The Hindu Business Line : Even 2-day delay in remitting TDS can attract prosecution

If the principal officers of the company are not in a position to establish that they were not responsible, they may be prosecuted in view of the above decision of the Supreme Court.

Chennai April 17 Good digestion waits on appetite, according to Macbeth. While that may be true as a sign of good health, it can be dangerous to assume that the taxman patiently waits for assessees to pay their tax or remit the tax deducted at source (TDS).

For, even a two-day delay in depositing TDS can lead to prosecution, as a recent apex court judgment declares, in the Madhumilan Syntex Ltd case.

The amount involved in this case was a little more than Rs 1 lakh, and the year, 1989.

The company had deposited the tax after a two-day delay, along with interest, yet the AO (Assessing Officer) issued a notice to the company alleging that there was failure to credit TDS to the Central Government as required by the Income-Tax Act.

This was an offence punishable under Section 278B of the Act, he said, and proceeded to issue a show cause notice against the company and also the directors, the principal officers of the company. A case of good tax appetite waiting on a short delay, one may say.

"Though the Supreme Court did not go into the merits of the case and decided the issue in respect of maintainability of criminal complaint, the observations made by the Court in this judgment are important," said Mr Rajesh C. Patil, Deloitte Haskins & Sells, Mumbai, in an interaction with Business Line. Excerpts from the interview:

What is the defence available to assessees in cases such as this?

The Act grants relief from penalty if the default is due to reasonable cause. No director, manager, secretary or other officer shall be punished under the Act unless it is proved that the offence was attributable to any neglect or has been committed with the consent or connivance of such person.

Didn't Madhumilan put forth the defence of `reasonable cause'?

Yes, it did. The company contended that it was not a case of `no payment' of TDS, and that the tax along with interest had been paid and that the statutory provisions had been complied with.

Madhumilan pleaded that there was delay in receiving loan from the bank, due to which TDS could not be paid in time.

Also, that because of construction of a unit by the company, there was shortage of liquid funds and hence the payment could not be made on the due date.

What did the apex court say?

The Supreme Court held that once a statute requires the payment of tax, and stipulates the period within which such payment is to be made, payment must be made within that period.

If payment is not made within that period there is default, and appropriate action can be taken under the Act, the court said. The Supreme Court held that if the arguments of assessee were accepted, the provision relating to prosecution would be nugatory.

On the takeaways from the verdict.

To sum up, though under the Act the director, manager, secretary or other officer of the company shall not be punished if the offence has been committed without their knowledge or that they had exercised all due diligence to prevent such offence, the finding in the above ruling of the Supreme Court has far-reaching implications.

There may be occasions when the prevailing circumstances prevent the assessee from depositing the TDS in the Government treasury within the statutory period.

If the principal officers of the company are not in a position to establish that they were not responsible, they may be prosecuted in view of the above decision of the Supreme Court.

Therefore, assessees need to be extra careful and comply with the provisions relating to taxes deducted at source.

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