2015 (10) TMI 2311 - HC - Income Tax

Offences punishable under Section 276B r/w. Section 278B - failure to remit TDS in respect of various payments made by the Company - Held that - There is no dispute to the fact that the petitioner herein is a non-Executive Director of the Company. In the entire complaint there is no averment to the effect as to how this petitioner was involved directly or indirectly in the commission of the offences. It is the established position of law that there is no concept of vicarious liability under criminal jurisprudence, unless the statute specifically prescribed for the same. Though Section 278B of the Act contemplates such vicarious liability, the basic requirement is, there must be specific allegation to that effect in the complaint which is lacking in the present case. In that view of the matter, the prosecution against this petitioner is vitiated and initiation of such proceedings is pure abuse of the process of law. - Decided in favour of assessee.

Summary

Issues:
1. Challenge to the order of taking cognizance and non-bailable warrant.
2. Interpretation of Section 278B(1) regarding liability of a person in charge of the business.
3. Analysis of Section 278B(2) regarding vicarious liability of directors.

Analysis:
1. The petitioner, accused No.5, challenged the order of taking cognizance and the non-bailable warrant issued against him in a complaint filed by the Income Tax Department under Section 200 of Cr.P.C. for offenses under Section 276B r/w. Section 278B of the Income Tax Act, 1961. The petitioner, a non-executive Director nominated by another company, argued that he had no role in the management or administration of the company mentioned in the complaint. The petitioner contended that the order of taking cognizance against him was illegal and sought its quashing.

2. The petitioner's counsel emphasized Section 278B(1), stating that liability for the offense lies with a person in charge and responsible for the business at the time of the alleged offense. It was argued that since the complaint did not implicate the petitioner directly or indirectly in the alleged offense, the prosecution against him should be quashed as no offense was made out against him under Section 278B(1).

3. The respondent's counsel referred to Section 278B(2), which establishes vicarious liability for directors, managers, or officers if an offense is committed with their consent, connivance, or neglect. Despite being a non-executive Director, the respondent argued that the petitioner could not evade responsibility for the company's omissions. However, the court noted that there were no allegations in the complaint implicating the petitioner in the offenses. The court emphasized that for vicarious liability to apply under Section 278B, specific allegations must be made in the complaint, which were absent in this case. Therefore, the court held that the prosecution against the petitioner was vitiated and an abuse of the legal process, leading to the quashing of the proceedings against him.

In conclusion, the High Court allowed the petition, quashing the cognizance taken against the petitioner and the consequential proceedings. The court highlighted the absence of specific allegations implicating the petitioner in the complaint, emphasizing the lack of vicarious liability in the absence of such allegations as per the provisions of Section 278B of the Income Tax Act, 1961.