LAXMI INDUSTRIES LTD. COMPANY and Others vs INCOME TAX OFFICER and Another

M. A. A. KHAN, J. :

By his three identically worded separate orders the learned Special Magistrate (Economic Offences), Jaipur has framed the charges against the petitioners for the offence punishable under s. 276B of the IT Act, 1961 (the Act of 1961). In all these three petitions such orders of the learned Magistrate have been challenged on same grounds. These were, therefore, heard together and are being disposed of by this combined order.

None has appeared for and on behalf of respondent No. 1. Therefore, the learned counsel for the petitioners as also the learned Public Prosecutor were heard.

Briefly stated the relevant facts are that the petitioners Nos. 2 to 6 are the partners of petitioner No. 1 which is a partnership firm. The petitioners, during the years under consideration namely asst. yrs. 1983-84, 1984-85 and 1985-86 deducted interest of different amounts payable to Shiv Kishan Shiv Narain, Bhawani Mandi, Jhalawar on their deposits/securities. They credited the interest payable account and subsequently the account of the creditor. The petitioners duly paid, within prescribed time, the tax due on the amount of interest payable/paid to the above named creditor. The objection of the ITO, however, was that the petitioners did not pay the tax due on the interest payable to the aforesaid creditor within the specified time. Therefore, he filed three separate complaints for offence under s. 276B of the Act of 1961 against the petitioners. The learned magistrate framed the charges on such complaint against the petitioners which are being challenged through these petitions.

The order of framing charges is an order revisable under s. 397 Cr.PC. The present petitions are, therefore, directed to be treated as revision applications under s. 397(1) Cr.PC. Since these cases pertain to the year 1991 and have been pending before this Court for the last about 5-6 years, I consider it proper to dispose of these petitions here.

Mr. R. N. Khandelwal, the learned counsel for the petitioners submitted that Expln. to s. 194A of the Act was brought on the statute book w.e.f. 1st June, 1987. It was submitted that prior to the amendment failure to deduct Income Tax from interest payable to the depositor was visited by penal consequences only if such deduction was not made at the time of crediting interest income to the account of the payee or at the time of payment thereof in cash or through cheque or draft or by any other mode. According to Mr. Khandelwal, the Explanation inserted w.e.f. 1st June, 1987 in fact created a fresh penal liability and, therefore, in the scheme of the Act, it cannot be said that it was simply an Explanation to the existing provisions of the statute. Mr. Khandelwal thus submitted that in view of the position of law as it stood and was understood by the parties before its amendment w.e.f. 1st June, 1987 the petitioners cannot be said to have committed any offence under s. 276B of the Act of 1961 as they had paid the tax due on the interest payable/paid to the creditor, within the specified time. In support of his contention Mr. Khandelwal has relied upon the decision of this Court in the case of Commissioner of Income Tax Vs. Oriental Power Cables Ltd., I find force in Mr. Khandelwals arguments.

An Explanation brought on the statute Book is ordinarily clarificatory in nature and has retrospective effect, as the Explanation so brought to a provision in the statute simply explains the law as it has always been in the main provision. However, the rule governing the construction of the provisions imposing penal liability upon the subject is that such provisions should be strictly construed. When a provision creates some penal liability against the subject, such provision should ordinarily be interpreted strictly. That apart, if two views of the interpretation or construction of a provision in the statute are reasonably possible, the view which is favourable to the subject should be adopted.

The learned Public Prosecutor no doubt urged that ignorance of law is no excuse and since an Explanation is simply clarificatory in nature ignorance of that position and effect of such Explanation cannot be successfully pleaded by a party. Ignorance of law is certainly not an excuse but there is no presumption of law also that everybody knows the law. It can hardly be disputed that prior to the coming into force of the Expln. to s. 194A w.e.f. 1st June, 1987, the assessees were depositing the tax in the manner as was done by the petitioner for the years under consideration.

In the instant case it can hardly be denied that the main provision of s. 194A, as it stood prior to the amendment brought about w.e.f. 1st June, 1987, and the language of the main proviso gave an option to the assessee to pay tax on the interest payable/paid within specified period of crediting the interest amount to the account of the creditor or to interest payable account or suspense account, as the case may be. Since the assessee could have reasonably held the opinion that he may pay the due tax on such amount of interest within the specified period after crediting the same to the account of the creditor, which is the position in the present cases, the petitioners could have acted in the manner they did. They are thus found not to have committed the offence under s. 194A punishable under s. 276B of the Act of 1961. This view, I think is endorsed by the decision of the Division Bench in the case of CIT vs. Oriental Powers Credit Ltd. (supra). The letter No. 276/72/77-IT (B) dt. 25th January, 1979 addressed to FICCI and sent to all CITs may also be referred to in this behalf.

In view of the above, the impugned orders framing charges against the petitioners in these three cases are hereby set aside and the petitioners are discharged of the offences under s. 276B of the Act of 1961. The complaints filed by the respondent No. 1 against them are accordingly dismissed.