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Issues Involved:
1. Liability of the second accused (partner) for prosecution under section 276B read with section 278B of the Income-tax Act. 2. Requirement of notice under section 2(35)(b) of the Income-tax Act to a partner as a pre-condition for prosecution. Detailed Analysis: 1. Liability of the Second Accused (Partner) for Prosecution under Section 276B Read with Section 278B of the Income-tax Act The court examined whether the second accused, being a partner, is liable for prosecution under section 276B read with section 278B of the Income-tax Act. The prosecution argued that the firm and its managing partner failed to deduct tax at source and remit it to the government within the stipulated time, thus committing an offense under section 276B. The defense contended that the prosecution of the partner was not sustainable due to the absence of a statutory notice under section 2(35)(b) of the Act, which defines "principal officer." The court clarified that section 278B of the Act applies to offenses committed by a company, which includes a firm. Under this section, every person who was in charge of and responsible to the firm for the conduct of its business at the time the offense was committed is deemed guilty and liable to be prosecuted. The court emphasized that the prosecution must prove the involvement and responsibility of the partner in the firm's business operations at the time of the offense. 2. Requirement of Notice under Section 2(35)(b) of the Income-tax Act to a Partner as a Pre-condition for Prosecution The court addressed whether issuing a notice under section 2(35)(b) of the Act to a partner is a pre-condition for prosecution under section 276B read with section 278B. The magistrate had earlier held that the absence of such a notice constituted a legal lacuna, rendering the prosecution of the partner unsustainable. The court analyzed the relevant sections, including section 2(35) which defines "principal officer," and sections 276B and 278B which deal with the penal provisions for failure to deduct or remit tax. It concluded that section 2(35) pertains to local authorities, companies, public bodies, or associations of persons, but not to firms. Therefore, the requirement of issuing a notice under section 2(35)(b) does not apply to partners of a firm. The court further noted that under section 278B, the term "company" includes a firm, and the partners are considered responsible for the firm's business. Thus, partners can be prosecuted without the need for a notice under section 2(35)(b). The court overruled previous decisions that required such a notice for prosecuting partners, stating that these decisions did not correctly interpret the law. Conclusion The court held that the second accused (partner) is liable for prosecution under section 276B read with section 278B of the Income-tax Act without the need for a notice under section 2(35)(b). The orders of the lower court were set aside, and the cases were directed to proceed in accordance with the law. The court overruled previous judgments that mandated a notice under section 2(35)(b) for prosecuting partners, establishing that such a notice is not a pre-condition for prosecution.
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