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TMI Blog2008 (9) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... orementioned complaint was filed by Kamal Khanna, Income Tax Officer (ITO), Ward 49 (4), New Delhi against Data Access (India) Limited ( Company ) [arrayed as Accused No.16] and 16 other persons who were described as Directors or Senior Officers of the said Company. This complaint was filed under Section 279 B read with Section 279 of the Income Tax Act, 1961 ( IT Act ) for the financial year 2003-04 and 2004-05. The allegation in the complaint was that a survey operation under Section 133A IT Act was carried out in the business premises of the Company on 16th September 2004 and the books of accounts of the Company for the period 2003-04 onwards were examined. It was found that for the financial year 2003-04, the Company had deducted tax at source under several heads, but had not deposited it with the Government Treasury. The Company was treated as the assessee in default within the meaning of Section 201(1) and 201(1A) IT Act. In terms of an order dated 30th November 2004 a demand of Rs.11,69,800/- (TDS Rs.9,41,18,904 plus interest Rs.75,60,381/-) was created for the financial year 2003-04. At the time of filing of the complaint on 30th March 2005, the proceedings under Section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of diversion of funds of the company away from the company for their personal gains. 5. Thereafter the ITO filed the aforementioned criminal complaint CC No 444 of 2005 in the Court of the learned MM, New Delhi on 30th March 2005 setting out the aforementioned details. The complaint further alleged that there was no satisfactory explanation why the accused did not deposit the TDS deducted during the financial years 2003-04 and 2004-05. It was therefore prayed that they should be prosecuted and punished for the offence in terms of Section 276B read with Section 279 IT Act. Summons was issued by the learned MM to the 18 accused persons including the petitioners. Thereafter the present petition seeking the quashing of the complaint was filed. As noted earlier, this petition is only by the original Petitioner No.2 K.C.Palaniswamy and Petitioner No.4 R.Karunanithi. 6. The petitioners state that accused 1 to 9 were unsuccessful in managing the affairs of the Company and in May 2004 approached the petitioners for financial help. The petitioners were informed by the erstwhile management that the Company was not in violation of any law including the Act. It was stated that Petitioner No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dran Ratnaswamy, had filed Criminal Appeal No. 782 of 2006 in the Supreme Court. The following order was passed by the Supreme Court on 21st July 2006 allowing the said appeal: Mr. Mohan Parasaran, learned Additional Solicitor General, appearing for the Revenue, candidly and fairly states that in the complaint filed against the appellant under Section 276-B read with Section 279 of the Income Tax Act before the Additional Chief Metropolitan Magistrate, Delhi (Complaint No. 440 of 2005), no allegations have been made against the appellant. In fact, para 9 of the complaint sets out the names of certain persons who continued to be in management of the Company until 29th October 2004 The appellant is not one of those persons named. The complaint is in respect of the Financial Years 2003-04 and 2004-05. Under these circumstances, the impugned judgment is set aside and the aforesaid complaint as against the appellant is quashed. The appeal is allowed accordingly. 9. It is submitted by Mr.Naresh Kaushik, learned counsel for the petitioners that their case is no different from that of Chandran Ratnaswami. It is submitted that the minimum ingredients of the complaint under Section 279 B r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter, which states that the new management led by K.C. Palaniswamy had diverted the funds of the Company for their personal gains. The said line is does not in any way remotely suggest anything about the non- deduction of the TDS or the non-remittance by the Company of the TDS deducted. It does not attribute anything specific in that regard to K.C.Palaniswamy. Therefore the complaint when read as a whole does not bring out a prima facie case even against K.C. Palaniswamy. 13. Section 278 (B) IT Act which is invoked to fasten liability on the petitioners reads as under: Section 278 B 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 pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be liable along with the Company. For the reason explained hereafter, this Court does not find merit in this submission. In the first place, nowhere does the complaint suggest that the offence is a continuing one as is sought to be contended now by the learned Senior Standing Counsel for the Department. 17.1 Secondly, and more importantly, given the fact that Section 278 B is a penal provision, it is required to be strictly construed. That provision itself does not state that the offence could be a continuing one. On the other hand the language of the provision indicates to the contrary. It states, 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 The language of the provision therefore supports the position that the offence of a failure to deduct or remit the TDS is a one-time offence and not a continuing one. 17.2 The concept of a continuing offence has been invariably invoked by the Courts in the context of determining whether taking cognizance of an offence is barred by limitation. The difficulty in determining this is evident from at least two deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a wall in violation of a rule of a bye-law of a local body, the offence would be complete once and for all as soon as such construction is made, a default occurs in furnishing the returns by the prescribed date. There is nothing in Regulation 3 or in any other provision in the Act or the Regulations which renders the continued non-compliance an offence until its requirement is carried out. 17.4 It must be pointed out that in a subsequent decision Bhagirath Kanoria v. State of M.P., (1984) 4 SCC 222 where a question arose whether the failure to pay the employer s contribution of provident fund was a continuing one, the Supreme Court answered it in the affirmative by holding (SCC, p.228): The question whether a particular offence is a continuing offence must necessarily depend upon the language of the statute which creates that offence, the nature of the offence and, above all, the purpose which is intended to be achieved by constituting the particular act as an offence. Turning to the matters before us, the offence of which the appellants are charged is the failure to pay the employer s contribution before the due date. Considering the object and purpose of this provision, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffence by the company. This is also indicated from the language of Section 278 B (1) IT Act which uses the past tense when it talks of every person who, at the time the offence was committed, was in charge of, and was responsible to, the company The petitioners were not the directors of the Company for the financial year ending 31st March 2004 for which alone the demand has been raised. Therefore they cannot be made liable for the offence by the Company for that year. As regards the subsequent period 2004-2005, since no demand had been raised at the time of filing the complaint, there was no question of commission of any offence for such period. 19. In view of the aforementioned reasons, this Court is satisfied that the petitioners are entitled to succeed in this petition. Accordingly, this petition is allowed. The petitioners K.C.Palaniswamy and R.Karunanithi will stand discharged in Complaint Case No. 444 of 2005 (Kamal Khanna v. Sidharth Ray and Ors.) pending in the Court of the learned MM, New Delhi. 20. This petition as well as the pending application are accordingly disposed of. A certified copy of the order be sent to the concerned learned MM within five days from today. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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