2025 (2) TMI 832 - HC - Income Tax

High Court reinstates charges under Section 276B against directors for delayed TDS remittance, rejects discharge order

The HC set aside the Trial Court's order discharging accused No. 2 in a case under Section 276B for delayed TDS remittance by the Company. The Court held ... Offence punishable u/s 276B - Liability of the Directors in-charge for offence is shown to have been committed by the Company - respondent was being treated as the Principal Officer of the Company - Whether there are sufficient materials to frame the charge against the accused No. 1 Company for the offence punishable under section 276B of the Act? - accused No. 2 to 6 shown that they are not in charge of day to day affairs of accused No. 1 Company HELD THAT:- No such independent and separate notice is necessary when in the show cause notice, it was stated that Directors were to be considered. In the case on hand, there is no dispute with regard to the fact that before launching of the prosecution, a notice was issued on 30.07.2024 and counsel of the petitioner also brought to the notice of this Court the reply given by the Company wherein it also categorically acknowledged while giving reply that with reference to the above facts and subject with regard to the launching of prosecution when notice was issued under Section 276B r/w Section 278B of the Act that notice was given to the Company and Principal Officers of the Company and have received notices from the complainant and also categorically mentioned that notice was acknowledged with regard to the proposal to launching of prosecution against the Principal Officers of the Company for delaying remittance of TDS and in the reply also, they admitted reasons for delay in remittance of the amount. When such material is available before this Court and when specific averment is made in the complaint itself that this respondent and others are in the helm of affairs of the Company and they are the Directors, they are the Principal Officers and notices were also given and marked documents - Exs.P5 to P9 and the very contention that no notice was served and they are not in charge of the affairs of the Company, the Trial Court committed an error in making such an observation that no notice was served as contemplated under Section 2 (35) of the Act and also that they have not been in charge of the Company is nothing but perversity and it requires interference by this Court. The impugned order suffers from legal infirmity and also Court can exercise its revisional jurisdiction when the order suffers from illegality and incorrectness and the trial Court committed an error in coming to such a conclusion that this respondent and others were not in charge of the affairs of the Company when specific allegation is made in the complaint itself for making an averment and even the same has been extracted by the Trial Court in paragraph No. 11 of the impugned order in the beginning itself with regard to the specific averments made in the complaint and also marking of documents Exs.P5 to P9, the attested copies of the notices issued under Section 2 (35) of the Act and the defence cannot be raised at the time of considering the discharge application. Only the Court has to look into the material available on record and the same is a matter of trial. The Court has to look into the principles laid down in the case of Madhumilan Syntex Ltd. [2007 (3) TMI 205 - SUPREME COURT] particularly referring the provisions of Sections 276B and 278B of the Act discussed in paragraph Nos.13, 14, 15, 26 and 28 and also comes to the conclusion that there is no need of issuance of independent and separate notice if in the show cause notice it was stated that Directors were to be considered as Principal Officers under the Act. Order - The impugned order dated 01.10.2019 passed by the Special Court for Economic Offences, Bengaluru in so far as it relates to discharging accused No. 2 is set aside and Trial Court is directed to proceed in accordance with law. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment were:Whether there were sufficient materials to frame a charge against accused No. 1 Company for the offence punishable under Section 276B of the Income Tax Act, 1961.Whether accused Nos. 2 to 6, particularly accused No. 2, were not in charge of the day-to-day affairs of accused No. 1 Company and thus liable to be discharged.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Sufficient Materials to Frame Charge Against Accused No. 1 CompanyThe relevant legal framework included Section 276B of the Income Tax Act, which penalizes failure to remit tax deducted at source (TDS) to the Central Government. The Court examined whether the Company failed to remit the deducted TDS for the financial year 2013-14, amounting to Rs. 4,84,69,841/-. The Court found affirmative evidence of non-remittance, which justified framing charges against the Company.Issue 2: Discharge of Accused Nos. 2 to 6Relevant Legal Framework and Precedents:The legal framework involved Sections 278B and 2(35) of the Income Tax Act. Section 278B holds persons in charge of a company liable for offences committed by the company, while Section 2(35) defines 'principal officer' as any person connected with the management or administration of the company upon whom the Assessing Officer has served notice.Court's Interpretation and Reasoning:The Trial Court initially discharged accused Nos. 2 to 6, citing a lack of evidence that they were in charge of the company's affairs. The Court noted that the prosecution failed to provide sufficient documentation to prove that notices were served to these accused under Section 2(35) or that they were responsible for the company's financial affairs.Key Evidence and Findings:The evidence included attested copies of notices under Section 2(35) (Exs.P5 to P9) and a reply from the Company acknowledging receipt of the notice regarding prosecution for non-remittance of TDS. The Court noted that the notices indicated the accused were in charge and responsible for the company's business conduct.Application of Law to Facts:The Court applied the legal standards from Sections 276B and 278B, emphasizing that the mere issuance of notices and acknowledgment by the company sufficed to establish prima facie responsibility of the directors, including accused No. 2.Treatment of Competing Arguments:The petitioner argued that the directors, being principal officers, were liable under the Act, referencing the Madhumilan Syntex Ltd. case, which established that prosecution of directors is envisaged under the Act. The respondent contended that no proper notice was served, and there was no evidence of their involvement in the company's affairs. The Court found the petitioner's arguments more compelling, citing the legal precedent that no separate notice is necessary if the directors are considered principal officers in the show-cause notice.Conclusions:The Court concluded that the Trial Court erred in discharging accused No. 2, as there was sufficient prima facie evidence to proceed with the trial, given the acknowledgment of notices and the legal responsibilities of directors.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning:The Court emphasized, 'It is also settled law that the accused cannot take any defence while seeking for discharge before the Trial Court. The defence of the accused cannot be considered while considering an application filed for discharge of the accused persons.'Core Principles Established:The judgment reinforced the principle that directors can be held liable for a company's failure to remit TDS if they are deemed principal officers, as defined under Section 2(35) of the Act, and that evidence of notices issued to them suffices to establish prima facie liability.Final Determinations on Each Issue:The Court set aside the Trial Court's order discharging accused No. 2 and directed the Trial Court to proceed with the case in accordance with the law, recognizing the sufficiency of evidence to frame charges against the accused.