1971 (6) TMI 38 - HC - Companies Law

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 tax was remitted to the credit of the Central Government within the specified time.
4. Applicability of the prosecution under the Income-tax Act, 1961, for an offence allegedly committed under the Income-tax Act, 1922.
5. Protection under Article 20(1) of the Constitution.

Detailed Analysis:

1. Whether the accused were the principal officers of the company during the relevant period:
The common question in both cases was whether the accused were the principal officers of the company during the relevant period. The complainant argued that the accused were the principal officers when the tax was deducted. The appellate judge initially held that C.L. Joseph, as the managing director, was the principal officer. However, the judgment clarified that the managing director does not fall under the categories enumerated under section 2(35)(a) or 2(35)(b) of the Income-tax Act, 1961. The managing director must be served with a notice by the Income-tax Officer to be treated as the principal officer, which was not done in this case.

2. Whether the company had distributed dividends and deducted the tax:
The evidence regarding the deduction of tax was found to be confusing and insufficient. Exhibit P-4 indicated that no amounts were deducted at source on the dividends. The mode of distribution of dividends, as per section 194 of the Income-tax Act, 1961, requires payment in cash or by cheque/warrant, which was not followed as the amounts were merely credited to the shareholders' accounts. Thus, the prosecution failed to prove that dividends were declared and distributed or that tax was deducted.

3. Whether the tax was remitted to the credit of the Central Government within the specified time:
The prosecution argued that the tax was not remitted within the specified time, but since the evidence of deduction itself was lacking, this point became moot. The obligation to remit the tax arises only if it is shown that the tax was deducted, which was not established.

4. Applicability of the prosecution under the Income-tax Act, 1961, for an offence allegedly committed under the Income-tax Act, 1922:
The judgment clarified that the offence, if any, was committed under section 51(a) of the Income-tax Act, 1922, and not under the 1961 Act. Section 276(d) of the 1961 Act requires that the deduction and payment of tax should be under the provisions of Chapter XVII-B of the 1961 Act. Since the alleged offence was complete under the 1922 Act, the prosecution should have been initiated under that Act, and it cannot be deemed to continue under the 1961 Act.

5. Protection under Article 20(1) of the Constitution:
The lower court's finding that the accused were protected under Article 20(1) of the Constitution was upheld. This article protects individuals from being prosecuted under a law that was not in force at the time the alleged offence was committed. Since section 276B was introduced only from April 1, 1969, and the failure to deduct the tax occurred before that date, the accused could not be prosecuted under this section.

Conclusion:
The appeals were dismissed as the prosecution failed to prove that the accused were the principal officers, that dividends were declared and distributed, and that tax was deducted. The alleged offence was under the 1922 Act, and the prosecution under the 1961 Act was not valid. Additionally, the accused were protected under Article 20(1) of the Constitution.

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