Directors convicted under Income Tax Act, granted probation, fined with imprisonment.

The court overturned the lower courts' decisions and convicted directors A-2 and A-3 under Section 276-B of the Income Tax Act. Due to the lengthy pendency and age of the assessment years, the directors were granted probation. Each was fined Rs. 50,000 per assessment year with a default sentence of seven days of simple imprisonment. They were also required to file a bond of good behavior for six months. The appeals were resolved, and the trial court was directed to proceed accordingly.

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Issues Involved:
1. Liability of the Director of a company under Section 276-B of the Income Tax Act, 1961.
2. Validity of show cause notices issued to the "principal officer" of the company.
3. Acquittal of directors based on the non-issuance of separate notices.
4. Compliance with Section 2(35) of the IT Act regarding the designation of directors as "principal officers."
5. Merits of the defense that directors were not in charge of the company's affairs.

Detailed Analysis:

1. Liability of the Director of a Company under Section 276-B of the Income Tax Act, 1961:
The court examined the liability of the directors of a company prosecuted under Section 276-B of the IT Act for failure to pay tax deducted at source. It was noted that both the trial court and the appellate court had acquitted the directors (A-2 and A-3) while convicting the company.

2. Validity of Show Cause Notices Issued to the "Principal Officer" of the Company:
The show cause notices (SCNs) were issued to the "Principal Officer" of the company, not directly to the individual directors. The main ground for acquittal was that the SCNs did not explicitly designate the directors as "principal officers."

3. Acquittal of Directors Based on Non-Issuance of Separate Notices:
Both the lower courts relied on the precedent set by the Delhi High Court in Income Tax Officer v. Delhi Iron Works (P) Ltd., which required explicit mention in the SCN that directors were considered "principal officers." The Supreme Court's decision in Madhumilan Syntex Limited was also discussed, which held that a complaint stating directors as "principal officers" suffices.

4. Compliance with Section 2(35) of the IT Act Regarding the Designation of Directors as "Principal Officers":
Section 2(35) of the IT Act defines "principal officer" and requires notice to be served on individuals intended to be treated as such. The court noted that the complaint filed by the ITD did mention the directors as "principal officers," aligning with the Supreme Court's interpretation in Madhumilan Syntex Limited.

5. Merits of the Defense That Directors Were Not in Charge of the Company's Affairs:
The court found the directors' defense untenable as they had signed the company's balance sheets, indicating their involvement in the company's affairs. This rebutted their claim of not being in charge.

Conclusion:
The court set aside the judgments of the lower courts, convicting the directors (A-2 and A-3) under Section 276-B of the IT Act. Considering the long pendency and the age of the assessment years (1982-83 to 1984-85), the court granted the directors the benefit of probation. They were sentenced to pay a fine of Rs. 50,000 each for each assessment year, with a default sentence of seven days of simple imprisonment. Additionally, they were directed to file a bond of good behavior in the sum of Rs. 10,000 each for six months.

The appeals were disposed of accordingly, and the trial court was instructed to take further steps as per the order.

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