans and private loans.
3.As far as the present Writ Petition is concerned, it was related to
the Assessment Year 2011-12 (Financial Year 2010-11) and concerns about
the Tax Deducted at Source (TDS) for this and the 2nd Assessment Year. The
petitioner states that the Company was in financial trouble and not in
operation and therefore, the Company was not in a position to collect party
bills and account them. They made delays in bill collection and bill entry,
but they accounted the bill on the day the bill was raised by their suppliers
and not on the date on which payment was made by them. With reference to
the delayed payment, the petitioner had paid interest to the tune of
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W.P. No.26599 of 2017
Rs.3,08,870/-.
4.In this backdrop, the learned counsel appearing for the
petitioner, strenuously contended that there was a reasonable cause for the
petitioner for non-payment of compounding fees. There is a provision for
exemption, contemplated under Section 278 AA of the Income Tax Act,
1994 (for brevity, 'the Act'), wherein punishment not to be imposed in
certain cases when the assessee proves that there was reasonable cause for
failure to pay the compounding fees. The learned counsel for the petitioner
reiterated before this Court that the petitioner-Company was closed in the
year 2011 and they have cleared tax arrears as well as the interests.
However, compounding fees was not paid on account of the reason that the
petitioner had no income during the relevant point of time and the notice
itself was issued after a long delay and therefore, the petitioner has failed to
pay the compounding fees. Thus, the petitioner is to be exempted by
invoking Section 278 AA of the Act, as the case of the petitioner is falling
under Section 276 B of the Act.
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W.P. No.26599 of 2017
5.The learned counsel for the petitioner solicited the attention of
this Court, with reference to the impugned order of rejection, dated
21.08.2017, wherein the failure of the writ petitioner to remit the
compounding fees was cited as a ground and further, show cause notice was
issued as to why an order treating the petitioner's director as a principal
officer of the petitioner-Company should not be made by invoking Section
2(35) of the Act. Such an action initiated against the petitioner is not only
improper, but not in consonance with the benefit granted to the assessee
under Section 278 AA of the Act. When the petitioner could able to explain
that the petitioner has got a reasonable cause for its failure to pay
compounding fees, the said factors are to be considered by the respondents
and in the present case, the Chief Commissioner of Income Tax, Chennai,
has not considered any of these factors.
6.The learned Standing Counsel appearing on behalf of the
respondents objected the said contentions of the petitioner, by stating that
the petitioner-Company has given a letter of undertaking to pay the
compounding fees on 13th January, 2014. The said letter of undertaking was
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W.P. No.26599 of 2017
not enclosed along with the Writ Petition. In the said letter of undertaking,
the petitioner had undertook that they will pay the compounding fees as
determined by the Chief Commissioner of Income Tax, Chennai, along with
10% of the compounding fees, subject to a minimum of Rs.10,000/- and
maximum of Rs.50,000/-, towards prosecution establishment expenses and
litigation expenses for each assessment year. Though the letter of
undertaking was given on 13th January, 2014, and the application for
compounding of the offences was filed by the petitioner on 13.01.2014, the
petitioner had not cleared the out-standing demand. It is a pre-condition that
the out-standing demand is to be cleared for the purpose of considering the
application filed for compounding of offences on 13.01.2014. Thus, the
delay occurred not at the instance of the department, but due to the conduct
of the petitioner. Though the petitioner submitted the application on
13.01.2014, he cleared the demand out-standing on 29.12.2016 and
thereafter, the application was considered and the same was rejected on the
ground that the petitioner has not paid the compounding fee as per the letter
of undertaking given on 13.01.2014. Thus, there was no delay on the part of
the department.
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W.P. No.26599 of 2017
7.Relying on the counter statement, the learned Standing Counsel
for the respondents, reiterated that it is a mandatory and pre-requisite
condition to process the application for compounding of offences, only after
clearing of all the out-standing demands by way of payment/reduction. The
petitioner, vide letter dated 29.12.2016, intimated that correction statements
had filed to reduce the demand out-standing. After verification of the fact
that the demand had been reduced to nil, the petitioner's application was
taken up for consideration. The Chief Commissioner of Income Tax (TDS),
Chennai, approved to compound the offence under Section 276 B of the Act
on 13.02.2017, subject to the payment of compounding fee of
Rs.11,40,692/- by the assessee within a period of 60 days from the date of
receipt of the intimation. The said order was intimated to the petitioner-
Company vide letter dated 21.02.2017 by RPAD and served on 23.02.2017.
On the failure to pay the compounding fee even after prescribed time limit,
the Chief Commissioner of Income Tax (TDS), Chennai, was left with no
option, but to revoke the petitioner's plea for compounding of offence,
which is in accordance with law.
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W.P. No.26599 of 2017
8.The respondents cited the judgment of the Hon'ble Apex Court
of India, in the case of Assistant Commissioner Vs. Velliappa Textiles Ltd.,
reported in [2003] (132 Taxman 165) (SC), wherein the Apex Court made
an observation that compounding of offence is not a matter of right to the
assessee and the relevant portion of the order is extracted hereunder:
“The main reason given in P.V.
Paiv.R.L.RinawmaILR 1993 Kar. 709 for holding that an
opportunity of hearing should be given to an accused
before grant of sanction is that under Section 279 (2) any
offence under Chapter XXII may, either before or after the
institution of proceedings be compounded by the Board,
or a Chief Commissioner or a Director General
authorised by the Board in this behalf and, therefore, if an
opportunity is given to an assessee before grant of
sanction, he may offer for composition in order to save
himself from the “disgrace and ignominy of the
prosecution”. It is difficult to agree with the reasoning. If
someone has committed an offence, he must be prosecuted
and if found guilty, must be punished in accordance with
law. Compounding of an offence is not a right of the
accused nor it is his unilateral act. It can only be done
with the consent of the authorities enumerated in the
provision. No additional right can be created in favour of
an accused to enable him to save himself from the
disgrace and ignominy of the prosecution. [para 6]”
9.Regarding the exemptions contemplated under Section 278 AA
of the Act, the respondents contended that in the absence of any reasonable
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W.P. No.26599 of 2017
cause, as prescribed in the above Section, by making mere payment of
interest of belated remittance of the Tax Deducted at Source, the petitioner
cannot claim exemption from the prosecution proceedings under Section
276 B of the Act and a similar view was taken by the Hon'ble Apex Court in
the case of M/s.Madhumilan Syntex Ltd. Vs. Union of India reported in
160 Taxman 71 (SC) and the relevant portion of the observations are
extracted hereunder:
“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. Ranjit Kumar invited
our attention to a decision of the High Court of Calcutta
in Vinar & Co. & Anr. v. Income Tax Officer & Ors.,
(1992) 193 ITR 300 (Cal). Interpreting the provisions of
Section 276B, a Single Judge of the High Court observed
that "there is no provision in the Income Tax Act imposing
criminal liability for delay in deduction or for non-
payment in time. Under Section 276B, 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.
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
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W.P. No.26599 of 2017
make the provision relating to prosecution nugatory.”
10.Section 201 of the Act clearly states the consequences of
failure to deduct or pay the TDS within the prescribed time. In the present
case, the petitioner has deducted the Tax Deducted at Source, but failed to
pay the same into the Government account, within due time. Thus, it is an
offence prosecutable under Section 276 B of the Act. In this regard, the
Hon'ble Apex Court has clearly taken a view in the said case of
M/s.MadhumilanSyntex Ltd. (cited supra) and the relevant paragraph was
extracted above.
11.This Court is the considered opinion that the petitioner, in spite
of its undertaking to pay the compounding fee on 13.01.2014, failed to
honour the undertaking. The respondents approved the compounding of
offence under Section 276 B of Act on 13.02.2017, subject to the payment
of compounding fee by the assessee within 60 days from the date of receipt
of the intimation. There was a delay of 3 years in disposing of the
compounding fee application in view of the fact that mandatory pre-
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W.P. No.26599 of 2017
requisite condition to clear out-standing demand was made by the writ
petitioner only on 29.12.2016.
12.This being the factum established, this Court is of an opinion
that the grounds raised in the present Writ Petition deserves no merit
consideration and consequently, the Writ Petition stands dismissed. No
costs. Consequently, connected Miscellaneous Petitions are closed.
30.06.2021
gsa
Index : Yes
Speaking Order : Yes
To
1.The Government of India,
Assistant Commissioner of Income Tax,
TDS Circle, Coimbatore,
1510, Mayflower Midcity,
Trichy Road, Coimbatore 641 018.
2.The Income Tax Officer,
TDS Ward, Tiruppur,
“Aadams Plaza” No.121, 60 Feet Road,
Tiruppur 641 602.
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W.P. No.26599 of 2017
S.M.SUBRAMANIAM, J.
gsa
W.P.No.26599 of 2017
30.06.2021
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