Full Judgment Text
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PETITIONER:
Y.P. CHAWLA AND ORS.
Vs.
RESPONDENT:
M.P. TIWARI AND ANR.
DATE OF JUDGMENT31/03/1992
BENCH:
KULDIP SINGH (J)
BENCH:
KULDIP SINGH (J)
SAHAI, R.M. (J)
CITATION:
1992 AIR 1360 1992 SCR (2) 440
1992 SCC (2) 672 JT 1992 (2) 429
1992 SCALE (1)760
ACT:
Income-Tax Act, 1961:
Ss. 279(2) Explanation and 119(1)-Compounding of
offence-Discretion of Commissioner of Income-Tax-Exercise
of-Whether curtailed by guidelines laid down by the Central
Board of Direct Taxes under Section 119(1) requiring the
Commissioner of Income-Tax to obtain Board’s approval before
deciding compounding of offence and not to give any
assurance before obtaining approval-Instructions issued by
the Board-Whether binding on all officers and persons
employed in the execution of the Act even if they deviated
from provisions of the Act.
HEADNOTE:
The first respondent, Secretary and principle officer
of a Company was prosecuted, along with Directors of the
Company under Section 276-B of the Income Tax Act, 1961, on
the charge that he had committed defaults in depositing the
income tax deducted from the salaries of the employees of
the Company during the assessment years 1970-80 to 1982-83.
The second respondent, the Managing Director of another
Company, was also prosecuted for the same offence.
Both the respondents applied to the Commissioner,
Income-tax, invoking his power under Section 279(2) of the
Act as it stood prior to insertion of Explanation to the
Section by Finance Act (2) of 1991, made sperative with
effect from April 1, 1962 and seeking composition of the
offences against them.
Meanwhile, the respondents filed two separate writ
petitions before the High Court challenging the instructions
No. 1307 dated March 11, 1980 issued by the Central Board of
Direct Taxes under Section 119(1) of the Act providing
guidelines for exercise of powers under Section 279(2) of
the Act.
The High Court allowed the writ petitions and quashed
the instruc-
441
tions, on the ground that the circulars had substantially
curtailed the powers of the Commissioner, in view of the
instructions that the previous approval of the Board should
always be obtained before deciding to compound an offence
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and that no assurance of any kind should be given to the
assessee before obtaining approval, and that this was not
the intention of the legislature when Section 279 of the Act
was incorporated.
Allowing the appeals, by special leave, filed by the
Revenue, this Court,
HELD: The Explanation to Section 279 of the Act
inserted by the Finance Act (2) of 1991, which has been made
operative with effect from April 1, 1962, is in the nature
of a proviso to Section 279(2) of the Act with the result
that the exercise of power by the Commissioner under the
said section has to be subject to the instructions issued by
the Board from time to time. The Explanation empowers the
Board to issue order, instructions or directions for the
proper composition of the offences under Section 279(2) of
the Act and further specifically provides that directions
for obtaining previous approval of the Board can also be
issued. Reading Section 279(2) along with the Explanation,
there is no manner of doubt that the Commissioner has to
exercise the discretion under Section 279(2) of the Act in
conformity with the instructions issued by the Board from
time to time. [445D-E]
Navnitlal C.C. Javery v. Appellant Assistant to
Commissioner of Income-tax, [1965] 1 SCR 909; Ellermen Lines
Ltd. v. Commissioner of Income-tax, [1972] 4 S.C.C 474 and
K.P. Varghese v. Income-tax Officer, [1981] 4 S.C.C. 173,
relied on.
JUDGMENT:
CRIMINAL APPELLATE JURISDICTION : Criminal Appeal Nos.
207-208 of 1992.
From the Judgment and Order dated 30.11.90 of the
Delhi High Court in Crl. Writ Petition Nos. 348 and 436 of
1987.
Altaf Ahmed, Additional Solicitor General, B.B. Ahuja
and Ms. A. Subhashini for the Appellants.
P.C. Khanna, Ms. Ruchhi Khanna and Ms. Indu Goswamy for
the Respondents.
442
The Judgment of the Court was delivered by
KULDIP SINGH, J. Special leave granted.
Whether the Central Board of Direct Taxes, (the Board)
under Section 119 of the Income-tax Act, 1962 (the Act) can
issue instructions to control the discretion of the
Commissioner of Income-tax under Section 279(2) of the Act,
to compound the offences is the short question for our
consideration.
M.P. Tiwari and M.L. Passi are the respondents before
us in these appeals. M.P. Tiwari is the Secretary and
principal officer of M/s. Hans Raj Gupta and Co. Pvt. Ltd.
He along with other Directors of the said Company was
prosecuted under Section 276-B of the Act on the charge
that he committed defaults in depositing the income tax
deducted from the salaries of the employees of the Company
during the assessment years 1979-80 to 1982-83. M.L. Passi
was the Managing Director of M/s. Inspi Auto Industry Pvt.
Ltd. He was also prosecuted under Section 276-B of the Act
for committing defaults in depositing the tax deducted at
the source by the company.
Both Tiwari and Passi, applied to the Commissioner,
Income-tax, invoking his power under Section 279(2) of the
Act and seeking composition of the offences against them.
Section 279(2) of the Act as it was at the relevant time is
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as under:-
"The Commissioner may either before or after the
institution of proceedings compound any such
offences."
Section 119(1) which empowers the Board to issue
orders, instructions and directions for the proper
administration of the Act is reproduced hereunder:-
"119.(1) Board may, from time to time, issue such
orders, instructions and directions to other
income-tax authorities as it may deem fit for the
proper administration of this Act, and such
authorities and all other persons employed in the
execution of this Act shall observe and follow such
orders, instructions and directions of the Board:
Provided that no such orders, instructions of
direction shall
443
be issued -
(a) so as to require any income-tax authority to
make a particular assessment or to dispose of a
particular case in a particular manner; or
(b) so as to interfere with the discretion of
the Deputy Commissioner (Appeals) or the
Commissioner (Appeals) in the exercise of his
appellate function."
The Board issued instruction No. 1317 dated March 11,
1980 under Section 119(1) of the Act providing guidelines
for the exercise of power under Section 279(2) of the Act.
The relevant part of the instructions is as under :-
"B. CASES WHICH SHOULD NOT BE COMPOUNDED:
1. No compounding will be done if the assessee
belong to a monopoly or large industrial house or
is a director of a company belonging to or
controlled by such house.
2. Cases in which the prospects of a successful
prosecution are good should not ordinarily be
compounded.
3. Compounding will not be done in case of second
and subsequent offices.
C. CASES WHICH MAY BE COMPOUNDED;
1. Except in cases falling within category (1) and
(3) of B above, compounding of an offence can be
done with the consent of the Board, if the amount
involved in the offence/default is less than Rupees
one lakh.
2. Except in cases falling under categories (1) and
(3) of B above, and category (1) of C, compounding
may be done with the approval of the Minister, if,
in view of developments taking place subsequent to
the launching of the prosecution it is found, after
consultation with the Minister of law, that the
chances of conviction are not good.
D. Notwithstanding anything stated in B, the Board
may ap-
444
prove compounding in deserving and suitable cases
involving hardship with the approval of the
Minister."
"6. While the above are only intended to provide
broad guidelines to be followed before sending a
proposal for compounding the previous approval of
the Board should always be obtained before deciding
the compounding of an offence. No assurance of
any kind should be given to the assessee before
obtaining the Board’s approval."
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Tiwari and Passi, by way of two separate writ petitions
challenged the above quoted instructions before the Delhi
High Court. The High Court allowed the writ petitions and
quashed the instructions on the following reasoning :-
"We have already produced some of the clauses
of the instructions which on the face of it run
counter to the provisions of the Act. This
circular in our opinion has substantially curtailed
the powers of the Commissioner of Income Tax, which
are vested in him under Section 279 of the Act. In
fact the decision of the Commissioner has ceased to
be his decision and has become the decision of the
board and/or that of the Minister, in view of the
instructions that, "the previous approval of the
Board should always be obtained before deciding to
compound an offence." ".....No assurance of any
kind should be given to the assessee before
obtaining Board’s approval."
This was not the intention of the legislature
when Section 279 of the Act was incorporated."
These appeals by way of special leave are by the
Revenue against the judgments of the High Court.
The Court in Navintlal C.C. Javery v. Appellant
Assistant to Commissioner of Income-tax, [1965] 1 SCR 909;
Ellermen Lines Ltd. v. Commissioner of Income-tax, [1972] 4
S.C.C 474 and in K.P. Varghese v. Income-tax Officer, [1981]
4 S.C.C. 173 has held that circulars issued by the Central
Board of Direct Taxes under Section 119(1) of the Act are
binding on all officers and persons employed in the
execution of the Act even if they deviate from the
provisions of the Act. The High Court has discussed these
445
judgments in detail and has distinguished them on plausible
grounds. It is not necessary for us to go into this
question because the legal position has altered to the
advantage of the Revenue by the introduction of an
Explanation to Section 279 of the Act by the Finance Act (2)
of 1991 which has been made operative with effect from April
1, 1962. The Explanation is as under :-
"Explanation : For the removal of doubts, it is
hereby declared that the power of the Board to
issue orders, instructions or directions under this
Act shall include and shall be deemed always to
have included the power to issue instructions or
directions (including instructions or directions to
obtain the previous approval of the Board) to other
income-tax authorities for the proper composition
of offences under this section."
The Explanation is in the nature of a proviso to
Section 279(2) of the Act with the result that the exercise
of power by the Commissioner under the said section has to
be subject to the instructions issued by the Board from time
to time. The Explanation empowers the Board to issue
orders, instructions or directions for the proper
composition of the offences under Section 279(2) of the Act
and further specifically provides that directions for
obtaining previous approval of the Board can also be issued.
Reading Section 279(2) along with the Explanation, there is
no manner of doubt that the Commissioner has to exercise the
discretion under Section 279(2) of the Act in conformity
with the instructions issued by the Board from time to time.
We allow the appeals, set aside the High Court
judgments dated November 30, 1990 in both the cases and
dismiss the writ petitions filed by Tiwari and Passi. No
costs.
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N.P.V Appeal allowed.
446