Delhi District Court
Ito vs . M/S Delhi Iron Works Ltd. & Ors on 8 September, 2009
ITO Vs. M/s Delhi Iron Works Ltd. & Ors
CC No.823/87
IN THE COURT OF SH. SANJAY BANSAL ADDITIONAL CHIEF
METROPOLITAN MAGISTRATE-02 (NORTH) DELHI
CC No.823/87
U/s 276-B of Income Tax Act, 1961
ITO Vs. M/s Delhi Iron Works Ltd. & Ors.
Date of institution: 25.03.1987
Judgment Reserved on: 18.08.2009
Date of Judgment: 08.09.2009
JUDGMENT
a) Serial No. of the case 02401R0003261987
b) Date of commission In respect of Assessment Year
of the offence 1976-77
c) Name of the complainant Ms. Madhu Mahajan, ITO
d) Name of the accused 1. M/s Delhi Iron Works (P) Ltd.
person, and his 3703, Chawri Bazar, Delhi-06.
parentage and address. 2. Radha Kishan Dass, (Now Dead)
3. S.K. Dass, both Directors of M/s Delhi Iron Works (P) Ltd., 3703, Chawri Bazar, Delhi-06.
e) Offence complained or Sec. 276-B of Income Tax Act, 1961 proved
f) Plea of the accused Pleaded not guilty and claimed trial.
g) The final order Accused No. 1 convicted but accused
no.3 acquitted
h) Date of such order 08/09/09
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ITO Vs. M/s Delhi Iron Works Ltd. & Ors
CC No.823/87
BRIEF STATEMENT OF THE REASONS FOR THE DECISION OF THE CASE:
1. The present complaint case has been filed by Ms. Madhu Mahajan, Income Tax Officer, Company Circle XVIII, New Delhi.
It is for the assessment year 1976-77. The allegations are that Accused No.1 is a Private Limited Company and accused 2 and 3 are Directors of the said company and also its principal officers during the said Assessment Year. It is alleged that accused 2 and 3 were in-charge of and responsible for day-to-day affairs of the said company. It is further alleged that the accused paid interest amounting to Rs. 31,678/- to a firm known as M/s Bhanamal & Co. (P) Ltd. and M/s Banwari Lal & Sons (P) Ltd. and also M/s Bhanamal Gulzari Mal (P) Ltd. and no tax was deducted at source at the time of credit/payment nor the said tax was deposited within prescribed period. Details of the payments and the amount of tax which was to be deducted and the date by which it was to be paid have been mentioned in tabular form in the complaint. The TDS was due on 2.1.1976 but it was not deposited. A show cause notice dated 8.10.86 was issued but no reply was sent. It is thus alleged that the accused violated provision of section 194-A of the Income Tax Act 1961 (for short Page 2 of 13 ITO Vs. M/s Delhi Iron Works Ltd. & Ors CC No.823/87 the Act) and thus committed offence punishable u/s 276 B of the Act .
2. Preliminary examination u/s. 200 Cr.PC was dispensed with as complainant has filed the complaint in official capacity. All the accused were summoned u/s. 276-B of the Act. After appearance of the accused persons complainant led pre-charge evidence. During pre-charge evidence complainant examined PW1 Ms. Madhu Mahajan, PW2 Sh. Ashok Kumar and PW3 Sh. Rakesh Kumar Jain.
3. My Ld. Predecessor vide order dated 24.2.2001 ordered to frame charge u/s 276-B of the Act against all the accused. Formal charge was framed on 9.3.2001. All the accused pleaded not guilty and claimed trial. The accused re-called the abovenoted witnesses for cross-examination in after-charge evidence.
4. PW1, 2 and 3 appeared for cross-examination.
5. During trial accused R.K. Dass expired and proceedings him were abated. Statement of the accused S.K. Dass was recorded. Accused did not lead any defence evidence despite seeking Page 3 of 13 ITO Vs. M/s Delhi Iron Works Ltd. & Ors CC No.823/87 opportunity for the same.
6. I have heard Sh. Brijesh Garg, Ld. Standing Counsel for the complainant and Ms. Geeta Luthra, Ld. Counsel for both the accused. I have perused the record. I have also perused the written submissions filed on behalf of the accused.
7. PW1 deposed that accused company was her assessee. She deposed that accused R.K. Dass and S.K. Dass were Directors of the accused company and were signing the tax returns of the company. She also deposed that both the said accused were also managing day to day affairs of the company. She further deposed that after perusing the balance sheets and profits & loss accounts of the accused company, she came to know that some amount was being shown as income tax dues payable. Notices were issued to the accused to pay the said taxes as the same were TDS amount which was payable consequent upon payment of interest amount to various companies by the accused company. She deposed that no reply was given. Therefore, penalty was imposed upon the accused u/s 201 (1) of the Act. Thereafter, sanction for prosecution was also obtained from Commissioner of Income Tax which is Ex. PW1/1. Ex. PW1/2 is the complaint. Page 4 of 13
ITO Vs. M/s Delhi Iron Works Ltd. & Ors CC No.823/87 Copy of the balance sheet is Ex. PW1/3. Copy of statement of account is Ex. PW1/4. Copy of Show cause notice dt. 8.10.86 is Ex. PW1/5. Letter of accused seeking time to file reply is Ex. PW1/7. She deposed further that no reply was received and reminder Ex. PW1/8 was sent. No reply was sent even thereafter. She deposed that the accused persons did not show any sufficient cause or reason for non-payment of tax. Nothing has come out in the cross-examination. Nothing came out in further cross- examination in after-charge evidence.
8. PW2 appeared from the office of Registrar of Companies. He produced the record of the accused company. As per records, accused no. 2 and 3 were the Directors of the accused company in the relevant years. He deposed that the various returns including balance sheets were signed by these two accused. Nothing has come out in cross-examination.
9. PW3 deposed that he had completed the assessment for the year 1976-77 of the accused company and he initiated action u/s 276-B of the Act. He had issued a show cause notice dt. 10.4.80 which is Ex. PW3/1. He had also sent reminder dt. 30.5.80 which is Ex. PW3/2. In cross-examination, A.D. Card of the notice was Page 5 of 13 ITO Vs. M/s Delhi Iron Works Ltd. & Ors CC No.823/87 exhibited as Ex. PW3/D-1.
10. Accused S.K. Dass, in his statement u/s 313 Cr.P.C., admitted that he was the Director of the accused company. He also admitted that he used to see important matters of the company. He did not deny payment of interest to different companies. As noted above, the accused did not lead evidence despite seeking opportunity for the same.
11. The complaint pertains to the year 1976-77. At that time S. 276- B of the Act read as under:
"276-B Failure to deduct and pay tax--
If a person, without reasonable cause or excuse, fails to deduct or after deducting, fails to pay the tax as required by or under the provisions of sub-section (9) of section 80E or Chapter XVII-B, he shall be punishable, -
(i) in a case where the amount of tax which he has failed to deduct or pay exceeds one hundred thousand rupees, with rigorous imprisonment for term which shall not be less than six months but which may extend to seven years and with fine;
(ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine."
12.The relevant provisions of Section 194A of the Act read as under:
"Interest other than "interest on securities" ---Page 6 of 13
ITO Vs. M/s Delhi Iron Works Ltd. & Ors CC No.823/87 (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income chargeable under the head "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 by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income- tax thereon at the rates in force: Provided xxx (2) xxx "
13.Section 194-A of the Act (which falls in Chapter XVII-B) requires deduction of income tax at rates in force on payment of any interest to any resident. The assessee/ accused no. 1 is a company. Section 194-A does not apply to a payer who is an individual or an HUF. Therefore, accused no. 1 being a company was under obligation to deduct income tax on payment of interest paid to various companies and also to pay the same to the Government. The fact of payment of interest to various companies is not in dispute.
14.The words "without reasonable cause or excuse" were deleted from S. 276B of the Act w.e.f. 10.9.1986. As the present complaint case relates to the assessment year 1976-77, the accused can take benefit of the said words, if available to them on facts.
15.Ld. Counsel for the accused argued that there was reasonable cause or excuse for not deducting the tax at source. She submitted that these were only book transfers as the companies to whom the payments were Page 7 of 13 ITO Vs. M/s Delhi Iron Works Ltd. & Ors CC No.823/87 made were sister companies. She stressed that the latter companies were required to pay the tax on the payments so received by them and she asserted that those companies did pay tax on such payments. On the other hand, Ld. Standing Counsel argued that there was no cross- examination regarding existence of reasonable cause or excuse. He submitted that there is no evidence from the defence concerning it. He also urged that it was duty of the accused company to deduct the income tax at source as it was the payer.
16.In my view, after reading S. 194-A of the Act, there remains no doubt that it is the duty of the payer to deduct the income tax and to pay the same to the Government. Any violation of the same is punishable u/s. 276B of the Act. It is no excuse, what to say of reasonable, that the payments were book transfers to sister companies and sister companies were to pay tax. Ld. Standing Counsel has also drawn my attention to the fact that tax was not paid by those sister concerns. He pointed out to a document which has been put to the prosecution witness by the accused in cross-examination done on 28.9.2004 which is Mark A and which shows that the accused had paid the TDS on interest only on 25.6.1992. From this it is absolutely clear that TDS was deposited by accused company and only after filing of the complaint case. This payment is of no use. Late payment of TDS does Page 8 of 13 ITO Vs. M/s Delhi Iron Works Ltd. & Ors CC No.823/87 not obliterate the offence u/s 276B of the Act.
17.Ld. Counsel for the accused argued that, if at all, it was only the company which has committed the offence. Ld. Counsel referred to Sec. 2 (35) of the Act and submitted that no notice was given to accused by the complainant thereby informing to accused as to which of them would be treated as principal officer. She submitted that the said notice has not even been exhibited. Per contra, Ld. Standing Counsel argued that no such notice was required to be issued to them. He submitted that notice only to company was sufficient. Ld. Counsels also cited various authorities in support of their contentions.
18.The necessity to issue notice u/s 2(35) of the Act arises due to the expression "person responsible for paying" mentioned in S. 194A of the Act. To find the meaning of these words, we have to see the relevant provisions of S. 204 of the Act and which provide as under:
"204. Meaning of person responsible for paying ---- For the purposes of sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D and sections 195 to 203 and section 285, the expression "person responsible for paying" means -
(i) xxx; (ii) xxx:
(iii) in the case of credit, or, as the case may be, payment of any other 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."
(italics by me) Page 9 of 13 ITO Vs. M/s Delhi Iron Works Ltd. & Ors CC No.823/87
19.Now what is principal officer is defined in S. 2(35) of the Act which provides as under:
"2(35) "principal officer", used with reference to a local authority or a company or any other public body or any association of persons or any body of individuals, means-
(a) the secretary, treasurer, manager or agent of the authority, company, association or body, or
(b) any person connected with the management or administration of the local authority, company, association or body upon whom the Assessing Officer has served a notice of his intention of treating him as the principal officer thereof "
(italics by me)
20.Ld. Counsel for the accused referred to various decisions such as [1984] 149 ITR 798 (Mad.) titled "M.R. Pratap v. V.M. Muthuramalingam", [1999] 106 Taxman 318 (Mad.) titled "ITO v. Roshni Cold Storage (P) Ltd.", [1993] 199 ITR 391 (P & H) titled "Greatway (P) Ltd. & Ors. v. Asstt. Commr. Of Income Tax" in furtherance of this limb of argument.
21.In all these cases, it has been held that for prosecution u/s 276B of the Act, a notice u/s 2(35) of the Act is mandatory. This notice would be required in case of even the Director(s) or Managing Director of a company.
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ITO Vs. M/s Delhi Iron Works Ltd. & Ors CC No.823/87
22.To counter these, Ld. Standing Counsel referred to [1997] 223 ITR 68 (Mad.) titled "ITO v. Dinesh K. Shah", [1977] 110 ITR 655 (Mad.) titled "M.R. Pratap v. V.M. Muthukrishnan", 238 ITR 461 (SC) titled "UOI & Anr. v. Banwari Lal Agarwal", and [2007] 290 ITR 199 (SC) titled "Madhumilan Syntex Ltd. & Ors. v. UOI & Anr.".
23.In Dinesh K. Shah's case (supra), it was held that a notice u/s 2(35) of the Act is not required as liability also arises by virtue of S. 278B of the Act. It was further held that prosecution u/s 276B can be lauched against principal officer as provided in this section itself and also against a partner of a firm with the aid of S. 278B. This case does not help the prosecution since it was a case relating to a partnership firm and not a company. Perusal of the judgment shows that in case of a company, the notice will be required. Further, aid of S. 278B of the Act was taken in that decision. However, in the present case, S. 278B has not been invoked. Neither the complaint refers to it nor the accused were summoned with aid of this provision nor charged under this section. In my considered view, when accused have not been summoned with the aid of S. 278B nor charged thereunder, it would not be proper at this stage to invoke the said provisions. Thus, liability of accused will be determined only as per principles applicable to S. 276B. In Madhumilan's case (supra), Hon'ble Supreme Court has discussed the Page 11 of 13 ITO Vs. M/s Delhi Iron Works Ltd. & Ors CC No.823/87 law and held that "To treat the directors of a company as "principal officers" there is no need to issue a separate notice or communication to them that they are to be treated as "principal officers", before the issuance of the show-cause notice under section 276B read with section 278B. It is sufficient that in the show-cause notice under section 276B read with 278B, it is stated that the directors are to be considered as principal officers of the company under the Act and such a complaint is entertainable by the court provided it is otherwise maintainable." This decision is also not helpful to the prosecution because firstly, it does not lay down that no notice is required rather it only held that separate notice is not required; and secondly, as the show-cause notice dt. 10.4.80 Ex. PW3/1 is only u/s 276B of the Act and there is no mention of S. 278B in the said notice, the said notice is defective. In the said notice it has not been stated that the directors are to be considered as principal officers. No name of any of the directors is mentioned in the said notice. The notice, thus, does not meet the requirements as propounded by Hon'ble Supreme Court in the abovenoted judgment. It is apparent from this judgment that it has to be conveyed to a director of a company, in any manner, that he is to be treated as principal officer of the company. There is another notice dt. 8.10.86 Ex. PW1/5 in which reference is made to S. 278B of the Act. This notice is also Page 12 of 13 ITO Vs. M/s Delhi Iron Works Ltd. & Ors CC No.823/87 defective as it does not state name of any director nor that such director would be considered as principal officer. Needless to repeat that neither the complaint was filed under S. 278B nor accused were summoned with aid of S. 278B nor charged thereunder.
24.The M.R. Pratap's case (supra reported as 110 ITR 655) was a case of concealment of income and is not applicable to the present case. It must be kept in mind that the requirement of notice for treating someone as principal officer is peculiar to case of S. 276B of the Act and that is because of use of the expression "person responsible for paying"
occurring therein. Similarly, Banwari Lal's case (supra) was case of willful attempt to evade tax and is inapplicable to the present case.
Thus, accused no. 3 S.K. Dass is not liable as principal officer of accused no. 1 company in the present case.
25.Ld. Counsel for the accused also highlighted that there is bar of limitation. She submitted that the complaint case was filed beyond period of limitation. This contention was opposed by Ld. Standing Counsel and he referred to the provisions of The Economic Offences (Inapplicability of Limitation) Act, 1974 and the Schedule appended thereto. It has been provided in this Act that for prosecution for offences under the enactments mentioned in the Schedule, there is no Page 13 of 13 ITO Vs. M/s Delhi Iron Works Ltd. & Ors CC No.823/87 limitation period. The Income Tax Act, 1961 is included in the Schedule and thus bar of limitation does not apply to the present case. Thus contention of Ld. Counsel for the accused is without any merit.
26.Ld. Counsel for the accused also submitted that there was non- application of mind while granting sanction for prosecution. According to her, there was no loss of revenue and therefore, no prosecution should have been initiated. I am not impressed with this argument. Loss of revenue is not a condition for grant of sanction for prosecution under the Act. The liability is absolute and no mens rea is required. The authorities cited by Ld. Standing Counsel such as [1987] 167 ITR 49 (Del.) titled "Rishikesh Balkishandas & Ors. v. Manchanda, ITO", [1992] 196 ITR 473 (P&H) titled " Jagmohan Singh v. ITO", and [2002] 256 ITR 185 titled "ITO v. Sultan Enterprises & Ors." can be successfully referred to. Ld. Counsel for the accused had referred to [2002] 256 ITR 148 (Raj.) titled "S.G. Kale v. UOI" in which sanction was held to be not valid. However, the facts of the said case are different. The reasons for which sanction was held to be invalid in that case do not exist in the present case. Further, that was a writ petition before Hon'ble Rajasthan High Court for quashing the authorisation for prosecution. This court cannot quash the sanction for prosecution and thus the principles for adjudicating the validity of the authorisation Page 14 of 13 ITO Vs. M/s Delhi Iron Works Ltd. & Ors CC No.823/87 cannot be used in the present proceedings.
27.From the above discussion, I conclude that acccused no. 1 company M/s Delhi Iron Works Ltd. has committed offence punishable u/s 276B of the Income Tax Act, 1961 and is held guilty and convicted accordingly. However, as far as accused no. 3 S.K. Dass is concerned, he being prosecuted as principal officer of the accused no. 1 company and there being defective notice, he is entitled to be acquitted and is hereby acquitted of the charge. His bail bond is cancelled and surety is discharged. Let convicted company be heard on sentence. Announced in Open Court today th on 8 day of September, 2009 (SANJAY BANSAL) Additional Chief Metropolitan Magistrate-02/North/Delhi Page 15 of 13