1987 (3) TMI 60 - HC - Income Tax

Issues Involved:
1. Application of Section 633(2) of the Companies Act, 1956.
2. Non-payment of statutory dues under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952.
3. Non-payment of statutory dues under the Employees' State Insurance Act, 1948.
4. Non-payment of statutory dues under the Income-tax Act, 1961 (TDS).

Detailed Analysis:

1. Application of Section 633(2) of the Companies Act, 1956:
The petitioners sought relief under Section 633(2) of the Companies Act, 1956, to be excused from prosecutions for defaults under three different Acts: the Provident Fund Act, the Employees' State Insurance Act, and the Income-tax Act. The court examined whether Section 633(2) could be applied to defaults under these Acts. The court referred to a previous decision in In re Beejay Engineers Pvt. Ltd., which held that Section 633(2) could apply to all legal proceedings arising from negligence, default, breach of duty, misfeasance, or breach of trust, provided the officers acted honestly and reasonably. However, the court noted that this decision might need reconsideration, especially when the specific statutes under which the defaults occurred had their own provisions for punishment.

2. Non-payment of statutory dues under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952:
The petitioners admitted defaults in depositing provident fund dues, attributing it to financial difficulties and recession. The Regional Provident Fund Commissioner (RPFC) argued that financial difficulty is no excuse for not discharging statutory obligations. The court agreed, emphasizing that the liability to deposit employees' contributions is absolute and financial stringency is not a valid defense. The court cited the Supreme Court's decision in Organo Chemical Industries v. Union of India, which held that financial difficulties do not justify non-compliance with social welfare legislation like the Provident Fund Act.

3. Non-payment of statutory dues under the Employees' State Insurance Act, 1948:
Similar to the Provident Fund dues, the petitioners defaulted on contributions under the Employees' State Insurance Act. The Regional Director, ESIC, stated that the default amounted to about Rs. 73 lakhs, excluding interest. The court reiterated that financial difficulties are not a valid excuse for non-compliance with statutory obligations under social welfare legislation. The court noted that the non-payment of contributions severely affected the implementation of the ESIC scheme, which is detrimental to the employees.

4. Non-payment of statutory dues under the Income-tax Act, 1961 (TDS):
The petitioners defaulted in depositing tax deducted at source (TDS) from employees' salaries. The Income-tax Department argued that TDS is government money held in trust by the company and must be deposited within the prescribed time. The court noted that non-payment of TDS is a continuing offence and financial difficulties do not justify withholding government revenue. The court cited the Supreme Court's decision in Maya Rani Punj v. Commissioner of Income-tax, which held that non-payment of TDS is a distinct offence for each month's default.

Conclusion:
The court held that petitioners Nos. 6, 7, and 8, who were not involved in the day-to-day management of the company, should be relieved of any liability for defaults under the Provident Funds Act, Employees' State Insurance Act, and the Income-tax Act. However, the other petitioners were found not to have acted honestly and reasonably. The court dismissed the petition for these petitioners, emphasizing that financial difficulties do not excuse non-compliance with statutory obligations, especially when it involves employees' contributions and government revenue. The court imposed costs of Rs. 1,000 each for the Regional Provident Fund Commissioner, Employees' State Insurance Corporation, and the Income-tax Department.

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