Principal officer and reasonable cause requirements bar tax-deduction prosecution when neither is properly pleaded or proved.

In prosecutions for failure to deduct or deposit tax at source, the company remains the person responsible unless a principal officer is duly identified under the Act; without a valid notice appointing such officer, the managing director and directors could not be treated as principal officers and their prosecution was unsustainable. The Court also held that, under section 276B as then framed, absence of reasonable cause or excuse was an essential ingredient of the offence, and the complaint and evidence had to plead and prove that element. As neither requirement was established, the discharge orders were restored and the prosecution failed.

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Issues: (i) whether, in the absence of a notice appointing a principal officer, the managing director and directors of a company could be prosecuted for default connected with deduction of tax at source under section 194C; (ii) whether an offence under section 276B was made out when the complaint and evidence did not allege or prove failure to deduct or deposit tax without reasonable cause or excuse.

Issue (i): whether, in the absence of a notice appointing a principal officer, the managing director and directors of a company could be prosecuted for default connected with deduction of tax at source under section 194C.

Analysis: For a company, the statutory scheme treats the company as the person responsible for payment and includes the principal officer within that expression. A principal officer is one who falls within section 2(35), including a person on whom notice is served by the Assessing Officer expressing an intention to treat him as such. Where no such appointment is shown, the directors or managing director cannot automatically be treated as principal officers merely because they are agents or are connected with management.

Conclusion: The prosecution of the directors and managing director was not maintainable in the absence of a valid appointment of a principal officer, and liability, if any, lay only against the company.

Issue (ii): whether an offence under section 276B was made out when the complaint and evidence did not allege or prove failure to deduct or deposit tax without reasonable cause or excuse.

Analysis: The language of section 276B, as it then stood, made absence of reasonable cause or excuse an essential ingredient of the offence. In a criminal tax prosecution, the prosecution must first plead and establish all ingredients of the offence, including that the default was without reasonable cause or excuse. On the materials before the Court, neither the complaint nor the evidence established this element.

Conclusion: No offence under section 276B was made out.

Final Conclusion: The orders discharging the accused were restored and the remand order directing further inquiry was quashed, resulting in the criminal miscellaneous petitions being allowed.

Ratio Decidendi: In a prosecution for failure to deduct or deposit tax, the company alone is liable unless a principal officer is duly identified under the Act, and absence of reasonable cause or excuse is an essential ingredient of the offence that must be pleaded and proved by the prosecution.

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