TMI Blog2007 (3) TMI 670X X X X Extracts X X X X X X X X Extracts X X X X ..... essment 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 Smt. Chandraprabha Modi) being principal officers of the appellant-company. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 decision could be taken. According to the Court over and above the company, other accused persons were Directors and as they were treated as principal officers, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t paid in the manner provided by law, proceedings cannot be quashed. 15.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. 16.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 to secure the presence of the learned counsel. Normally, when the matter is called out and the advocate is absent, a Court may adjourn the matter to next date of hearing. But it may also dismiss the matter fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson 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. 20.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 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cannot be ordered to suffer imprisonment. Other consequences, however, would ensue, e.g. payment of fine etc. 24.K.G. Balakrishnan, J. (as His Lordship then was), speaking for the majority, summarized the law thus : "As the company cannot be sentenced to imprisonment, the court cannot impose that punishment, but when imprisonment and fine is the prescribed punishment the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 contended on behalf of the accused that proceedings were liable to be quashed as it was not shown that accused persons were in-charge of and responsible for the conduct of business. The High Court allowed the petition and quashed the proceedings. Aggrieved Municipal Corporation challenged the decision. This Court was called upon to consider as to whether the High Court was right in quashing the proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 33.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. 34.In Puran Devi Ors. v. Z.S. Klar, Income Tax Officer, (1988) 169 ITR 608, the High Court of Punjab Haryana held that a person or a partner of a firm prosecuted for false verification of return must have been in charge of and responsible to the firm for the conduct of its business. Necessary allegations, therefore, must be made in the complaint. 35.In K. Subramanyam v. Income Tax Officer, (1993) 199 ITR 723, the High Court of Madras held that before prosecuting a person under the Act, it must be proved that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. 40.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 commission of offence were in charge of and responsible for the conduct of business of the firm. The Court proceeded to observe that it was because of the fact that there may be sleeping partners who were not required to take any part in the business of the firm; there may be ladies and others who may not be knowing anything about such business. The primary responsibility is on the complainant to make necessary averments in the complaint so as to make the accused vicariously liable. "For fastening the criminal liability, there is no presu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion, 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. 45.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. 46.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 be ordered cannot be accepted. Mr. Ranjit Kumar invited our attention to a decision of the High Court of Calcutta in Vinar Co. Anr. v. Income Tax Officer Ors., (1992) 193 ITR 300. Interpreting the provisions of Section 276B, a Single Judge of the High Court observed that "there is no provision in the Income Tax Act imposing criminal liability for delay in deduction or for non-payment in time. Under Section 276B, delay in payment of income-tax is not an offence". According to the learned Judge, such a provision is subject to penalty under Section 201(1) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 the case remained pending. It, therefore, cannot be urged that there was failure, negligence or inaction on the part of the prosecuting agency in not proceeding with the matter. The ground of delay, in our considered opinion, cannot help the appellants. 53.Finally, the learned Counsel submitted that an appropriate direction may be issued to the trial Court so that personal presence of respondent Nos. 2-4 may be dispensed with and they may be granted exemption from appearance. In our opinion, it would not be appropriate to issue such direction to the Court. We have, however, no doubt that if such a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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