1971 (6) TMI 1 - HC - Income Tax

Offence and prosecution - failure to credit the tax deducted at source from dividends within the time limits - whether criminal proceedings can be launched

Issues Involved:
1. Whether the accused were the principal officers of the company during the relevant period.
2. Whether the company had distributed dividends and deducted the tax.
3. Whether the accused failed to remit the tax to the credit of the Central Government within the time specified.
4. Applicability of Section 276B of the Income-tax Act, 1961, as amended by the Finance Act, 1969.
5. Protection under Article 20(1) of the Constitution.

Issue-wise Detailed Analysis:

1. Principal Officers of the Company:
The court examined whether the accused were the principal officers of the company during the relevant period. The complainant argued that the first respondent was the managing director until April 15, 1963, making him the principal officer. The appellate judge initially presumed that the managing director was in actual management and hence the principal officer. However, the judgment clarified that the managing director is not explicitly included in the category under Section 2(35) of the Income-tax Act, 1961, which lists "the secretary, treasurer, manager or agent." The managing director cannot be equated with the manager under the Indian Companies Act. Furthermore, the Income-tax Officer did not serve a notice to treat the managing director as the principal officer, as required by Section 2(35)(b). Thus, the court concluded that the first respondent was not the principal officer at the relevant time.

2. Distribution of Dividends and Deduction of Tax:
The court found the evidence regarding the deduction of tax from dividends to be confusing and insufficient. Exhibit P-4, a statement submitted by the company, indicated that no amounts were deducted at source on the dividends and that the amounts were credited in the shareholders' accounts rather than paid in cash or by cheque. The court noted that crediting amounts in accounts is not an approved mode of distributing dividends under Section 205(3) of the Companies Act, 1956, which requires payment in cash or by cheque/warrant. Therefore, the court agreed with the appellate judge that there was a lack of evidence to prove that any tax was deducted from the dividends.

3. Failure to Remit Tax:
The complainant had to show that the deductions were made by the particular officer and that he failed to pay it to the credit of the Central Government. Since the evidence did not establish that any tax was deducted, the obligation to remit the tax did not arise. The court emphasized that the offence attaches personally to the offender and not to the company, and no conviction could be made without proving the deduction by the accused.

4. Applicability of Section 276B:
The lower court found that since Section 276B was introduced only from April 1, 1969, the accused were protected under Article 20(1) of the Constitution, which prohibits retrospective application of penal laws. The court upheld this view, stating that the prosecution failed to prove that the accused committed an offence punishable under the law in force at the time of the commission. Therefore, the appeals regarding the applicability of Section 276B were dismissed.

5. Protection under Article 20(1):
The court acknowledged that the accused were protected by Article 20(1) of the Constitution, which prevents retrospective penalization. The alleged offence, if any, was complete under the 1922 Act, and the prosecution should have been initiated under that Act. The court rejected the argument that the offence continued under the 1961 Act, as the obligation to deduct and pay tax was not established.

Conclusion:
The court dismissed the appeals, confirming the acquittal of the accused. The prosecution failed to prove that the accused were the principal officers, that dividends were distributed and tax deducted, and that there was an obligation to remit the tax. The accused were also protected under Article 20(1) of the Constitution, and the provisions of Section 276B of the Income-tax Act, 1961, were not applicable retrospectively.

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