TaxTMI 
TaxTMI 
2018 (4) TMI 522
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.... business at Chennai. The petitioner neither receive any sitting fees for participating in the Board Meetings of the company nor draw any salary from the company as he is not an employee of the company. Therefore, he can never at any probability be considered as the "Principal Officer" of the company and especially so when the Managing Director of the Company, Mr.K.Natrajhen has also been held as the "Principal Officer" of the very same company under section 2(35) of the Act by the very same 2nd respondent by a separate order dated 03.11.2014. (ii) According to the petitioner, under section 276B of the Income Tax Act, a person, who is in charge of and is responsible to the company for the conduct of the business of the company, can be prosecuted. The test and criterion laid down by section 276B is entirely different and distinct from that laid down by section 2(35) of the Act. Section 2(35) is relevant only for imposing a penalty on a person and is not at all relevant for deciding whether he should be prosecuted for an offence under the Act. However, this factor has not at all been considered and the 2nd respondent has proceeded on the basis that the petitioner having been....
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....uled low cost air transport services under the brand name "Spice Jet". The petitioner is residing at No.22, Adyar Club Gate Road, R.A.Puram, Chennai - 28 and not a resident of Delhi/NCR where the corporate office of the company is situated and from where the day-to-day operations of the company are carried out. The company is professionally managed entity whose day-to-day operations are managed by a team of experts/trained professionals. In addition to being a Director of the company, the petitioner is also involved in other business activities in Chennai, which include Television, Radio, Newspaper, DTH broadcasting etc. The petitioner is full time Executive Chairman of Sun TV Network Ltd., which is a public limited company, from which he draws remuneration as per the provisions of the Companies Act. (vii) By letter dated 23.04.2014, the 2nd respondent sought supply of certain information from the company concerning various issues including Tax Deducted at Source ("TDS"). The notice also directed holding of hearing on 07.05.2014 at 11.00 a.m. The company, by way of its letter dated 07.05.2014, supplied most of the information sought by the 2nd respondent and sought an exte....
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....juncture, it is pertinent to state that the 2nd respondent also issued identical show cause notices to the Managing Director of the company, viz., Mr.K.Natrajhen and to Mr.RakeshKumar, DGM (Finance & Taxation). Just as the show cause notice issued to the petitioner, the show cause notices issued to the Managing Director and DGM (Finance & Taxation) contained identical averments stating that both the recipients were actively participating in the functioning and management of the company affairs and therefore, required to show cause as to why they should not be treated as Non-Executive Principal Officer within the meaning of section 2(35) of the Income Tax Act. It therefore becomes clear that while issuing show cause notices, there was no application of mind by the 2nd respondent to the fact that the petitioner was not at all involved in the day-to-day affairs of the company and he is residing and carrying on business in Chennai. (xi) On 23.09.2014, the petitioner sent a reply stating that he is only a Non-Executive Chairman and he is not in charge of the day-to-day affairs of the company. Further, he has stated that the company is professionally run by a team of experts, wh....
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....he company and also prompt supply of all documents requested by the 2nd respondent, the 2nd respondent continued to write letters to the company without appreciating the fact that the company had been complying with its payment plan. (xv) By letter dated 01.10.2014, the 2nd respondent threatened coercive action against the company even if it had deposited TDS to the extent of Rs. 88.71 crores against an outstanding of Rs. 90 crores leaving a shortfall of only Rs. 1.29 cores, which too was paid in the 1st week of October, 2014. In furtherance of the show cause notice, the 2nd respondent issued an order dated 03.11.2014 under section 2(35) of the Income Tax Act, which is impugned in this writ petition, holding that the petitioner is the Principal Officer of the Company within the meaning of Section 2(35) of the Income Tax Act. The impugned order merely states, without any basis or materials whatsoever "All major decisions are taken in the company under his consent. In that capacity he is certainly associated with the management and administration of the Company". The impugned order straightaway proceeds to hold that the petitioner is the Principal Officer of the company and ....
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....r which holds the petitioner as the "Principal Officer of the company and therefore, liable to be prosecuted for the alleged default of the company under section 276B of the Income Tax Act, is liable to be set aside. In these circumstances, the petitioner has filed the above writ petition. 3. The brief case of the respondents is as follows:- (i) According to the respondents, the lis in the present case arises out of the failure on the part of M/s. Spice Jet Limited to deposit the tax deducted by it at source from amounts paid/payable to third parties. M/s. Spice Jet Limited is an assessee on the file of the 2nd respondent and its TAN number is also registered with the 2nd respondent only and therefore, the facts which have a bearing with the dispute have arisen in Delhi only and not in the State of Tamil Nadu. The mere fact that the petitioner herein is residing in Chennai does not give rise to a cause of action arising in the state of Tamil Nadu. The place where the petitioner is residing has no bearing with the lis involved, which is the failure to deposit the tax deducted at source. (ii) According to the respondents, the petitioner has filed a Criminal M.C. ....
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....Jet Limited has been rightly held as Principal Officer and if there has been no neglect on his part in discharging his duties as Director cum Chairman, the same has to be proved by him before the Criminal Court. There is no necessity for the Department to prove that any funds of the company have been diverted in order to initiate action under the provisions of the Act. The provisions of Chapter XVII relating to deduction of tax at source are very stringent and mandatory. The amount deducted as tax at source is not money belonging to M/s. Spice Jet Limited, but, the money belonging to third parties and which has not been paid by M/s.Spice Jet Limited to third parties under an implicit understanding that the same will be deposited as TDS with the Department and such third party will be entitled to treat the same as part of his advance tax payments. The failure on the part of M/s. Spice Jet Limited, to deposit the TDS within the stipulated time has several implications. (v) The default committed by M/s. Spice Jet Limited, came to the notice of the department in the course of survey conducted under section 133A of the Act. It is immaterial whether or not the Principal....
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....or its other purposes. It is for the petitioner to let in evidence and prove his innocence, if any in the Criminal Court and such factual disputes cannot be decided in a Writ Petition under Article 226 of the Constitution of India. In these circumstances, the respondents prayed for dismissal of the writ petition. 4. Heard Mr.P.S.Raman, learned Senior Counsel appearing for the petitioner and Mr.G.Rajagopalan, learned Additional Solicitor General appearing for the respondents. 5.1 With regard to the Jurisdiction of this Court, Mr.P.S.Raman, learned Senior Counsel appearing for the petitioner submitted that the impugned order was served on the petitioner at Chennai at his residential address and though the company's registered corporate office is at Delhi and the TAN number is at Delhi assessment, the petitioner is not challenging the assessment order, but is challenging only the impugned order naming him as the Principal Officer. The learned Senior Counsel further submitted that cause of action arose only at Chennai and therefore, this Court has jurisdiction to entertain the writ petition. 5.2 The learned Senior Counsel appearing for the petitioner submitted that the pet....
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....the Hon'ble Supreme court held as follows:- " 13. In the case of Union of India and others vs. Adani Exports Ltd. and another, (2002) 1 SCC 567, this Court held that in order to confer jurisdiction on a High Court to entertain a writ petition it must disclose that the integral facts pleaded in support of the cause of action do constitute a cause so as to empower the court to decide the dispute and the entire or a part of it arose within its jurisdiction. Each and every fact pleaded by the respondents in their application does not ipso facto lead to the conclusion that those facts give rise to a cause of action within the Court s territorial jurisdiction unless those facts are such which have a nexus or relevance with the lis i.e. involved in the case. This Court observed: "17. It is seen from the above that in order to confer jurisdiction on a High Court to entertain a writ petition or a special civil application as in this case, the High Court must be satisfied from the entire facts pleaded in support of the cause of action that those facts do constitute a cause so as to empower the court to decide a dispute which has, at least in part, arisen within its juri....
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....: "9. The first question that arises for consideration is whether the Andhra Pradesh High Court was justified in holding that as the seizure took place at Chennai (Tamil Nadu), the appellant could not maintain the writ petition before it. The High Court did not examine whether any part of cause of action arose in Andhra Pradesh. Clause (2) of Article 226 makes it clear that the High Court exercising jurisdiction in relation to the territories within which the cause of action arises wholly or in part, will have jurisdiction. This would mean that even if a small fraction of the cause of action (that bundle of facts which gives a petitioner, a right to sue) accrued within the territories of Andhra Pradesh, the High Court of that State will have jurisdiction. 11. Normally, we would have set aside the order and remitted the matter to the High Court for decision on merits. But from the persuasive submissions of the appellant, who appeared in person on various dates of hearing, two things stood out. Firstly, it was clear that the main object of the petition was to ensure that at least in future, passengers like him are not put to unnecessary harassment or undue hardship ....
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....ck to his home in the District of Gaya, Bihar and, thereafter, he made all claims and filed representation from his home address at Gaya and those letters and representations were entertained by the respondents and replied and a decision on those representations were communicated to him on his home address in Bihar. Admittedly, appellant was suffering from serious heart muscles disease (Dilated Cardiomyopathy) and breathing problem which forced him to stay in native place, wherefrom he had been making all correspondence with regard to his disability compensation. Prima facie, therefore, considering all the facts together, a part or fraction of cause of action arose within the jurisdiction of the Patna High Court where he received a letter of refusal disentitling him from disability compensation." (ii) 2003(3) Mh.L.J. [Homi Phiroze Ranina vs State Of Maharashtra] wherein the Bombay High Court held as follows:- "4. It is the contention of the applicants/accused that they are not the principal officers of the said Company Accused No. 1. They are only the non-executive Directors of the Company Accused No. 2. L.K. Khosla is the Chairman and Managing Director and Accused No. ....
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.... note that the obligation for the accused to prove under the proviso that the offence took place without his knowledge or that he exercised all due diligence to prevent such offence arises only when the prosecution establishes that the requisite condition mentioned in sub-section (1) is established. The requisite condition is that the partner was responsible for carrying on the business and was during the relevant time in charge of the business. In the absence of any such proof, no partner could be convicted...." (p. 1984) (iii) 1994(2) Kerala 812 [M.A. Unneerikutty And Ors. vs Deputy Commissioner Of Income Tax] wherein the High Court of Kerala held as follows:- "3. The basic facts are not in dispute. The question for consideration in these petitions is whether there is now a case for this court's interference under Section 482 of the Code of Criminal Procedure for the reasons stated in the petitions. It has been alleged that tax was not deducted at source oh the interest credited to the accounts of the firm during the relevant period and that the petitioners as partners in charge of and responsible for the conduct of its business committed offences under Section 27....
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....in Section 194A of the Act must be understood in the context of Section 204 of the Act, which makes it clear that the responsibility for paying the tax in a case where the company is a firm is that of the company itself including its principal officer. By virtue of Section 2(35) of the Act, partners do not come within the definition of "principal officer" unless the Income-tax Officer had served notice of his intention to treat them or any one of them as the principal officer of the firm connected with the management or administration. It seems necessary that the complainant must allege and show by some acceptable materials that the partners concerned were in charge of and responsible for the conduct of the business of the firm to make them also vicariously responsible along with it. A mere allegation to that effect will not be sufficient. There should be credible materials to show their active involvement in the conduct and management of the business of the firm. Short of stating that they were in charge of and responsible for the conduct of the business of the firm nothing had been mentioned in the complaints either about their role or as to the extent of their liability, which s....
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....5) would then step in to find out as to who the principal officer would be. Section 2(35) makes it clear that the partners of the firm do not fall within that fold unless the Income-tax Officer had served a notice on any of them of his intention of treating them as the principal officer of the firm, connected with the management or administration thereof. Under Section 278B, the basic requirement is that the prosecution must prove that the persons concerned were in charge of, and were responsible to, the firm for the conduct of the business of the firm. It is only then that they can be vicariously prosecuted along with the firm. The proviso to Section 278B(1) of the Act will come into operation only after the initial onus cast on the prosecution under the main section gets discharged." I am in respectful agreement with the above observations, which seem to lay down the correct law." 6.1 Countering the submissions made by the learned Senior Counsel appearing for the petitioner, Mr.G.Rajagopalan, learned Additional Solicitor General appearing for the respondents submitted that this Court has no jurisdiction to entertain the writ petition for the reason that the respondent....
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.... express provision contained therein which requires that the person or authority to whom the writ is to be issued should be resident in or located within the territories over which the High Court has jurisdiction. It is true that this may result in some inconvenience to person residing far away from New Delhi who are aggrieved by some order of the Government of India as such, and that may be a reason for making a suitable constitutional amendment in Art. 226. But the argument of inconvenience, in our opinion, cannot affect the plain language of Art. 226, nor can the concept of the place of cause of action be introduced into it for that would do away with the two limitations on the powers of the High Court contained in it." 29. In view of clause 2 of Article 226 of the Constitution of India now if a part of cause of action arises outside the jurisdiction of the High Court, it would have jurisdiction to issue a writ. The decision in Khajoor Singh (supra) has, thus, no application. Forum Conveniens 30. We must, however, remind ourselves that even if a small part of cause of action arises within the territorial jurisdiction of the High Court, the same by itse....
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....how 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 prosecution should be had as a last resort. According to the appellants, there was non-application of mind on the part of the second respondent- Commissioner of Income Tax in granting sanction under Section 279 of the Act. The second respondent has not considered the relevant facts, reasons and grounds relied upon by the appellants as to why the amount could not be deposited. The circumstances pleaded by the appellants in their reply to the show cause notice clearly disclosed that there was 'reasonable cause' for delay in depositing the amount and it was not a fit case for prosecution of appellants." (iii) 2014 (43) RZMnn.xom 201 (Karnataka) [M/S. Kingfisher Airlines Ltd vs The Income Tax Department] wherein the ....
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....e Hon'ble Supreme Court held as follows:- "5. On a careful consideration of the materials available on record and the submissions made by the learned counsel on either side, it could be seen that the writ petition has been filed pursuant to the order dated 20.01.2016 passed by the respondent at New Delhi. Though the prayer sought for is for the issuance of a writ of mandamus, the learned counsel appearing for the respondent submitted that no record is available in Chennai office and all the records are only in New Delhi office. The learned senior counsel appearing for the petitioner submitted that the petitioner is an assessee only in the New Delhi office and not at Chennai. The petitioner also submitted their Income Tax Returns only at New Delhi office and not at Chennai office. Merely because the petitioner is having an office at Chennai the same will not confer territorial jurisdiction to this Court to entertain the writ petition. That apart, deducting TDS by the petitioner at Chennai will not confer territorial jurisdiction at Chennai. When the petitioner is an assessee in the office of the Income Tax Department at New Delhi, only the Courts at New Delhi shall have....
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....so submitted that since no records are available in Chennai office, they have to get all instructions only from New Delhi office in respect of the relief sought for in the writ petition. Since no part of cause of action has arisen at Chennai, I am of the view that this Court has no territorial jurisdiction to entertain the writ petition. In these circumstances, the judgments relied upon by the learned senior counsel appearing for the petitioner are not applicable to the petitioner's case. Since the writ petition is being decided on the question of territorial jurisdiction, I am not going into the merits of the case. In these circumstances, the writ petition filed by the petitioner is rejected on the ground of territorial jurisdiction. No costs. Consequently, connected miscellaneous petition is closed. (v) 2016 (72) Taxmann.com 99 (Madras) [Tecpro Systems Limited vs The Union Of India] wherein the Karnataka High Court held as follows:- " 20. In Kusum Ingots & Alloys Ltd. vs. Union of India and Another reported in (2004) 6 SCC 254, the appellant company was registered under the Companies Act with the Registered office at Mumbai. It obtained a loan from Bhopal branch o....
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....thers reported in (2014) 9 SCC 329, the appellant therein was suffering from serious heart muscle disease and breathing problem, which forced him to go back to his native place in Bihar, wherefrom, he had been making all correspondence with regard to his disability, compensation etc. Earlier he was declared as permanently unfit by authority of the respondent Corporation at Mumbai. Appellant therein has approached Patna High Court under Article 226 of the Constitution of India and claimed various benefits including 100% disability compensation. Maintainability of the writ petition was one of the objections raised by the respondent, on the ground that no cause of action or even a fraction of cause of action arose within the jurisdiction of the Patna High Court. The appellant before the Hon'ble Apex Court contended that he discharged his duty outside the territory of State of Bihar. One of the facts pleaded by the appellant before the Apex Court was that he was a permanent resident of Bihar, asserted his rights in the State of Bihar and all the communications with respect to rejection of his claims were made at his residential address in the State of Bihar. Thus on the above facts....
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.... at New Delhi, which the appellant, in a way has also admitted that, if there was any challenge to the orders and prayer made for certiorari, an objection as to maintainability of the writ petition on territorial jurisdiction, can be made. No materials have been placed before this court as to whether order dated 20.01.2016 has been challenged before the competent authority under the Income Tax Act or the court." 7.1 On a careful consideration of the materials available on record, the submissions made by the learned Senior Counsel on either side and also the judgments relied upon by the respective Senior Counsel, it could be seen that the petitioner was a Non-Executive Chairman of the Board of Directors of the Company. Admittedly, the corporate office of the company is at Delhi. It is not in dispute that the petitioner is residing at Chennai and the impugned order dated 03.11.2014 naming the petitioner as the Principal Officer was served on the petitioner at Chennai at his residential address. 7.2 The learned Additional Solicitor General contended that the writ petition is not maintainable for the reason that the cause of action arose only at Delhi. The petitioner contended th....
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....re, a part of cause of action arose within the jurisdiction of the Patna High Court. In the judgments reported in 2016 (72) Taxmann.com 99 (Madras) [cited supra] and 2016 (73) Taxmann.com 58 (Madras) [cited supra], since no part of cause of action had arisen either wholly or partly within the territorial jurisdiction of Chennai, this Court held that the writ petition cannot be entertained before this Court. 7.6 In the case on hand, admittedly the impugned order was served on the petitioner at his residential address at Chennai. Though the authority is at Delhi, it is clear that part of cause of action had arisen at Chennai. As per Article 226(2) of the Constitution of India, the writ petition is maintainable before a High Court within which the cause of action wholly or in part, arises for the exercise of such power, notwithstanding that the seat of such Government or authority or the residence of such person is not within those territories. That apart, though the company's registered corporate office is at Delhi and the TAN number is at Delhi assessment, the petitioner in this writ petition has not challenged the assessment order, but, has challenged only the impugned order....
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....this Act has been committed by a company 58, 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." 8.4 During the Survey Operations, the Chief Financial Officer of the company, viz., Mr.R.Neelakantan gave a statement, which was recorded on 04.08.2014. In the said survey operations, the Chief Financial Officer has stated that one Mr.Manish Jain, Assistant Manager (Taxation) is responsible for TDS. Thereafter, the 2nd respondent had issued a show cause notice dated 01.09.2014 to the petitioner at the Chennai residence and to one Mr.Rakesh Kumar, DGM (Finance & Taxation) at IGI Airport, Delhi as to why the petitioner and the said Mr.Rakesh Kumar should not be treated as Principal officers. The petitioner sent his reply on 23.09.2014 wherein he has stated that the Managing Director, Chief Financial Officer and Chief Operating Officer are involved in the day-to-day affairs of the company. On receipt of the said notice, the 2nd respondent had issu....
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....e to any punishment, if he proves that offence was committed without his knowledge. 8.9 In the case on hand, the petitioner has stated that he was not involved in the day-to-day affairs of the company and that he is only a Non-Executive Chairman and not involved in the management and administration of the company. Whereas, the Managing Director, viz., Mr.K.Natrajhen himself has specifically stated that he is the person in charge of the day-to-day affairs of the company. 8.10 The 2nd respondent, while passing the impugned order naming the petitioner as the Principal Officer, has not given any reason for rejecting the contention of the Managing Director. When the Managing Director himself has stated that he is the person who is in charge of the day-to-day affairs of the management and administration of the company and that the petitioner is not so, the 2nd respondent without any reason has named the petitioner as the Principal Officer. Merely because the petitioner is the Non-Executive Chairman, it cannot be stated that he is in charge of the day-to-day affairs, management and administration of the company. The 2nd respondent should have given the reasons for not accepting the ....
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....ar, Deputy General Manager (Finance & Taxation), the company has sent a detailed reply wherein the company has stated that the said Rakesh Kumar should not be treated as the Principal Officer, which was accepted by the 2nd respondent and the said Rakesh Kumar was not named as the Principal Officer. 9.3 On the contrary, even without any materials and also not considering the stand taken by the Managing Director and also the Chief Financial Officer of the Company, the 2nd respondent arrayed the petitioner as the Principal officer. The 2nd respondent has not given any reason for rejecting the stand of the Managing Director and the Chief Financial Officer of the company. 10.1 It is also pertinent to note that there was a meeting between the company officials and the respondents in order to facilitate to pay the TDS on a payment plan basis and the company has submitted its plan on 12.08.2014 and the said plan was accepted by the 2nd respondent by letter dated 02.09.2014. Thereafter, the company has also made payments towards TDS and it is informed to this court by the learned Senior Counsel appearing for the petitioner that the company had paid the entire arrears of TDS and as on ....