Bangalore District Court
The Income Tax Officer vs M/S. Panacea Hospital Pvt on 16 October, 2021
1 CC.No.87/2019
BEFORE THE SPECIAL COURT FOR ECONOMIC
OFFENCES: AT BANGALORE.
Dated this the 16th day of October 2021.
:Present:
Smt.Preeth J., B.A.(L)., LL.B.,
Presiding Officer, Special Court
For Economic Offences, Bangalore.
CC. No. 87/2019.
Complainant: The Income Tax Officer,
Income Tax Department, Ward-2(3),
HMT Bhavan, Bellary Road, Bangalore.
[(By Sri. S.S.H., Advocate (Spl.P.P)]
. Vs.
Accused: 1. M/s. Panacea Hospital Pvt., Ltd.,
No.334, 3rd Stage, 3rd Floor,
Dr. Siddaiah Puranik Road,
Basaveshwaranagar, Bangalore.
(A company registered under Companies
Act, rep. by its Mg. Director - A.2)
2. Dr. C. Jayanna, Managing Director,
M/s. Panacea Hospital Pvt., Ltd.,
No.334, 3rd Stage, 3rd Floor,
Dr. Siddaiah Puranik Road,
Basaveshwaranagar, Bangalore.
(By Sri.S.A. Advocate)
JUDGMENT
1. The complainant is under section 200 of Cr.P.C.
alleging that the Accused No.1 committed the offence punishable under section 276B of the Income Tax Act, 2 CC.No.87/2019 1961 (Herein after referred as "the Act") and the Accused No.2 being the Managing Director vicariously liable for the offence committed by the Accused No.1 by virtue of Section 278B of the Act.
2. The case of the complainant is that the Accused No.1 is a company, running multi specialty hospital services and Cardiology, Neurology, Neurosurgery, Nephrology, Urology and Surgical Oncology services etc., On perusal of the TDS returns submitted for the Financial Year 2016-17, revealed that the Accused No.1 had not remitted the TDS deducted on various heads to the Government Account within the stipulated period of time under Rule 30 of the Income Tax Rules. It is averred that the Accused No.1 deducted TDS on Rs.1,07,53,899/- on various heads of payments. The Accused No.1 is irregular in remitting the TDS to Government Account. The default for the Financial Years 2010-11 and 2011-12 were compounded. On perusal of traces available in online portal disclosed that the Accused No.1 is still in outstanding of Rs.44,17,180/- pertaining to the Financial Year 2012-2013 to 2016-17. For this default, notice under section 2(35) of the Act came to 3 CC.No.87/2019 be issued to the Accused No.2 by treating him as the Principal Officer of the Accused No.1 company. The Accused No.2 sent the reply dated: 08-05-2018 stating that delay in remittance of TDS was due to financial crisis. The Commissioner of Income Tax afforded opportunity of hearing to the accused. for which the accused referred to its reply dated:25-05-2018. The Prl. Commissioner of Income Tax (TDS) after going through the materials on record and submissions of accused passed the sanction order authorizing the complainant to file the complaint and accordingly, the complaint is filed. It is averred that Accused No.1 without justifiable reasons failed to remit the deducted TDS within the stipulated time. Accused No.2 being in charge of and responsible of day today affairs of Accused No.1, hence liable for the offence committed by it.
3. On presentation of the complaint, cognizance was taken and the case was registered against the Accused No.1 and 2 for the offence punishable under section 276B, r/w section 278B of the Act.
4. In response to the summons, the Accused No.2 appeared through his counsel and is enlarged on bail. 4 CC.No.87/2019 Copies of the complaint and other documents were furnished to him. Thereafter, the evidence before charge was recorded as required under section 244 of the Cr.P.C. Later after hearing the learned Spl. P. P. and Accused, the charge was framed against the Accused No.1 and 2 for the offence punishable under section 276B of the Act and read over the same to Accused No.2. The Accused No.2 for himself and also on behalf of the Accused No.1 pleaded not guilty and claimed to be tried.
5. To prove the charge leveled against the Accused, the complainant examined one witness as PW.01 and got marked documents as Ex.P.01 to 13.
6. After closure of complainant's side evidence, the statement as provided under section 313 of Cr.P.C was recorded. The Accused No.2 denied incriminatory evidence found against him and Accused No.1. The Accused No.2 got himself examined as D.w.1 and got exhibited the documents marked as Ex.D.01 to 12.
7. Heard the arguments of the learned counsels of the complainant and Accused person. Perused the complaint 5 CC.No.87/2019 and the evidence on record. The points that arise for my consideration are:
Point No.1: Whether the complainant has proved that Accused No.1 deducted the tax of Rs.1,07,53,899/- at source for the Financial Year 2016-17, but did not remit that amount within the time stipulated under Rule 30 of the Income Tax Rules and thereby committed the offence punishable under section 276B of the Act?
Point No.2: Whether the complainant has proved that the Accused No.2 was in charge and responsible to Accused No.1 for the conduct of its business, thus liable for the offence committed by the accused No.1?
Point No.3: What order?
8. My findings on the above said points are as under:
Point No.1: In the Affirmative, Point No.2: In the Negative, Point No.3: As per the Final orders for the following:
REASONS
9. Point No.1: Section 276B of the Act says that if any 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, then, it is punishable. Lrd 6 CC.No.87/2019 counsel for the Accused argued that the offence under section 276B of the Act gets attracted only if the deducted TDS was not remitted. Here the TDS was remitted, hence the said provision does not attract. Lrd counsel argued that penal provisions have to be strictly construed and in case of two views, the one which favouring the Accused has to be accepted. Lrd counsel referred various provisions of the Act which is having the phrase 'within the time prescribed' to strengthen the argument that non-use of such phrase in section 276B of the Act means that if deducted TDS with interest paid, then that provision does not attract. It is argued that no time limit is provided in section 276B of the Act to remit the deducted TDS. In support of his argument that penal provision has to be interpreted strictly, Lrd counsel relied upon the rulings rendered by the Hon'ble Apex Court, in the case of Commissioner of Income Tax Vs. Tara Agencies, reported in (2007) 162 Taxman 337 (SC), wherein, at Para No.62, it has been held that "the intention of the legislature has to be gathered from the language used in the statute which means that attention should be paid to what has been said as also to what has not been said." In the case of Income Tax Officer Vs. 7 CC.No.87/2019 A.V.Thomas and Company, reported in (1986) 160 ITR 818 (Ker.), in which the Kerala High Court referred various rulings wherein, it has been held that "provisions of a taxing statute must be construed according to the ordinary and natural meaning of the language used." In the case of State of A.P., Vs. Nagoti Venkataramana, reported in (1996) 6 SCC 409, wherein at Para No.9, it has been held that "in the interpretation of penal provisions, strict construction is required to be adopted and if any real doubt arises, necessarily the reasonable benefit of doubt would be extended to the Accused." In the case of Collector of Central Excise, Ahmedabad, Vs. Orient Fabrics (P) Ltd., reported in (2004) 1 SCC 597, wherein, it has been held that "a penal statute has to be strictly construed."
10. Lrd. Counsel for the Accused argued that Rule 30(2) of the Income Tax Rules is meant for calculation of interest under section 201(1A) of the Act and is not applicable to the initiation of proceedings under section 276B of the Act. Lrd counsel referred the guidelines and the circulars issued by the Board and argued that the guidelines fortifies that the prescribed time for payment of TDS is not applicable to 8 CC.No.87/2019 the provisions of section 276B of the Act. It is argued that the rigour of section 276B of the Act attracts only upon failure to pay and not for the delay in remittance of deducted TDS. By relying on ruling of the Hon'ble Apex Court, rendered in the case of Commissioner of Income, West Bengal, Vs. Vegetable Products Ltd., reported in (1973) 88 ITR 192 (SC) and Commissioner of Income Tax, Punjab Vs. Kulu Valley Transport Co., P., Ltd., reported in (1970) 77 ITR 518, in support of the argument that when two views are there, then the one view which is in favourable to the assessee is to be upheld.
11. Lrd counsel for the complainant argued that as per section 194A R/w. Rule 30 of the Income Tax Rules, the tax deducted at source has to be deposited within the stipulated period, if not the rigour of section 276B of the Act gets attracted. In support of this he relied upon the rulings rendered by the Hon'ble Apex Court, in the case of Madhumilan Syntex Ltd., Vs. Union of India, reported in 290 ITR 199 (SC) and the ruling of the Punjab and Haryana High Court, in the case of Jag Mohan Singh Vs. Income Tax Officer, reported in (1992) 196 ITR 473 PH. 9 CC.No.87/2019
12. There would not be contra argument against the well settled legal proposition that penal provisions have to be strictly interpreted and whenever two views are possible, then the one which favours the Accused is to be upheld. However, that does not mean that the penal provisions have to be interpreted in a way to avoid the penal consequence only. The penal provision is to be read in entirety to understand what it means. Only for the reason that the phrase 'within the stipulated period' is not mentioned, it cannot be held that for the delay in remittance of TDS, the rigour of section 276B of the Act not attracts. Section 276B of the Act reads as "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. Chapter XVII-B referred therein deals with deduction of tax source i.e., TDS. Section 200(1) of the Chapter XVII-B, which deals with duty of the person who deducted tax, says that "any person deducted any sum in accordance with foregoing provisions of this chapter shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs. Rule 30 of the Income Tax Rules prescribes 30 days time 10 CC.No.87/2019 to remit the deducted TDS to the account of the Central Government.
13. Section 201(1) of the Act, R/w. Rule 30 of the Income Tax Rules, makes it clear that the deducted TDS has to be credited to the Account of the Government within the prescribed time. Section 276B of the Act attracts on the failure to remit the deducted TDS as required by or under the provisions of Chapter XVII-B. The argument of the Lrd counsel for the accused that Section 201(1) of the Act gets attracted only for levying the interest cannot be accepted. In Madhumilan Syntex Ltd., it is held that "wherever a company is required to deduct the tax and to pay it to the account of the Central Government, failure on the part of the company in deducting or in paying such amount is an offence under the Act and has been made punishable." In Jag Mohan Singh case, Punjab and Haryana High Court held that "late deposit would not absolve the company and its officers from the criminal charge." The Hon'ble Supreme Court has held that "non-remittance of deducted TDS within prescribed time limit results in commission of offence punishable under section 276B of the Act." Thus, the 11 CC.No.87/2019 argument that voluntary remittance of the TDS with interest absolves from the criminal consequence is not acceptable. Had section 276B of the Act not contained the phrase as required by or under the provisions of Chapter XVII-B then this line of argument would have been accepted.
14. The argument is advanced that order under section 201 of the Act is not passed, thus, it is not possible to make out as to the compliance and failure to comply the provisions of Chapter-XVIIB of the Act. It is argued that initiation of criminal proceedings without an order under section 201(1A) of the Act is bad in law. It is further argued that non-levying of penalty is to be construed as not having the required ingredients to initiate the criminal proceedings. It is argued that, if there is no reasonable cause for non- initiation of penalty proceedings, then how there could be a cause for initiation of criminal proceedings, which requires high standard of evidence. Lrd counsel referred Section 201(1) and the amendment effected thereto with effect from 01.07.2012 and argued that said amendment is not applicable.
12 CC.No.87/2019
15. In support of the above argument relied upon the ruling of the Rajasthan High Court, rendered in the case of Universal Supply Corporation Vs. State of Rajasthan, reported in (1994) 206 ITR 222. The Lrd counsel agued that Accused No.1 was no treated as 'assessee' in default. It is argued that if penalty proceeding is dropped, then revenue is precluded from initiating the prosecution proceedings. The same analogy is to be made applicable in a case where the department had not taken the steps to levy the penalty. The ruling rendered by the Rajasthan High Court in the case of S.G. Kale Vs. Union of India, reported in (2001) 118 Taxman 349 (Raj.), wherein, it is held that "where proceedings for penalty have been initiated and same has not been found imposable because of existence of sufficient and reasonable cause for failure to comply with provisions of section 200." In the case of Sequoia Construction Co., Vs. P.P.Suri, ITO., reported in ITO (1985) 21 Taxman 13 (Delhi), wherein, it is held that "in case where penalty was dropped for non-payment of the tax on account of financial stringency of the company; and
ii) that the payments were not in cash but merely notional by way of credit entries in their accounts, then criminal 13 CC.No.87/2019 proceedings for the offence under section 276B of the Act is not sustainable." In the case of K.C. Builders and another, Vs. Assistant Commissioner of Income Tax, reported in (2004) 265 ITR 562 (SC), wherein, it is held that "where penalty was cancelled, then no offence survive under the Income Tax Act, therefore, quashing of prosecution was automatic". Lrd counsel relied upon the rulings rendered in the case of Harkawat and company and others Vs. Union of India, reported in (2010) 328 ITR 624 (MP), in the case of Indian Plywood Manufacturing Co., Ltd., and others Vs. P.S Dave and another, reported in (2007) 291 ITR 430 (Bom)., and the Order of the case in CC.No.553/2008 and CC.No.62/2015, wherein, by following the ratio laid down in K.C. Builders Case, quashed the criminal proceedings.
16. Lrd counsel of the complainant countered the above argument stating that initiation or imposing of penalty is not a pre-requisite to initiate the criminal proceedings. In support of this argument, Lrd counsel relied the ruling rendered in Madhumilan Syntex Ltd., case, wherein, at Para No.51, it is held that "imposition of penalty for non- 14 CC.No.87/2019 payment of tax, does not take away the power to prosecute Accused persons if an offence has been committed by them". It is argued that none of the contentions raised by the Accused No.1 is not sustainable under law.
17. The argument that since the penalty proceedings is not initiated, it has to be held that there was justifiable reasons for not remitting the deducted TDS is not sustainable. There is no law to the effect that initiation of penalty proceedings is to be preceded before initiation of criminal proceedings. In the rulings relied by the Lrd counsel of the Accused No.1, it has been reiterated that had that imposition of penalty is not upheld, then criminal prosecution is to be dropped. This ratio cannot be applied in a case where the penalty proceeding is not initiated. The voluntary remittance of TDS with interest without there being a demand, will not absolve from the criminal consequence of non-remittance of TDS within the stipulated time. Thus, the argument that the criminal proceeding initiated without there being the penalty proceedings this case is not maintainable, is legally not sustainable.
15 CC.No.87/2019
18. It is argued that Section 40(a)(ia) of the Act gives the time limit to make the payments till the due date of filing the return of income for no disallowance of expenditure. The Accused No.1 paid the TDS with returns before the due date of filing the income tax returns. Thus, it has to be held that time is provided up to the date of filing the income tax returns to remit the TDS. This line of argument cannot be accepted for the simple reason that the filing of income tax returns is completely different from the remittance of deducted TDS. Section 201 of the Act and Rule.30 clearly says that deducted TDS has to be remitted within the stipulated time. For the reason of leverage given in Section 40(a)(ia) of the Act, the other provisions governing the remittance of TDS cannot be overlooked.
19. Now this court has to see if there was actual delay in remittance of TDS. If so, whether there was justifiable reason to validate the delay so as to claim the acquittal as provided under section 278AA of the Act. PW1 deposed about the delay in remittance of TDS in detail. While cross examining P.w.1 it was suggested that there was no actual deduction of TDS and only book entry was made. 16 CC.No.87/2019
20. In a criminal prosecution, the time for remittance shall begin from the date of actual deduction. The entry made by following the mercantile system of accounting cannot be made as basis for the criminal prosecution. The next question that arises is who has to prove actual payments and remittance. In a case where TDS returns were submitted by showing the date of deduction, then burden is upon the person who submitted the returns to show that actual deduction of TDS shown therein was not made on the date shown in the TDS returns. This is for two reasons, one is, it is the returns submitted by the Accused by showing the deduction and contrary is to be proved by the accused only. Secondly, it is the fact known to the Accused only, as he is in possession of the documents to substantiate the non-deduction of TDS on the date show therein. Section 106 of the Indian Evidence Act says that when any fact is especially within the knowledge of person, the burden of proving that fact is upon him. The payment made and deduction of TDS is within the knowledge of the person who made it, so he has to prove it. The argument, if addressed that it is for the complaint to prove that aspect, then it is not acceptable. This position may be viewed 17 CC.No.87/2019 differentially only in case where the company seized to exist because of winding up order or otherwise. Here, in the case on hand, the Accused No.1 has not taken up the specific stand that there was no delay in remittance of TDS.
21. The Managing Director of Accused No.1 got examined as D.w.1 and deposed that though there were no actual payments, the payments and deduction of TDS were shown as the Accused No.1 was supposed to follow the mercantile system of accounting. The Accused No.1 produced ledger accounts for the Financial Year 2016-17 marked as Ex.D.2 to 10. On perusal of these ledger accounts it discloses that payments stated therein were not made exactly on the date mentioned therein. The entries further disclose that even after actual deduction of TDS, they were not remitted within the stipulated time. Had the TDS remitted within the stipulated time from the date of actual deduction, than only it could be held that offence under section 276B of the Act is not made out.
22. It is argued that because of the financial difficulties, the Accused No.1 could not remit the TDS on time. It is argued that there is no willful default on the part of the 18 CC.No.87/2019 Accused No.1 in not remitting the deducted TDS on time. Lrd counsel relied upon the rulings rendered by Our Hon'ble High Court, in the case of M/s. Vyalikaval House Building Co-Operative Society Ltd., Vs. ITO., Bangalore, in Crl.P. No.4891/2014, wherein, it is held that "the prosecution initiated for the offence punishable under section 276C(2) of the Act was quashed on the ground that delay in payment could not be construed as an attempt to evade payment of tax so as to entail prosecution of the petitioners for the alleged offence under section 276C(2) of the Act".
23. It is the settled legal proposition that mens-rea is not required to prove the offence punishable under section 276B of the Act and mere failure to remit the deducted TDS within the stipulated time results in commission of offence punishable under section 276B of the Act. The Punjab and Harayana High Court, in the case of Deputy Commissioner of Income Tax Vs. Modern Motor Works, reported in 1996 ITR (220) 415 (P & H), wherein it is held that "mens-rea is not a requisite ingredient of the offence under Section.194(a)/200/276B of the Act. If the Accused 19 CC.No.87/2019 fails to make deduction of tax at source, the prosecution and punishment under Section.276B is valid." Delhi High Court in the case of Rishikesh Balkishan Das Vs. I.D. Manchanda reported in 1987 ITR (167) 49, it is held that "Section.276B of 'the Act', also does not contain the word 'knowingly'. It provides punishment for contravention of the provisions contained in Section 194A (1) etc., Section.194A requires the person making any payment of interest to deduct the tax at the rate in force. This liability is an absolute liability. Deficient deduction or non-deduction was a conscious Act." The finding in the case of M/s. Vyalikaval House Building Co-Operative Society Ltd., cannot be made applicable, because that was held in a case initiated for the offence punishable under section 276C(2) of the Act, where mens-rea is required to be proved. Thus only way to get rid off the conviction is by showing the existence of justifiable reasons for the failure to remit the TDS as provided under section 278AA of the Act.
24. It is argued that there is no much delay and the Government not suffered the loss as the TDS amounts 20 CC.No.87/2019 were remitted with interest. Lrd counsel relied upon the ruling rendered by the Madras High Court, in the case of Income Tax Officer Vs. Roshni Cold Storage (P) Ltd., reported in (2000) 245 ITR 322, wherein, the appeal against the acquittal was confirmed on the ground that "accused No.1 company had incurred colossal loss and carried over losses during the relevant years which fact was admitted by the department." Ld counsel relied upon the rulings rendered by the Delhi High Court, in the case of Azadi Bachao Andolan Vs Union of India, reported in (2001) 252 ITR 471, wherein, it is held that "reasonable cause can be reasonably said to be cause which prevents a man of average intelligence and ordinary prudence, acting under normal circumstances, without negligence or intention or want of bonafides." In the case of Woodward Governors India (P) Ltd., Vs. Commissioner of Income Tax, reported in (2001) 118 Taxman 433 (Delhi), wherein, reasonable cause has been described as "probable cause means an honest belief founded upon reasonable grounds, which, assuming them to be true, would reasonably lead any ordinary prudent and cautions man, placed in the position of the person concerned, to come to the 21 CC.No.87/2019 conclusion that the same was right thing to do." In the case of Income Tax Officer Vs. Nanak Singh Guliani, reported in (2002) 257 ITR 677, wherein, it is held that 'reasonable cause' could receive the same interpretation that is given to the expression 'sufficient cause.' Therefore, in the context of the penalty provisions, the words 'reasonable cause' would mean a cause that is beyond the control of the assessee." In the case of Kamen Jaswantlal Shah Vs. Income Tax Officer, Ward-5(3), Baroda, reported in (2012) 19 taxman.com 99 (Ahmedabad), wherein, it is held that "in the context of the penalty provisions, the words reasonable cause would mean a cause which is beyond the control of the assessee. Reasonable cause obviously means a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or in action or want of bonafides".
25. The phrase 'reasonable cause' referred in section 278AA of the Act, cannot be equated to the negligence in complying the statutory requirements. In the rulings relied upon by the Ld counsel of the Accused, it has been reiterated that 'reasonable cause' means a cause which is 22 CC.No.87/2019 beyond the control of the assessee. If the failure is inflicted by the negligence or inaction. Then it cannot be held as 'reasonable cause.' TDS is the amount deducted from the amount paid to third person to remit it too the Government as a tax on behalf of the person to whom the payment was made. It is not the amount of the deductor, hence he cannot have the authority to use that amount for his financial requirement. Non-deduction of TDS or non- payment of due amount to third persons stands on different footing. Once the TDS is deducted, then the deductor is duty bound to remit the same to the Government within the stipulated period of time. The deductor cannot be allowed to take up the contention that he was in financial difficulty, hence used that deducted TDS to meet that requirement. In the case of Income Tax Officer Vs. Sreevatsa Trading Co., and anr., reported in (2001) 125 Taxman 131 (Mad.,), it has been held that "the Accused firm had deducted the tax and it was legally bound to pay it over to the Government. The fact that the firm was running at a loss could not come to the advantage of the Accused with reference to the funds of the depositor, namely the tax deducted at source which would have otherwise been 23 CC.No.87/2019 payable to the depositor. The two excuses put forward by the Accused firm could not be excuses in the eye of law to availability".
26. The court is of the considered view that reasonable cause mentioned in Section 278AA of the Act means the event where remittance could not be made due to some unavoidable reasons. For example, if the accounts where the TDS amount credited were attached or due to some other reason which was beyond the control of the deductor the TDS amount couldn't be remitted, than it can be held that there was reasonable cause. The financial constraints, absence of mens-rea cannot be termed as reasonable cause. If the non-remittance of deducted TDS is due to reasons of negligence or use of that amount for the financial requirements of the company, then certainly, it cannot be held as reasonable cause for the failure to remittance, so as to avoid the conviction under section 276B of the Act.
27. Thus, on appreciation of evidence on record, I hold that complainant has succeeded in proving the charges 24 CC.No.87/2019 leveled against Accused No.1 under section 276B of the Act. Accordingly, this point is answered in affirmative.
28. Point No.2: The complainant succeeded in proving that Accused No.1 committed the offence punishable under section 276B of the Act. The complainant's case is that Accused No.2 is the Managing Director of Accused No.1 Company and in that capacity, he is responsible for the day today business and conduct of the Accused No.1. According to the complainant, by issuing the notice dated:
22.11.2016, the Accused No.2 has been treated as the "Principal Officer" of the Accused No.1. Accused No.2 has taken up the contention that he had not received the notice issued under section 2(35) of the Act. It is further contended that he was not in charge of day today affairs of the Accused No.1 Company. The Accused No.2 contended that he was holding the responsibility of recruiting the doctors, nursing staff, paramedical staff, liaising with the nearby nursing home for providing the emergency services for their patients, liaising with insurance companies, Government agencies and other cash less service providers and related work. The Accused No.2 contended 25 CC.No.87/2019 that he was not in charge of salary disbursements and payments. Thus, even if the offence is committed, it was not within his knowledge. Accused No.2 examined as D.w.1, deposed accounting section was looking after the tax issues and professional accountants were appointed to look after the issue of deduction of TDS and its remittance.
29. The Lrd counsel for the complainant argued that the word Managing Director itself shows that he was in charge of day today affairs of the Accused No.1 and he squarely falls under provision of Section 278B of the Act which deals with vicarious liability. Lrd counsel relied upon the Judgment of the Delhi High Court rendered in the case of Income Tax Officer Vs. Anil Batra and anr., reported in TS-636-HC-2014(DEL)-O, wherein, it is held that "the Directors signed balance sheet cannot contend that they were in charge of day today affairs of the company." In the case of M.R.Pratap Vs. V.M. Muthukrishnan, reported in AIR 1994 SC 674, wherein, it is held that "the Managing Director becomes the Principal Officer of the company".
30. Lrd. counsel of the Accused argued that to attract the vicarious liability, it has to be proved that one is in charge 26 CC.No.87/2019 of day today affairs of the company and also responsible for the conduct of the business of the company. It is argued that Accused No.1 appointed the competent persons to look after the financial affairs of the Accused No.1. The Accused No.2 was not at all in charge of the tax matters. On coming to know about the non-compliance, the Accused No.2 had taken the steps for making payment.
31. Section 278B of the Act says that the person who was in charge of, and responsible to, the company for conduct of the business of the company has to be treated as guilty along with the company. The burden of proving this aspect is upon the complainant. The Bombay High Court, in the case of Homi Phiroze Ranina Vs. State of Maharashtra, reported in (2003) 263 ITR 634, wherein, it is held that "there must be credible material to show their active involvement in the conduct and management of the business of the firm." Here, there is no material to the effect that Accused No.2 is in charge of day today affairs of the Accused No.1. It is not the case of the complainant that Accused No.2 verified the TDS returns and submitted in Form No.26AS. Except the complaint averments, there is 27 CC.No.87/2019 no other evidence to the effect that Accused No.2 was in charge and responsible for the business of the Accused No.1. Thus, Accused No.2 cannot be held guilty for the offence committed by Accused No.1. Accordingly, this point is answered in Negative.
32. Point No.3: In view of my findings on Points No.1 and 2, I proceed to pass the following:
ORDER By exercising the power conferred under section 248 (1) of Cr.P.C. the Accused No.2 is acquitted from the charge of offence punishable under section 276B of the Income Tax Act, 1961.
By exercising the power conferred under section 248 (2) of Cr.P.C. the Accused No.1 convicted for the offence punishable under section 276B of the Income Tax Act, 1961.
Bail bond of Accused No.2 shall stand cancelled. To hear regarding sentence on Accused No.1. (Typed by me directly on computer, corrected and then pronounced by th me, in open court on this the 16 day of October - 2021.) PRESIDING OFFICER.
28 CC.No.87/2019ORDER ON SENTENCE
33. Heard Lrd counsel for accused No.1 and Spl. P. P. for the complainant, on sentence.
34. The Accused No.1 is juristic person, hence substantial sentence cannot be awarded. Admittedly, the Accused No.1 paid the deducted TDS with interest voluntary without there being a demand. This substantiate that there was no intention of avoiding the remittance of TDS. The evidence on record discloses that Accused No.1 company suffered loss and that resulted its closure. D.w.1 in the evidence stated that reasons which led to the loss. From the evidence it can be made out that because of the non-realization of dues from the market led to the non-remittance of TDS within time. There is no mens-rea in non-remittance of TDS. Though, it is not a ground to claim acquittal, certainly, it is a ground to award lesser fine. It is to be noted that Accused No.1 voluntarily remitted the TDS and they were remitted before filing the income tax returns. The financial position of the Accused No.1 was not good and the Accused No.1 was closed. The prosecution pertains to the default which occurred 29 CC.No.87/2019 very long back. Considering all these aspects, I hold fine of Rs. 20,000/- has to be imposed. The Accused No.2 shall pay the fine imposed on Accused No.1. Accordingly, the court has to pass the following:
ORDER The Accused No.1 company is sentenced to pay fine of Rs. 20,000/- (Rupees Twenty Thousand only) for having committed the offence punishable under section 276B of the Income Tax Act, 1961.
(Typed by me directly on computer, corrected and then pronounced by th me, in open court on this the 16 day of October - 2021.) PRESIDING OFFICER.
ANNEXURE:
ON BEHALF OF THE COMPLAINANT: Witnesses:
P.w.01 - Muralidhar L. Dandagi.
Documents:-
Ex.p.01 - Sanction Order, Ex.p.02 - A/c of Notice dated:20.08.2018, Ex.p.03 - Postal Acknowledgement, Ex.p.04 - A/c of Details of TDS made/non-remitted, Ex.p.05 - A/c of Compounding Order dated:14.01.2015, Ex.p.06 - A/c of Show Cause Notice dated:29.03.2018, Ex.p.07 - Postal Acknowledgement, Ex.p.08 - A/c of Show Cause Notice dated:29.03.2018, 30 CC.No.87/2019 Ex.p.09 - Postal Acknowledgement, Ex.p.10 - A/c of Reply dated:25th , Ex.p.11 - A/c of Annual Report, Ex.p.12 - A/c of Financial Statement, Ex.p.13 - A/c of Return of Income.
MATERIAL OBJECTS: Nil.
ON BEHALF OF THE ACCUSED: Witnesses :-
D.w.01 - Dr.C.Jayanna.
Documents:-
Ex.D.01 - List of Sundry Debtors, Ex.D.02 to 10 C/copies of Ledger Accounts for the Financial Year 2016-17. Ex.D.11 - Copy of Reply dated:11.07.2018, Ex.D.12 - Copy of Reply dated:28.01.2019,.
(PREETH. J.) PRESIDING OFFICER, SPL. COURT FOR ECONOMIC OFFENCES, BANGALORE.31 CC.No.87/2019