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Judgment
J.S. Sekhon, J.—Criminal Misc. Nos. 6954-M, 6956 M, 6958-M, 6960 M all of the year 1984, shall be disposed of by this order as these involved the same legal and factual controversy. In all these petitions filed u/s 482 of the Code of Criminal Procedure, the accused petitioners seek the quashment of the proceedings instituted by the Income Tax authorities for offences under Sections 276A and 278B of the income Tax Act pertaining to the returns filed in 1977 78. 1978 79, 1979 80 and 1980-31 by deliberately showing the payment of interest to different payees in the interest payable account instead of crediting it to the respective payees account for avoiding the lapse of non-deduction of tax on the interest payable.
The brief resume of facts relevant for the disposal of this petition is that the concerned Income tax officer, Yamunanagar, filed complaint against the petitioner, which is a private limited Company, besides S/Shri S. L. Dosaj, former Managing Director, K. R Malhotra, former General Manager, R. P. Sikka, S. K. Mahajan, Director and K. L. Sehgal, former Secretary, of the Company alleging that for the relevant assessment years, the interest payable to the depositers on specific amount was shown by the Company under the head of the account ''interest payable'', although the Company being aware of the depositor and particulars of the payee should have credited the amount to the account of the payee. Thus it is maintained that the Company and its officials have violated the provisions of Section 194A of the Income Tax Act read with Rule 30 framed under the said Act, according to which 10% of the amount paid had to be deposited with the revenue as advance Income Tax and after deducting this amount of Income Tax, the interest ought to be credited in favour of the payee. Thus it was maintained that the petitioners have committed the offences punishable under Sections 276B and 278B of the Income Tax Act.
In all these petitions, the petitioners seek the quashment of the respective complaint and the proceedings resulting therefrom inter alia, on the ground that before the amendment of Section 194A vide Finance Act, 1987, which came into force on 1-6-1987, there was no provision like the present explanation to sub section (!) of this Section making the crediting of any interest to any account whether called ''interest payable account'' or ''suspense account'' would amount to crediting the interest to the depositor and thus the petitioners have not committed any offence Mr. H. L. Sibal, the learned Senior Advocate, further elaborated this point contending this explanation has created a penal offence by filling up the lacuna in the existing provisions of Section 194A of the Income Tax and that its operation would be prospective and not retrospective as the provisions of law at the time of commission of offence had to be seen in order to ascertain whether the petitioners had committed any offence. He also relied upon explanatory notes on the provisions relating to direct taxes while introducing the Finance Act 1987 figuring at page (1987) 168 I. T. R. 87 in the Section of Statutes. Mr. Sibal also relied upon the decisions of toe apex Court in Ram Kishan Vs. Union of India and others, and Goodyear India Ltd., Gedore (India) Pvt. Ltd., Kelvinator of India Ltd. and the Food Corporation of India and Another Vs. State of Haryana and Another, in support of the proposition that the penal provisions of the statute should be strictly interpreted. Reliance has also been placed on the decision of the Supreme Court in G.P. Nayyar Vs. State (Delhi Administration), in support of the proposition that a penal offence cannot be created with restospective effect.
Mr. A K. Mittal, learned counsel for the respondent, on the other hand stated that the explanation inserted by Finance Act of 1987 to sub section (I) of Section 194A simply explains the existing provisions of law and had not created any new offence and that under the Merchantie Accounting System the accused-petitioner was bound to show the interest payable to depositor for every assessment year and thus was bound to credit interest payable to payees account for every assessment year and its conduct in showing the interest in interest payable account instead of crediting it into payees account is a delibe rate and well thought of design to thwart the provisions of Section 194A of the Act. Thus he maintained that the Company and its Managing Officers are ex facie liable for the above referred offence.
It is not disputed that the fiscal laws had to be strictly construed. The apex Court in T. V. Sundaram lyerger''s case (supra), while interpreting the provisions of Section 23-A, Explanation 2 of Income Tax Act, 1922, had observed that these provisions being penal in nature should be strictly construed and the onus lies on the revenue to prove that conditions laid therein are satisfied and lead only to the one reasonable interpretation that the assessee is liable to pay additional super tax The above referred view was again reiterated by the apex Court in M/s Goodyear India Ltd.''s case (supra) while interpreting the provisions of Section 9(!)(b) of the Haryana General Sales Tax Act, 1973. In para No. 21 of the judgment, it was observed that the apex Court had said and said on numerous occasions that fiscal laws must be strictly construed and words mutt say what they mean. It was further held that nothing should be presumed or implied and the true test for interpreting fiscal legislation was always the language used therein by the Legislature.
In the case in hand, the provisions of unamended Section 194A of the Income Tax Act would be applicable in view of the protection enshrined in Article 20 clause (1) of the Constitution of India, which reads as under : -
"(I) No person shall be convicted of any offence except for violation of the law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the tine of the commission of the offence".
Thus there is absolutely no doubt that Article 20, clause (1) jealously safeguards the liberty of an offender by providing that no person shall be convicted for an offence except for violation of the law in force at the time of the commission of the act charged as an offence. The alleged violation in all the present four petitions pertains to the assessment years 1977-78, 1978 79, 1979 80 and 1980-81 that is, much prior to the insertion of Explanation to Section 194A(1) in the year 1987. Consequently, the provisions of this Explanation would not be attracted to make the accused petitioners liable for offences under Sections 276B and 278B for not deducting Income Tax from the interest payable to different depositors at the time of crediting the same in the interest payable account.
The question then arises whether it can be read in the unamended provisions of Section 194A of the Income Tax that the crediting of the interest in the interest payable account would be deemed to be payment to the different depositors and the Company would be liable for non-deduction of 10% tax on this amount. This question has to be answered in the negative in view of the provisions of Section 194A(1) of the Income Tax Act, 1961, which reads as under :-
"Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income (by way of interest of securities), shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct Income Tax thereon at the rates in force:
Provided that no such deduction shall be made in a case where the person (not being a company or a registered firm) entitled to receive such income furnishes to the person responsible for making the payment-
(a) an affidavit, or
(b) a statement in writing,
declaring that his estimated total income assessable for the assessment year next following the financial year in which the income is credited or paid will be less than the minimum liable to Income Tax."
A bare glance through the above referred provisions leaves no doubt that failure to deduct Income Tax from interest payable to different depositors is visited with penal consequennces only it such deduction is not made at the time of credit of such 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 more. The term by any other mode pertains to the actual payment of interest to depositors and thus cannot be said to cover showing such interest in general interest payable account Thus by no stretch of imagination it can fie said that showing of toe above interest to different payees in the general interest payable account by the Company would be deemed payment of interest to different depositors. As a matter of fact this interpretation cannot be disputed because while introducing the the Finance Bill, 1987, the explanatory note clearly provides that the Legislature, had filled up a lacuna in the existing provisions of Section 194.
Paras No. 38:1 and 38:2 of the Explanatory Note relating to modification of provisions relating, to tax deduction at source reads as
"38.1 With a view to rationalise the provisions of Sections 194, 194A and 194D, the limits up to which no tax is to be deducted have been raised as under :
Sl No. Type of payment Present limit up Amended to which no tax limit is deductible Rs. Rs. 1. Divident (Section (194) 1,000/- 2,500/- 2. Interest other than interest on 1,000/- 2,500/- securities (Section 194A) 3. Insurance Commission (Section Nil 5,000/- 194-D)
38.2 Under the existing provisions, deduction of tax at source from interest is to be made at the time of payment or credit to the account of the payee. With a view to prevent postponement of liability relating to such deduction of tax at source, Section 194A has been amended to provide that tax will be deducted at source, on accrual of interest at the end of the accounting year or at the time of credit to the account of a payee or at the time of payment whichever is earlier. Similarly, Section 195 has been amended to ensure that deduction of tax at source from payments to nonresidents will have to be made at the time of payment or at the time of giving credit to the account of the non resident, whichever is earlier. Any sum credited to "suspense account" or ''interest payable account" shall be deemed to be credited for the purpose of tax deduction at source."
A base glance through the above referred notes leaves no doubt that Section 194A has been amended to provide that the tax Will be deducted at source on accrual of interest in the end of the accounting year or at the time of crediting to the account of payee or at the time of payment, whichever is earlier and it further states that it was done with a view to prevent postponement of liability relating to such deduction of tax at source. Thus the explanatory note itself reveals that there was lacuna or loop hole in the unamended provisions of Section 194A which enabled the concerned person to postpone the liability relating to such deduction of tax at source and thus dwindling the tax collection.
For the reasons stated above, there is absolutely no doubt that Explanation to subsection (1) of Section 194A has created a fresh penal liability and it cannot be said to be a simple Explanation of the existing provisions of this section. If that is so, then this Explanation cannot nave retrospective operation.
Consequently, it cannot be said that the petitioners had violated the provisions of Section 194A by showing the accruing interest to different depositors in their interest payable account instead at crediting it to the payees account. In view of this legal position, the pendency of the provisions resulting from the afore-referred complaints wound certainly amount to abuse of the process of the Criminal Court and call for quashment. It is ordered accordingly by accepting these petitions.