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

• . IN THE HIGH COURT OF DELHI: NEW DELHI + CRL. A. No.110/2011 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. 109/2011. A.K. PATHAK, J. FEBRUARY 08, 2011 rb ITN THE lHiliGH COUJR'll' Oll·''' NEW' DEiLlBili <CRJL. A. No.109/2(Q)1JL,CRJL. A. No.110/2011L CRJL. A. No. :11. JL JL /201 JL ,CRJL • .A. No. JL 12/201 Jl CRJL. A. No. :ll. 13/2(Q) Jl.l,CJFU ... .A. N o.114/20 Ul <CRJL. A. No.115/2(Q)11,ClFU ... A •. No.116/20ll.Jl CRL. A. N<OJ. 1 JL 7/2011\. + % Judgment delivered on 8th February, 2011 INCOME TAX OFFICER ..... APPELLANT Through: Mr. Sanjeev Rajpal, Adv. Versus M/s. DELHI IRON WORKS (PVT.) LTD. ..... RESPONDENT Through: Ex-parte <COJ!ra!DS!l lHIOW9lBlLE IVKR . ..JJUS'rRCE A.K. JPlATJHL&lK 1. Whether the Reporters 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. All the above Appeals are being disposed of together as not o!:lly the facts, bnt qnestion of law raised therein is same . Cri..C\. 1\lo. 109/2011 2. Respondent is a private limited company. Appellant filed nine complaints before the Additional Chief MetTopolitan M2.gistrate (ACMM) praying therein that the respondent be · summoned, tried cul.d punished for the offence under Section 276-B of the Income Tax Act, 1961 (for short hereinafter · ref<erred to as "the Act"). Shri R.K. Das ru1.d Shri S.K. Das, Directors of the respondent were also arrayed as accused on the allegation that ibey being "Principal Officers" of the respondent were also liable to deduct and deposit the tax from the i..""lterest paid to different companies. In nutshell, it •,va.s 2.Jleged that the respondent and its Principal Officers had failed to deduct the tax at source (TDS) from the interest paid to l\/1/s. Bhanamal & Co. (P) Ltd., M/s. Bac'l.wcu-i Lal & Sons (P) Ltd. and M/s. Bhanamal Gulzari Mal (P) Ltd., and deposit the same -:.;vith the Income Department, vvithin the prescribed period, tl.tus, had committed offence punishable under Section 276-B of the Act. 3. Alter the trial, respondent had been convicted under Section .276-B of the Act by the ACMM jn all the cases. Shri R. K. Das exp:U-ed during the trial and proceedings aga:iJ.1.st 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 tb.e 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 launchirtg the prosecution under Section 276-B of the Act, he cannot be convicted. 4. Respondent preferred Criminal Appec:us before the Additional Sessions Judge, Delhi thereby challenging its conviction under Section. 276-B of the Act, which have been allowed by the orders impugned m 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 eof I·espondent was held responsible for deduction of 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, :respondent has been a.cquitted. 5. For the reasons to be detailed hereafter, I arn of the vie\:v that Additional Sessions Judge wa3 not right in acquitting the merely because its Director Shri S.K Das had been acquitted by the Trial Court on the ground of non ccrnp licu!.ce of Section 2(:35) of the /'...ct. ,p; 0. At this stage, relevant it would. be to to Section 194-A of the Act \1\Thich reads as under: 194-A of the Act \1\Thich reads as under: 5. For the reasons to be detailed hereafter, I arn of the vie\:v that Additional Sessions Judge wa3 not right in acquitting the merely because its Director Shri S.K Das had been acquitted by the Trial Court on the ground of non ccrnp licu!.ce of Section 2(:35) of the /'...ct. ,p; 0. At this stage, relevant it would. be to to Section 194-A of the Act \1\Thich reads as under: 194-A of the Act \1\Thich reads as under: "]. 94-A. h:n.\tere:s\1: <OJtlh!err \l:ha.n 66hll.\J:,eres1l: omt ;;;ecull"ll.Hes".-(1)Any person, not being an individual :::>r a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income {by way of interest on securities}, shall at the time of credit of such income to the 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 eru-lier, deduct income-tax thereon at the rates in force: Provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monet:rry limits specified under clause (a) or clause (b) of section 44AB during the financial year im . .mediately the financial yeru- i...'l. which such interest is Cl-edited or paid, shall be liable to deduct income-tax under this section. Explanation.-For the purposes of Uus section, where ru1.y 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, li1 the books of account of the person liable to pay such n1.come, sucb crediting shall be deemed to be credit of such income to the accou1l.t of the payee and the prov1sions of this section shall apply accordingly. ( 3) XX.XX:XXXXXXX..r'CY..X ( 4) The person responsible for making the payrnent referred to in sub-section (1) may, at the time of making any deduction, increase or the .amount to be deducted under this section for the purpose of adjusting any excess or deficiency c-:tTising outof any previou::> deduction or failure to deduct during the financial yeru-." 7. A perusal of the aforesaid provision cleru"ly shows that it mandates the deduction of tax at source on the credit or payment of interest other than "it:terest on securities". Section 1S'4-A (4) uses the expression "person responsible for makb."Lg the 8. Chapter XXII of the' Act relates to offences and prosecutions. A.ny 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 source.-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 of Chapter XVII-B, he shall be punishable rigorous imprisonment for a term which shall not ·be less than three months but which may extend to seven yeaxs and with fine.': 9. Section 278- B covered cases where offences were committed by ComparLies. The section reads as under:- "278-B. Offt:':nces by companies.-( 1) Where an offence under tbis Act has been committed by a company, every person \vho, at the t.im.e the offence was committed, was L"l. charge of, and was responsible to, the company for t..'l.e conduct of the b1..1 siness of the company as well as the company shall be C'.eemed to be guilty of the offence and shall be liable to be proceeded against a11.d punished accordingly: Provided that nothing contamed in this sub-section shaJ;i render any such person liable to any punishment if he proves that the offence vvas committed without his 1mowledge or that he had exercised an due diligence to prevent the commission of such ·offence. · (emphasis supplied) 10.. The expression ''person responsible for paying" has been defined in Section 204 of the Act, which reads <'lS under:- "Section 204: Meaning of ''Person responsible for paying"-. Provided that nothing contamed in this sub-section shaJ;i render any such person liable to any punishment if he proves that the offence vvas committed without his 1mowledge or that he had exercised an due diligence to prevent the commission of such ·offence. · (emphasis supplied) 10.. The expression ''person responsible for paying" has been defined in Section 204 of the Act, which reads <'lS under:- "Section 204: Meaning of ''Person responsible for paying"-. For the purposes of sections 192 to 19 4, section 194A, section 194B, section l94BB, section 19 4C, section 19 4 D, section 19 4 E, section 194EE, section 194-F, section 194G,. section 194H, section 194-I, section 194J and section 194K, 194L sections 195 to 203 <md section 285, the expression ''person respop.sible for paying" means - (i) In the case of payment of :income chargeable under the head "Salaries" other than payments by the Central Gove1nment or the Government of a State, the employer himself or, jf the employer is a company, 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 aJ.'lY sum payable to a non-resident Indian, being any sum Cri.A. No. 109/2011 ··'; ·.· representing consideration for the· transfer by him of any foreign exchange asset, which is not a short-term capital asset, the c:tuthorised dealer responsible for remitting E;uch sum to the non-resident IndiaJ"l or for crediting such sum to .his Non-resident (External) Account maintained m c:Lccordance with the Foreign Exchange Eegulation Act, 1973 (46 of 1973), and any rules made thereunder; (iii) In the case of credit, or, as the case n1.ay be, payment of any othe::-sum chargeable under the provisions of this Act, the payer himself, or, if the payer is a company, the company itself including the 12rincipal officer thereof." (emphasis supplied) ll. A conjoint reading of Sections 194-A (4) and 204(iii) of the Act rnakes it clear that in case of a comprul.y, the company itself, including the "Principal Officer" of the company would be responsible to deduct the tax at source aJ."ld. deposit the same with the department. In case of contravention of Section 194-A company itself besides it "Principal Officer" would be liable for prosecution. 12. 2(35) of the Act defines "Principal Officer". The Secretc:uy, Manager, Treasurer or Agent of a company <ue "Principal Officer" in terms of Section 2(35)(a) of the Act. Apart from therri, any other person connected with the management or administration of a company to whom notice is served by the assessing officer treating him as the Cri.A. No. 109/2011 Page 7 of 10 "Principa1 Officer" would also fall "vi thin the am bit 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 the company for an offence punishable under Section 276-B of the Act, then he has to 1ssue a ;:wtice under Section 2(35)(b) of the Act to such Director expressing 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 1iVithout issl.:i.ing any notice under Section 2(35) of the Act. Even in the notice issued to the company it was not mentioned that the department intended to treat Shri S.K. Das as "Prin.cipal Officer" of the company. Only for this res.son, Shri S.K. Das had been acquitted treating the notice issued to the compruJ.y as de£ective qua Shri S.K. Das. That vcroulcl not mean. that respondent could ;:tlso have been acq-t.:(itted. 14. A company 1s not a natural person but "legal" or "j·tlristic" person. But that would not mean t..l-J.at it is not liabk: to prosecution under the Act. In Sb:11.nrllard Ch.:alt""li:el!ecl 13. In this case, Director Sh. S.K. Das was arrayed as an accused in the capacity of "Principal Officer" of the company but 1iVithout issl.:i.ing any notice under Section 2(35) of the Act. Even in the notice issued to the company it was not mentioned that the department intended to treat Shri S.K. Das as "Prin.cipal Officer" of the company. Only for this res.son, Shri S.K. Das had been acquitted treating the notice issued to the compruJ.y as de£ective qua Shri S.K. Das. That vcroulcl not mean. that respondent could ;:tlso have been acq-t.:(itted. 14. A company 1s not a natural person but "legal" or "j·tlristic" person. But that would not mean t..l-J.at it is not liabk: to prosecution under the Act. In Sb:11.nrllard Ch.:alt""li:el!ecl Supreme Court held that juristic person is also subject to cri:.mi_nal liability under the relevant law. Only thing is that in case of substantive sentence, the order is not enforceable and juristic person cru1.not be ordered to suffer imprisonment. Other consequences, however, would ensue, that is, payment of fine etc: Accordingly, in my view Additional Sessions Judge was not right in holding that since 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 ((h·cea:ftw:ay l[lP} [/i\:d. & Or.s. Vs. AssU. CK'r [Jl993] Jl99 Punjab & Hru·ya.na High Court has held that in the absence of appoi.n.tment . of a "Princi-pal . Officer" by issuin.g a notice by the department, the prosecution, if any, could only be launched against the company. 16. For the foregoing reasons, I am of the v1ew that Additional Sessions Judge has committed 8Il illegality by holding that respondent company was entitled to acquittal for the offence punishable under Section 276-B of the Act since its Director Sb.ri 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 axe restored. 17. Appeals are disposed of i.n the above terms. IF'El83RUARY (())8, 2(())1 J!. rb •