Case: Y.P. Chawla and others Vs. M.P. Tiwari and another

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 Messrs. Hans Raj Gupta and Co. P. Ltd. He, along with other directors of the said company was prosecuted under section 276B 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 Messrs. Inspi Auto Industry P. Ltd. He was also prosecuted under section 276B of the Act for committing defaults in depositing the tax deducted at source by the companyBoth Tiwari and Passi applied to the Commissioner of Income-tax, for 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 as underThe Commissioner may either before or after the institution of proceedings compound any such offenceSection 119(1) which empowers the Board to issue orders, instructions and directions for the proper administration of the ActThe Board issued instruction No. 1317 dated March 11, 1980, under section 119(1) of the Act providing guidelines for the exercise of the power under section 279(2) of the Act. The relevant part of the instructions is as underTiwari 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 (see 1991 (187) ITR 506 , 514)These appeals by way of special leave are by the Revenue against the judgments of the High Court

Reasoning:
This court in Navnitlal C Javeri v. K K Sen, AAC 1965 (56) ITR 198 ; 1965 (1) SCR 909 , Ellerman Lines Ltd. v. CIT 1971 (82) ITR 913 1972 (4) SCC 474 and in K P. Varghese v. ITO 1981 (131) ITR 597 ; 1981 (4) SCC 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 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 (No. 2) Act of 1991 which has been made operative with effect from April 1, 1962. The Explanation is as underThe 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 the 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 his discretion under section 279(2) of the Act in conformity with the instructions issued by the Board from time to time