Repeat offenders in case of TDS defaults are liable higher compounding charge of 5%.
Facts and Issue of the case
Present writ petitions have been filed challenging the orders dated 11th February, 2022 passed by the Respondent No.1, Chief Commissioner of Income Tax (TDS) and the Orders dated 31st July, 2017 under Section 2 (35) of the Income Tax Act, 1961 (for short ‘Act’) pertaining to the Financial Years 2013-14, 2014-15 and 2015-16 passed by the Respondent No.2, Assistant Commissioner of Income Tax, Circle 75 (1), Delhi. Mr.Ramesh Singh, learned senior counsel for the Petitioners states that Respondent No.1 vide impugned order has compounded the offences pertaining to late deposit of Tax Deducted at Source (TDS) committed by the Petitioners herein under Section 279(2) of the Act at the rate of five per cent compounding charges. He states that levying compounding charges at the rate of five per cent instead of the usual rate i.e., three per cent is in contravention of the Circular dated 23rd December, 2014 issued by the Department of Revenue, Central Board of Direct Taxes, Ministry of Finance, Government of India.
Learned senior counsel for the Petitioners states that Respondent No.1 had imposed a higher rate since it has treated the proceeding as a second compounding application, which is unsustainable since the Petitioners had preferred only a single compounding application in respect of each of the three Financial Years. He states that the higher rate of five per cent could be levied only if the petitioner did not comply with the conditions mentioned in the compounding order and filed a second compounding application with regard to the same financial year.
Learned senior counsel for the petitioners further states that the impugned order imposes compounding fee at the rate of ten per cent of the compounding charges payable by the main accused i.e., Petitioner No.1 Company on Petitioner Nos. 2 to 5 instead of just confining it to Mr. Rakesh Kumar by treating him as Principal Officer of the Petitioner No.1 Company for the Financial Years 2013-14, 2014-15 and 2015-16. He points out that it was only Mr. Rakesh Kumar, who was the Principal Officer of Petitioner No.1 Company in terms of Section 2(35) of the Act and, therefore, the only person who was in charge of and responsible to Petitioner No.1 Company in terms of Section 278B of the Act. Learned senior counsel for the petitioners emphasises that the impugned compounding order pertaining to the Financial Years 2013-14, 2014-15 and 2015-16 is completely at variance with the compounding order for the Financial Year 2012-13 thereby making the impugned order arbitrary and unsustainable. Per contra, Mr. Zoheb Hossain, learned counsel for the respondents- revenue has drawn this Court’s attention to Clause 12.1 of the Guidelines for Compounding of Offences under Direct Tax Laws, 2014 issued by the Department of Revenue, Central Board of Direct Taxes, Ministry of Finance, Government of India, dated 23rd December, 2014.
Observation of the court
Having heard learned counsel for the parties, this Court is of the view that compounding of offences cannot be taken as the matter of right. It is for the law and authorities to determine as to what kind of offences should be compounded, if at all, and under what conditions.
This Court is of the opinion that the guidelines issued by the CBDT clearly stipulate that after compounding of the first offence, if the same person comes forward for compounding of another offence through any subsequent application, the applicable rate will be five per cent instead of three per cent. This Court is also of the view that the expression “after compounding of the said offence” means when the offence has been compounded, meaning thereby, not only the stage after the compounding order has been passed but also after the conditions stipulated in the said order have been complied with like payments. In fact, there is a rationale behind imposing a higher rate for subsequent offences as the respondents want to incentivize compliance and want the public to deduct TDS and pay to the Government.
Since, in the present case, the petitioners company is a ‘repeat offender’, this Court is of the view that the respondents are entitled in law to impose a higher compounding fee i.e. five per cent instead of three per cent. Accordingly, the first submission advanced by learned senior counsel for the petitioner is rejected.
However, as regards the second submission that compounding fee is payable only by the main accused by treating Mr. Rakesh Kumar as the Principle Officer instead of all the Directors of the petitioners, this Court is of the view that matter requires examination especially in view of the fact that in the Year 2012-13 the compounding fee was levied only on one Director (Mr. Aman Gulati) and not on the other Directors.
This Court is also of the view that if the Chartered Accountant who had represented the petitioner before the Commissioner did not have a power of attorney or a vakalatnama in his favour at the time when he had filed the written submission, the Commissioner should have given time to the authorized representative to file the power of attorney/Vakalatnama instead of levying the compounding charge on all the Directors.
The petitioners company is a ‘repeat offender’, this Court is of the view that the respondents are entitled in law to impose a higher compounding fee i.e. five percent instead of three percent.Maspar-Industries-Private-Limited-Vs-Chief-Commissioner-of-Income-Tax-TDS-Delhi-High-Court