TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
When case Id is present, search is done only for this
of 
of 
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of of 
All Case Laws
of of All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of <h1>Court quashes complaint against directors for tax evasion, finding prosecution unjustified.</h1> <h3>GANGA DEVI SOMANI Versus STATE OF GUJARAT</h3> GANGA DEVI SOMANI Versus STATE OF GUJARAT - [2021] 437 ITR 323 (Guj) Issues Involved:1. Whether the petitioners, as independent and non-executive directors, are liable for prosecution under Section 276C(2) read with Section 278E of the Income Tax Act.2. Whether there was a 'wilful attempt' to evade the payment of tax.3. Whether the prosecution initiated is justified based on the facts and circumstances of the case.Issue-wise Detailed Analysis:1. Liability of Independent and Non-Executive Directors:The petitioners contended that they were independent and non-executive directors of the Company and had no role in the day-to-day affairs. They had resigned in November 2018, and their resignations were reflected in Form DIR-12 maintained with the Ministry of Corporate Affairs. They argued that since they had resigned, they were not aware of the Company's functioning and had no control over the tax payments. The petitioners approached the Court under Section 482 of Cr.P.C. for quashing the proceedings, arguing that they should not be held liable for the Company's tax liabilities.2. Wilful Attempt to Evade Payment of Tax:The petitioners argued that the Company had already paid 80% of the tax liability before the complaint was filed and that the remaining amount was delayed due to the GST Department's delay in processing refunds. They contended that there was no 'wilful attempt' to evade tax, as the delay was attributable to external factors and not to any intentional act on their part. The petitioners also cited various judgments to support their argument that delayed payment due to genuine reasons does not constitute a wilful attempt to evade tax.The Income Tax Department, however, argued that the Company had failed to pay the self-assessment tax by the due date and that this constituted a wilful attempt to evade tax. They contended that the petitioners, being directors, were responsible for ensuring compliance with tax laws and that the failure to pay the tax on time indicated a culpable mental state.3. Justification of Prosecution:The Court examined whether the prosecution was justified based on the facts and circumstances. It noted that the Company had voluntarily declared its intention to pay the tax and had paid a significant portion before the complaint. The Court also considered the tough business conditions faced by the Company, including the impact of demonetization and GST implementation, which affected its ability to pay the remaining tax on time.The Court highlighted that delayed payment might call for penalties or interest under the Act but does not necessarily constitute an attempt to evade tax. The Court emphasized that the term 'wilful' implies a guilty mind, and in this case, the petitioners had provided valid reasons for the delay. Therefore, the Court concluded that the prosecution initiated against the petitioners was illegal and amounted to an abuse of the process of law.Conclusion:The Court allowed the petition and quashed the complaint and the order issuing summons. It held that the prosecution was not justified as there was no wilful attempt to evade tax, and the petitioners, being independent and non-executive directors, were not liable for the Company's tax liabilities under the given circumstances. The rule was made absolute, and the proceedings were set aside.
TaxTMI 
TaxTMI 
