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2024 (8) TMI 935 - HC - Income TaxOffence punishable u/s 276B r/w 278B - principal officer treated deemed to be assessee in default - complaint has been filed against the Company and the petitioners who are it s Directors, for delay in deposit of TDS. HELD THAT - Admittedly, TDS deducted by the Company had already been deposited with interest as provided under section 201 (1A) of the I.T Act. No notice has been issued by the Assessing Officer to any of the petitioners under Section 2 (35) (b) of the I.T Act to treat any of them as Principal Officer of the Company. No order as contemplated under Section 201 (1) r/w Section 201 (3) of the I.T Act has been passed treating any of the petitioners as Principal Officer of the company and by which such Principal Officer is whereby deemed to be assessee in default . In respect of assessment year 2017-2018, a positive order has been passed holding the Company not to be Assessee in Default . No order imposing penalty (either initially or further penalty) as deemed to be an assessee in default under Section 221 has been passed against the company or any of the petitioners. The petitioners are Directors of the Company, however, no averment has been made in the complaints regarding Consent , Connivance or negligence as required under Section 278B (2) of the I.T Act. In the present case, the Revenue has chosen not to invoke the provisions of Section 221 r/w Section 201 (1) of the I.T Act to impose penalty against the company or the principal officer of the company for failure to pay the whole or any part of tax, as required by or under this Act . The Revenue cannot now be permitted to prosecute the petitioners for the same substantive act which is also categorized as an offence under Section 276B of the I.T. Act. As such, further trial of the petitioners by the criminal Court cannot be permissible which would tantamount to abuse of process of the Court. The Counsel has, therefore, rightly placed reliance on a decision in the case of K.C. Builders 2004 (1) TMI 7 - SUPREME COURT Petition allowed.
Issues Involved:
1. Legality and propriety of prosecution under Section 276B read with Section 278B of the Income Tax Act, 1961. 2. Applicability of vicarious liability under Section 278B of the Income Tax Act. 3. Interpretation of Section 276B post-1997 amendment. 4. Consideration of CBDT Circulars in prosecution cases. 5. Necessity of treating directors as "Principal Officers" under Section 2(35) of the Income Tax Act. 6. Relevance of judicial precedents and Circulars in quashing criminal proceedings. Issue-wise Detailed Analysis: 1. Legality and Propriety of Prosecution under Section 276B read with Section 278B of the Income Tax Act, 1961: The petitioners challenged the prosecution initiated by the Income Tax Department under Section 276B read with Section 278B of the Income Tax Act for delayed payment of TDS. The Court noted that the TDS amounts, though delayed, had been deposited with interest as per Section 201(1A) of the Income Tax Act. The prosecution was based on the premise that the petitioners, as directors, were responsible for the delay. However, the Court found that no notice under Section 2(35)(b) of the Income Tax Act was issued to treat any of the petitioners as "Principal Officer" of the company, and no order under Section 201(1) read with Section 201(3) was passed treating them as "assessee in default." 2. Applicability of Vicarious Liability under Section 278B of the Income Tax Act: The Court examined the arguments regarding vicarious liability under Section 278B, which is analogous to Section 141 of the Negotiable Instruments Act. It emphasized that for a director to be held vicariously liable, the complaint must show that the director was "in charge" and "responsible" for the conduct of the business. The Court found that the complaints lacked such basic averments, and mere designation as a director does not automatically imply vicarious liability. 3. Interpretation of Section 276B Post-1997 Amendment: The Court analyzed the scope of Section 276B as amended by the Finance Act, 1997, which covers "failure to pay" TDS rather than mere "delay in deposit." It concluded that under the amended provisions, criminal liability is attracted only on "failure to pay" TDS, and not for delayed payment, provided the TDS is eventually paid with interest. This interpretation was supported by CBDT Circulars and judicial precedents. 4. Consideration of CBDT Circulars in Prosecution Cases: The Court referred to CBDT Circulars dated 28th May 1980 and 24th April 2008, which guide the prosecution process. The Circulars suggest that prosecution should not be launched if the TDS amount has been deposited, even if delayed. The Court noted that these Circulars were not considered by the sanctioning authority while granting prosecution sanction under Section 279(1) of the Income Tax Act. 5. Necessity of Treating Directors as "Principal Officers" under Section 2(35) of the Income Tax Act: The Court highlighted that treating a person as a "Principal Officer" requires a notice from the Assessing Officer and a subsequent order. This process was not followed in the present case. The Court reiterated that merely issuing a notice does not constitute a final determination of a person as a "Principal Officer," which has both civil and penal consequences. 6. Relevance of Judicial Precedents and Circulars in Quashing Criminal Proceedings: The Court referred to several judicial precedents, including the Supreme Court's decision in Madhumilan Syntex Ltd. vs. Union of India, which dealt with pre-1997 provisions. It distinguished this case by noting the subsequent CBDT Circulars and amendments to Section 276B. The Court also cited decisions from the Jharkhand High Court and the Punjab and Haryana High Court, which quashed similar prosecutions based on the deposit of TDS with interest and the application of CBDT Circulars. Conclusion: The Court allowed the petitions, quashing the orders of issuance of process and the consequent revision applications. It held that further prosecution of the petitioners would amount to an abuse of the process of the Court, especially since the TDS amounts were deposited with interest, and the procedural requirements for treating the petitioners as "Principal Officers" were not met. The Court emphasized the need for a judicious application of law, considering the CBDT Circulars and judicial precedents.
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