1991 (11) TMI 264 - HC - Income Tax

Summary

Issues Involved:
1. Whether the petitioner (4th accused) is responsible for the conduct of the business of the firm.
2. Whether the petitioner is liable under Sections 276-B and 278-B of the Income-tax Act.
3. Whether the prosecution has provided sufficient evidence to prove the petitioner's responsibility and liability.
4. Whether the petitioner can be charged under Section 409 of the Indian Penal Code.

Detailed Analysis:

1. Whether the petitioner (4th accused) is responsible for the conduct of the business of the firm:

The petitioner, an employee of the first accused firm, was charged along with other accused under Sections 276-B and 278-B of the Income-tax Act. The petitioner argued that he is not responsible for the conduct of the business of the firm. The Court examined the relevant provisions of the Income-tax Act, including Sections 200, 276-B, and 278-B, which outline the responsibilities and liabilities of individuals in charge of a company's business. The petitioner contended that he was neither a partner nor designated as the principal officer of the firm, and no notice under Section 2(35) of the Income-tax Act was served to treat him as such. The Court found that the petitioner, being an employee, could not be considered in charge of the firm's business.

2. Whether the petitioner is liable under Sections 276-B and 278-B of the Income-tax Act:

Section 276-B penalizes failure to deduct or pay tax as required, while Section 278-B holds individuals in charge of a company's business liable for offenses committed by the company. The petitioner argued that he did not fall under the definition of a person responsible for paying tax under Section 204 or a principal officer under Section 2(35) of the Act. The Court agreed, noting that the petitioner was not proven to be in charge of the firm's business or responsible for tax payments. The prosecution failed to establish that the petitioner met the criteria for liability under these sections.

3. Whether the prosecution has provided sufficient evidence to prove the petitioner's responsibility and liability:

The prosecution presented evidence, including witness testimonies and documents, to support the charges. However, the petitioner's counsel argued that the evidence did not demonstrate the petitioner's responsibility for the firm's tax obligations. The Court reviewed the evidence, including the testimonies of P.Ws.1 to 3 and Exhibits P.131 to P.214, and found no proof that the petitioner was in charge of the firm's business or responsible for tax payments. The Court concluded that the prosecution did not meet the burden of proof required to establish the petitioner's liability.

4. Whether the petitioner can be charged under Section 409 of the Indian Penal Code:

Section 409 of the IPC deals with criminal breach of trust by a public servant or agent. The prosecution alleged that all accused committed criminal breach of trust by failing to remit tax deducted at source. The Court examined whether the petitioner, as an employee, could be held liable under this section. Given the lack of evidence proving the petitioner's responsibility for the firm's tax obligations, the Court found that the charge under Section 409 IPC was not maintainable against the petitioner.

Conclusion:

The Court concluded that the petitioner, being an employee, was not responsible for the conduct of the business or tax obligations of the first accused firm. The prosecution failed to prove the petitioner's liability under Sections 276-B and 278-B of the Income-tax Act and Section 409 of the IPC. The criminal proceedings against the petitioner were deemed an abuse of process, and the charges were quashed. The criminal revision case was allowed, and the findings of the lower court were set aside.