Supreme Court of India
Y.P. CHAWLA AND ORSversusM.P. TIWARI AND ANR.
- Citation
- 1992 INSC 101
- Decided
- 31 March 1992
- Disposal
- Appeal(s) allowed
- Bench
- KULDIP SINGH
Holding
The Explanation to Section 279(2) makes Board instructions, including the requirement of prior approval, binding on the Commissioner, thereby allowing the Board to control the discretion to compound offences.
Summary
The respondents, Tiwari and Passi, were prosecuted under Section 276‑B of the Income‑Tax Act for failing to deposit TDS. They applied to the Commissioner for compounding of the offences under Section 279(2). The Central Board of Direct Taxes had issued Instruction No. 1317 under Section 119(1) requiring prior Board approval and prohibiting any assurance before such approval. The Delhi High Court quashed the instruction, holding it curtailed the Commissioner’s statutory power. On appeal, the Supreme Court examined whether the Board could bind the Commissioner’s discretion. It held that the Explanation to Section 279(2) inserted by the Finance Act (2) of 1991 makes the Board’s instructions a proviso to the section, thereby obligating the Commissioner to act in conformity with them. Consequently, the appeals were allowed, the High Court judgments set aside, and the writ petitions dismissed.
Issues considered
- Whether the Central Board of Direct Taxes, under Section 119(1), can issue instructions that control the Commissioner’s discretion under Section 279(2) to compound offences.
- Whether such Board instructions are binding on the Commissioner despite earlier case law.
Legislation cited
- Finance Act (2) of 1991s. Explanation to Section 279(2)
- Income Tax Act, 1961s. 119(1), s. 276-B, s. 279(2)
Subjects
compounding of offencesSection 279Section 119Board instructionsdiscretionIncome Taxwrit petitionSupreme Court
Judgment
A Y.P. CHAWLA AND ORS.
v.
M.P.TIWARI AND ANR.
MARCH 31, 1992
B [KULDIP SINGH AND R.M. SAHAI, JJ .]
Income-Tax Act, 1961:
Ss.279(2) Explanation and 119(1)--Compounding of offence-Discre-
C tion 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 approvaf-lnstructions issued by the Board-Whether binding on all
officers and persons employed in the execution of the Act even if they deviated
-
D from provisions of the Act.
The first respondent, Secretary and principal omcer or 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
E in depositing the income tax deducted from the salaries or 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,
F 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. j-
G 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.
H The High Court allowed the writ petitions and quashed the instruc-
440
Y.P. CHAWLA v. M.P. TIWARI 441
-~ tions, on the ground that the circulars had substantially curtailed the A
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 and that no assurance or 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. B
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 C
-
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 fer the proper composition of the offences under Section
279(2) of the Act and further specifically provides that directions for D
obtaining previous approval of the Board ean 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. [44SD·EJ E
Navnitlal C.C Javery v. Appellant Assistant to Commissioner of
Income-tax, [1965) 1 SCR 909; Ellennen 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.
F
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.
G
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. H
442 SUPREME COURT REPORTS (1992] 2 S.C.R.
A 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
B 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
c
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
salarief:> 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. lnspi
~ -
D 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 Coramissioner, Income-tax,
invoking his power under Section 279(2) of the Act and seeking composi-
E tion of the offence~ against them. Section 279(2) of the Act as it was at the
relevant time is as under:- ~
"The Commissioner may either before or after the institution
of proceedings compound any such offences."
F Section 119(1) which empowers the ·Board to issue orders, instruc-
tions and directions for the proper administration of the Act is reproduced
hereunder:-
j
"119.(1} The Board may, from time to time, issue such orders,
instructions and directions to other income-tax authorities as it
G
may deem fit for the proper administration of this Act, and
such authorities and all other persons employed in the execu-
tion of this Act shall observe and follow such orders, instruc-
tions and directions of the Board:
H Provided that no such orders, instructions of directions shall
.
Y.P. CHAWLA v. M.P. TIWARI [KULDIP SINGH, J.J 443
be issued - A
(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 B
Commissioner (Appeals) or the Commissioner (Appeals)in the
exercise of his appellate functions."
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 C
- under: -
"B. CASES WHICH SHOULD NOT BE COMPOUNDED:
1. No compounding will be done if the assessee belongs to a
monopoly or large industrial house or is a director· of a D
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 sub- E
sequent 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 F
consent of the Board, if the amount involved in the of-
fence/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 G
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- H
444 SUPREME COURT REPORTS [1992] 2 S.C.R.
A 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 com-
pounding the previous approval of the Board should always be
B 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."
Tiwari and Passi, by way of two separate writ petitions, challenged
C 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
D of the Act. This circular in our opinion has substantially cur-
tailed 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
E 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 whe.n Section
F 279 of the Act was incorporated."
These appeals by way of special leave are by the Revenue against the
judgments of the High Court.
G This Court in Navnitla/ C.C. Javery v.Appellant Assistant ta Commis-
sioner of Income-tax, [1965] 1 SCR 909; Ellennen Lines Ltd. v. Commis-
sioner of Income-tax, [1972] 4 S.C.C. 474 and in KP. Varghese v. Income-tax
Officer, [1981] 4 S.C.C. 173 has held that circulars issued by the Central
Board of Direct Truces under Section 119(1) of the Aa are binding on all
officers and persons employed in the execution of the Act even if they
H deviate fr~m the provisions of the Act. The High Court has discussed these
Y.P. CHAWLA v. M.P. TIWARI [KULDIP SINGH, J.] 445
> judgments in detail and has distinguished them on plausible grounds. It is A
not necessary for us to go into this question because the legal positon has
altered to the advantage of the Revenue by the introduction of an Explana-
tion 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:-
B
~ "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
c
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 D
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) E
y 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
F
Tiwari and Passi. No costs.
N.P.V. Appeals allowed.
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