2022 (3) TMI 1481 - HC - Income Tax

Offence punishable u/s 276B - Responsibility of Principal Officer - person responsible for non-deduction and depositing of the TDS amount - application was filed before the Trial Court for discharge contending that he is not the Managing Director of accused No.1 and only Director and hence not falls under charging of Section 2(35)(b) of the Act, which requires a notice to treat him as the Principal Officer of accused No.1 - HELD THAT - There must be a specific averment in the notice that he was in charge of the day-to-day affairs of accused No.1 Company and the same is missing in the notice. Only referring the proviso under Section 276 of the said Act in paragraph No.4 of Ex.P.2, asked respondent No.2 that he is also responsible for non-deduction and depositing of the TDS amount and also asked for only show cause notice why he cannot be treated as Principal Officer and no specific averment is made that he has been in charge of the affairs of accused No.1. When such averments are missing, the Trial Court has not committed any error in considering Ex.P.2 and making an observation that even it is not stated that accused No.2 had been in charge of the day-to-day affairs of accused No.1. The notice Ex.P.2 was also taken note of by the Trial Court and comes to the conclusion that he was only asked to show cause why prosecution should not be initiated against him for the offence punishable under Section 276B of the Act, but nothing contains with regard to the contents of Section 2(35) of the said Act. When such being the factual aspects of the case, we do not find any error committed by the Trial Court in discharging respondent No.2 in coming to the conclusion that nothing is found on record that he has been in charge of day-to-day affairs of accused No.1. Hence, no merit in the petition to invoke the revisional jurisdiction.

Summary

Issues:
Petition to set aside the order discharging respondent No.2 in a case involving non-remitting of TDS by a Company for the financial year 2016-17 and vicarious liability of accused No.2 as the Managing Director.

Analysis:
The petition sought to challenge the Trial Court's order discharging respondent No.2 in a case where accused No.1, a Company, failed to remit the deducted TDS for the financial year 2016-17 within the stipulated period. The contention was that accused No.2, the Managing Director of accused No.1, was vicariously liable for the offense. The petition argued that the notice dated 09.10.2017 clearly mentioned that accused No.2 would be treated as the Principal Officer under Section 2(35) of the Income Tax Act, 1961. It was emphasized that the Trial Court erred in concluding that the notice did not comply with the Act, as it specifically required accused No.2 to show cause for not being treated as the Principal Officer. The petitioner contended that without such notice, accused No.2 could not be tried alongside accused No.1, and criticized the Trial Court's approach as erroneous.

The respondents, on the other hand, argued that the notice did not establish that accused No.2 was in charge of the Company's affairs or involved in its management or administration. They maintained that the Trial Court rightly found no evidence in the notice to suggest that accused No.2 was responsible for the day-to-day affairs of accused No.1. The Trial Court's decision was supported by the lack of explicit mention in the notice that accused No.2 was overseeing the Company's operations, leading to the conclusion that there was no basis for interference.

Upon reviewing the arguments and the material on record, including the application for discharge, the Trial Court's reasoning, and relevant judgments, it was observed that the notice relied upon by the petitioner did not align with Section 2(35) of the Act. The Court highlighted the necessity of a clear averment in the notice designating accused No.2 as the Principal Officer of accused No.1, which was absent in the notice. The Trial Court's decision to discharge respondent No.2 was upheld based on the absence of evidence indicating that accused No.2 was managing the day-to-day affairs of accused No.1. The Court found no error in the Trial Court's assessment of the notice and its conclusion that accused No.2 was not directly involved in the Company's operations. Consequently, the petition was dismissed, and the Trial Court's decision to discharge respondent No.2 was upheld.