Madras High Court
Dr.A.M.Arun vs Income Tax Department on 16 September, 2022
Author: N.Anand Venkatesh
Bench: N.Anand Venkatesh
Crl.O.P.(MD)Nos.13535, 13536 and 13541 of 2018
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATED: 16.09.2022
CORAM:
THE HONOURABLE MR.JUSTICE N.ANAND VENKATESH
CRL.O.P.(MD).Nos.13535, 13536 and 13541 of 2018
and
Crl.M.P(MD)Nos.6106 to 6109, 6112 and 6113 of 2018
1.Dr.A.M.Arun
M/s.Vasan Health Care Pvt Ltd.,
A Company with office
at No.15A, Main Road, 1st Cross,
Thillai Nagar, Trichy-620 018.
2.Smt.Meera Run ... Petitioners/Accused 2&3
in all Crl.O.Ps
Vs.
Income Tax Department,
O/o.The Commissioner of Income Tax(TDS)
Coimbatore,
Represented by
Deputy Commissioner of Income Tax,
TDS Circle,
Madurai. ... Respondent/Complainant
in all Crl.O.Ps
COMMON PRAYER : Criminal Original Petitions filed under Section
482 of Cr.P.C., to call for the records relating to C.C.Nos.235, 237 and
236 of 2018 on the file of the 1st Additional Judicial Magistrate,
Triuchirappalli and quash the same with respect to the petitioners.
1/16
https://www.mhc.tn.gov.in/judis
Crl.O.P.(MD)Nos.13535, 13536 and 13541 of 2018
For Petitioners : Mr.N.V.Balaji
For Respondent : Mr.N.Dilip Kumar
Standing Counsel for Income Tax Dep.
COMMON ORDER
The issue involved in all these petitions are common and hence, they are taken up together, heard and disposed of through this common order.
2.The income tax department has filed criminal complaints against the Company and its Directors for offence punishable under Section 276(B) r/w 278(B) of the Income Tax Act, 1961 on the ground of delayed payment of tax deducted at source.
3.The sum and substance of all the three complaints that have been put to challenge in these petitions are the same, except the variation insofar as the assessment years are concerned.
4.It is brought to the notice of this Court that the first petitioner in all these petitions expired during the pendency of the proceedings and 2/16 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)Nos.13535, 13536 and 13541 of 2018 hence, the proceedings will stand abated insofar as the first petitioner is concerned. In view of the same, the stand taken by the second petitioner alone requires the consideration of this Court in all these petitions.
5.The learned counsel for the petitioner in all the three petitions submitted that the second petitioner was only a non-executive director in A1 Company and she was not involved in the day-to-day affairs of the Company. To substantiate the same, the learned counsel for the petitioner drew the attention of this Court to Form-32 that was filed during the relevant point of time.
6.The learned counsel for the petitioner by pointing out to the judgment of the Hon'ble Supreme Court in the case of GUNMALA SALES (P) LTD.,-Vs-ANU METHA AND OTHERS, reported in 2015 (1) SCC 103 and in the case of POOJA RAVINDER DEVIDASANI-Vs- STATE OF MAHARASHTRA AND ANOTHER, reported in (2014) 16 SCC 1, submitted that the Hon'ble Apex Court had discussed about the difference in classification and categories of Directors and it was held 3/16 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)Nos.13535, 13536 and 13541 of 2018 that non-executive Director is a Director, who is not involved in the day- to-day affairs of the Company and cannot be treated as a Principal Officer.
7.The learned counsel also brought to the notice of this Court the judgment of the Gujarath High Court in IONIC METALLIKS AND 3 OTHERS-Vs-UNION OF INDIA AND 3 OTHERS, reported in 2014 SCC OnLine Guj 10066, which was relied upon by this Court in Crl.O.P(MD)Nos.16082 etc., of 2018, order dated 25.10.2019 and submitted that this Court had already quashed the proceedings as against the nominee non-executive directors and the order passed by this Court will equally apply to the case of the second petitioner also in these three petitions. Accordingly, the learned counsel sought for quashing of proceedings insofar as the second petitioner is concerned.
8.Per contra, the learned Standing Counsel appearing on behalf of the Department submitted that the order passed by this Court in Crl.O.P(MD)Nos.16082 etc., of 2018 will not apply to the facts of the 4/16 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)Nos.13535, 13536 and 13541 of 2018 present case, since this Court dealt with nominee directors and whereas in the present case, the second petitioner is claiming to be a non- executive director and both are two different classes of directors, who cannot be placed on a equal footing. The learned Standing Counsel brought to the notice of this Court the order passed in Crl.O.P(MD)No. 13196 etc., of 2016 and Crl.O.P(MD)No.16152 of 2017, pertaining to two other complaints, which were filed along with the present three complaints and submitted that the very same plea made by the second respondent was not accepted by this Court and those quash petitions were dismissed by this Court by order dated 16.03.2020 and 26.11.2021 respectively. The learned counsel therefore submitted that the second petitioner cannot be treated differently in these three petitions and the end result of the above orders will equally apply to these three petitions also.
9.Apart from the above submission, the learned Standing Counsel also brought to the notice of this Court, the judgment of the Hon'ble Supreme Court in MADHUMILAN SYNTEX LTD., AND OTHERS-Vs- 5/16 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)Nos.13535, 13536 and 13541 of 2018 UNION OF INDIA AND ANOTHER, reported in (2007) 11 SCC 297 and he has specifically relied upon the following paragraphs:
“30.So far as Directors are concerned, it is alleged in the show-cause notice as well as in the complaint that they were 'principal officers' of the Company. In the show- cause notice, it was asserted that the appellants were considered as principal officers under Section 2(35) of the Act. In the complaint also, it was stated that the other accused were associated with the business of the Company and were treated as principal officers under Section 2(35) of the Act and hence they could be prosecuted. Dealing with an application for discharge, the trial Court observed that accused No.1 was Company whereas other accused were Directors. Whether they could be said to be principal officers or not would require evidence and it could be considered at the stage of trial and the application was rejected. In Revision, the First Additional Sessions Judge took similar view.
43.From the statutory provisions, it is clear that to hold a person responsible under the Act, it must be shown that he/she is a 'principal officer' under Section 2(35) of the Act or is 'in charge of' and 'responsible for' the business of the Company or Firm. It is also clear from the cases referred to above that where necessary averments have been made in 6/16 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)Nos.13535, 13536 and 13541 of 2018 the complaint, initiation of criminal proceedings, issuance of summons or framing of charge, cannot be held illegal and the Court would not inquire into or decide correctness or otherwise of the allegations levelled or averments made by the complainant. It is a matter of evidence and an appropriate order can be passed at the trial.
44.In the case on hand, in the show cause notice dated March 11, 1991 issued under Section 276B read with Section 278B of the Act, it was expressly stated by the Income Tax Officer, TDS, Bhopal that the Directors were considered to be Principal Officers under Section 2(35) of the Act. In the complaint dated February 26, 1992 filed by respondent No. 2-Commissioner also, it was stated that appellants were considered as Principal Officers. In the above view of the matter, in our opinion, contention of the learned counsel for the appellants cannot be accepted that the complaint filed against the appellants, particularly against appellant Nos. 2-4 is ill-founded or not maintainable.
45.It was urged that a separate notice and/or communication ought to have been issued before issuance of show cause notice under Section 276 B read with Section 278B of the Act that the Directors were to be treated as Principal Officers under the Act. In our opinion, however, no such independent and separate notice is necessary and when 7/16 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)Nos.13535, 13536 and 13541 of 2018 in the show cause notice it was stated that the Directors were to be considered as Principal Officers under the Act and a complaint was filed, such complaint is entertainable by a Court provided it is otherwise maintainable.”
10.This Court has carefully considered the submissions made on either side and perused the materials available on record.
11.This Court has to first deal with the order passed in Crl.O.P(MD)No.16082 etc., of 2018, dated 25.10.2019. The very same proceedings which are the subject matter challenge in these petitions, was put to challenge by the nominee directors, who were also added as accused persons. This Court after taking into consideration the judgments that have been referred supra, ultimately dealt with the judgment of the Hon'ble Apex Court in Madhumilan Syntex Ltd., case at paragraph No.
15. For proper appreciation, the same is extracted hereunder:
15. In Madhumilan Syntex case [(2007) 11 SCC 297], a case where the accused, who are the Directors of the company (and not Nominee directors) approached the Court seeking to exclude them from criminal prosecution under sec.278B of the 8/16 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)Nos.13535, 13536 and 13541 of 2018 I.T. Act, for an offence of non remitting the TDS (exactly the same offence for which the petitioners herein are sought to be prosecuted), the Honble Supreme Court declined to grant relief to the Directors of the company, because they happened to be Directors, and proceeded to hold that their actual role via-a-
vis, the company is a matter for trial. As indicated earlier, that was a case involving the Directors of the company, and not Nominee Directors. It must however, be added that the Supreme Court did not omit to emphasis that a criminal prosecution under Sec.278B of the Income Tax can lie only against those who are in charge of the affairs of, or, responsible for the business of the company.
12.It is clear from the above that this Court had distinguished the judgment of the Hon'ble Apex Court specifically on the ground that the directors, who were the petitioners therein, were nominee directors and the Hon'ble Apex Court did not deal with this category of directors in the said judgment. In the considered view of this Court, the earlier judgment of this Court is clearly distinguishable from the present case, since this Court is dealing with a non-executive director in these cases and whereas, what was dealt with in the above case was the status of nominee 9/16 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)Nos.13535, 13536 and 13541 of 2018 directors. Therefore, it cannot be held that the above judgment of this Court will directly apply to the facts of this case and come to the aid of the second petitioner.
13.The next issue to be taken into consideration is with regard to the earlier order passed by this Court dismissing the quash petition. It is pertinent to note that those quash petitions were filed by the Company and also the petitioners in these petitions. While dealing with those quash petitions, this Court specifically placed reliance upon the judgment of the Hon'ble Apex Court in Madhumilan Syntex Ltd., case and it was held as follows:
“5.It is relevant at this juncture to refer the case of Madhumilan Syntex Ltd., and another Vs. Union of India and another reported in 2007 (11) SCC 297, wherein the Directors of the Company approached the Court seeking quash of the criminal prosecution on the ground that the tax deducted at source was paid with interest and there was reasonable cause of the belated payment, the Honourable Supreme Court after extracting the relevant provisions of the Income Tax Act, has held as follows:10/16
https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)Nos.13535, 13536 and 13541 of 2018 ''47.The next contention that since TDS had already been deposited to the account of the Central Government, there was no default and no prosecution can be ordered cannot be accepted. Mr.Ranjit Kumar invited our attention to a decision of the High Court of Calcutta in Vinar & Co v. ITO [(1992) 193 ITR 300 (Cal)]. Interpreting the provisions of Section 276-B, a Single Judge of the High Court observed that : (ITR p.315) ''[T]here is no provision in the Income Tax Act imposing criminal liability for delay in deduction or for non- payment in time. Under Section 276-B, delay in payment of the income tax is not an offence.'' According to the learned Judge, such a provision is subject to penalty under Section 201(1) of the Act.
48.We are unable to agree with the above view of the High Court. Once a statute requires to pay tax and stipulates period within which such payment is to be made, the payment must be made within that period. If the payment is not made within that period, there is default and an appropriate action can be taken under the Act. Interpretation canvassed by the learned counsel would make the provision relating to prosecution nugatory.''
6.Following the dictum laid down by the Hon'ble Supreme Court in Madhumilan Syntex case [supra], these 11/16 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)Nos.13535, 13536 and 13541 of 2018 Criminal Original Petitions are dismissed. Consequently, connected Miscellaneous Petitions are closed.”
14.The Hon'ble Apex Court in Madhumilan Syntex Ltd., case had captured the issue involved at paragraph No.30 of the judgment, which has been extracted supra. The answer for the issue is given from paragraphs 43 to 45, which has also been extracted supra. It is clear from the same that where notice has been given to the directors by considering them to be principal officers under Section 2(35) of the Income Tax Act and such averments have also been made in the complaint, the fact as to whether the director was a principal officer or not can only to be decided at the stage of trial and it is not a matter to be decided in a quash petition.
15.In the present case, notice was issued to the second petitioner on 27.07.2017 treating the petitioner as a principal officer of the company, as per Section 2(35) of the Income Tax Act. Similarly, even in the complaint that was filed, a specific reference has been made treating the petitioner as a principal Officer. 12/16 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)Nos.13535, 13536 and 13541 of 2018
16.The learned counsel for the petitioner submitted that non- executive director cannot be treated as a principal officer, since such director is not involved in the day-to-day affairs of the company. The Income Tax Act comes up with a very specific provision under Section 2(35) of the Act, wherein notice can be issued to all the directors treating them as principal officers. The Hon'ble Apex Court in the above judgment has categorically held that once such notice is given and necessary averments are also made in the complaint, the fact as to whether the director is a principal officer or not can only be decided in trial. This ratio will squarely apply to the facts of the present case. That is the reason why, the learned Single Judge, while dismissing two other quash petitions filed by the petitioner challenging two other complaints of similar nature, rightly relied upon the judgment of the Hon'ble Apex Court in Madhumilan Syntex Ltd., case and dismissed those petitions. The present petitions are also liable to be treated in the same manner and this Court does not find any ground to interfere with the proceedings of the Court below.
13/16 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)Nos.13535, 13536 and 13541 of 2018
17.The learned counsel for the petitioner submitted that already proceedings have been initiated under IBC Code and Resolution Professional has been appointed to take care of the affairs of the company. The learned counsel further submitted that if in case this Court is not convinced with the grounds raised in these petitions, at least the presence of the second petitioner may be dispensed with pending disposal of the complaint.
18.Taking into consideration the request made by the learned counsel for the petitioner, the presence of the second petitioner is dispensed with and she shall be represented through her counsel. The second petitioner shall be present before the Court at the time of questioning under Section 313 Cr.P.C., and at the time of passing judgment in the complaint. The learned counsel appearing on behalf of the second petitioner shall cross-examine the witnesses on the same day or on the next hearing date, the witnesses who are examined in chief. It goes without saying that it will be left open to the second petitioner to raise all the grounds before the Court below and the Court below shall 14/16 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)Nos.13535, 13536 and 13541 of 2018 consider the same on its own merits and in accordance with law, without being influenced by any of the observations made in this order.
19In the result, all the criminal original petitions stand dismissed and there shall be a direction to the learned Judicial Magistrate No.1, Tiruchirappalli to dispose of C.C.Nos.235, 237 and 236 of 2018 within a period of three months from the date of receipt of a copy of this order. Consequently, connected miscellaneous petitions are closed.
14.09.2022 Index: Yes/No Internet: Yes/No Ns To The First Additional Judicial Magistrate, Triuchirappalli.
15/16 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)Nos.13535, 13536 and 13541 of 2018 N.ANAND VENKATESH, J.
Ns CRL.O.P.(MD).Nos.13535, 13536 and 13541 of 2018 and Crl.M.P(MD)Nos.6106 to 6109, 6112 and 6113 of 2018 14.09.2022 16/16 https://www.mhc.tn.gov.in/judis