2010 (11) TMI 17 - HC - Income Tax

Failure to deduct TDS - principal officer - scope and liability of principal officer - punishment u/s 276B - person responsible for paying u/s 204 - Held that - the director is not included within the ambit of Sub-clause (a) of Section 2(35) of the Act. In case the Income Tax Officer seeks to prosecute the director along with the company for an offence punishable under Section 276-B of the Act, then he has to issue a notice under Sub-clause (b) of 2(35) of the Act expressing his intention to treat the director as principal officer of the company.

Summary

Issues:
Appeal against the judgment of acquittal under Section 276-B of the Income Tax Act, 1961.

Analysis:
The petitioner sought leave to appeal against the judgment acquitting the director of the respondent company of the offence under Section 276-B of the Income Tax Act, 1961. The case involved the failure to deduct tax at source from interest payments and deposit the same with the Income Tax Department. The issue revolved around the absence of a notice served on the director under Section 2(35) of the Act, treating him as the "principal officer" before launching the prosecution under Section 276-B. The trial resulted in the conviction of the company but the acquittal of the director due to the defective notice served. The judge found the view taken by the lower court not perverse, leading to the dismissal of the appeal.

The relevant legal provisions under Section 194-A, Section 204, and Section 276-B of the Act were discussed. Section 204 specifies the "person responsible for paying" taxes, including the company itself and its principal officer. The infringement of Section 194-A(4) constitutes an offence under Section 276-B, mandating prosecution against the company and its principal officer in case of a company's offence.

The definition of "principal officer" under Section 2(35) was crucial in determining the liability of the director. It was highlighted that the director must be notified of being treated as the principal officer before prosecution under Section 276-B can proceed. The absence of such notice to the director in this case led to the acquittal based on legal precedents and judgments from various High Courts and the Supreme Court.

The legal position emerging from the judgments cited emphasized the necessity of issuing a notice to the director as the principal officer before prosecuting under Section 276-B. The court clarified that mentioning the directors as principal officers in the show cause notice to the company is sufficient compliance. However, in this case, the failure to issue a notice to the director or mention them as principal officers in the notice to the company resulted in the dismissal of the appeal.

In conclusion, the dismissal of the appeal was based on the failure to comply with the legal requirement of notifying the director as the principal officer before prosecution under Section 276-B. The judgment reaffirmed the importance of following due process in tax-related prosecutions to ensure legal validity and fairness.