The Delhi High Court has upheld an order of the income tax department imposing enhanced compounding charges on subsequent applications for compounding of offences relating to late deposit of Tax Deducted at Source (TDS).
The division bench consisting of Justices Manmohan and Dinesh Kumar Sharma, held that compounding of offences cannot be taken as a matter of right and it is for the law and authorities to determine as to what kind of offences should be compounded and under what conditions.
The Chief Commissioner of Income Tax (TDS) had compounded the offence pertaining to late deposit of Tax Deducted at Source (TDS) committed by the petitioner M/s Maspar Industries Private Limited. The petitioner filed a writ petition in the Delhi High Court challenging the order passed by the Chief Commissioner.
After hearing arguments from both the sides, the High Court held 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.
Noting the fact that the petitioners company is a ‘repeat offender’, the bench confirmed the levy of five percent fee and held that “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.”
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