TaxTMI 
TaxTMI 
2024 (8) TMI 935
X X X X Extracts X X X X
X X X X Extracts X X X X
....ropriety of prosecution of the petitioners by the respondent No. 1. 6. The petitioners, have, therefore, invoked inherent jurisdiction of this Court under Section 482 of the Code of Criminal Procedure, 1973 (for short "Cr. P.C") r/w Article 227 of the Constitution of India impugning issuance of process on the basis of the complaints filed by the Income Tax Officer under Section 279 (1) of the Income Tax Act, 1961 (for short "I.T Act") to prosecute them for the offence punishable under sections 276B r/w 278B of the I.T. Act. Briefly stated, facts are as follows. 7. Respondent No. 1 - Income Tax officer has filed complaints under Section 279 (1) of the I.T Act along with sanction to prosecute the petitioners for the offences as referred hereinabove. The complainants alleged that M/s. Hubtown Ltd (hereinafter referred to as "assessee") is a Company incorporated under the Companies Act, 1956. It was brought to the notice of the respondent No. 1 by the assessee that it has deducted amounts of Rs. 13,11,35,617/- during the Financial Year 2011-2012 (Relevant Assessment Year 2012-13); Rs. 14,54,20,798/- during the Financial Year 2013-2014 (relevant Assessment Year 2014-15), Rs. 15,38....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Additional Chief Metropolitan Magistrates. 12. I heard Mr. Puneet Jain, learned Counsel for the petitioners at a considerable length as well as Mr. Suresh Kumar, learned Counsel for the respondents. I have also perused the affidavits-in-reply as well as affidavits in rejoinder. 13. Mr. Jain in his elaborate arguments has taken me through various provisions of the I.T Act and the case laws on the subject. He would argue that the petitioners are not the principal officers and they could only be held vicariously liable provided they fulfill the statutory requirements of section 278B of the I.T Act which is more or less analogous with the provisions of section 141 of the Negotiable Instruments Act, 1881, section 34 of the Drugs and Cosmetics Act as well as section 10 of The Essential Commodities Act. He would emphasize that the complaint is bereft of essential ingredients, in the sense, the person sought to be proceeded against vicariously should be both "In-charge" and "responsible" for conducting the business of the company. No such basic averments are present in the complaint and, therefore, interference of this Court is essential. 14. Mr. Jain would argue that just becaus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the "Assessing Officer" to any of the petitioners under Section 2 (35) (b) of the I.T Act to treat any of them as "Principal Officer" of the Company. 20. No order as contemplated under Section 201 (1) r/w Section 201 (3) of the I.T Act has been passed treating any of the petitioners as 'Principal Officer" of the company and by which such Principal Officer is whereby "deemed to be assessee in default". 21. In respect of assessment year 2017-2018, a positive order has been passed holding the Company not to be "Assessee in Default". 22. No order imposing penalty (either initially or further penalty) as "deemed to be an assessee in default" under Section 221 has been passed against the company or any of the petitioners. 23. The petitioners are "Directors" of the Company, however, no averment has been made in the complaints regarding "Consent", "Connivance" or "negligence" as required under Section 278B (2) of the I.T Act. 24. Now, the scope of section 276B (as amended by the Finance Act, 1997) will have to be understood in its correct perspective. This Section covers cases of "Failure to Pay" and not mere "Delay in Deposit" of TDS". In Pre-1997 unamended provisions,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ltd (supra), which was decided by the Supreme Court on 23rd March, 2007, it has been held thus; "In view of Section 200, 201 (Chapter XVII), 276B, 278B (Chapter XXII) and 2 (20), 31 and 35 of the I.T Act, it is clear that wherever a Company is required to deduct tax at source and to pay it to the account of the Central Government, failure on the part of the company in deducting or in paying such amount is an offence under the Act and has been made punishable. It, therefore, cannot be said that the prosecution against a Company or its Directors in default of deducting or paying tax is not envisaged by the Act. It is held that although a Company is not a natural person but "legal" or "juristic" person that does not mean that Company is not liable to prosecution under the Act. "Corporate Criminal Liability" is not unknown to law". 28. There can be no second view in light of the ratio laid down by the Supreme Court in case of Madhumilan Syntex Ltd Vs. Union of India and another (supra), at the relevant time, however, Mr. Jain has pressed into service two decisions of Punjab and Haryana High Court and of Jharkhand High Court wherein the aforesaid Circular has been referred.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment in accordance with the provisions of sub-section (3) of section 200." Provided that in case any person, including the principal officer of a company fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident but is not deemed to be an assessee in default under the first provision to sub-section (1), the interest under clause (i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident". 17. It is an admitted fact that the TDS amount in all these cases were deposited with interest and the chart with respect to the same is also annexed with the counter affidavit of the Income Tax Department, wherein the date of deduction and date of depositing the said amount has been mentioned. However, some delay occurred in depositing the TDS. Apart from one or two cases, the deducted amount are not more than 50,000/-. While passing the sanction under Section 279 (1) of the Act, the sanctioning authority has not considered the CBDT instructions, bearing F. No. 255/339/79-IT (Inv.) dated....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Special Judge, Economic Offences, Dhanbad, are hereby, quashed". 30. The ratio laid down by the Jharkhand High Court would be squarely applicable to the present set of facts which are identical. In the said case also, the petitioners had already deposited TDS amount with interest and that the case was instituted against the petitioners after considerable lapse of time. The learned Judge referred the CBDT instructions, bearing F. No. 255/339/79-IT (Inv.) dated 28.05.1980. The said guidelines issued by the CBDT were also considered by the Patna High Court in case of Sonali Autos (P) Ltd vs The State Of Bihar and others [2017] 396 ITR 636 (Patna), and had interfered with the matter while quashing the entire criminal proceedings. 31. A Special Leave Petition (Criminal) Diary No (s). 3073 of 2023 challenging the judgment of the Jharkhand has been preferred by the Revenue in the Supreme Court. However, the Supreme Court, upon hearing the Counsel, dismissed the SLP on the ground that it did not find any merit. Thus, the Supreme Court has also not interfered with the verdict rendered by the Jharkhand High Court. The decision in the case of Madhumilan Syntex Ltd Vs. Union of India an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....far as the first contention of Mr. Sawhney that it is the provisions of the statute which shall have precedents and not the instructions is concerned, suffice it to say that the court does not find any inconsistency or contradiction in the relevant provisions of the statute and the instructions quoted above. The relevant provision of the statute no doubt talks of prosecution but the instructions in the considered view of the court provide an exception in limited matters and that too where the conditions precedent in the instructions are available or in existence..." 33. Mr. Jain has also pressed into service a recent judgment of Orissa High Court in case of Sree Metaliks Ltd. Vs. Union of India [2024] 162 Taxmann.com 161 (Orissa), wherein there is reference of CBDT Circular dated 24th April, 2008 which came into being after the decision in the case of Madhumilan Syntex Ltd and others Vs Union of India and another (supra). Cases, where amount of tax deducted is Rs. 25,000/- or more, and the same is not deposited even within twelve months from the date of deduction, especially, proceeded for prosecution in addition to the recovery steps as may be necessary in such cases. The Autho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Circular dated 24th April, 2008 prescribes that the prosecution is to be launched within sixty days of deduction of the default. Though the circular also prefixes the requirement with the words "preferably", it also signify that if not in sixty days the period cannot extend indefinitely for an unreasonable period. If Section 276B is interpreted to include the delay in deposit of TDS would make the said provision manifestly arbitrary. 36. Turning to the definition of "Principal Officer" as contemplated in Section 2 (35) of the IT Act which requires the assessing officer to issue notice to any person connected with the management or administration of the company for his intention of treating him as the 'Principal Officer" thereof. The obligation, however, does not end with merely a notice. Section 201 (1), Proviso to Section 201 (1) and 201 (3) of the I.T Act make it mandatory for the assessing officer to pass an order. The order is also appealable under section 246 (1) (i) of the I.T Act. The order would:- (a) Determine which officer is proposed to be dealt as "Principal Officer" of the Company; (b) Determine in light of the exclusion under the proviso to sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are not concerned with the day-today affairs of the Company which are looked after by the Managing Director and whole time Director. Admittedly no administrative responsibilities were shouldered by the applicants. Furthermore applicant Nos.1 and 3 are also practising Advocates and therefore, they cannot by law act as full time Directors. They could only act as non-executive Directors not exercising any administrative powers or performing any administration duties. 13. Unless the complaint disclosed a prima facie case against the applicants/accused of their liability and obligation as Principal Officers in the day to day affairs of the Company as Directors of the Company under section 278 (b) the applicants cannot be prosecuted for the offences committed by the Company. In the absence of any material in the complaint itself prima facie disclosing responsibility of the accused for the running of the day to day affairs of the Company process could not have been issued against them. The applicants cannot be made to undergo the ordeal of a trial unless it could be prima facie showed that they are legally liable for the failure of the Company in paying the amount deducted to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t has been committed by a company 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 knowledge or that he had exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. [(3) Where an offence under this Act has been committed by a person, being a company, and the punishment for such offence is imprisonment and fine, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndia through Deputy Chief Labour Commissioner (C) and another (2021) 20 Supreme Court Cases 135. While interpreting section 22-C (1) and (2) of the Minimum Wages Act, 1948 which relates to offence of firm and vicarious liability, the Supreme Court enunciated necessity of requirements under each of the sub-sections. It is held that the requirements of Section 22-C (2) are different from those of Section 22-C (1). Relevant paragraphs are extracted below; "9. However, in the context of the present appeal, it is Section 22-C of the Act which is of more relevance which reads thus: "22C. Offences by companies. - (1) If the person committing any offence under this Act is 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 provided in this Act if he proves that the offence was committed without his knowledge or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are sought to be made personally liable for acts which result in criminal action being taken against the company. It makes every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of business of the company, as well as the company, liable for the offence. The proviso to the sub-section contains an escape route for persons who are able to prove that the offence was committed without their knowledge or that they had exercised all due diligence to prevent commission of the offence. 9. The position of a Managing Director or a Joint Managing Director in a company may be different. These persons, as the designation of their office suggests, are in charge of a company and are responsible for the conduct of the business of the company. In order to escape liability such persons may have to bring their case within the proviso to Section 141(1), that is, they will have to prove that when the offence was committed they had no knowledge of the offence or that they exercised all due diligence to prevent the commission of the offence." (Emphasis added) 12. In Aneeta Hada v. Godfather Travels & Tours (P....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e person being prosecuted". 43. It is needless to reiterate the ratio laid down by the Supreme Court in the case of Dayle De'Souza Vs. Union of India through Deputy Chief Labour Commissioner (C) and another (supra) since it is incumbent upon the Revenue to prove that the offence in question has been committed with the consent or connivance or is attributable to any neglect on the part of, any Director, Manager, Secretary or other officer of the company, such Director, Manager, Secretary or other officer of the Company shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. This is also in pari materia with the vicarious liability under section 141 of the Negotiable Instruments Act, 1881, as has been observed in paragraph 12 (supra). [Emphasis supplied] 44. In the present case, the Revenue has chosen not to invoke the provisions of Section 221 r/w Section 201 (1) of the I.T Act to impose penalty against the company or the principal officer of the company for "failure to pay the whole or any part of tax, as required by or under this Act". The Revenue cannot now be permitted to prosecute the petitioners for the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... basis of which penalty has been levied on the assessee has itself been finally set aside or cancelled by the Tribunal or otherwise, the penalty cannot stand by itself and the same is liable to be cancelled as in the instant case ordered by the Tribunal and later cancellation of penalty by the authorities". 24. In the instant case, the penalties levied under Section 271 (1) (c) were cancelled by the respondent by giving effect to the order of the Income Tax Appellate Tribunal in I.T.As Nos. 3129-3132. It is settled law that levy of penalties and prosecution under Section 276-C are simultaneous. Hence, once the penalties are cancelled on the ground that there is no concealment, the quashing of prosecution under Section 276-C is automatic. 25. In our opinion, the appellants cannot be made to suffer and face the rigorous of criminal trial when the same cannot be sustained in the eye of law because the entire prosecution in view of a conclusive finding of the Income Tax Tribunal that there is no concealment of income becomes devoid of jurisdiction and under Section 254 of the Act, a finding of the Appellate Tribunal supersedes the order of the Assessing Officer under ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and Transport Company and that finding has been set aside by the Income-tax Appellate Tribunal. If that is the position then we are unable to see as to how criminal proceedings can be sustained". A prosecution was launched by the Revenue qua the assessee on the ground of making false statement. The Assessing Authority held that the assessee had intentionally concealed his income derived from "Y" Company which belonged to him. The appellant preferred an appeal against assessment order wherein the Appellate Tribunal set aside the assessment by holding that there was no material to hold that "Y" company belonged to assessee. A petition filed by the appellant before the Magistrate to drop the criminal proceedings, and an application moved before the High Court under Section 482 of the Cr. P.C to quash the criminal proceedings came to be dismissed. The Supreme Court, therefore, held that the whole question was whether the appellant made a false statement regarding income which, according to the assessing authority had escaped assessment. It is noted that the said issue attained finality in light of the finding of the Appellate Tribunal which was conclusive and, therefore, the prosec....