Law:

Section:

Section 276B of the Income-tax Act, 1961 - Offences and prosecution - Failure to pay tax deducted at source - Assessment years 1970-71 to 1976-77 - Whether prosecution must be launched within reasonable time and where show-cause notices were issued after 10/15 years and no explanation was given by department for such delay, proceedings under section 276B could be held to be bad in law - Held, yes - Whether mens rea has to be established before prosecution under section 276B - Held, yes - Whether a partnership firm is not a natural person and, therefore, partners of firm can be prosecuted under section 276B prior to insertion of section 278B - Held, no FACTS The petitioners were the partners of a firm as well as the firm. During the course of its business, the firm received loans and advances from different persons on interest. The accounts of the aforesaid creditors in the books of the firm used to be credited with the amount of interest accrued in every accounting year on the basis of mercantile system of accounting. On such credit for interest made in the accounts of the creditors, the firm was required to deduct income-tax at source under section 194A. Since the petitioner firm failed to deduct tax at source under section 194A, proceedings under section 276B were initiated against the petitioners. The petitioners contended that the accounts of the creditors used to be credited with accrued interest thereon under the mercantile system of accounting wherein the tax deducted at source thereon could be paid only on the basis of cash funds available with the firm. As and when the aforesaid cash funds were available, the firm duly paid the tax deducted at source. The petitioners submitted that there was a reasonable and bona fide cause for the delay in depositing the tax deducted at source. It was also submitted that the aforesaid show-cause notices were issued under a misconceived notion of law and moreover the notices were issued after a long lapse of 10/15 years. On writ: HELD On a proper construction of section 276B, the word person' referred to in the aforesaid section does not mean to include either a partnership firm or any partner thereof and the meaning…

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