Overview of Section 276B of the Income Tax Act 1961

Shubhangi Jain

01 Jun, 2024

Failure regarding the payment of tax to the credit of the Central Government is an offence under chapter XII-D or XVII-B section 276B of the Income Tax Act, 1961. It is a serious offence in India and can lead to the initiation of prosecution against the assessee. The said offences are punishable under various provisions of the act, including fines, imprisonment, etc. The present article attempts to analyse section 276 B of the Income Tax Act of 1961 in order to determine the liability of the assessee for failure to pay or deposit taxes to the credit of the Central Government. The article shall cover the legal provisions, the applicable penalties, and their implications.

Section 276b: Meaning

Section 276B of the Income Tax Act 1961 states that in the event of the failure by the assessee in paying or depositing the money so invested or deposited, he shall be liable for prosecution and may be punished with a fine which may extend to a sum equal to 3 times the amount of the money so invested or deposited and in case of a continuing offence shall also be liable for a penalty for every day during which the offence continues.

It further provides that the offence shall be deemed, for the purposes of this section, to have been committed before the expiry of the period specified in any notice if such notice was served on the person committing the offence and there has been a failure by the assessee to comply with such notice. Section 276B also allows the Central Government the extension, by notification in the official Gazette,  of the period of payment of any sum referred to in the section.

However, there shall be no imposition of penalty or initiation of prosecution against the assessee shall be made or launched against the assessee for any failure referred to in section 276B if the assessee successfully proves the existence of a reasonable cause for the said failure.

But, in the absence of any reasonable cause for such failure, the concept of compounding shall be applicable. Compounding of offences implies that the assessee can, instead of serving an imprisonment term, make the payment of a fee to the revenue department for waving off his prosecution charges.

Types of Offences Individuals Can Compound

Individuals can compound two types of offences:

Technical Offences

Individuals committing technical offences must fulfil the following criteria for receiving compounding of offences:

• Submission of written request for compounding technical offence.
• Payment of compounding fees and establishment charges by the assessee.
• No initiation of prosecution is filed against a tax defaulter, and compounding fees are equivalent to or below ₹ 10, 00,000.
• Assessees can compound subsequent offences after the first one if the reason for taking steps for the rectification of the same before the Income Tax Department detects it.
• Non Payment of the tax is unintentional. Further, assessees have also started taking steps for the rectification of the same before the Income Tax Department detects it.
• The compounding fee will increase by 100% for defaulting on tax payments after committing a similar act for the first time.
• An assessee paid the applicable interest, penalties and undisputed tax.

Non-Technical Offences

• Submission of a written request for compounding non-technical offence.
• Payment of the compounding and establishment charges.
• Commission of a non-technical or substantive offence for the first time by the assessee
• The board approved the request for compounding a non-technical offence before.
• An assessee paid applicable interest, penalties and undisputed tax.
• It must be noted by the assessee that official authorities only consider cases that qualify to be examined besides assessing the above-mentioned criteria.

Rate of Compounding Fees

In case of the commission of the offence before 1^st April 1989:the fees shall be charged @ 10%/month or part of a month of the default amount where the total amount is more than Rs. 1 lakh and @ 2%/month or part of a month of the default amount in other cases.

Penalties for Failure to Pay Taxes

The penalty for failure to pay or deposit taxes to the credit of the Central Government is as provided under section 276B of the Income Tax Act. As per this section, the offender shall be liable for the payment of a fine up to an amount equal to 3 times the amount of the money so invested or deposited.

Further, if the offence continues to exist, he or she shall also be liable to pay the penalty for every day during which the offence continues. Apart from the fine, in case of conviction of the offence, the court may also order the confiscation of any property or money owned by the offender.

Moreover, if the fine imposed under the section is not paid, then the offender shall also be liable for imprisonment, which won’t be less than 3 months for the first offence and shall extend up to 3 years for a repeated offence.

Implications

The implications of the provisions of Section 276B of the Income Tax Act are serious and have far-reaching consequences.

An assessee can be charged for prosecution upon his failure in paying or depositing a significant amount of tax to the credit of the Central Government. This can be a major setback for the offender, as prosecution cases are complex and can have a drawn-out process.

The penalties prescribed under section 276B make it an offence which shouldn’t be taken lightly. The offender can attract a fine as well as confiscation of his property or money. Further, he can also be imprisoned for failure in making payment of the fine imposed by the court.

Conclusion

Overall, the liability of the assessee under section 276B of the Income Tax Act is significant. Hence, they must take due care and caution while depositing taxes to the credit of the Central Government for avoiding liability under the said section. Moreover, in case of any failure to pay or deposit taxes as needed, the assessee must contact the tax administrator for the avoidance or reduction of penalty or any other adverse legal action which may follow from non-compliance with the statutory provisions.

Frequently Asked Questions

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