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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 ..... : The main criteria treating a person as the Principal Officer is he should have been in charge of the management, administration and day-to-day affairs of the company. It was also stated by the Managing Director that the petitioner is only a Non-Executive Director in the company, who is based at Chennai and is not involved with the day-to-day management of the company and has not made any visits to the company till date as he does not draw any salary or remuneration from the company and attends the Board Meetings only in the Non-Executive capacity, for which, he does not even get any sitting fees. For the reasons stated above, it is clear that the petitioner was not involved in the management, administration and the day-to-day affairs of the company, therefore, the petitioner cannot be treated as Principal Officer. - W.P.No.34010 of 2014 & M.P.No.1 of 2014 - - - Dated:- 28-3-2018 - M. Duraiswamy, J. For the Petitioner : Mr.P.S.Raman Senior Counsel for Ms.M.Sneha For the Respondents : Mr.G.Rajagopalan, A.S.G. Mrs. Hema Muralikrishnan ORDER The petitioner has filed the above writ petition to issue a Writ of Certiorari, to call for the records on the file of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uctible at source to the Income Tax Authorities, which plan was accepted without objection by the Authorities. This crucial factor by itself establishes that the Income Tax Authorities were fully aware of the acute liquidity and financial problems faced by the company which prevented it from making payment in time of the amount of tax deducted at source. (iv) In the present case, there is no allegation whatsoever made by the Income Tax Department that any funds of the company have been diverted or that any money were available to the company for making payment of the tax deducted at source and that the company and its officials nevertheless willfully or contumaciously or dishonestly refrained from making payment of the tax deducted at source though the company was in a position to make the payment. In the absence of any such allegation having been made and proved by the Income Tax Authorities, it cannot be contended by the Income Tax Authorities that there was no reasonable cause for the delay in payment and therefore, the offence under section 276B was committed. The impugned order does not show any application of mind by the 2nd respondent to the crucial factor. (v) P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omplying with all provisions of law including the Income Tax Act as far as deduction of TDS is concerned, there has been some delay in depositing TDS. (viii) The company sent a representation dated 12.08.2014 to the 2nd respondent informing about the huge losses suffered by it in the financial year 2013-14. The company also suggested a payment plan on the basis of some promoter capital infusion as well as daily collections to reduce its TDS liability. The 2nd respondent issued another communication dated 12.08.2014 seeking TDS related information/other information from the company concerning for the financial year 2012-13. This information was supplied by the company along with a covering letter dated 27.08.2014. (ix) The company continued to deposit amounts towards TDS with the 2nd respondent and substantially complied with the proposal made by it with a few minor exceptions. Despite its best efforts to deposit the TDS amounts in spite of severe financial hardship being faced by the company, the 2nd respondent on 01.09.2014, issued a show cause notice to the petitioner under section 2(35) of the Income Tax Act regarding TDS for the financial year 2013-14. In the show ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company is involved in the day-to-day affairs and who is indeed the Principal Officer stated that the notice is premature and ought to be withdrawn. The notice also sought for an opportunity to be heard in person. Similarly, a reply to the show cause notice was also submitted by Mr.Rakesh Kumar, DGM (Finance Taxation) of the company on merits as well. (xiii) While the petitioner was in the process of preparing and filing reply to the show cause notice, the 2nd respondent issued further communications addressed to the company seeking supply of information regarding TDS payments for the financial years 2012-13, 2013-14 and first quarter of financial year 2014-15. The 2nd respondent addressed another letter dated 02.09.2014 to the company alleging that the company made partial payments against the payment plan submitted by it. The letter directed the company to make good the shortfall for the period August-October 2014 and threatened action in case of the company's failure to pay. The company sent their reply supplying the information sought for by the 2nd respondent on 08.09.2014. (xiv) Despite the sincere efforts of the company to settle all TDS dues, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 278B of the Income Tax Act, which expressly provides that only such person who at the time of the offence as in charge of and was responsible to the company for the conduct of its business shall be held guilty for the offence under section 276B of the Income Tax Act shall be liable to be proceeded against. (xvi) The 2nd respondent by way of separate order dated 03.11.2014, proceeded to hold the Managing Director of the Company to be the Principal Officer within the meaning of section 2(35) of the Income Tax Act. By letter dated 05.10.2014, the company wrote to the 2nd respondent confirming that it has met its commitment for the months of August and September 2014. It was stated that while the entire liability for the financial year 2013-14 with an exception of ₹ 7.06 crores (which too was paid subsequently) has been paid and that in so far as the remaining liability of ₹ 80 crores is concerned, the company proposes to discharge the same by paying an amount of ₹ 2 crores per day (excluding Sunday and bank clearing holidays). In its letter, the company showed its bona fides and requested that no coercive steps be taken against the company and its officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on before the Delhi High Court are the same, on the ground of forum convenience also the above writ petition ought to be dismissed. Therefore, the writ petition should be dismissed as not maintainable. (iii) According to the respondents, the petitioner was inducted as Director and Chairman into the Board of Directors of M/s. Spice Jet Limited with effect from 15.11.2010 and the petitioner had expressed his plan of doubling their current fleet size and that he was excited to lead the airline on this growth path. Therefore, it is clear that the petitioner had taken active part in the conduct of the business of M/s. Spice Jet Limited and just because the company has a Managing Director and other Managerial Personnel, it does not mean that the Chairman/Director does not take part in the Management or Administration of the company. The fact that the petitioner resides in Chennai does not mean that he is not involved in the Management or Administration of the company as in today's world, it is not necessary to be physically present in the Corporate Office for the purpose of Administering/Managing a company. Thus, in accordance with Section 2(35) of th Income Tax Act, the 2nd re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration of the company. (vi) The Income Tax Act does not contain any stipulation of day-to-day affairs of the company . All that section 2(35) stipulates is concerned with the Management and Administration of the Company . Therefore, the contention of the petitioner that the petitioner is not a Principal Officer is liable to be rejected. (vii) The plea that there was a reasonable cause for delay in payment of TDS to the Government account, taken by a deductor company is also not acceptable. Since the deductor has failed to deposit the tax into the Government Account within the prescribed time, it becomes an assessee in default . Proceedings initiated under section 2(35) relates to proceedings under section 276B and are independent of recovery proceedings. (viii) Prosecution has been initiated for huge delay which runs into more than 12 months in respect of various payments of the TDS. Payment being made by the deductor company were as per post survey record proceedings and do not relate to proceedings under section 276B. The fact that the petitioner is the promoter of the company and that he infuses capital goes to show that he is engaged in the management, admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the day-to-day affairs of the company and that the petitioner in fact does not draw salary from the company and hence, he is not the employee of the company. 5.4 The learned Senior Counsel appearing for the petitioner submitted that the 2nd respondent had also issued show cause notice to the Manging Director, viz., Mr.K.Natrajhen. That apart, the 2nd respondent also caused a show cause notice dated 01.09.2014 to the petitioner at Chennai residence and to one Mr.Rakesh Kumar at IGI Airport, Delhi as to why the petitioner and the said Mr.Rakesh Kumar should not be treated as Principal Officers. In these circumstances, the learned Senior Counsel submitted that the petitioner cannot be treated as Principal Officer within the meaning of section 2(35) of the Income Tax Act. 5.5 The learned Senior Counsel appearing for the petitioner submitted that the conjoint reading of sections 2(35)(b) and 278B of Income Tax Act clearly emphasis that it shall not render any such person liable to any punishment if he proves that the offence was committed without his knowledge. Further, the Managing Director himself has explicitly stated that he is the person in charge of the day-to-day affai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion, falls into the category of bundle of facts which would constitute a cause of action giving rise to a dispute which could confer territorial jurisdiction on the courts at Ahmedabad. 14. In Om Prakash Srivastava vs. Union of India and Another (2006) 6 SCC 207, answering a similar question this Court observed that on a plain reading of Clause(2) of Article 226 it is manifestly clear that the High Court can exercise power to issue direction, order or writs for the enforcement of any of the fundamental rights or for any other purpose if the cause of action in relation to which it exercises jurisdiction notwithstanding that the seat of the Government or authority or the residence of the person against whom the direction, order or writ is issued is not within the said territory. In para 7 this Court observed:- 7. The question whether or not cause of action wholly or in part for filing a writ petition has arisen within the territorial limits of any High Court has to be decided in the light of the nature and character of the proceedings under Article 226 of the Constitution. In order to maintain a writ petition, a writ petitioner has to establish that a legal right claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. Regard being had to the discussion made herein above, there cannot be any doubt that the question whether or not cause of action wholly or in part for filing a writ petition has arisen within the territorial limit of any High Court has to be decided in the light of the nature and character of the proceedings under Article 226 of the Constitution. In order to maintain a writ petition, the petitioner has to establish that a legal right claimed by him has been infringed by the respondents within the territorial limit of the Court s jurisdiction. 17. We have perused the facts pleaded in the writ petition and the documents relied upon by the appellant. Indisputably, the appellant reported sickness on account of various ailments including difficulty in breathing. He was referred to hospital. Consequently, he was signed off for further medical treatment. Finally, the respondent permanently declared the appellant unfit for sea service due to dilated cardiomyopathy (heart muscles disease). As a result, the Shipping Department of the Government of India issued an order on 12.4.2011 cancelling the registration of the appellant as a seaman. A copy of the letter was sent to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the case of M. A. Unneerikutty (1994(2) Kerala 812), Kerala High Court clearly states that it is necessary that complainant must lead and show some acceptable materials that the partners were in charge of and responsible for the conduct of the business of firm. to make them also vicariously responsible along with it. A mere allegation to that effect will not be sufficient. There should be credible material to show their active involvement in the conduct and management of the business of the firm. 11. Unless the complaint disclosed a prima facie case against the applicants/accused of their liability and obligation as Principal Officers in the day-to-day affairs of the Company as Directors of the Company under section 278B, the applicants cannot be prosecuted for the offences committed by the Company. In the absence of any material in the complaint itself prima facie disclosing responsibility of the accused for the running of the day-to-day affairs of the Company process could not have been issued against them. The applicants cannot be made to undergo the ordeal of a trial unless it could be prima facie showed that they are legally liable for the failure of the Company in pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (2),-- . . . where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. A director in relation to a firm is also a partner. Under Section 204,-- For the purposes of Sections 192 to 194, Section 194A, Section 194B, Section 194BB, Section 194C, Section 194D and Sections 195 to 203 and Section 285, the expression 'person responsible' for paying means,-- (iii) in the case of credit or, as the case may be, payment of any other sum chargeable under the provisions of this Act, the payer himself, or, if the payer is a company, the company itself including the principal officer thereof. Under Section 2(35) of the Act,-- 'principal officer', used with reference to a local authority or a company or any other public body or any association of persons or any body ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugar Mills Ltd. and were in charge of and responsible to it for the conduct of its business at the time of Commission of offence . Reliance was placed upon the decision in Municipal Corporation of Delhi v. Ram Kishan Rohtagi, AIR 1983 SC 67. But the Supreme Court observed (at page 159) : Unlike the other case, paragraph 5 of the complaint of this case gives complete details of the role played by the respondents and the extent of their liability. It is clearly mentioned that Ram Kishan Bajaj is the chairman and R.P. Neyatia is the managing director and respondents 7 to 11 are the directors of the mill and were in charge of and responsible for the conduct of its business at the time of the commission of the offence whereas in the other case the complaint has merely drawn a presumption without any averment. The decision of the Madras High Court in Shital N. Shah v. ITO [1991] 188 ITR 376, seems to be in point. The learned judge referred to the above decisions of the Supreme Court and observed (headnote) : The words 'any person who is responsible for paying' found in Section 194A of the Income-tax Act, 1961, have to be read in conjunction with Section 204 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditional Solicitor General further submitted that Section 2(35) of the Act does not use the word day-to-day management/affairs but merely mentions management or administration, therefore, the petitioner was rightly held as Principal Officer by the 2nd respondent. In these circumstances, the learned Additional Solicitor General prayed for dismissal of the writ petition. In support of his contentions, the learned learned Additional Solicitor General relied upon the following judments:- (i) 2004(6) Supreme Court Cases 254 [ Kusum Ingots Alloys Ltd. v. Union of India and Another], wherein the Hon'ble Supreme Court held as follows:- 28. Lt. Col. Khajoor Singh Vs. The Union of India and Another [(1961) 2 SCR 828] whereupon the learned counsel appearing on behalf of the appellant placed strong reliance was rendered at a point of time when clause (2) of Article 226 had not been inserted. In that case the Court held that the jurisdiction of the High Court under Article 226 of the Constitution of India, properly construed, depends not on the residence or location of the person affected by the order but of the person or authority passing the order and the place where the order h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s raised several contentions. He submitted that the orders passed by the Courts below as well as by the High Court deserve to be set aside. According to him, the present case is neither a case of 'non deduction' of tax nor of 'non payment' of tax. The tax required to be deducted at source had been deducted by the Company and the said amount had also been credited in the account of Central Government. Only thing was that there was some delay on the part of the Company in crediting the amount. In some cases, there was delay of few days only (two days). As such, there was no reason to prosecute the Company and/or its Directors. It also cannot fall within the mischief of the Act so as to give rise to criminal liability. It was also submitted that Company is not a natural person but merely a legal or juristic person and hence it cannot be punished. If it is so, obviously, for such act, Directors or Officers of the Company also cannot be punished. The action of the respondents, therefore, is illegal and not warranted by law. The counsel also submitted that appellant Nos. 2 to 4 cannot be said to be 'principal officers' under the Act and no prosecution can be initi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Officer for initiation of criminal proceedings. The Supreme Court in the case of Madumilan Syntex supra, held as under: 27. So far as the directors are concerned, it is alleged in the show-cause notice as well as in the complaint that they were principal officers of the company. In the show-cause notice, it was asserted that the appellants were considered as principal officers undersection 2 (35) of the Act. In the complaint also, it was stated that the other accused were associated with the business of the company and were treated as principal officers undersection 2(35) of the Act and hence they could be prosecuted. Dealing with an application for discharge, the trial court observed that accused No.1 was the company whereas the other accused were the directors. Whether they could be said to be principal officers or not would require evidence and it could be considered at the stage of trial and the application was rejected. In revision, the first additional sessions judge took a similar view. Therefore the subsequent event treating one Sri. T.R.Venkatadri as the Principal Officer of petitioner No.1 company will not result in quashing of the proceedings against peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de, a suit can be instituted where the defendants reside or cause of action arises. Under Section 20(b) every suit shall be instituted in a Court within the local limits of whose jurisdiction any of the defendants, where there are more than one, at the time of the commencement of the suit, actually or voluntarily resides, or carries on business or personally works for gain, provided that in such case either the leave of the Court is given, or the defendants who do not reside, or carry on business or personally work for gain, as aforesaid, acquiesce in such institution. Under Section 20(c), a suit shall be instituted in a Court where the cause of action, wholly or in part, arises. In the case on hand, the respondent at Chennai has not participated in any of the action of the petitioner. Though the petitioner had deducted TDS, the same has been remitted only to the Income Tax Office at New Delhi. When the respondent has no role to play in the acts of the respondent at Chennai, there is no cause of action arise for filing the writ petition at Chennai. Mr.P.S.Raman, learned senior counsel appearing for the petitioner, fairly submitted that it cannot be said that Delhi High Court shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 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 convenience. 21. The above judgment has been decided on the principle that parliamentary legislation, which receives the assent of the President and is published in the official gazette unless specifically included, will apply to the entire territory of India. If passing of legislation gives rise to an actual action, a writ petition, questioning the constitutionality threof can be filed in any High court of the country. It is not so done because the cause of action will arose only when the provisions of the Act or some of them, which were implemented, shall give rise to civil or evil consequences. In such view of the matter, writ petition filed in the High Court of Delhi was held to be maintainable. At the same time, at paragraph No.30 of the Judgment, the Hon'ble Apex Court has also cautioned forum convenience as here under: 30. We must, however, remind ourselves that even if a small part of cause of action arises wihti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t been defined either in the Code of Civil Procedure or the Constitution. Cause of action is bundle of facts which is necessary for the plaintiff to prove in the suit before he can succeed. In Nawal Kishore Sharmas case the Apex Court has taken note of the judgment in Kusum Ingots Alloys Ltd. vs. Union of India and Another, reported in (2004) 6 SCC 254, wherein at paragraph 10 the Apex Court held as follows: keeping in view the expressions used in clause (2) of Article 226 of the Constitution of India, indisputably even if a small fraction of cause of action accrues within the jurisdiction of the Court, the Court will have jurisdiction in the matter. 29. In the case on hand, though the petitioner has contended that the right under BIFR is likely to be infringed and that there is a threat if the respondent is not restrained by a writ of mandamus sought for, this court is not inclined to accept the said contentions for the reason that what is sought to be achieved indirectly is to nullify the effect of the order dated 20.01.2016 of the Assistant Commissioner of Income Tax, TDS, New Delhi, without there being any challenge to the same. It is well settled that what can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only the order naming him as Principal Officer, which was served at the residential address of the petitioner. 7.3 It is also pertinent to note that the show cause notice dated 01.09.2014 was served on the petitioner at his residential address at Chennai. When the petitioner had taken a stand that he is not involved in the day-to-day affairs of the company and was also not drawing any salary from the company, it cannot be stated that the petitioner cannot file the writ petition at the place where he received the show cause notice as well as the impugned order. 7.4 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 relation to the territories 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. 7.5 As already stated, the petitioner is challenging the order treating him as the Principal Officer, which was received by him at Chennai and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been specified under Section 2(35) of the Income Tax Act, 1961, which reads as follows: Section 2(35) principal officer , used with reference to a local authority or a company or any other public body or any association of persons or any body of individuals, means (a) the secretary, treasurer, manager or agent of the authority,company, association or body, or (b) any person connected with the management or administration of the local authority, company, association or body upon whom the 59[Assessing] Officer has served a notice of his intention of treating him as the principal officer thereof . 8.3 By the impugned order dated 03.11.2014, while naming the petitioner as the Principal officer, the 2nd respondent also held that the petitioner is liable for prosecution under section 276B of the Income Tax Act. Section 278B deals with the offence committed by the companies. Therefore, it would be appropriate to extract Sections 276B and 278B, which reads as follows:- 276B. If a person fails to pay to the credit of the Central Government, (a) the tax deducted at source by him as required by or under the provisions of Chapter XVII-B; or (b) the tax pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anaging Director has also stated that the petitioner is not at all responsible for the administration and the management of the company and that he does not draw any salary or remuneration from the salary and attends the Board Meetings only in the Non-Executive capacity, for which he does not even get any sitting fees. Further, the Managing Director has stated that the order issued against the Chairman holding him to be the Principal Officer within the meanings of section 2(35) of the Income Tax Act may be recalled, since he is not connected with the management and not involved in the decision making day-to-day affairs of the company. 8.6 The company has sent a detailed reply placing reliance on the fact that there was reasonable cause for the delay and that TDS proceedings are pending and sought not to treat Mr.Rakesh Kumar, Deputy General Manager (Finance Taxation) as the Principal Officer. The respondents accepting the said reply of the company had not treated the said Mr.Rakesh Kumar, Deputy General Manager (Finance Taxation) who was in charge in the helm of administration and affairs of the company as the Deputy General Manager (Finance Taxation) as the Principal Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the company as Chairman-cum-Director of the company, under section 278B of the Income Tax Act, the petitioner could not be prosecuted for the offence committed by the company. In the absence of any material, the show cause notice itself, prima facie disclosing the responsibility of the petitioner for the running of the day-to-day affairs of the company process, could not have been issued against him. The petitioner cannot be made to undergo the ordeal of a trial unless it could be prima facie disputed that he was legally liable for the failure of the company in paying the amount deducted to the credit of the company. Otherwise, it would be a travesty of justice to prosecute the petitioner and ask him to prove that the offence is committed without his knowledge. A mere allegation that the petitioner is incharge of the conduct of the company is not sufficient to hold that the petitioner is the Principal Officer. There should be credible material to show his active involvement in the conduct and management and business of the Company. 9.2 As already stated, the Managing Director, viz., Mr.K.Natrajhen, himself has stated that he is responsible for the day-to-day affairs of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the petitioner at Chennai, he has filed the writ petition before this court to quash the impugned order dated 03.11.2014. 11.2 Though the petitioner and his company were holding more than 50% shares, in the absence of any material to establish that the petitioner was in charge of the day-to-day affairs, management, and administration of the company, the 2nd respondent should not have named him as the Principal Officer. 11.3 The main criteria treating a person as the Principal Officer is he should have been in charge of the management, administration and day-to-day affairs of the company. It was also stated by the Managing Director that the petitioner is only a Non-Executive Director in the company, who is based at Chennai and is not involved with the day-to-day management of the company and has not made any visits to the company till date as he does not draw any salary or remuneration from the company and attends the Board Meetings only in the Non-Executive capacity, for which, he does not even get any sitting fees. 11.4 For the reasons stated above, it is clear that the petitioner was not involved in the management, administration and the day-to-day affairs of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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