Section 487 Offences by companies.

Income-tax Act, 2025

At a Glance

The documents are two textual variants of Clause/Section 487 dealing with "Offences by companies" under the Income-tax legislation of 2025: (1) Clause 487 - Income Tax Bill, 2025 (Old Version); and (2) Section 487 - Income-tax Act, 2025 (enacted text). Both set out vicarious and personal liability for corporate tax offences. The enacted text contains modest but important drafting differences from the Bill: notably, an expanded non-reliance clause in sub-section (3) and slightly different framing in sub-section (2). Affected parties include companies and persons in managerial or controlling positions (directors, managers, secretaries, other officers, partners, controlling members). Effective date or decision date: Not stated in the document.

Background & Scope

Statutory hooks: the title indicates this provision falls under "Offences and Prosecution" of the Income-tax statute of 2025. Both texts define the circumstances in which a company and specified persons are deemed guilty of an offence under the Act and prescribe liability when offences are committed by companies. Definitions provided in sub-section (5) (Bill) / (5) (Act) define "company" (a body corporate and includes a firm; an association of persons or a body of individuals, whether incorporated or not) and "director" (in relation to a firm, a partner; in relation to any association/body, any member controlling the affairs). No other definitions or legislative history are provided in the documents.

Statutory Provision Mode

Text & Scope

Both texts operate on two complementary principles: (a) vicarious or deemed guilt of persons in charge of a company's business at the time an offence was committed (sub-section (1)); and (b) personal culpability where an offence is proved to have been committed with the consent, connivance, or attributable to neglect of specified office-holders (sub-section (3)). Sub-section (4) addresses the sentencing frame where the offence by the company is punishable with imprisonment and fine - prescribing fine for the company and liability to be proceeded against and punished for the concerned persons "as per the provisions of this Act." Sub-section (5) supplies internal definitions for "company" and "director" (as described above).

Interpretation

The texts adopt a classical statutory approach to corporate criminality and derivative liability: imposing deemed guilt on the company and those "in charge of, and responsible to" it for business conduct (sub-section (1)); allowing exculpation if the person proves lack of knowledge or that all due diligence was exercised (sub-section (2)); and imposing direct liability on directors/officers where consent/connivance/neglect is established (sub-section (3)). The enacted text's phrasing in sub-section (3) - prefacing the paragraph with "Irrespective of anything contained in sub-section (1) and (2)" - signals a legislative intention to make sub-section (3) operate notwithstanding the defences or deeming in (1) and (2). The Bill's version limits the non-reliance to sub-section (1) only. That drafting distinction affects how sub-section (2)'s due diligence defence interacts with personal liability under sub-section (3).

Exceptions/Provisos

Sub-section (2) provides a statutory defence for persons deemed guilty under sub-section (1): the person must prove either (a) the offence was committed without his knowledge, or (b) he had exercised all due diligence to prevent commission of such offence. The texts otherwise contain no further provisos, thresholds, or procedural conditions. No ancillary definitions of "due diligence," burden of proof specifics, or evidentiary standards are provided. Not stated in the document: standard of proof (criminal or civil), whether the due diligence defence shifts burden of proof, or procedural mechanisms for prosecution.

Illustrations

• Illustration 1: Not stated in the document - the text does not supply an example of application where a company commits an offence and an officer invokes the due diligence defence.
• Illustration 2: Not stated in the document - no example demonstrating the operation of sub-section (3) when consent/connivance/neglect is proved.

Interplay

Both texts cross-reference only internal subsections. No external Rules, Notifications, or Circulars are cited in the provided texts. Not stated in the document: interaction with general principles of criminal liability, procedural provisions of the Code of Criminal Procedure, or any tax procedure rules. The enacted text's broader "irrespective of anything contained in sub-section (1) and (2)" clause suggests a stronger statutory priority for sub-section (3) over the defences in (2), potentially limiting the circumstances in which an officer can invoke the due diligence defence where consent/connivance/neglect are alleged.

Differences Between the Provisions and Practical Impact

• Scope of non-reliance in sub-section (3): The Bill (old version) states sub-section (3) applies "irrespective of the provisions of sub-section (1)" (i.e., it carves out directors/etc. from the deeming rule in (1)). The enacted Act expands that to "Irrespective of anything contained in sub-section (1) and (2)".
  • Practical impact: Under the Act text, sub-section (3) operates notwithstanding both the deeming in (1) and the due diligence defence in (2). This means that where consent/connivance/neglect is proved, the officer cannot rely on the due diligence defence in (2) to avoid being "deemed to be guilty", thereby narrowing the scope of the due diligence escape for officers in those circumstances.
• Wording of sub-section (2): The Bill uses "the person referred in the said sub-section proves" while the Act uses "the person referred therein proves". This is a drafting stylistic change with no substantive effect.
  • Practical impact: None substantive; purely editorial.
• Introductory phrasing to sub-section (3): The Act uses "Irrespective of anything contained in sub-section (1) and (2), where an offence ... such director, manager, secretary or other officer shall also be deemed to be guilty" - while the Bill phrases it conditionally ("If it is proved ... then irrespective of the provisions of sub-section (1), such director... shall also be deemed to be guilty"). The Act places the "irrespective" prefix before the conditional clause, making explicit that the operation of sub-section (3) displaces both sub-section (1) and (2).
  • Practical impact: The ordering in the Act strengthens the independence of sub-section (3) as a separate route to personal liability, limiting defendants' ability to rely on (2) once the facts in (3) are established.
• Sub-section (4) phrasing: Both texts require that where the offence by the company is punishable with imprisonment and fine, the company is fined and the relevant persons shall be "liable to be proceeded against and punished as per the provisions of this Act." Wording differences are minor and do not change the substance.
  • Practical impact: None significant.
• Terminology in sub-section (5): The Bill states "In this section" while the Act states "For the purposes of this section". Substantively the same.
  • Practical impact: None substantive.

Practical Implications

• Compliance and risk: Under the enacted text, officers and persons in charge face increased exposure where an offence is proved to have been committed with their consent, connivance or attributable to neglect - they will be deemed guilty irrespective of a previously available due diligence defence. Companies and those in charge should be aware that proving "due diligence" may not be an operative shield where allegations of consent/connivance/neglect are made. The Bill's earlier formulation potentially left more room for invoking sub-section (2) against allegations in (3); that protection is narrowed in the Act.
• Record-keeping/evidence: Not stated in the document are specific documentary or procedural requirements. However, the text implies that persons in charge who wish to rely on the due diligence defence under sub-section (2) should maintain contemporaneous records demonstrating the exercise of all due diligence and steps taken to prevent offences. Not stated in the document: precise contents or format of such records, retention periods, or evidentiary thresholds.
• Prosecutorial approach: Not stated in the document whether prosecuting authorities must separately prove both the company's offence and the individual's consent/connivance/neglect, nor how evidentiary burdens are allocated. The enacted drafting suggests prosecutors can pursue personal liability under sub-section (3) even if the person attempts to rely on sub-section (2).
• Sentencing consequences: Where the company's offence attracts imprisonment and fine, the company is to be punished with fine and implicated persons are "liable to be proceeded against and punished as per the provisions of this Act." Not stated in the document are minimum/maximum fines for the company or sentencing ranges for individuals; no procedural guidance on joint or separate trials is provided.

Key Takeaways

• Both texts create deeming liability for a company and persons "in charge of, and responsible to" it for corporate tax offences.
• Both provide a due diligence defence for persons deemed guilty under sub-section (1), but the enacted Act limits the availability of that defence where consent/connivance/neglect is proved under sub-section (3).
• The Act's sub-section (3) expressly operates "irrespective of anything contained in sub-section (1) and (2)", which narrows officers' defences relative to the Bill version.
• Definitions for "company" and "director" broaden corporate constructs to include firms and associations and specify partner/controlling member roles.
• Several procedural and evidentiary details (standard of proof, burden allocation, examples, record-keeping requirements) are Not stated in the document.
• Practical consequence: officers should ensure robust preventive compliance systems and contemporaneous documentation to the extent available, recognising that such evidence may not avert liability where consent/connivance/neglect is proved.

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Full Text:

Section 487 Offences by companies.

Corporate vicarious liability tightened: personal liability now operates notwithstanding due diligence where consent, connivance or neglect is shown. Section 487 creates both a deeming rule treating companies and those in charge as guilty for corporate tax offences and a separate personal-liability route making directors, managers, secretaries, officers, partners and controlling members individually culpable where an offence is committed with their consent, connivance or attributable to their neglect; a statutory defence allows persons deemed guilty to avoid liability by proving lack of knowledge or that they exercised all due diligence, but the enacted text makes the personal-liability route operate irrespective of the deeming rule and the due diligence defence.