Judgment:
S.L. Kochar, J.
1. The applicants are hereby taking exception to the order of conviction passed by the Additional Chief Judicial Magistrate (Economic Offences), Indore, in Criminal Case No. 14 of 1987 on April 12, 1996, for the offence punishable under Section 276B/278B of the Income-tax Act, 1961 (for brevity 'the Act'), thereby sentencing six months rigorous imprisonment with fine of Rs. 2,000 to applicants Nos. 1 and 2 and fine of Rs. 2,000 to applicant No. 3 I. D. one month SI as also the order dated September 21,1998, passed by learned ASJ, Indore, in Criminal Appeal No. 72 of 1996 thereby maintaining conviction and sentence.
2. Indisputably, applicants No. 1, Narendrakumar, and No. 2, Promodkumar, are partners of applicant No. 3, Khandelwal Steel Sales, 27, South Hathipala,Indore. The non-applicants had filed a criminal complaint against the applicants on March 30, 1987. The allegation made in the complaint was that in the previous relevant to assessment year 1986-87, the accused persons had paid interest amount of Rs. 23,158,75 to various creditors but they failed to deduct and deposit in time the corresponding tax deducted at source amount of Rs. 2,314.
3. The trial court framed charge on October 21, 1992, against the applicants for commission of breach of Section 200 of the Act punishable under Section 276B/278B of the Act. It was stated in the charge that the applicants paid interest to Shri Dayanand Mishra, Shri Rajendra S. Bhandari, Meja Vaidya Sports, Neeta Lonia, Rashi Khandelwal, Sanjeev Laxmikant Choudhari, Shyam Kumar Agrawal and Smt. Shantabai Dharamchand, for the assessment year 1986-87 but failed to deduct tax at source and deposit the same in the Government treasury within time. To prove its case, the prosecution has examined solitary witness N. Ahirwal in place of original complainant Shri Nav Rajan Gupta, who died during the pendency of the complaint.
4. The applicants have submitted before the court that there was no valid sanction as per the provisions under Section 279 of the Act because the authority was not apprised of the fact that the tax deducted at source deposits or Form No. 15A were ultimately deposited though late. If this fact could have been disclosed to the sanctioning authority, probably, the sanction for prosecution would not have been granted. It was also contended that the delay in depositing tax deducted at source and Form No. 15A was neither intentional nor deliberate. Because of bona fide delay, no offence was made out against them.
5. The trial court found the applicants guilty for the aforesaid offence. On appeal, the appellate court has also affirmed the same.
6. The contention of counsel for the applicants is that prior to April 1, 1989, the provision under Section 276B of the Act, prescribing that if a person fails to deduct or after deducting fails to pay any advance as required by or under the provisions of Sub-section (9) of Section 80E of Chapter XVII-B, was punishable. This provision of Section 276B, has been amended by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989, which prescribes punishment for failure to pay tax deducted at source. Thus up to April 1, 1989, failure to deduct tax deducted at source was also an offence but after April 1, 1989, only if a person deducted tax deducted at source but did not pay tax then it was an offence for which the person concerned is liable for punishment.
7. He has also submitted that a new Section 271C was introduced with effect from April 1, 1989, to provide for penalty imposable on a person who fails to deduct the tax deducted at source cease to be an offence, but was liable for penalty under the Act and this has been explained by the respondent/Depart-ment Circular No. 551, dated January 23, 1990 (see [1990] 183 ITR 7), which reads as under (page 78) :
'17.2 Substitution of a new section for Section 276B to exclude failure to deduct tax at source from prosecution provisions and to provide prosecution only for failure to pay tax deducted at source to the Government.--Under the old provisions of Section 276B, the following defaults were liable to prosecution :
(i) failure to deduct tax at source under the provisions of Chapter XVII-B;
(ii) failure to pay to the Government the tax so deducted at source.'
8. Section 80E of the Act has been omitted by amending Act of 1987. Therefore, reference to Section 276B is no longer necessary. Failure to deduct tax at source now attracts penalty under the new Section 271C. In view of the aforesaid changed law that on the date when the complaint was pending failure to deduct tax was no more an offence and only if the tax was deducted, but not paid, then it was an offence and for not deducting tax at source and nonpayment thereof, the law has provided for imposition of penalty. In the case of the applicants, they did not deduct tax deducted at source and also did not deposit the same within the prescribed period but, of course, deposited the same late in time. Therefore, no offence could be made out against them. Learned counsel in support of his submissions placed reliance on the following decisions :
(1) Kolhapur Canesugar Works Ltd. v. Union of India : 2000(119)ELT257(SC)
(2) General Finance Co. v. Asst. CIT : [2002]257ITR338(SC) ; and
(3) Kaushal Kishore Biyani v. Union of India [2002] 256 ITR 679.
9. Learned counsel for the non-applicants submitted that there is no saving clause in the amendment Act about retrospective applicability. Therefore, the complaint was filed well within the purview of the old law because the incident had taken place when the old law was prevalent and the applicants will not get any benefit of omission of their penal provision by amended Act.
10. The Supreme Court in the case of Kolhapur Canesugar Works Ltd. : 2000(119)ELT257(SC) , in paragraph 38 (page 821) has held as under :
'... at common law, the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute book as completely as if it had never been passed, and the statute must be considered as a law that never existed. To this rule, an exception is engrafted by the provisions of Section 6(1). If a provision of a statute is unconditionally omitted without a saving clause in favour of pending proceedings, all actions must stop where the omission finds them, and if final relief has not been granted before the omission goes into effect, it cannot be granted afterwards. Savings of the nature contained in Section 6 or in special Acts may modify the position. Thus the operation of repeal or deletion as to the future and the past largely depends on the savings applicable. In a case where a particular provision in a statute isomitted and in its place another provision dealing with the same contingency is introduced without a saving clause in favour of pending proceedings then it can be reasonably inferred that the intention of the Legislature is that the pending proceeding shall not continue but a fresh proceeding for the same purpose may be initiated under the new provision.'
11. Again, the Supreme Court in the case of General Finance Co. v. Asst. CIT : [2002]257ITR338(SC) after considering the observations of the Constitution Bench decision in Rayala Corporation P. Ltd. v. Director of Enforcement : 1970CriLJ588 and Kolhapur Canesugar Works Ltd. v. Union of India : 2000(119)ELT257(SC) , has held as under (page 342) :
'The view taken by the High Court is not consistent with what has been stated by the Supreme Court in the two decisions aforesaid and the principle underlying Section 6 of the General Clauses Act as saving the right to initiate proceedings for liabilities incurred during the currency of the Act will not apply to omission of a provision in an Act but only to repeal, omission being different from repeal as held in the aforesaid decisions. In the Income-tax Act, Section 276DD stood omitted from the Act but not repealed and hence, a prosecution could not have been launched or continued by invoking Section 6 of the General Clauses Act after its omission.'
12. On behalf of the Income-tax Department, arguments were advanced before the Supreme Court that in view of the provision of Section 6 of the General Clauses Act, pending proceedings will be saved in the absence of any specific provision in the amended Act, since the amended Act is silent about retrospective applicability. The Supreme Court has answered this, holding that, Section 6 of the General Qauses Act will not apply to omission of any provision in the Act but will apply only to repeal. In the present case penal provision was completely omitted, therefore, it would be considered as if it had never been in the statute book and for the same no prosecution could be launched or continued. In view of the aforesaid legal position about the effect of applicability of the Amendment Act of 1987 omitting the provision 276B from the statute book, the applicants could not have been held guilty of the offence on the date of delivery of judgment by the trail court on April 12, 1996. On that date, the act of not deducting and not depositing tax deducted at source, was not an offence and for this only penalty was prescribed. Therefore, conviction and sentence of the applicants as imposed by the trial court is hereby set aside.
13. Ex consequenti, this revision is allowed in the terms, indicated above.