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Issues: (i) Whether directors of a company prosecuted for default in deduction and payment of tax could be convicted under Section 276-B of the Income-tax Act, 1961 without separate notices naming them as principal officers, when the complaint described them as directors/principal officer and persons in charge of the company's business. (ii) Whether, on the facts, the directors were liable to conviction and what sentence should follow.
Issue (i): Whether directors of a company prosecuted for default in deduction and payment of tax could be convicted under Section 276-B of the Income-tax Act, 1961 without separate notices naming them as principal officers, when the complaint described them as directors/principal officer and persons in charge of the company's business.
Analysis: The liability of directors under Section 278B of the Income-tax Act, 1961 arises by deeming fiction when an offence is committed by a company and the persons concerned were in charge of and responsible for its conduct. The statutory concept of "principal officer" under Section 2(35) of the Income-tax Act, 1961 does not require a separate notice in every case if the complaint itself indicates that the directors are being proceeded against in that capacity. The complaint in the present case expressly stated that the accused directors were directors/principal officer and were responsible for the company's business. The legal position therefore did not support acquittal merely because no separate notice had been issued individually to the directors.
Conclusion: The directors were validly liable to be proceeded against and their acquittal on the ground of absence of separate notices was unsustainable.
Issue (ii): Whether, on the facts, the directors were liable to conviction and what sentence should follow.
Analysis: The record showed that the directors had signed the company's balance sheets, which undermined the defence that they were not in charge of the company's affairs. Once the company's offence was established, the statutory burden under Section 278B of the Income-tax Act, 1961 remained on the directors to rebut liability, which they failed to do. As to sentence, although the offence attracted a minimum custodial sentence, the long pendency of proceedings and the age of the assessment years justified grant of probation while imposing fine.
Conclusion: Conviction of the directors was warranted, and they were sentenced to fine with the benefit of probation.
Final Conclusion: The impugned acquittals were set aside, the directors were convicted for the tax offence, and the matter was finally disposed of with fine and probationary relief.
Ratio Decidendi: For prosecution of directors under Section 278B of the Income-tax Act, 1961, a separate notice individually addressed to each director is not indispensable where the complaint clearly proceeds against them as persons in charge of the company and liable as principal officers.
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