TDS prosecution and company-officer liability fail where payment was timely initiated and complaint lacks clear Section 278B averments.

Delayed credit of TDS, where bank records showed timely initiation of payment and interest for the short delay had been paid, did not justify prosecution under Sections 276B and 278B of the Income-tax Act on the facts presented. Liability of a company officer under Section 278B also could not be sustained without clear averments that he was in charge of and responsible for the company's business at the relevant time. As the complaint failed to properly disclose that role and the Section 202 CrPC inquiry requirement was not duly followed for the out-of-jurisdiction accused, cognizance against the second petitioner was held unsustainable, and the criminal proceeding was quashed in inherent jurisdiction.

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Issues: (i) Whether delayed credit of tax deducted at source, on the facts shown by the bank record and payment of interest, justified prosecution under Sections 276B and 278B of the Income-tax Act, 1961. (ii) Whether cognizance against the second petitioner could be sustained in the absence of a clear averment that he was in charge of and responsible for the conduct of the company's business, and in view of the requirement under Section 202 of the Code of Criminal Procedure, 1973.

Issue (i): Whether delayed credit of tax deducted at source, on the facts shown by the bank record and payment of interest, justified prosecution under Sections 276B and 278B of the Income-tax Act, 1961.

Analysis: The relevant rule required deposit within the prescribed time, but the bank material showed that the payment process was initiated within time and completed successfully, though credit appeared in the Government account on the next day. The Court accepted the documentary material as reliable for the limited purpose of exercising inherent jurisdiction. It also noted that interest for the short delay had been paid. On that basis, the alleged default was treated as not warranting criminal prosecution on the facts presented.

Conclusion: The prosecution was not sustainable on the ground of delayed credit of TDS in the manner alleged.

Issue (ii): Whether cognizance against the second petitioner could be sustained in the absence of a clear averment that he was in charge of and responsible for the conduct of the company's business, and in view of the requirement under Section 202 of the Code of Criminal Procedure, 1973.

Analysis: For fastening liability on a company officer under Section 278B, the complaint had to disclose that the person was in charge of and responsible to the company for its business at the relevant time. The complaint did not satisfactorily set out how the second petitioner was in overall charge. In addition, the second petitioner was stationed outside the territorial jurisdiction of the Magistrate, and the mandatory postponement and inquiry contemplated by Section 202 was not properly followed. These defects went to the validity of the order taking cognizance.

Conclusion: Cognizance against the second petitioner was unsustainable.

Final Conclusion: The criminal proceeding and the cognizance order were quashed in exercise of inherent jurisdiction, resulting in termination of the prosecution.

Ratio Decidendi: In a prosecution for failure to deposit TDS, criminal liability under Section 278B cannot be fastened without clear averments showing that the accused was in charge of and responsible for the company's business, and where undisputed records show timely initiation of payment with only a short credited delay, the High Court may quash the proceeding under its inherent powers.

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