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TMI Blog2008 (9) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned Metropolitan Magistrate ( MM ), New Delhi seek the quashing of the said complaint and all proceedings consequent thereto. The two petitioners are K.C.Palaniswamy and R.Karunanithi. The petitions by two other accused, R.Athappan and Gopinath Athapppan, stood withdrawn by them in terms of the order dated 21st February 2006 passed by this Court. The cause title of the present case accordingly reflects this change. 2. The aforementioned complaint was filed by Kamal Khanna, Income Tax Officer (ITO), Ward 49 (4), New Delhi against Data Access (India) Limited ( Company ) [arrayed as Accused No.16] and 16 other persons who were described as Directors or Senior Officers of the said Company. This complaint was filed under Section 279 B read with Section 279 of the Income Tax Act, 1961 ( IT Act ) for the financial year 2003-04 and 2004-05. The allegation in the complaint was that a survey operation under Section 133A IT Act was carried out in the business premises of the Company on 16th September 2004 and the books of accounts of the Company for the period 2003-04 onwards were examined. It was found that for the financial year 2003-04, the Company had deducted tax at source und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed Form 32 with the Registrar of Companies ( ROC ) on November 1, 2004 He further stated: When the new management took over the management and financial control of the company, there was full disclosure of all liabilities of the company as to June 30, 2004 including statutory liabilities. After taking the management and financial control of the company the new management, led by Mr. K.C. Palanisamy, Managing Director engaged themselves in acts of diversion of funds of the company away from the company for their personal gains. 5. Thereafter the ITO filed the aforementioned criminal complaint CC No 444 of 2005 in the Court of the learned MM, New Delhi on 30th March 2005 setting out the aforementioned details. The complaint further alleged that there was no satisfactory explanation why the accused did not deposit the TDS deducted during the financial years 2003-04 and 2004-05. It was therefore prayed that they should be prosecuted and punished for the offence in terms of Section 276B read with Section 279 IT Act. Summons was issued by the learned MM to the 18 accused persons including the petitioners. Thereafter the present petition seeking the quashing of the complaint was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able for any offence committed during the financial year 2003-2004 As regards the period 1st April till 30th November 2004, since admittedly the demand had not been raised, the prosecution of the petitioners for that period was premature. In any event it way beyond the scope of the present complaint which was filed on 30th March 2005 even before the close of the year 2004-2005. 8. It is submitted one other co-accused in the same criminal complaint, Chandran Ratnaswamy, had filed Criminal Appeal No. 782 of 2006 in the Supreme Court. The following order was passed by the Supreme Court on 21st July 2006 allowing the said appeal: Mr. Mohan Parasaran, learned Additional Solicitor General, appearing for the Revenue, candidly and fairly states that in the complaint filed against the appellant under Section 276-B read with Section 279 of the Income Tax Act before the Additional Chief Metropolitan Magistrate, Delhi (Complaint No. 440 of 2005), no allegations have been made against the appellant. In fact, para 9 of the complaint sets out the names of certain persons who continued to be in management of the Company until 29th October 2004 The appellant is not one of those persons named. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic averment in the entire complaint in respect of R.Karunanithi, the Petitioner No.4 The complaint only makes allegations against the accused collectively and therefore is vague and general. Clearly, not even a prima facie case is made out against Petitioner No.4 R.Karunanithi. 12. As regards the Petitioner No.2 K.C. Palaniswamy reference is made to the quotation from the letter dated 18th January 2005 written by Siddhartha Ray, the co-accused in the matter, which states that the new management led by K.C. Palaniswamy had diverted the funds of the Company for their personal gains. The said line is does not in any way remotely suggest anything about the non- deduction of the TDS or the non-remittance by the Company of the TDS deducted. It does not attribute anything specific in that regard to K.C.Palaniswamy. Therefore the complaint when read as a whole does not bring out a prima facie case even against K.C. Palaniswamy. 13. Section 278 (B) IT Act which is invoked to fasten liability on the petitioners reads as under: Section 278 B Offences by Companies. 1) Where an offence under this Act has been committed by a company, every person who, at the time the offence was committe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e identically worded Section 278 B IT Act as well. The complaint in the instant case when examined in light of the decision in Neeta Bhalla clearly does not meet the requirement of the law. 16. The main submission advanced by Mr. Jolly is that the offence for the purposes of Section 201 (1) and Section 201 (1A) IT Act read with Section 278 B is a continuing one and therefore even at the time the petitioners were directors, the offence continued and therefore they would be liable along with the Company. For the reason explained hereafter, this Court does not find merit in this submission. In the first place, nowhere does the complaint suggest that the offence is a continuing one as is sought to be contended now by the learned Senior Standing Counsel for the Department. 17.1 Secondly, and more importantly, given the fact that Section 278 B is a penal provision, it is required to be strictly construed. That provision itself does not state that the offence could be a continuing one. On the other hand the language of the provision indicates to the contrary. It states, Where an offence under this Act has been committed by a company, every person who, at the time the offence was commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lete on the owner failing to furnish the annual returns by that day. The Regulation does not lay down that the owner, manager etc. of the mine concerned would be guilty of an offence if he continues to carry on the mine without furnishing the returns or that the offence continues until the requirement of Regulation 3 is complied with. In other words, Regulation 3 does not render a continued disobedience or non-compliance of it an offence. As in the case of a construction of a wall in violation of a rule of a bye-law of a local body, the offence would be complete once and for all as soon as such construction is made, a default occurs in furnishing the returns by the prescribed date. There is nothing in Regulation 3 or in any other provision in the Act or the Regulations which renders the continued non-compliance an offence until its requirement is carried out. 17.4 It must be pointed out that in a subsequent decision Bhagirath Kanoria v. State of M.P., (1984) 4 SCC 222 where a question arose whether the failure to pay the employer s contribution of provident fund was a continuing one, the Supreme Court answered it in the affirmative by holding (SCC, p.228): The question whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose in both cases was in the context of limitation, which is not an issue in the present case. In the considered view of this Court, even assuming that the concept of a continuing offence, which is usually invoked for the purposes of limitation, is extended ipso facto to fasten liability, it can at best apply to the company in respect of which the offence is continuing and not to its Directors who may come on to the Board of the company subsequent to the commission of the offence by the company. This is also indicated from the language of Section 278 B (1) IT Act which uses the past tense when it talks of every person who, at the time the offence was committed, was in charge of, and was responsible to, the company The petitioners were not the directors of the Company for the financial year ending 31st March 2004 for which alone the demand has been raised. Therefore they cannot be made liable for the offence by the Company for that year. As regards the subsequent period 2004-2005, since no demand had been raised at the time of filing the complaint, there was no question of commission of any offence for such period. 19. In view of the aforementioned reasons, this Court is satisfied ..... X X X X Extracts X X X X X X X X Extracts X X X X
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