TaxTMI 
TaxTMI 
2023 (6) TMI 1203
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....ginal accused No. 1), from 24.03.2006, 01.10.2008 and 27.10.2007 respectively. They were never in­charge of and responsible for the day to day activities of the said original accused No. 1 company, at any point of time. For the relevant financial year 2014­2015, to which the offences in question relates, the accused No. 1 company submitted its annual report disclosing that the present applicants are the Non Executive Directors of the said company. In response to the show cause notices issued by the present respondent /original complainant under section 279(1) of the Income Tax Act, the present applicants have had submitted their reply and they were given an opportunity of being heard in relation to the said show cause notices. By their reply, the applicants /original accused Nos. 2 to 4 have specifically stated that they were associated with the said company i.e. accused No. 1 as Independent Director and they were never involved in the day to day business of the company and as such they cannot be proceeded against. However, the Commissioner of Income Tax (TDS)­2, Mumbai rejected the said reply while passing sanction order dated 27.09.2017, observing that the other direc....
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....inal Revision bearing No. 1013 of 2018 challenging the said issue process order, before this Court and this Court vide order dated 20.01.2020 was pleased to quash and set aside the said complaint qua the applicants on the ground that the applicants were Non Executive Directors /Independent Directors and hence, were not responsible for the day­to­day activities of the accused No. 1 company. It is further claimed that the complaint does not disclose any role played by the present applicants in the transactions, leading to their prosecution for the offence punishable under section 276­B r/w section 278­B of the Income Tax Act. Thus, according to the applicants, the impugned order is manifestly wrong and passed without application of mind and without considering the relevant facts and law involved in the case, which led to miscarriage of justice. Hence, the present revision application to quash and set aside the impugned order directing issue of process against them for the offence punishable under section 276­B r/w section 278­B of the Income Tax Act. 5. In view of the grounds stated in the revision application, the following points would arise for my consider....
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.... In view of the above referred decisions, which are squarely applicable to the present case, Mrs. Poonam Ankleshwaria would urge that the impugned order cannot be termed as correct, legal and proper and the same is liable to be quashed and set aside. 8. Mr. Amit Munde, the learned SPP appearing for the respondent/Income Tax Department would contend that the applicants /accused were given show cause notices under section 279 of the Income Tax Act by the Commissioner of Income Tax (TDS)­2, Mumbai and after considering the matter including the reply filed by the present applicants /original accused Nos. 2 to 4, with reasoned order accorded sanction to prosecute the accused persons for the offences punishable under section 276­B r/w section 278­B of the Income Tax Act before the Court of competent jurisdiction. He would also contend that in view of the provision of section 2(35) of the Income Tax Act, the applicants /accused being the persons falling under the said provision have been rightly directed to be prosecuted for the said offences. In support of his contentions, Mr. Amit Munde, would seek to rely upon a recent decision of the Hon'ble Bombay High Court rendered....
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....ompany during the year. However, they could not produce any documentary evidence to prove the same. Further, merely stating that one being not in­charge of day­to­day affairs or management, does not give immunity to a director from the provisions of section 278­B of the Act. 11. From the perusal of the sanction order dated 27.09.2017 purportedly passed by Mr. Pratap Singh, Commissioner of Income Tax, (TDS)­2, Mumbai, under section 279(1) of the Income Tax Act, the said Authority has referred to the observations of the Hon'ble Supreme Court from the decision rendered in Madhumilan Syntex Ltd V/s. Union of India, 290 ITR 199 (SC) to the following effect­ "Once a statute requires to pay tax and stipulates the period within which such payment is to be made, the payment must be made within that period. If the payment is not made within that period, there is default and an appropriate action can be taken under the Act. Interpretation canvassed by the learned counsel would make the provision relating to prosecution nugatory. It is true that the Act provides for imposition of penalty for non payment of tax. That, however, does not take away the power to prose....
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....also be noticed that the learned Trial Court on 09.01.2017 passed the impugned order below Exh.1 which is reproduced as under­ "Perused the complaint and documents. Heard the learned Advocate for the complainant. The complainant has made out his prima facie case to issue process, hence, process be issued against the accused for an offence punishable under section 276 B r/w section 278 B of the Income Tax Act, 1961". It is pertinent to note that the words "276 B r/w 278 B" are inserted in hand in the place kept blank whereas the other part of the order is in typewritten format. 15. Now, in the present controversy, it would be appropriate to refer and notice the judgments/orders relied upon by the learned counsels appearing for the contesting parties. From perusal of the judgment of the Hon'ble Supreme Court in Sham Sunder & Others (Supra) it appears that on June 28, 1980 the appellants therein formed a partnership firm for the purpose of running a rice mill in the name and style of M/s. Panna Lal Premnath Rice Mills at Shahpur. In 1984 the firm purchased 5373 quintals 69 Kgs. and 400 grams of common paddy from the market. At the rate of conversion of paddy into rice and aver....
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....tary or other officer shall also be liable to be proceeded against and punish accordingly. Explanation - For the purposes of the section, ­ (a) "Company" means any body corporate, and includes a firm or other association of individuals and (b) "director" - in relation to a firm means a partner in the firm. 16. The Hon'ble Supreme Court in para No. 6 of the said judgment observed thus - "6. From explanation to section 10 it will be seen that the company includes a firm and other association of persons. Section 10 provides that the person shall be deemed to be guilty of contravention of an order made under section 3 if he was in charge of and was responsible to the firm for the conduct of the business of the firm. What is of importance to note is, that the person who was entrusted with the business of the firm and was responsible to the firm for the conduct of the business, could alone be prosecuted for the offence complained of." 17. The Hon'ble Supreme Court in para 9 of the said judgment further observed thus - "9. It is, therefore, necessary to add an emphatic note of caution in this regard. More often it is common that some of the partners of a firm may not even ....
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....ere admittedly not the principal officers of the accused No. 1 Company and therefore not responsible for the failure on the part of the Company to deposit with the Central Government the taxes deducted at source by the company from the four contractors. Though the company had deducted the tax payable by the said contractors the company failed and neglected to remit the tax deducted to the Treasury within the stipulated time. Admittedly, there was delay in remitting the tax deducted to the Central Government. As required u/s. 194 C, the tax had to be credited to the Central Government by 7­5­1989. However, the same was paid to the credit of the Central Government only on 30.05.1989. The tax deducted had to be credited to the Central Government within one week from the last date of the month in which deduction is made. It was the contention of the applicants / accused that they are not the principal officers of the accused No. 1 Company. 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. 8 Yogesh Khosla is the whole­time Director of the said company. Hence the liability for deducting in....
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....e applicants viz. Shital N. Shah V/s. ITO MANU/TN/0229/1990 : (1991) 188 ITR 376 (Mad) cannot be relied upon. In the said case the Madras High Court observed : "... if the payer is a company, the company itself including the principal officer thereof will be the 'person responsible for paying. . . ." (p. 379) Sections 2 (35) specifies that the Principal Officer with reference to a Company would be any person on whom the Income Tax Officer has served a notice of his intention of treating him as Principal Officer. Admittedly no such notice was served upon the applicants. Despite the said observations of the Madras High Court in the case of Shital N. Shah (supra) the learned Metropolitan Magistrate has held that unless opportunity to the prosecution is given to lead evidence to substantiate or to prove that the accused No. 4 to 7 were in charge and responsible for the conduct of the business of the accused No. 1 Company, this defence cannot be taken by the accused at this stage but the accused can raise this point at the time of framing of charge. 10. It must be fairly stated that at the time of hearing of the said application for discharge, the attention of the court was not ....
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....o to sub­section (1) that the offence was committed without their knowledge. It is significant to 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 sub­section (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) 20. From the perusal of the judgment of the Hon'ble Supreme Court in Sabitha Ramamurthy's case (supra), it would appear that the two cheques dated 23.06.2001 and 30.06.2001 for a sum of Rs. 1,24,406/­ each were issued in favour of the respondent allegedly on behalf of company known as Karanataka News Net (Bangalore) Ltd. The appellants were not the directors of the said company at the material time. Two complaint petitions were filed by the respondent before the Additional Chief Metropolitan Magistrate, Bangalore wherein appellants were described as....
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.... company. In a case where the court is required to issue summons which would put the accused to some sort of harassment, the court should insist strict compliance of the statutory requirements. In terms of section 200 of the Code of Criminal Procedure, the complainant is bound to make statements on oath as to how the offence has been committed and how the accused persons are responsible therefor. In the event, ultimately, the prosecution is found to be frivolous or otherwise malafide, the court may direct registration of case against the complainant for malafide prosecution of the accused. The accused would also be entitled to file a suit for damages. The relevant provisions of the Code of Criminal Procedure are required to be construed from the aforementioned point of view. 21. The Hon'ble Supreme Court in the aforesaid judgment also noticed its observations in the case of Monaben Ketanbhai Shah and Anr. V/s. State of Gujarat and Ors., MANU/SC/0596/2004 : 2004 Cri.LJ 4249, Katta Sujatha (Smt) V/s. Fertilizers & Chemicals Travancore Ltd., and Anr., MANU/SC/0897/2002 : (2002) 7 SCC 655, K.P.G. Nari V/s. Jindal Menthol India Ltd., MANU/SC/2327/2000 : (2001) 10 SCC 218 and S.....
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....ble at Delhi and having regard to the fact that the records required in this Writ Petition and the Criminal Quash Petition before the Delhi High Court are the same, on the ground of forum convenience also the above writ petition ought to be dismissed. Therefore, the writ petition should be dismissed as not maintainable. 23. According to the petitioner he was merely a Non-Executive Chairman of the Board of Directors of the Company and not at all in charge or control of the day­to­day affairs and operations of the Company, which is professionally managed by its Managing Director and other Managerial Personnel. The company has its Corporate Head Office at Delhi from where it is managed and controlled. On the other hand, the petitioner is residing and carrying on 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 Offic....
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....elf including the principal officer thereof were liable for prosecution for the alleged contravention. Section 2(35) 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 Income­tax 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." 25. After considering various other decisions, the Hon'ble Madras High Court in para 9.1 observed thus:­ 9.1 It is pertinent to note that the 2nd respondent has not produced any material to establish that the petitioner was responsible for the day­to­day affairs of ....
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....e Supreme Court in the case of National Small Industries Corp. Ltd. (supra), it is apparent that the Hon'ble Supreme Court after having considered the relevant provisions of the Negotiable Instruments Act and its decisions in several other cases including the case of DCM Financial Services Ltd., S.M.S Pharmaceutical, Sabitha Ramamurthy, etc., in para No. 25 stated the principles which emerge from the discussion thus:­ (i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction. (ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company. (iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are m....
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....003, the decision of the Hon'ble Apex Court in Sham Sunder's case (supra) dated 21.08.1989, S.M.S. Pharmaceuticals Ltd. (supra) dated 20.09.2005, Saroj Kumar Poddar's case (supra) dated 16.01.2007, N.K. Wahi's case (supra) dated 09.03.2007 were not brought to the notice of the Hon'ble Single Judge of the Bombay High Court, while deciding the case of Petrus Lambertus Maria Hermans. Hence, with great respect for the said decision, I am of the considered view that the same would not apply or cannot be pressed into service in support of the contention raised by the learned SPP Shri. Munde for the respondent, Income Tax Department. 29. From the material made available on record by applicants /original accused No. 2 to 4 which includes annual report of the accused No. 1 company for the year 2014­15, it is apparent that the accused No. 1 is incorporated on 09.04.1997; Mr. Kishore Avarsekar (accused No. 5) is the Chairman and Managing Director, Abhijit Avarsekar is Vice­ Chairman, Managing Director and Chief Executive Officer; Shri. Ashish Avarsekar was the Executive Director upto 30.06.2014; Vidya Avarsekar, Non Executive Director w.e.f. 28.03.2015 and Anil Jo....