2008 (9) TMI 5 - HC - Income Tax

TDS collected but not deposited prosecution - demand raised by treating the Company as the assessee in default Company plea is that prosecution proceeding can be initiated only against those persons who were managing the affairs of company during the default plea of petitioner is accepted offence of a failure to deduct or remit the TDS is a one-time offence and not a continuing one - liability cannot be fastened on directors who joined company subsequent to commission of offence

Summary

Issues Involved:
1. Quashing of the criminal complaint and proceedings.
2. Liability of directors for non-deposit of TDS.
3. Applicability of Section 278B of the Income Tax Act.
4. Concept of continuing offence.

Detailed Analysis:

1. Quashing of the Criminal Complaint and Proceedings:
The petitioners sought the quashing of the criminal complaint (CC No. 444 of 2005) and all proceedings consequent thereto. The complaint was filed by an Income Tax Officer against Data Access (India) Limited and its directors/senior officers for non-deposit of TDS for the financial years 2003-04 and 2004-05. The petitioners argued that they were not responsible for the company's affairs during the period of the alleged offence.

2. Liability of Directors for Non-Deposit of TDS:
The petitioners contended that they could not be held liable for the company's failure to remit TDS for the financial year 2003-04 as they joined the company only on 1st July 2004 and resigned by November 2004. They argued that they were not in charge or responsible for the company's business during the period of default.

3. Applicability of Section 278B of the Income Tax Act:
Section 278B of the IT Act states that every person who, at the time the offence was committed, was in charge of and responsible for the conduct of the business of the company shall be deemed guilty of the offence. The petitioners argued that the complaint did not meet the legal requirement under Section 278B, as it did not contain specific allegations against them. The court noted that the complaint was vague and general, failing to establish a prima facie case against the petitioners.

4. Concept of Continuing Offence:
The department argued that the failure to remit TDS is a continuing offence, and thus, the petitioners, who were directors during part of the period in question, should be held liable. However, the court rejected this argument, stating that Section 278B requires strict construction and does not indicate that the offence is a continuing one. The court referenced Supreme Court decisions to explain that a continuing offence is one that persists over time, whereas the failure to remit TDS is a one-time offence.

Conclusion:
The court concluded that the petitioners could not be held liable for the company's default in remitting TDS for the financial year 2003-04, as they were not directors during that period. Additionally, for the subsequent period (2004-05), no demand had been raised at the time of filing the complaint, making the prosecution premature. The petitioners were discharged from the complaint, and the court directed that a certified copy of the order be sent to the concerned Metropolitan Magistrate within five days.