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1991 (12) TMI 20 - PUNJAB AND HARYANA HIGH COURTFailure To Deduct Tax At Source, Offences And Prosecution, Prosecution Of Director Of Company
Issues involved: Prosecution under section 278B of the Income-tax Act, 1961 for failure to deduct income tax at source and contravention of section 194C.
The judgment involved the prosecution of a company and its directors for an offence under section 278B of the Income-tax Act, 1961 for failure to deduct income tax at source as required by section 194C. The complaint alleged that the company got contract work done without deducting income tax and depositing it in the Government account. The Chief Judicial Magistrate initially discharged all accused, but the Additional Sessions Judge set aside the order and remanded the case for further inquiry against the company and its directors. The challenge was against the order of the Additional Sessions Judge. The legal provisions under section 194C of the Act require deductions to be made from payments to contractors and sub-contractors. The definition of "person responsible for payment" under section 204 is crucial, as it includes the payer or the company itself as the principal officer. The absence of appointment of a principal officer by the Assessing Officer raises questions regarding the liability of directors for the company's default in deducting income tax. The judgment analyzed the significance of section 276B, which penalizes failure to deduct or pay tax without reasonable cause or excuse. The prosecution needed to establish the absence of reasonable cause for the default, and the burden of proof shifted to the accused to show reasonable cause. The judgment highlighted the importance of proving the lack of reasonable cause for the offence under section 276B. The judgment also discussed relevant case laws such as Smt. Kamla Vati v. CIT and Balakrishnan Managing Director, Terelac Furnaces Pvt. Ltd. to emphasize the importance of mens rea and reasonable cause in tax-related offences. Ultimately, the court quashed the impugned orders of the Additional Sessions Judge and accepted all the criminal miscellaneous petitions, stating that the prosecution against the directors was not valid without the appointment of a principal officer by the Assessing Officer.
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