2008 (3) TMI 300 - HC - Income Tax

Tax collected at source not deposited to credit of Central Govt. within due date Directors cannot be responsible for the default in deposit of the TDS amount prosecution was to be quashed against the petitioners (directors)

Summary

Issues:
1. Quashing of proceedings under section 482 of the Code of Criminal Procedure for an offence under section 276B of the Income-tax Act, 1961.

Analysis:
The case involved a petition filed under section 482 of the Code of Criminal Procedure seeking to quash the proceedings of a Complaint Case and the order passed by the Special Court, Economic Offences, Patna, regarding an offence under section 276B of the Income-tax Act, 1961. The complaint was filed against a company and its directors for failure to deposit TDS amounts to the Central Government account within the stipulated period. The accused directors argued that they were not directly involved in the day-to-day operations at the company's Patna office and that the default in TDS deposit was due to oversight by appointed consultants. They emphasized that upon discovering the delay, the TDS amount along with interest was promptly deposited, demonstrating no mala fide intention. The defense cited section 278B of the Income-tax Act to support their stance that liability arises only if the offence was committed with consent, connivance, or neglect, which they claimed was not the case.

The defense further contended that the decision cited by the Income-tax Department, holding a director liable for an offence, was not applicable in this scenario as the petitioners were not managing directors and were not directly involved in tax deductions or deposits. The court considered the arguments presented by both sides and concluded that invoking inherent jurisdiction was appropriate to prevent the abuse of the court's process. Consequently, the court allowed the miscellaneous case, quashing the impugned order only against the petitioners, thereby relieving them from liability in the matter.

This judgment highlights the importance of establishing personal involvement and culpability in cases involving corporate offences under the Income-tax Act. It underscores the need for directors to exercise due diligence and oversight while emphasizing the distinction between managerial roles and responsibilities in determining liability for statutory violations.