TDS default can justify prosecution; directors' responsibility and reasonable cause must be tested at trial, not quashing

Failure to deposit tax deducted at source within the statutory time can attract criminal prosecution under the Income-tax Act, and a company is not exempt from such liability merely because it is a juristic person. Where the complaint contains averments that directors were principal officers or were in charge of and responsible for the company's business, the prosecution against them is maintainable at the threshold and the question of their actual responsibility is for trial. A plea of reasonable cause, including delayed payment after deduction, raises a defence requiring evidence and does not bar prosecution at the stage of discharge or quashing.

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Issues: (i) Whether a company and its directors could be prosecuted for failure to pay tax deducted at source within the prescribed time under the Income-tax Act, 1961; (ii) Whether the directors could be proceeded against as principal officers on the basis of the allegations in the complaint; (iii) Whether the plea of reasonable cause and delayed deposit after deduction barred prosecution at the stage of discharge or quashing.

Issue (i): Whether a company and its directors could be prosecuted for failure to pay tax deducted at source within the prescribed time under the Income-tax Act, 1961.

Analysis: The statutory scheme requires deduction and timely credit of tax to the Central Government, and failure to do so attracts the penal provision dealing with non-payment of tax deducted at source. The Act also contains provisions making a company liable for offences and extending liability to persons in charge of and responsible for its business. Corporate criminal liability is recognised, and the fact that a company is a juristic person does not exempt it from prosecution. Where the statute prescribes imprisonment and fine, the company may still be proceeded against and punished to the extent permissible in law.

Conclusion: The company was liable to prosecution, and prosecution against it was maintainable.

Issue (ii): Whether the directors could be proceeded against as principal officers on the basis of the allegations in the complaint.

Analysis: The show-cause notice and complaint specifically stated that the directors were treated as principal officers under the Act. The question whether they were in charge of and responsible for the conduct of the company's business was a matter requiring evidence. At the stage of discharge or quashing, the court was concerned only with the existence of a prima facie case and not with a detailed trial of the allegations. On the pleadings, the complaint could not be said to be defective or not maintainable merely because the directors contested their status.

Conclusion: The directors could be proceeded against at the trial stage, and the complaint was maintainable against them.

Issue (iii): Whether the plea of reasonable cause and delayed deposit after deduction barred prosecution at the stage of discharge or quashing.

Analysis: The explanation offered by the appellants, including delay in arranging funds and later payment with interest, raised matters of defence that could be examined on evidence. The statutory defence of reasonable cause likewise required factual adjudication. The mere fact that the tax was eventually deposited did not erase the default for the purpose of prosecution, and the availability of penalty or interest provisions did not exclude criminal liability where the ingredients of the offence were otherwise made out.

Conclusion: The plea did not bar prosecution at that stage, and the courts below were justified in refusing discharge.

Final Conclusion: The criminal complaint was legally maintainable, the proceedings against the company and its directors were not liable to be quashed at the threshold, and the appeal failed.

Ratio Decidendi: Failure to deposit tax deducted at source within the statutory time can attract prosecution under the Act, and when the complaint contains the necessary averments that directors were principal officers or were in charge of and responsible for the business, the matter cannot be quashed or charges refused merely because the accused assert reasonable cause or dispute responsibility, which are issues for trial.

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