2022 (3) TMI 1139 - HC - Income Tax

Prosecution against the Director u/s 276B - Principal officer of the Accused Company - Compliance u/s 2(35) - Punishable offence for non deduction of TDS - Trial Court discharged the Director (Accused no 2) - as accused No.2 is not the Managing Director of accused No.1 but he is only the Director of accused No.1 and hence, falls under the charge of Section 2(35)(b) of the Act, which requires a notice to treat him as the Principal Officer of accused No.1 and mandatory requirement is not complied; hence, accused No.2 cannot be treated as Principal Officer of accused No.1 - HELD THAT - No doubt, in terms of Ex.P2 notice the averment is made that it is seen from the records that the respondent No.2 had deducted tax and not remitted the same to the Central Government account within the time and hence in paragraph 3 of Ex.P2 also stated with regard to the punishment provided and also asked to show cause for non-payment of the amount. First of all, the very contention of the respondent No.2 before the Trial Court is that he is not the Managing Director of accused No.1 and he is only a Director of accused No.1 and hence, as per Section 2(35) of the Act, which requires a notice to him as Principal Officer of accused No.1. The mandatory requirement is not complied with and the very contention is also that the notice given in terms of Ex.P2 is not in compliance of Section 2(35) - The Trial Court also taken note of the judgments referred supra while coming to such a conclusion and in paragraph 17 the Trial Court categorically held that Ex.P2 notice cannot be considered as the notice under Section 2(35). This Court also directed the petitioner counsel to place the said document to see whether the said notice is in compliance of Section 2(35) of the Act or not and on perusal of the said document dated 21.10.2018, we do not find any error committed by the Trial Court in coming to the conclusion that Ex.P2 is not in compliance with Section 2(35) and the very reasoning given by the Trial Court is not suffers from any perversity or illegality and the scope of the revision is if the order passed by the Trial Court is not in pursuance of the provisions and suffers from any illegality and correctness, then only the Court can invoke the revisional jurisdiction. The reasons assigned by the Trial Court, while coming to the conclusion that Ex.P2 is not in consonance with Section 2(35) of the Act, is not suffers from any illegality and correctness. Hence, I do not find any grounds to entertain the revision petition and set aside the order of the Trial Court.

Summary

Issues:
Challenge to order discharging respondent No.2 under Section 276B of the Income Tax Act.

Detailed Analysis:

1. Issue of Compliance with Section 2(35) of the Act:
The revision petition challenged the Trial Court's order discharging respondent No.2 under Section 276B of the Act. The petitioner contended that respondent No.2, a Director of accused No.1, was not the Managing Director and did not fall under the charge of Section 2(35)(b) of the Act. It was argued that the notice issued was not in compliance with the Act's requirements. The Trial Court concluded that there was no evidence to hold respondent No.2 as the Principal Officer of accused No.1, thereby discharging him. The petitioner argued that the Trial Court erred in its approach and that the notice served on respondent No.2 was valid, citing relevant judgments. However, the High Court upheld the Trial Court's decision, finding no error in its conclusion that the notice did not comply with Section 2(35) of the Act.

2. Validity of Ex.P2 Notice:
The High Court examined the Ex.P2 notice, which stated that respondent No.2 had deducted tax but not remitted it to the Central Government account. The respondent argued that he was not the Managing Director but only a Director of accused No.1, emphasizing non-compliance with Section 2(35) of the Act. The Trial Court, after considering the contentions and Ex.P2, held that the notice did not meet the Act's requirements. The High Court reviewed the Trial Court's reasoning and found no illegality or perversity in its decision. The Court emphasized that for revisional jurisdiction to apply, the Trial Court's order must be illegal or incorrect, which was not the case here. Consequently, the High Court dismissed the revision petition, upholding the Trial Court's decision to discharge respondent No.2 under Section 276B of the Act.

3. Interpretation of Legal Requirements:
The case involved a detailed analysis of the legal requirements under the Income Tax Act, particularly Section 2(35), regarding the designation of Principal Officer. The petitioner argued that respondent No.2 did not meet the criteria to be treated as the Principal Officer, while the respondent contended that the notice issued did not fulfill the statutory requirements. The Trial Court and subsequently the High Court delved into the nuances of these legal provisions, emphasizing the need for strict compliance with the Act's mandates. The judgment highlighted the importance of procedural adherence in matters of tax compliance and liability under the Act, ultimately leading to the dismissal of the revision petition.

In conclusion, the High Court upheld the Trial Court's decision to discharge respondent No.2 under Section 276B of the Income Tax Act, emphasizing the necessity for strict compliance with statutory provisions and legal requirements in such matters. The detailed analysis of the legal arguments and the application of relevant judgments underscored the importance of procedural correctness in determining liability under the Act.