2011 (2) TMI 1542 - HC - Income Tax

Summary

Issues involved:
The issues involved in this case are related to the liability of a private limited company and its directors for failing to deduct tax at source and depositing it with the Income Tax Department, leading to charges under Section 276-B of the Income Tax Act, 1961.

Summary:

Issue 1: Liability of the company and its directors for failure to deduct tax at source
The Respondent, a private limited company, and its Directors were accused of failing to deduct tax at source from interest payments to certain companies and depositing the same with the Income Tax Department, leading to charges under Section 276-B of the Act. The company was convicted, but one Director was acquitted due to a technicality regarding notice under Section 2(35) of the Act.

Issue 2: Interpretation of relevant sections of the Income Tax Act
Section 194-A of the Act mandates the deduction of tax at source on interest payments, and Section 276-B imposes penalties for failure to pay the tax deducted at source. Section 278-B deals with offences by companies, holding responsible persons liable unless they prove lack of knowledge or due diligence. Section 204 defines the "person responsible for paying," making the company and its Principal Officer liable for deductions.

Issue 3: Definition and role of Principal Officer
Section 2(35) of the Act defines the "Principal Officer" of a company, including Directors, Managers, or Agents. The Income Tax Officer must issue a notice under Section 2(35) to treat a Director as the Principal Officer for prosecution under Section 276-B. Failure to issue such notice led to the Director's acquittal but did not absolve the company of liability.

Conclusion:
The Additional Sessions Judge erred in acquitting the company based on the Director's acquittal for lack of notice under Section 2(35). The company, as a legal entity, remains liable for prosecution under Section 276-B. The orders of conviction and sentence passed by the lower court were restored, overturning the acquittal of the company.