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TMI Blog2018 (4) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... ive any sitting fees for participating in the Board Meetings of the company nor draw any salary from the company as he is not an employee of the company. Therefore, he can never at any probability be considered as the "Principal Officer" of the company and especially so when the Managing Director of the Company, Mr.K.Natrajhen has also been held as the "Principal Officer" of the very same company under section 2(35) of the Act by the very same 2nd respondent by a separate order dated 03.11.2014. (ii) According to the petitioner, under section 276B of the Income Tax Act, a person, who is in charge of and is responsible to the company for the conduct of the business of the company, can be prosecuted. The test and criterion laid down by section 276B is entirely different and distinct from that laid down by section 2(35) of the Act. Section 2(35) is relevant only for imposing a penalty on a person and is not at all relevant for deciding whether he should be prosecuted for an offence under the Act. However, this factor has not at all been considered and the 2nd respondent has proceeded on the basis that the petitioner having been held to be the "Principal Officer", is, therefore, liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner is residing at No.22, Adyar Club Gate Road, R.A.Puram, Chennai - 28 and not a resident of Delhi/NCR where the corporate office of the company is situated and from where the day-to-day operations of the company are carried out. The company is professionally managed entity whose day-to-day operations are managed by a team of experts/trained professionals. In addition to being a Director of the company, the petitioner is also involved in other business activities in Chennai, which include Television, Radio, Newspaper, DTH broadcasting etc. The petitioner is full time Executive Chairman of Sun TV Network Ltd., which is a public limited company, from which he draws remuneration as per the provisions of the Companies Act. (vii) By letter dated 23.04.2014, the 2nd respondent sought supply of certain information from the company concerning various issues including Tax Deducted at Source ("TDS"). The notice also directed holding of hearing on 07.05.2014 at 11.00 a.m. The company, by way of its letter dated 07.05.2014, supplied most of the information sought by the 2nd respondent and sought an extension of 30 days for production of further documents. On 04.08.2014, the 2nd responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Managing Director of the company, viz., Mr.K.Natrajhen and to Mr.RakeshKumar, DGM (Finance & Taxation). Just as the show cause notice issued to the petitioner, the show cause notices issued to the Managing Director and DGM (Finance & Taxation) contained identical averments stating that both the recipients were actively participating in the functioning and management of the company affairs and therefore, required to show cause as to why they should not be treated as Non-Executive Principal Officer within the meaning of section 2(35) of the Income Tax Act. It therefore becomes clear that while issuing show cause notices, there was no application of mind by the 2nd respondent to the fact that the petitioner was not at all involved in the day-to-day affairs of the company and he is residing and carrying on business in Chennai. (xi) On 23.09.2014, the petitioner sent a reply stating that he is only a Non-Executive Chairman and he is not in charge of the day-to-day affairs of the company. Further, he has stated that the company is professionally run by a team of experts, who managed the affairs of the company from its corporate Head Office located in Delhi/NCR whereas, he is residing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the company without appreciating the fact that the company had been complying with its payment plan. (xv) By letter dated 01.10.2014, the 2nd respondent threatened coercive action against the company even if it had deposited TDS to the extent of Rs. 88.71 crores against an outstanding of Rs. 90 crores leaving a shortfall of only Rs. 1.29 cores, which too was paid in the 1st week of October, 2014. In furtherance of the show cause notice, the 2nd respondent issued an order dated 03.11.2014 under section 2(35) of the Income Tax Act, which is impugned in this writ petition, holding that the petitioner is the Principal Officer of the Company within the meaning of Section 2(35) of the Income Tax Act. The impugned order merely states, without any basis or materials whatsoever "All major decisions are taken in the company under his consent. In that capacity he is certainly associated with the management and administration of the Company". The impugned order straightaway proceeds to hold that the petitioner is the Principal Officer of the company and accordingly he is liable to be prosecuted under section 276B of the Income Tax Act,1961 for the Tax Deducted at Source default committed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 276B of the Income Tax Act, is liable to be set aside. In these circumstances, the petitioner has filed the above writ petition. 3. The brief case of the respondents is as follows:- (i) According to the respondents, the lis in the present case arises out of the failure on the part of M/s. Spice Jet Limited to deposit the tax deducted by it at source from amounts paid/payable to third parties. M/s. Spice Jet Limited is an assessee on the file of the 2nd respondent and its TAN number is also registered with the 2nd respondent only and therefore, the facts which have a bearing with the dispute have arisen in Delhi only and not in the State of Tamil Nadu. The mere fact that the petitioner herein is residing in Chennai does not give rise to a cause of action arising in the state of Tamil Nadu. The place where the petitioner is residing has no bearing with the lis involved, which is the failure to deposit the tax deducted at source. (ii) According to the respondents, the petitioner has filed a Criminal M.C. Petition No.381 of 2015 before the Delhi High Court against the criminal complaint that was filed pursuant to the order dated 03.11.2014 holding the petitioner as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by him before the Criminal Court. There is no necessity for the Department to prove that any funds of the company have been diverted in order to initiate action under the provisions of the Act. The provisions of Chapter XVII relating to deduction of tax at source are very stringent and mandatory. The amount deducted as tax at source is not money belonging to M/s. Spice Jet Limited, but, the money belonging to third parties and which has not been paid by M/s.Spice Jet Limited to third parties under an implicit understanding that the same will be deposited as TDS with the Department and such third party will be entitled to treat the same as part of his advance tax payments. The failure on the part of M/s. Spice Jet Limited, to deposit the TDS within the stipulated time has several implications. (v) The default committed by M/s. Spice Jet Limited, came to the notice of the department in the course of survey conducted under section 133A of the Act. It is immaterial whether or not the Principal Officer is functioning at the same or different place. The Director/Chairman is covered under section 2(35)(b) of the Income Tax Act. On the basis of survey conducted under Section 133A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Constitution of India. In these circumstances, the respondents prayed for dismissal of the writ petition. 4. Heard Mr.P.S.Raman, learned Senior Counsel appearing for the petitioner and Mr.G.Rajagopalan, learned Additional Solicitor General appearing for the respondents. 5.1 With regard to the Jurisdiction of this Court, Mr.P.S.Raman, learned Senior Counsel appearing for the petitioner submitted that the impugned order was served on the petitioner at Chennai at his residential address and though the company's registered corporate office is at Delhi and the TAN number is at Delhi assessment, the petitioner is not challenging the assessment order, but is challenging only the impugned order naming him as the Principal Officer. The learned Senior Counsel further submitted that cause of action arose only at Chennai and therefore, this Court has jurisdiction to entertain the writ petition. 5.2 The learned Senior Counsel appearing for the petitioner submitted that the petitioner is the Non-Executive Chairman of the Board of Directors of the Company and the company is professionally run from its corporate Head Office at Delhi by the Managing Director, who is in charge of the day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to entertain a writ petition it must disclose that the integral facts pleaded in support of the cause of action do constitute a cause so as to empower the court to decide the dispute and the entire or a part of it arose within its jurisdiction. Each and every fact pleaded by the respondents in their application does not ipso facto lead to the conclusion that those facts give rise to a cause of action within the Court s territorial jurisdiction unless those facts are such which have a nexus or relevance with the lis i.e. involved in the case. This Court observed: "17. It is seen from the above that in order to confer jurisdiction on a High Court to entertain a writ petition or a special civil application as in this case, the High Court must be satisfied from the entire facts pleaded in support of the cause of action that those facts do constitute a cause so as to empower the court to decide a dispute which has, at least in part, arisen within its jurisdiction. It is clear from the above judgment that each and every fact pleaded by the respondents in their application does not ipso facto lead to the conclusion that those facts give rise to a cause of action within the court s ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt did not examine whether any part of cause of action arose in Andhra Pradesh. Clause (2) of Article 226 makes it clear that the High Court exercising jurisdiction in relation to the territories within which the cause of action arises wholly or in part, will have jurisdiction. This would mean that even if a small fraction of the cause of action (that bundle of facts which gives a petitioner, a right to sue) accrued within the territories of Andhra Pradesh, the High Court of that State will have jurisdiction. 11. Normally, we would have set aside the order and remitted the matter to the High Court for decision on merits. But from the persuasive submissions of the appellant, who appeared in person on various dates of hearing, two things stood out. Firstly, it was clear that the main object of the petition was to ensure that at least in future, passengers like him are not put to unnecessary harassment or undue hardship at the airports. He wants a direction for issuance of clear guidelines and instructions to the inspecting officers, and introduction of definite and efficient verification/investigation procedures. He wants changes in the present protocol where the officers are uncer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him on his home address in Bihar. Admittedly, appellant was suffering from serious heart muscles disease (Dilated Cardiomyopathy) and breathing problem which forced him to stay in native place, wherefrom he had been making all correspondence with regard to his disability compensation. Prima facie, therefore, considering all the facts together, a part or fraction of cause of action arose within the jurisdiction of the Patna High Court where he received a letter of refusal disentitling him from disability compensation." (ii) 2003(3) Mh.L.J. [Homi Phiroze Ranina vs State Of Maharashtra] wherein the Bombay High Court held as follows:- "4. It is the contention of the applicants/accused that they are not the principal officers of the said Company Accused No. 1. They are only the non-executive Directors of the Company Accused No. 2. L.K. Khosla is the Chairman and Managing Director and Accused No. 8 Yogesh Khosla is whole-time Director of the said Company and hence, the liability for deducting income-tax and crediting to the Central Government is that of Accused Nos. 2, 8 and the Company, Accused No. 1. It is also contended that no notice was given by the Commissioner of Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isite condition is that the partner was responsible for carrying on the business and was during the relevant time in charge of the business. In the absence of any such proof, no partner could be convicted...." (p. 1984) (iii) 1994(2) Kerala 812 [M.A. Unneerikutty And Ors. vs Deputy Commissioner Of Income Tax] wherein the High Court of Kerala held as follows:- "3. The basic facts are not in dispute. The question for consideration in these petitions is whether there is now a case for this court's interference under Section 482 of the Code of Criminal Procedure for the reasons stated in the petitions. It has been alleged that tax was not deducted at source oh the interest credited to the accounts of the firm during the relevant period and that the petitioners as partners in charge of and responsible for the conduct of its business committed offences under Section 276B(ii) read with Section 278B of the Income-tax Act. Under Section 278B of the Act,-- "Where an offence under this Act has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved notice of his intention to treat them or any one of them as the principal officer of the firm connected with the management or administration. It seems necessary that the complainant must allege and show by some acceptable materials that the partners concerned were in charge of and responsible for the conduct of the business of the firm to make them also vicariously responsible along with it. A mere allegation to that effect will not be sufficient. There should be credible materials to show their active involvement in the conduct and management of the business of the firm. Short of stating that they were in charge of and responsible for the conduct of the business of the firm nothing had been mentioned in the complaints either about their role or as to the extent of their liability, which should not have been left to be inferred, At any rate the allegations seem to be insufficient to make them liable for the impugned act for which perhaps the firm and the principal officer, if any, alone would be liable. 5. In Municipal Corporation of Delhi v. Purshotam Dass Jhunjunwala, AIR 1983 SC 158, the facts were slightly different. The Food Inspector, Municipal Corporation of Delhi, pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must prove that the persons concerned were in charge of, and were responsible to, the firm for the conduct of the business of the firm. It is only then that they can be vicariously prosecuted along with the firm. The proviso to Section 278B(1) of the Act will come into operation only after the initial onus cast on the prosecution under the main section gets discharged." I am in respectful agreement with the above observations, which seem to lay down the correct law." 6.1 Countering the submissions made by the learned Senior Counsel appearing for the petitioner, Mr.G.Rajagopalan, learned Additional Solicitor General appearing for the respondents submitted that this Court has no jurisdiction to entertain the writ petition for the reason that the respondents are stationed at Delhi and that mere serving of the impugned order at Chennai would not give cause of action at Chennai. Further, the learned Additional Solicitor General submitted that the registered office of the company viz., M/s.Spice Jet Limited situate at Delhi and therefore, this Court has no jurisdiction to entertain the writ petition. 6.2 The learned Additional Solicitor General submitted that the petitioner being t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Art. 226. But the argument of inconvenience, in our opinion, cannot affect the plain language of Art. 226, nor can the concept of the place of cause of action be introduced into it for that would do away with the two limitations on the powers of the High Court contained in it." 29. In view of clause 2 of Article 226 of the Constitution of India now if a part of cause of action arises outside the jurisdiction of the High Court, it would have jurisdiction to issue a writ. The decision in Khajoor Singh (supra) has, thus, no application. Forum Conveniens 30. We must, however, remind ourselves that even if a small part of cause of action arises within the territorial jurisdiction of the High Court, the same by itself may not be considered to be a determinative factor compelling the High Court to decide the matter on merit. In appropriate cases, the Court may refuse to exercise its discretionary jurisdiction by invoking the doctrine of forum conveniens. (See Bhagar Singh Bagga v. Dewan Jagbir Sawhany, AIR 1941 Cal; Mandal Jalan v. Madanlal, (1945) 49 CWN 357; Bharat Coking Coal Limited v. M/s Jharia Talkies & Cold Storage Pvt. Ltd. (1997) CWN 122; S.S.Jain & Co. & Anr. v. Uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n should be had as a last resort. According to the appellants, there was non-application of mind on the part of the second respondent- Commissioner of Income Tax in granting sanction under Section 279 of the Act. The second respondent has not considered the relevant facts, reasons and grounds relied upon by the appellants as to why the amount could not be deposited. The circumstances pleaded by the appellants in their reply to the show cause notice clearly disclosed that there was 'reasonable cause' for delay in depositing the amount and it was not a fit case for prosecution of appellants." (iii) 2014 (43) RZMnn.xom 201 (Karnataka) [M/S. Kingfisher Airlines Ltd vs The Income Tax Department] wherein the Hon'ble Supreme Court held as follows:- "17. On 02.01.2014 petitioners filed an application under Section 482 Cr.P.C. bringing to the notice of this Court a subsequent event and a document supporting the same. The subsequent event is, treating one Sri. T.R. Venkatadri, Assistant Vice President (Regional Accounts South and Taxation) of petitioner No. 1 company as the Principal Officer under Section 2(35-B) of the I.T. Act. Learned counsel for the petitioners contend tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the records are only in New Delhi office. The learned senior counsel appearing for the petitioner submitted that the petitioner is an assessee only in the New Delhi office and not at Chennai. The petitioner also submitted their Income Tax Returns only at New Delhi office and not at Chennai office. Merely because the petitioner is having an office at Chennai the same will not confer territorial jurisdiction to this Court to entertain the writ petition. That apart, deducting TDS by the petitioner at Chennai will not confer territorial jurisdiction at Chennai. When the petitioner is an assessee in the office of the Income Tax Department at New Delhi, only the Courts at New Delhi shall have jurisdiction. The ratio laid down in the judgment of the Honourable Supreme Court reported in 2002 (1) SCC 567 [Union of India and others v. Adani Exports Ltd. and another] is against the contentions raised by the petitioner in respect of territorial jurisdiction. 6. As per Article 226(2) of the Constitution of India the power conferred by clause (1) to issue directions, orders or writs to any Government, authority or person may also be exercised by any High Court exercising jurisdiction in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is being decided on the question of territorial jurisdiction, I am not going into the merits of the case. In these circumstances, the writ petition filed by the petitioner is rejected on the ground of territorial jurisdiction. No costs. Consequently, connected miscellaneous petition is closed. (v) 2016 (72) Taxmann.com 99 (Madras) [Tecpro Systems Limited vs The Union Of India] wherein the Karnataka High Court held as follows:- " 20. In Kusum Ingots & Alloys Ltd. vs. Union of India and Another reported in (2004) 6 SCC 254, the appellant company was registered under the Companies Act with the Registered office at Mumbai. It obtained a loan from Bhopal branch of State Bank of India. The bank issued notice for repayment. Questioning the vires of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, a writ petition was filed, which was dismissed on the ground of lack of jurisdiction. At paragraph 18, the Apex Court held as follows: "18. The facts pleaded in the writ petition must have a nexus on the basis whereof a prayer can be granted. Those facts which have nothing to do with the prayer made therein cannot be said to give rise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the writ petition was one of the objections raised by the respondent, on the ground that no cause of action or even a fraction of cause of action arose within the jurisdiction of the Patna High Court. The appellant before the Hon'ble Apex Court contended that he discharged his duty outside the territory of State of Bihar. One of the facts pleaded by the appellant before the Apex Court was that he was a permanent resident of Bihar, asserted his rights in the State of Bihar and all the communications with respect to rejection of his claims were made at his residential address in the State of Bihar. Thus on the above facts and circumstances and taking note of the insertion in clause 1A to Article 226 of the Constitution of India (XV Amendment Act 1963) and subsequently renumbered as Clause 2 by the Constitution (XLII Amendment Act, 1976), the Hon'ble Apex court has observed as hereunder: On a plain reading of the amended provisions in Clause (2), it is clear that now High Court can issue a writ when the person or the authority against whom the writ is issued is located outside its territorial jurisdiction, if the cause of action wholly or partially arises within the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respective Senior Counsel, it could be seen that the petitioner was a Non-Executive Chairman of the Board of Directors of the Company. Admittedly, the corporate office of the company is at Delhi. It is not in dispute that the petitioner is residing at Chennai and the impugned order dated 03.11.2014 naming the petitioner as the Principal Officer was served on the petitioner at Chennai at his residential address. 7.2 The learned Additional Solicitor General contended that the writ petition is not maintainable for the reason that the cause of action arose only at Delhi. The petitioner contended that the petitioner was the Non-Executive Chairman of the Board of Directors of M/s. Spice Jet Limited, which has got corporate office at Delhi and the entire management and control of the company is operated at Delhi by the Managing Director and other Managerial Staff. Further, the petitioner contended that the Managing Director is involved in the day-to-day affairs of the company operating from Delhi. It is also brought to the notice of this Court that the petitioner was not drawing salary from the company. The respondent issued a show cause notice dated 01.09.2014 to the petitioner as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of action had arisen at Chennai. As per Article 226(2) of the Constitution of India, the writ petition is maintainable before a High Court within which the cause of action wholly or in part, arises for the exercise of such power, notwithstanding that the seat of such Government or authority or the residence of such person is not within those territories. That apart, though the company's registered corporate office is at Delhi and the TAN number is at Delhi assessment, the petitioner in this writ petition has not challenged the assessment order, but, has challenged only the impugned order naming him as the Principal Officer. In these circumstances, I am of the view that this Court has jurisdiction to entertain the writ petition. 8.1. The next issue that arise for consideration is whether the petitioner can be construed as the Principal Officer as held by the 2nd respondent. 8.2 The petitioner contended that he is a Non-Executive Chairman of the Board of Directors of M/s. Spice Jet Limited. The corporate office of the company is at Delhi and that the entire Management and Control of the company is operated from Delhi by the Managing Director and other Managerial Staff. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent had issued a show cause notice dated 01.09.2014 to the petitioner at the Chennai residence and to one Mr.Rakesh Kumar, DGM (Finance & Taxation) at IGI Airport, Delhi as to why the petitioner and the said Mr.Rakesh Kumar should not be treated as Principal officers. The petitioner sent his reply on 23.09.2014 wherein he has stated that the Managing Director, Chief Financial Officer and Chief Operating Officer are involved in the day-to-day affairs of the company. On receipt of the said notice, the 2nd respondent had issued a show cause notice to the Managing Director, viz., Mr.K.Natrajhen, as to why he should not be treated as the Principal Officer. In the said show cause notice, the 2nd respondent has also mentioned the reply sent by the petitioner on 23.09.2014 stating that the company is professionally run by the Managing Director, who is in-charge of the day-to-day affairs of the company. In the said notice, the 2nd respondent also informed the Managing Director that prosecution under section 276B of the Income Tax Act will be taken against him. 8.5 For the show cause notice issued to the Managing Director, he sent a reply dated 26.11.2014 specifically stating that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging Director himself has stated that he is the person who is in charge of the day-to-day affairs of the management and administration of the company and that the petitioner is not so, the 2nd respondent without any reason has named the petitioner as the Principal Officer. Merely because the petitioner is the Non-Executive Chairman, it cannot be stated that he is in charge of the day-to-day affairs, management and administration of the company. The 2nd respondent should have given the reasons for not accepting the case of the Managing Director as well as the petitioner in their respective reply. 8.11 The conclusion of the 2nd respondent that the petitioner being a Chairman and major decisions are taken in the company under his administration is not supported by any material evidence or any legally sustainable reasons. 9.1 It is pertinent to note that the 2nd respondent has not produced any material to establish that the petitioner was responsible for the day-to-day affairs of the company. In the absence of any material, the 2nd respondent should not have come to the conclusion that the petitioner is the Principal Officer. The reasoning given by the 2nd respondent are without any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also pertinent to note that there was a meeting between the company officials and the respondents in order to facilitate to pay the TDS on a payment plan basis and the company has submitted its plan on 12.08.2014 and the said plan was accepted by the 2nd respondent by letter dated 02.09.2014. Thereafter, the company has also made payments towards TDS and it is informed to this court by the learned Senior Counsel appearing for the petitioner that the company had paid the entire arrears of TDS and as on date, there are no TDS arrears payable by the company. 10.2. The criminal proceedings have been initiated against the company in C.C.No.103 of 2014. The petitioner and the Managing Director are facing the trial and they have not filed any petition to quash the criminal proceedings. Only the petitioner has filed a petition to quash the criminal proceedings before the Delhi High Court and the said quash petition is pending. Since the criminal complaint was registered in Delhi High Court and trial is going to be conducted only in Delhi, a petition to quash the criminal proceedings would arise only before the Delhi High Court. The petitioner has specifically averred even in the quash ..... X X X X Extracts X X X X X X X X Extracts X X X X
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