1992 (4) TMI 2 - SC - Income Tax

By the introduction of section 278B by the Taxation Laws (Amendment) Act of 1975, with effect from October 1, 1975, it is enacted that, 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

Summary

Issues:
1. Maintainability of complaint against managing director under Income-tax Act.
2. Interpretation of the term "person" in section 277 of the Income-tax Act.
3. Definition of "principal officer" and "managing director" under the Income-tax Act.
4. Impact of Taxation Laws (Amendment) Act of 1975 on the liability of managing directors in company prosecutions.

Issue 1: Maintainability of complaint against managing director under Income-tax Act
The case involved a complaint against the managing director of a company under sections 277 and 278 of the Income-tax Act, 1961, for allegedly filing a false income tax return. The managing director challenged the maintainability of the complaint, arguing that he could not be prosecuted as the word "person" in section 277 referred only to the assessee, not to individuals like managing directors. The Magistrate and the High Court upheld the prosecution, leading to the appeal before the Supreme Court.

Issue 2: Interpretation of the term "person" in section 277 of the Income-tax Act
The primary contention before the Supreme Court was the interpretation of the term "person" in section 277. The appellant argued that the term "person" should be limited to the assessee and not extend to individuals like managing directors. However, the Court referred to previous judgments and held that the term "person" in section 277 encompassed individuals who verified false declarations, not just the assessee. The Court rejected the appellant's argument that managing directors could not be prosecuted under section 277.

Issue 3: Definition of "principal officer" and "managing director" under the Income-tax Act
The appellant further contended that the term "principal officer" did not include managing directors, and therefore, managing directors could not be prosecuted under section 277. However, the Court analyzed the definitions of "principal officer" and "managing director" under the Act and concluded that managing directors fell within the scope of principal officers when signing tax returns on behalf of the company. The Court emphasized the statutory obligation for principal officers to sign tax returns.

Issue 4: Impact of Taxation Laws (Amendment) Act of 1975 on the liability of managing directors in company prosecutions
The appellant also argued that the Taxation Laws (Amendment) Act of 1975, which substituted "managing director" for "principal officer," indicated that managing directors were not liable for prosecution under section 277. However, the Court clarified that the amendment did not alter the obligations of managing directors in signing tax returns. The Court highlighted that the amended provisions expanded the liability of individuals connected with the company's affairs, including managing directors, in cases of company offenses.

In conclusion, the Supreme Court dismissed the appeals, upholding the prosecution of the managing director under sections 277 and 278 of the Income-tax Act. The Court affirmed the High Court's reasoning regarding the liability of managing directors and the interpretation of relevant statutory provisions.