TaxTMI 
TaxTMI 
2007 (3) TMI 670
X X X X Extracts X X X X
X X X X Extracts X X X X
....1, Indore. It was the case of the respondents that for the Assessment Year 1989-90, Returns were submitted by the company on December 29, 1989. On verification of the Returns, it was found that though an amount of Rs. 1,29,348/- was deducted by the company as Tax Deducted at Source ('TDS' for short), it was not credited by the company in the account of the Central Government as required by Sections 194C and 200 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') read with Rule 30 of the Income Tax Rules, 1962 (hereinafter referred to as "the Rules"). It is, however, not in dispute that the amount of TDS was credited by the company with interest later on. But there was delay on the part of the company in depositing such amount. Income Tax Officer (TDS), Bhopal, therefore, issued a notice to the appellants on March 11, 1999 alleging therein that there was failure to credit TDS to the Central Government as required by Section 276B of the Act by them. The appellants had thus committed an offence punishable under Section 278B of the Act. A show-cause notice was, therefore, issued against the appellant-company as also against appellant Nos. 2 to 4 (and one ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Code') for discharge from the case contending that they had not committed any offence and the provisions of the Act had no application to the case. It was alleged that proceedings were initiated mala fide. In several other similar cases, no prosecution was ordered and the action was arbitrary as also discriminatory. Moreover, there was 'reasonable cause' for delay in making payment and the case was covered by Section 278AA of the Act. The Directors further stated that they could not be treated as 'principal officers' under Section 2(35) of the Act and it was not shown that they were 'in charge' of and were 'responsible for' the conduct of business of the company. No material was placed by the complainant as to how the Directors participated in the conduct of business of the company and for that reason also, they should be discharged. 6. The trial Court, however, rejected the prayer of the appellants. According to the Court, the contention raised by the appellants required evidence as to whether a particular accused was or was not a 'principal officer' of the company and it can be considered only at the trial and an appropriate decisio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....viously, for such act, Directors or Officers of the company also cannot be punished. The action of the respondents, therefore, is illegal and not warranted by law. The counsel also submitted that appellant Nos. 2 to 4 cannot be said to be 'principal officers' under the Act and no prosecution can be initiated against them. It was urged that to be a 'principal officer' with reference to a company, it must be shown that such person is "connected with the management or administration of the company" and who has been served with a notice that he would be treated as principal officer of the company. No such notice had been issued by the respondents. Notice which had been issued in the instant case is to show cause as to why prosecution should not be launched against them as they were to be treated as principal officers under the Act. Such notice cannot be said to be a notice to treat a particular officer as 'principal officer' under the Act. It was also submitted that criminal prosecution is a drastic step and should not be taken lightly particularly when there are several provisions in the Act providing for payment of interest, penalty, etc. Recourse to prosecuti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... can be considered at the time of trial and not now. At the stage of framing of charge, the Court only considers whether prima facie case has been made out. Once there is material to show that the amount was not paid in the manner provided by law, proceedings cannot be quashed. 12. Having given anxious and thoughtful consideration to the rival contentions of the parties, in our opinion, it cannot be said that by ordering charges to be framed, any illegality has been committed by the trial Court. As far as an objection against the order passed by the High Court is concerned, we are not impressed by the argument of the learned counsel. It is true that the petition was dismissed for default on 2nd February, 1999. It is also true that an application for restoration of the matter was made by the appellants on March 12, 1999 and the matter was restored to file asking the advocate for the applicants to argue the case. But, it cannot be contended that the Court could not have insisted on the appellants-applicants and/or their counsel to proceed to conduct the case on merits. We have come across several cases in High Courts as well as in this Court where a case is dismissed for default t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....such tax. 15. Chapter XXII relates to offences and prosecutions. Section 276B deals with "Failure to pay tax". The section at the relevant time read as under : 276B. Failure to pay the tax deducted at source. If a person fails to pay to the credit of the Central Government, the tax deducted at source by him as required by or under the provisions of Chapter XVII-B he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine. Section 278B covered cases where offences were committed by companies. The section stated; 278B. Offences by companies. (1) Where an offence under this Act has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his k....
X X X X Extracts X X X X
X X X X Extracts X X X X
....secution against a company or its Directors in default of deducting or paying tax is not envisaged by the Act. 17. It is no doubt true that company is not a natural person but 'legal' or 'juristic' person. That, however, does not mean that company is not liable to prosecution under the Act. 'Corporate criminal liability' is not unknown to law. The law is well settled on the point and it is not necessary to discuss it in detail. We may only refer to a recent decision of the Constitution Bench of this Court in Standard Chartered Bank & Ors. v. Directorate of Enforcement & Ors., (2005) 4 SCC 530 : JT (2005) 5 SC 267. In Standard Chartered Bank, it was contended on behalf of the company that when a statute fixes criminal liability on corporate bodies and also provides for imposition of substantive sentence, it could not apply to persons other than natural persons and Companies and Corporations cannot be covered by the Act. The majority, however, repelled the contention holding that juristic person is also subject to criminal liability under the relevant law. Only thing is that in case of substantive sentence, the order is not enforceable and juristic person c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....served that accused No. 1 was company whereas other accused were Directors. Whether they could be said to be principal officers or not would require evidence and it could be considered at the stage of trial and the application was rejected. In Revision, the First Additional Sessions Judge took similar view. 20. The learned Counsel contended that the Courts committed an error of law in ordering prosecution against the Directors. The counsel, in this connection, invited our attention to certain decisions. In Municipal Corporation of Delhi v. Ram Kishan Rohtagi & Ors., AIR 1983 SC 67, the accused invoked the jurisdiction of the High Court under Section 482 of the Code praying for quashing of criminal proceedings initiated against them under the Prevention of Food Adulteration Act, 1947. Whereas accused No. 1 was Manager of the company, accused Nos. 2-5 were Directors. A complaint was filed by the Food Inspector of the Municipal Corporation, inter alia, alleging that 'Morton toffees' sold by the accused did not conform to the standards prescribed for the commodity. The Metropolitan Magistrate issued summons to all the accused for violating the provisions of the Act. It was c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....them were rightly quashed." 24. A similar question came up for consideration before the Court in Municipal Corporation of Delhi v. Purshotam Dass Jhunjunwala & Ors., AIR 1983 SC 158. There also, a complaint was filed under the Prevention of Food Adulteration Act, 1947 against the Directors of the company. In Para 5 of the complaint, it was stated : "That accused Ram Kishan Bajaj is the Chairman, accused R.P. Neyatia is the Managing Director and accused Nos. 7 to 12 are the Directors of the Hindustan Sugar Mills Ltd. and were in charge of and responsible to it for the conduct of its business at the time of commission of offence." (emphasis supplied) Setting aside the order of the High Court quashing the proceedings against the Directors and distinguishing Ram Kishan Rohtagi, the Court held that there was a clear averment as to the active role played by the accused and the extent of their liability. A prima facie case for summoning of accused was, therefore, made out and the High Court was wrong in holding that allegations were vague. Further details could be given only in evidence. 25. In Puran Devi & Ors. v. Z.S. Klar, Income Tax Officer, (1988) 169 ITR 608,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t would be a travesty of justice to prosecute all the partners and ask them to prove that the offence was committed without their knowledge. The requisite condition, according to this Court, was that it is for the prosecution to prove that the partner was responsible for carrying on business and was, during the relevant time, in charge of the business. 30. Reference was also made to State of Karnataka v. Pratap Chand & Ors., (1981) 2 SCC 335. In that case, this Court held that 'person in charge' would mean a person in overall control of day to day business. A person who is not in overall control of such business cannot be held liable and convicted for the act of firm. 31. In Monaben Ketanbhai Shah & Anr. v. State of Gujarat & Ors., (2004) 7 SCC 15 : JT (2004) 6 S.C. 309, dealing with the provisions of Sections 138 and 141 of the Negotiable Instruments Act, 1881, this Court observed that when a complaint is filed against a firm, it must be alleged in the complaint that the partners were in active business. Filing of the partnership deed would be of no consequence for determining the question. Criminal liability can be fastened only on those who at the time of commissio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d that appellants were considered as Principal Officers. In the above view of the matter, in our opinion, contention of the learned Counsel for the appellants cannot be accepted that the complaint filed against the appellants, particularly against appellant Nos. 2-4 is ill-founded or not maintainable. 35. It was urged that a separate notice and/or communication ought to have been issued before issuance of show cause notice under Section 276B read with Section 278B of the Act that the Directors were to be treated as Principal Officers under the Act. In our opinion, however, no such independent and separate notice is necessary and when in the show cause notice it was stated that the Directors were to be considered as Principal Officers under the Act and a complaint was filed, such complaint is entertainable by a Court provided it is otherwise maintainable. In view of the aforesaid discussion, the sanction to prosecute granted by the second respondent cannot be held illegal or unlawful nor the complaint can be held bad in law. 36. The next contention that since TDS had already been deposited to the account of the Central Government, there was no default and no prosecution can....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... contention, one of us (C.K. Thakker, J.) stated : Finally, the contention that a civil suit is filed by the complainant and is pending has also not impressed us. If a civil suit is pending, an appropriate order will be passed by the competent Court. That, however, does not mean that if the accused have committed any offence, jurisdiction of criminal court would be ousted. Both the proceedings are separate, independent and one cannot abate or defeat the other. (emphasis supplied) 42. It is true that the matter relates to remote past. Alleged non-payment of TDS pertains to 1989-90. It is also true that the complaint was filed in the beginning of 1992 and more than fifteen years have passed but it cannot be ignored that prosecution could not be over in view of the fact that applications were made by the appellants for their discharge under Section 245 of the Code initially in the trial Court, then in the Sessions Court and then in the High Court. Even after dismissal of the petition by the High Court, the appellants approached this Court and obtained interim stay of further proceedings. It is because of the pendency of proceedings and grant of interim relief that....