2007 (3) TMI 205 - SC - Income Tax

Failure to credit TDS to the Central Government as required by section 276B - The appellants had thus committed an offence punishable under section 278B - We may not be understood to have expressed any opinion one way or the other on the merits and as and when the matter will come up for trial, it will be decided strictly on its own merits - question raised by the appellants have to be decided as to maintainability of the criminal complaint

Issues Involved:
1. Legality of prosecution for delayed payment of TDS.
2. Status of directors as "principal officers" under the Income-tax Act.
3. Applicability of Section 278AA regarding "reasonable cause" for delay.
4. Procedural propriety of the High Court's summary dismissal of the petition.
5. Impact of delay in proceedings on the prosecution's validity.

Detailed Analysis:

1. Legality of Prosecution for Delayed Payment of TDS:
The appellants argued that the case was neither of "non-deduction" nor "non-payment" of tax, but merely a delay in crediting the TDS amount to the Central Government. They contended that this delay should not give rise to criminal liability. The court, however, held that failure to pay TDS within the prescribed period constitutes an offence under Section 276B of the Income-tax Act, 1961, which is punishable with rigorous imprisonment and fine. The court rejected the interpretation that delayed payment does not attract criminal liability, emphasizing that such an interpretation would render the provision nugatory.

2. Status of Directors as "Principal Officers" under the Income-tax Act:
The appellants contended that they could not be considered "principal officers" under Section 2(35) of the Act, as no specific notice had been served to treat them as such. The court noted that the show-cause notice and the complaint explicitly stated that the directors were considered principal officers. It was held that no separate notice was necessary if the show-cause notice already indicated the directors' status as principal officers. The court also referenced various precedents to affirm that necessary averments in the complaint are sufficient to proceed with prosecution, and the factual determination of whether directors were "in charge of" and "responsible for" the conduct of business would require evidence to be adduced at trial.

3. Applicability of Section 278AA Regarding "Reasonable Cause" for Delay:
The appellants argued that the delay in depositing TDS was due to a reasonable cause, such as delay in receiving a loan from IDBI and shortage of liquid funds due to construction activities. The court held that whether there was a "reasonable cause" under Section 278AA is a matter to be decided based on evidence presented during the trial. Therefore, this contention did not warrant quashing the prosecution at the preliminary stage.

4. Procedural Propriety of the High Court's Summary Dismissal of the Petition:
The appellants challenged the High Court's summary dismissal of their petition without recording reasons. The court found no procedural impropriety in the High Court's actions. It stated that the High Court could summarily reject a petition under Section 482 of the Code of Criminal Procedure if it deemed that the inherent powers should not be exercised in light of the controversy and the stage of proceedings. Detailed reasons were not necessary for such summary dismissal.

5. Impact of Delay in Proceedings on the Prosecution's Validity:
The appellants argued that the significant delay (over fifteen years) since the alleged default should lead to the dismissal of the prosecution. The court noted that the delay was primarily due to the appellants' own actions in seeking discharge at various judicial levels and obtaining interim stays. Therefore, the delay did not invalidate the prosecution. The court emphasized that both civil and criminal proceedings are independent, and the pendency of one does not abate the other.

Conclusion:
The appeal was dismissed, affirming the legality of the prosecution for delayed TDS payment, the status of directors as principal officers, and the procedural correctness of the High Court's summary dismissal. The court clarified that it had not entered into the merits of the case, which would be decided during the trial based on evidence. The appellants were advised to seek exemption from personal appearance at trial if deemed necessary.

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