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TMI Blog1998 (7) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... A1-company failed to deduct the full amount of income-tax at source or having deducted it failed to remit the tax deducted at source from the interest amount paid to New India Maritime Agencies (P.) Ltd., represented by the fifth accused as required under section 194A of the Income-tax Act, 1961, for the financial years ended with December 31, 1973, to December 31, 1979 (in the case concerned with C. A. No. 524 of 1987), Rs. 37,108, Rs. 42,891, Rs. 55,806, Rs. 63,469, Rs. 60,195, Rs. 65,109 and Rs. 68,728, respectively, into the credit of the Central Government and (in the case concerned with C. A. No. 525 of 1987) the financial year ended with December 31, 1980, and December 31, 1981, Rs. 57,338 and Rs. 50,706, respectively, into the credit of the Central Government within the period of two months specified in rule 30(1)(b) of the Income-tax Rules, 1962, read with sections 200 and 204 of the Income-tax Act, 1961, and thereby committed an offence punishable under section 276B(ii) (7 counts) (concerned with C. A. No. 524 of 1987) and (2 counts) (concerned with C. A. No. 525 of 1987) of the Income-tax Act, 1961. Secondly, that A2 to A5 being directors of the first accused company f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number. The only alteration being the seventh accused, New India Maritime Agencies (P.) Ltd., concerned in C. A. No. 524 of 1987, has not been made an accused in the other case concerned with C. A. No. 525 of 1987 and all the other six accused have been arrayed in the same manner in both the cases. With the above evidence placed before the trial court and weighing the same with the legal yardstick and appreciating the said evidence in its own way in the context of the position of law pertaining to the subject, ultimately the trial court had arrived at the conclusion to acquit all the accused therein in both the above matters, challenging which the complainant/Department has come forward to file the two separate memorandums of criminal appeals but in both offering the same grounds which are common to both such as : (i) that the lower court misdirected itself on question of law relating to section 278B of the Income-tax Act, and its application thereof ; (ii) that the trial court failed to appreciate the evidence of prosecution that once the deduction of tax deducted at source is done under section 194A it is the duty of the company to remit the same to the Government account withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in the postings of the interest due on payment of interest in such a manner as to evade interest payable to the Department on the tax deducted at source. Prior to entering to dissect the merits of the above appeals it is relevant to note the guidelines provided by the apex court as per its judgment reported in S. Madhavan Nair v. State of Kerala [1975] MLJ (Crl.) 239, 243, wherein it has been held that "in an appeal under section 417 of the Code of Criminal Procedure, against an order of acquittal, the High Court has full power to review at large the evidence on which the order of acquittal was founded and to reach the conclusion that upon the evidence the order of acquittal should be reversed. No limitation should be placed upon that power unless it be found expressly stated in the Code, but in exercising the power conferred by the Code and before reaching its conclusion upon facts the High Court should give proper weight and consideration to such matters, as (1) the view of the trial judge as to the credibility of the witnesses ; (2) the presumption of innocence in favour of the accused, a presumption certainly not weakened by the fact that he has been acquitted at his tria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he accused No. 1-company before launching the prosecution for an offence under section 276B of the Income-tax Act, 1961. Such a notice as contemplated under section 2(35)(b) of the Income-tax Act, 1961, is a mandatory requirement in view of the meaning of "person responsible for payment" under section 204. Section 194A imposes liability to deduct tax at source on the credit or payment of interest other than "interest on securities", Section 194A(4) uses the expression "the person responsible for making payment". Under section 204(iii), the expression "person responsible for paving" means---. . ."if the payer is a company, the company itself including the principal officer thereof". The contravention of section 194A is made an offence punishable under section 276B. If the offence is committed by the company, the prosecution for the offence under section 276B has to be launched against the company itself and its principal officer. The expression "principal officer" is defined under section 2(35) wherein under sub-clause (a) the persons mentioned therein become liable for any violation as the principal officer, The managing director or director is not included within the ambit of sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of salaries and interest other than interest on securities, etc., and not otherwise." In the case reported in Geethanjali Mills Ltd. v. V. Thiruvengadathan [1989] 179 ITR 558 (Mad), the offence alleged in the complaint is under sections 276C(1), 277 and 278B of the Income-tax Act, 1961. Relying on this decision in Geethanjali Mills Ltd. v. V Thiruvengadathan [1989] 179 ITR 558 (Mad), extracting the sections 194A, 200 and 204, his Lordship observed in para. 2 at page 568 : "From a cursory perusal of all the sections extracted above, as rightly pointed out by learned counsel for the Revenue, the determination of the 'principal officer' is necessary only in the case of deduction of tax at source as in the case of salaries and interest other than interest on securities, etc., and not otherwise." Further, it was made clear in the above ruling that non-issuance of individual notices for other offences such as section 276C, 276CC or 277 is of no consequence. Therefore it is very clear that even after the introduction of section 278B with effect from October 1, 1975, it is mandatory to issue notice under section 2(35)(b) in case the prosecution is for the offence under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder : Details of advance tax paid from 1973 to 1982 For the year ended Assessment year Advance tax 30-6-1973 1974-75 1,25,482 30-6-1974 1975-76 1,74,141 30-6-1975 1976-77 2,38,885 30-6-1976 1977-78 4,38,330 30-6-1977 1978-79 1,79,106 30-6-1978 1979-80 2,86,650 30-6-1979 1980-81 2,19,704 30-6-1980 1981-82 2,47,135 30-6-1981 1982-83 3,01,450 30-6-1982 1983-84 2,37,490 Levelling a charge under section 420 of the Indian Penal Code, against accused No. 7-company and its directors, the respondents/accused Nos. 2 to 5 would amount to killing the goose which lays golden eggs. There is no necessity for accused No. 7-company to indulge in any kind of activity as alleged. The payment of tax structure by accused No. 7-company as stated above clearly disproves the charges under section 420 of the Indian Penal Code. The trial court's finding in dismissing the charge under section 420 of the Indian Penal Code, is very well founded. Ground No. 3 : The trial court has found that accused No. 1-company had been incurring heavy losses right from the date of its incorporation, i.e., February 10, 1972, and, therefore, it had reasonable cause or excuse for the delayed remitta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. P. P. Suri, ITO [1986] 158 ITR 496 (Delhi). The Punjab and Haryana High Court has also held that it is the duty of the prosecution to prove that there was no reasonable cause or excuse in the case reported in Greatway (P.) Ltd. v. Asst. CIT [1993] 199 ITR 391. In this regard, the cumulative or carry over of accused No. 1 is stated hereunder Rs. 31-12-1975 loss 16,73,264 31-12-1976 loss 18,52,732 31-12-1977 loss 22,91,340 31-12-1980 loss 28,66,198 31-12-1981 loss 16,70,517 31-12-1982 loss 13,74,410 In view of the colossal loss incurred and carried over by accused No. 1-company every year, it made a request to its sister company, New India Maritime Agencies P. Ltd. (accused No. 7) to waive the interest on the outstanding amounts. Accused No. 7-company after some negotiations agreed and waived the interest with effect from January 1, 1982. In the meantime, accused No. 1-company had paid and deducted tax on interest erroneously. Further, the assessments of the creditor company, New India Maritime Agencies P. Ltd. itself for all the assessment years in question have been completed and the income-tax was paid by the creditor on the whole of its income including " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng amounts due from accused No. 1-company. Further, in the regular assessment, the creditor company has already paid the income-tax on the whole of its income including the interest income for the relevant assessment years. Therefore, "when once it was referred by the creditor himself in his regular assessment, the right to recover the same from the debtor who should have deducted the same the lapse of the debtor simply becomes extinguished." Further, it is now 23 years from the alleged date of the commission of the offence. In Kuldip Rai Chopra, ITO v. Sohan Singh Dhiman [1977] 110 ITR 521 (P H), it has been observed : "Held further, that in an appeal against acquittal the High Court cannot be called upon to reassess the credibility of the evidence, when the view taken by the trial court was not shown to be so patently erroneous as to cause miscarriage of justice." In Banwari v. ITO [1992] 195 ITR 651 (SC), the Supreme Court has ruled by observing : "(i) that, for more than a decade, the proceedings were pending in the trial court and no useful purpose would be served by proceeding with the complaint after the lapse of such a long time the matter had become stale ; (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 276B of the Income-tax Act. P.W. 5, the Income-tax Officer, in his evidence would depose that A7- company was the income-tax assessee under his jurisdiction ; that for the year ending with June 30, 1974, in the assessment year 1975-76, A7-company filed the income-tax returns in respect of the assessment order passed on that return and the matter was pending in appeal before the Tribunal, that A5 was the managing director of A7-company and he filed A7's income-tax returns for the year ending with June 30, 1975, showing Rs. 38,497 as income-tax deducted at source and exhibit P21 is the return for the year 1975, that along with exhibit P21, A7-company also filed exhibit P22 under Form No. 19A by A1-company showing Rs. 38,497 as tax deducted at source payable on or before March 1, 1975, and the same had been paid only on August 5, 1977. Hence, the tax deducted at source was not given credit for the assessment year 1976-77 for A7-company, but given credit to only in the actual year of payment of A1-company. Similarly A5 the managing director A7-company, filed for the accounting year ending with June 30, 1976. Assessing the evidence of the prosecution witnesses 1 to 5 who were examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of Rs. 53,128 as tax deducted at source as not yet paid. Later on January 4, 1982, this witness wrote to P.W. 1's predecessors under the original of exhibit P1, requisition, requesting to look into the matter. A5 filed for the year ending with June 30, 1977, exhibit P25 income-tax returns dated December 11, 1980, claiming Rs. 1,26,045 as tax deducted at source, for other interests ; that along with exhibit P25 income-tax returns A7-company filed exhibit P26 tax deducted at source certificate, dated December 31, 1976, for Rs. 64,981 intimating that it would be paid later by A1-company. A5 also filed for the accounting year ending June 30, 1978, exhibit P27, income-tax returns, dated February 17, 1982, showing Rs. 61,628 as tax deducted at source for other interests ; that along with exhibit P27 income-tax returns, A7-company also filed exhibit P28 tax deducted at source certificate, dated December 10, 1978, intimating that this sum would be paid by A1-company that A5 also filed for the accounting year ending with June 30, 1979, exhibit P29 income-tax return dated December 15, 1982, showing Rs, 1,27,193 as tax deducted at source for other interests ; that under section 139(8) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion given under exhibit P17 is valid thus deciding point No. 5 in favour of the prosecution. Dealing with point No. 1, citing a decision of this court reported in M. R. Pratap v. V. M. Muthuramalingam, ITO [1984] 149 ITR 798, wherein it has been held that notice under section 2(35)(b) of the Income-tax Act is necessary for the managing director of a company to be treated as principal officer, to make him liable for being prosecuted for an offence under section 276B of the Act committed by the company. Further noting that there is no contra-decision available from any other quarter and in spite of objection by the other side on the ground that the said judgment was on appeal in the Supreme Court, since the trial court thought that it was still binding on it, considered the view to decide the said point and after wide discussions would ultimately arrive at the conclusion upholding the ruling of this court rendered by justice S. Natarajan (as he then was) and would end up saying that as long as section 2(35)(b) is applicable to a company, introduction of section 278B does not alter the position to get out of the said ruling in respect of an offence under section 276B and thus decidi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of P.W. 5 in this regard is not clear. There is not even an allegation of conspiracy or attempt to cheat. It is not only the interest under section 201(1A) for delayed remittance of tax deducted at source had been given credit in respect of A7 company's assessment only during the years when tax deducted at source amounts were paid, but not in the years when the interest was shown in the income-tax return of A7-company, which is made clear in the evidence of P.W. 5. Hence, the tax deducted at source amount with A1 and A7 was not given credit till the actual payment of tax deducted at source by A1-company and hence in the opinion of the trial court the ingredients of section 420 of the Indian Penal Code could not be appreciated at all either against A1 to A5 or against A7-company and that at best it would be temporary misappropriation by A1-company falling under section 409 of the Indian Penal Code. But there is no allegation or evidence to that effect. Hence, the trial court had concluded that A1 to A5 joining hands with A7 attempted to cheat the Income-tax Department for levying section 201(1A) interest or even penalty due to tax deducted at source under section 221 for the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the suspicion against the accused, if every reasonable possibility of innocence has not been excluded, he is entitled to acquittal. Whenever circumstances arise, they must be proved and not by themselves presumed. No single item of evidence can be singled out and given prominence nor the accused's theory of the case can be withdrawn from consideration. What constitutes failure or causing delay or evasion in the payment of income-tax is a question of law whether on evidence the particular crime has been committed is a question of fact. If, therefore, the evidence regarding either failure or causing delay or evasion in payment of the income-tax leaves room for doubt and does not displace the presence of innocence wholly, the charge cannot be said to have been established. Only because innocent and honest Government servants should not be made scapegoats on baseless and make-believe allegations or charges of the prosecuting officials to make out a case for reasons many, the law as laid down by various judicial pronouncements requires strong corroborative evidence that could be gathered either from oral or documentary evidence or even from the circumstances encircling the whole case. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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