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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