Income Tax Officer v. Mjs. Delhi Iron Works (Pvt.) Ltd

( ... IN THE HIGH COURT OF DELHI: NEW DELHI CRL. A. No.115/2011 + 0/o Judgment delivered on 8th February, 2011 INCOME TAX OFFICER ..... APPELLANT Through: Mr. Sanjeev Rajpal, Adv. Versus Mjs. DELHI IRON WORKS (PVT.) LTD. . .... RESPONDENT Through: Ex-parte A.K. PATHAK, J.(ORAL) For orders see Crl. A. No. 109 I 20 11. A.K. PATHAK, J. FEBRUARY 08, 2011 rb • EN THJE IHiliGH COUJRT OF NEW DElLIBili <CRIL. Pl. No.H})9j2(Q)lJl.9[<CJRL. ][A. ][No.110/201JL ]CRIL. A. No.:ll.Jl.1/2«Jl1Jl. 9<CRJL. A. No.112/20Ul CRIL. A. No.Jl.13/2«Jl119[<CRL ][A. ][No.114/201Jl. ]<CRIL. A. No.l15/2«Jl119[<ClR1L. ] [•. ][No.116/210l1 ] CCRL. A. N c. JL 1 7/21Ql11 Judgment delivered on 8th February, 2011 INCOME TAX ..... APPELLANT Through: Mr. Sanjeev Rajpal, Adv. · Versus M/s. DELHI IRON WORKS (PVT.) LTD. . .... RESPONDENT Through: Ex-parte lHI<CH\FlELE lW!R. JJUSTKICE JLK. lPATlHIAlK 1. Whether the of local papers No , may be allo·wed to see the judgment? , may be allo·wed to see the judgment? 2. To be referred to Reporter or not? No 3. Whether the judgment should be reported in the Digest? reported in the Digest? Yes 1. 1'\ll the above Appeals are being disposed of together as not only the facts, bnt qnestion c;flaw r2ised therein is same. 2. Respondent is a private limited company. Appellant filed nine complaints before the Additional Chief Metropolitan M2,gistrate (ACMM) praying therein that the respondent be summoned, tried and punished for the offence under Section 276-B of the Income Tax Act, 1961 (for short herein.after referred to as "the Act"). Shri R.K. Das and Shri S.K. Das, Directors of the respondent were also arrayed as accused on the allegation that i11ey being "Principal Officers" of the respondent \rtrere also liable to deduct and deposit the tax from the interest paid to different companies. In nutshell, it T"vas pJ.leged that the respondent and its Principal Officers had failed to deduct the tax at source (TDS) from the :U1.terest paid to JVIjs. Bhanmnal & Co. (P) Ltd., M/s. Ba.."'l.wari Lal & Sons (P) Ltd. m1.d M/s. Bhanamal Gu1zari Mal (P/ Ltd., n.nd deposit the same \vith the Income Department, vvithin the prescribed period, thus, had committed offence punishable under Section 276-B of the Act. 3. Mter the trial, respondent had been convicted under Section 276-B of the Act by the ACMM in all the cases. Shri R.K. Das exp:U-ed during the trial and proceed:irtgs against him stood abated. So far as Shri S.K. Das is concerned, he was acquitted on the technical ground of non- compliance of Section 2{35) of the Act. It was held that since no notice as Cri.J\. No. 109/2011 Page 2 of 10 envisaged under Section 2 (35) of the Act treating him as "Principal Officer" had been served upon ·him for launching the prosecution under Section 276-B of the Act, he cannot be convicted. 4. Respondent preferred Criminal Appeals before the Additional Sessions Judge, Delhi thereby challenging· its conviction under Sect:io11. 276-B of the Act:, which have been ellowed by the orders impugned 1n these Appeals. Respondent has been acquitted of the charge under Section 276-B of the Act on the ground that since notices qua the Director had been held defective, respor..dent can also not be convicted. It was further held that since no Individual Officer c•f respondent was held responsible for deduction of the tax and its deposit with the department within the prescribed period, respondent being a legal entity managed by its officers cannot be held responsible, consequently, :r-espondent has been. acquitted. 5. For the reasons to be detailed hereafter, I am of the view that Additional Sessions Judge was not right in acquitting the merely because its Director Shri S.K. Das had been acquitted by the Trial Court on the gro Lmd of non CGJTlplia.r,ce of Section 2(:3S) of the .!\ct. .. (})'o 6. At this stage, relevant it would be to to Section 194-A of the Act 'Which reads as under: 5. For the reasons to be detailed hereafter, I am of the view that Additional Sessions Judge was not right in acquitting the merely because its Director Shri S.K. Das had been acquitted by the Trial Court on the gro Lmd of non CGJTlplia.r,ce of Section 2(:3S) of the .!\ct. .. (})'o 6. At this stage, relevant it would be to to Section 194-A of the Act 'Which reads as under: "]. 94-A, <O>tlffie!!' \l:lhmn "[6]lln\t,eres\i: <OJmt :;;ec1L11.riitiices" .-( l)Any person, not being 811. individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of ::.nterest other than income {by way of interest on securities}, shall at the time of credit of such income to tb.e account of the payee or at the time of payment thereof in cash or y issue of a cheque or draft or by any other mode, whichever is earlier, dedu.ct income-tax thereon at the rates in force: Provided that an indivjdual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetD.ry limits specified under clause (a) or clause (b) of section 44AB during the financial year im.mediately the financial yeru· in which such interest is credited or paid, shall be liable to deduct income-tax under this section. Explanation.-Fo,· the purposes of this section, where any income by way of interest as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account'! or by any other name, in the books of account of the person liable to pa:y suc:h income, such crediting shall be deemed to be credit of sucb income to the accou1l.t of the payee and the provisions of this section shall appJy accordingly. (3) XX.XX.L'U{XXXXXXX.X (4) The person responsible for making the payn1ent referred to in sub-section (1) may, at the time of mal<"Jng any deduction, increase or Teduce Lhe amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to cledu ct duril1.g the financial yeru·." 7. A perusal of the aforesaid provision clearly shows that it mandates the deduction of tax at source o:n the credit or payment of interest other than ":interest on securities". Section 194-A (4) uses the expression "person responsible for ma.king the payment". 8. Chapter XXII of the.· Act relates to offences and prosecutions. A.11.y contravention of Section 194-A attracts penal consequences as envisaged under Section 276-B of the Act which reads as under:- "276-B. Failure to pay the tax deducted at SOlHCe.- If a person fails to pay to the credit of the Central Government, the tax deducted at source by him as required by or under the provisions of Chapter XVII-B, he shall be punishable \1ilith rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years ·and with fine." ,9. ,9. Section 278- B covered cases ·where offences were committed by Companies. The section reads as under:- "278-B. Off«:nces by companies.-( 1) Where em offence under this Act has been committed by a company, every person who, c:tt the tim.e the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company sJ:laU be deemed to be guilty of the offence and shall be liable to be proceeded against m1d punished accordingly: • Provided that ;nothing contained in this sub-section shaJ;l render any sucb person :liable to any punishment j£ he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such 01rence. .r::r ( 2) xxx.,-v,.xxy,x_x:xxxx:.xxx.Y:JO{X" (emphasis supplied) 10.. The expression ''person responsible for paying" has been defined in Section 204 of the Act, which reads as under:- ''Section 204: Meaning of ''Person responsible for paying"- • Provided that ;nothing contained in this sub-section shaJ;l render any sucb person :liable to any punishment j£ he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such 01rence. .r::r ( 2) xxx.,-v,.xxy,x_x:xxxx:.xxx.Y:JO{X" (emphasis supplied) 10.. The expression ''person responsible for paying" has been defined in Section 204 of the Act, which reads as under:- ''Section 204: Meaning of ''Person responsible for paying"- :-=<'or the purposes of sections 192 to 194, section 194A, section 194B, section l94BB, section 194C, section 194D, section 194E, section 194EE, section 194F, section 194G, section 194H, section 194-l, section 194J and section 194K, 1941 sections 195 to 203 and section 285, the expression "person responsible for paying" means - (i) In the case of payment of :income chargeable under the head "Salaries" other than payments by the Central Government or the Government of a State, the employer l1.imseJi or, li the employer is a compa....ny, the company itself, including the principal officer thereof; (ii) In the case of payments of income chargeable under the head "Interest on securities" ot_h.er than payments made by or on behalf of the Central Government or the Government of a State; the local authority, corporation or company, including the principal officer thereof; (iia) In the case of any sum payable to a non-residem: Indian, being any sum Cri.A. No. 109/2011 1·epresenting consideration for the· tran.sfer by him of any foreign exchange asset, which is not a short-term capital asset, the authorised dealer responsible for remitting such sum to the non-resident Indian or for crediting such sum to his Non-resident (External) Account maintained m accordance with the Foreign Exchange Regulation Act, 197 3 ( 46 of 197 3), and any rules made there under; (iii) In the case of credit, or, as the case rnay be, payment of any othe:c· 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." (emphasis supplied) 11. A conjoint reading of Sections 194-A (4) and 204(iii) of the Act r.nakes it clear that in case of a company, the compan.y itself, including the "Principc:J Officer" of the cornpan.y vvould be responsible to deduct the tax at source an_d deposit the same with the department. In case of contravention of Section 194-A company itself besides it "Principal Officer" wouicl be liable for prosGcution. 12. Section 2(35) of the Act defines "Principal Officer". The· Secrets..ry, Manager,. Treasurer or Agent of a company are "Principal Officer" in terms of Section 2(35)(a) of the Act.. Apart from them, any other person connected with the management or adr..::Lin:istration of a compml.y to whom notice is served by the assessing officer treating him as the Cri.A. 1\Jo. 109/2011 Page 7 of 10 "Principal Officer" ·would also fall within the ambit of definition of "Principal Officer" in view of Section 2(35)(b) of the Act. Thus, if the Income Tax Officer seeks to prosecute the Director along with thi6 company for an offence punishable under Section 276-B of the Act, then he has to 1s;sue a notice under Section 2(35)(b) of the Act to such Director expressrr.Lg his i..ntention to treat him as "Principal Officer" of the company. 13. In this case, Director Sh. S.K. Das was arrayed as an accused in the capacity of "Principal Officer" of the company but iss1..1.ing c=my notice under Section 2(35) of the Act. Even ill the notice issued to the com parry it was not mentioned that the department intended to treat Shri S.K. Das as "Pr:iJ.1.cipal Officer" of the company. Onlv for this re:sson, Shri S.K. Das had been acquitted treating the notice issued to the compaJJ.y as defective qua Shri S.K. Das. That would not mean. that respondent could ;:t.lso have been acquitted. 13. In this case, Director Sh. S.K. Das was arrayed as an accused in the capacity of "Principal Officer" of the company but iss1..1.ing c=my notice under Section 2(35) of the Act. Even ill the notice issued to the com parry it was not mentioned that the department intended to treat Shri S.K. Das as "Pr:iJ.1.cipal Officer" of the company. Onlv for this re:sson, Shri S.K. Das had been acquitted treating the notice issued to the compaJJ.y as defective qua Shri S.K. Das. That would not mean. that respondent could ;:t.lso have been acquitted. 14. A company 1s not a natural person but "legal" or "juristic" person. But that would not mean t..l-J.at it is not liabk to prosecution under the Act. In Standl.ard. Charte:!l"ecl JBl;81.n]q; vs. Directorate COif Enforcement 8 SCC 53{)J, Supreme Court held that juristic person is also subject to criminal liability under the relevant law.· Only thing is that in case of substantive sentence, the order is not enforceable and juristic person cru.'lnot be ordered to suffer imprisonment. Other consequences, however, would ensue, that is, payment of fine etc. Accordingly, in my view Additional Sessions Judge 'Nas not right in holding that s:ince Director of the company had been acquitted for non-service of notice under Section 2{35) of the Act, respondent was also entitled to acquittal. 15. In G:rea1t:way L'il:d. & Or.s. Vs. AssH. CliT [1l993] Jl.99 391f!P&lHrL Punjab & Hru.·yana High Court has held that in the absence of appointment of a "Principal Officer" by issuin.g a notice by the depru.·tment, the prosecution, if any, could only be launched against the company. 16. For the foregoing reasons, I am of the view that Additional Sessions Judge has committed an illegality by holding that respondent company was entitled to acquittal for the offence punishable under Section 276-B of the Act since its Director Shri S.K. Das had been acquitted for non-compliance of notice under Section 2(35) of the Act. Impugned order is set aside and the orders of conviction and sentence passed by the ACMM-02 (North) Dellii are restored.