Bangalore District Court
The Asst. Commissioner Of Income Tax vs M/S. Scissors Enirch Beauty & Fitness on 5 April, 2019
1 CC.No.100-16
BEFORE THE SPECIAL COURT FOR ECONOMIC
OFFENCES: AT BANGALORE.
Dated this the 5th day of April 2019.
: Present:
Sri. SHANTHANNA ALVA M., B.A., LL.B.,
Presiding Officer, Special Court
for Economic Offences, Bangalore.
CC. No. 100-2016.
Complainant: The Asst. Commissioner of Income Tax,
(TDS), Circle-3(1), Income Tax
Department, H.M.T., Bhavan,
Bangalore.
(By Spl. P.P. Sri. J.J.N.,)
. Vs.
Accused: 1. M/s. Scissors Enirch Beauty & Fitness
Private Limited., No.67, 1st Floor,
15th Cross Road, 6th B Main Road,
Sarakki Indl., Layout, 3rd Phase
J.P. Nagar, Bangalore-560078.
(Company registered under Companies Act.
Rep. by Himansu D. Sanghvi Prl. Officer)
2. Himansu D. Sanghvi, Principal Officer,
52 Years, No.67, 1st Floor, 15th Cross
Road, 6th B Main Road, Sarakki Indl.,
Layout, 3rd Phase, J.P. Nagar, Bangalore.
(By Sri. V.J.S., Advocate)
JUDGMENT
1. The complainant/Asst. Commissioner of Income Tax, Income Tax Department, TDS, Circle-3(1), H.M.T. Bhavan, 2 CC.No.100-16 Bangalore on being authorized under sanction order dated:
28.10.2015 u/s.279 of the Income Tax Act, 1961, (Herein after referred as "the Act"), filed the complaint u/s. 200 of Cr.P.C., alleging that accused No.1 committed the offence punishable u/s.276B of the Act and accused No.2 being the Prl. Officer, he is vicariously liable for the offence committed by accused No.1
2. The complainant's case in brief is that the accused No.1-M/s.Sessors Enrich Beauty & Fitness Private Limited, Bangalore is a Limited Company and it falls under the jurisdiction of the Commissioner of Income Tax (TDS). Accused No.1 engaged in the business of beauty and saloon parlors, Accused No.2 is responsible for the day today conduct and business of accused No.1 and the Assessing Officer vide notices dated: 12.08.2013 and 07.01.2014 issued u/s.2 (35) of the Act, treated accused No.2 as the Prl. Officer of the accused No.1. The accused No.1 for the Financial Year 2009-10 and 2010-11, deducted the TDS of Rs.13,89,937/- and Rs.7,09,644/- respectively as TDS, but not deposited the deducted TDS within stipulated period as contemplated under Rule.30 of 3 CC.No.100-16 the Income Tax Rules. The Commissioner of Income Tax (TDS) issued the show cause notices u/s.276B R/w. Sec.278B of the Act, to accused No.1 and 2 requiring them to show cause as to why prosecution proceedings should not be initiated for the said default. In response to the notice, Sri.T.Srinivasa, C.A., and Sri. Prasad, the accountant appeared and submitted the written explanation. The investigation confirmed that accused No.1 deducted the TDS, but not remitted within due dates. Thus, the Commissioner of Income Tax accorded the sanction to prosecute the accused No.1 and 2.
3. On presentation of the complaint, cognizance was taken and the case registered against accused No.1 and 2 for the offence punishable u/s. 276B, R/w.Sec.278B of the Act.
4. In response to the summons, the accused No.2 on his behalf and also on behalf of accused No.1 appeared through their counsel and enlarged on bail. Copies of the complaint and other documents were furnished to him. Thereafter, the evidence before charge was recorded as required u/s.244 of the Cr.P.C. and then on hearing the 4 CC.No.100-16 learned Spl. P. P. & accused, the charge was framed against accused No.2 on his behalf and also on behalf of accused No.1 for the offence punishable u/s. 276B, R/w. Sec.278B of the Act and read over to him. The accused No.2 pleaded not guilty and claimed to be tried.
5. To prove the charge leveled against the accused persons, the complainant examined 3 witnesses as P.w.1 to 3 and got marked the documents Ex.p.1 to 12.
6. After closure of complainant's side evidence, the statement of accused No.2 on his behalf and also on behalf of accused No.1 were recorded as provided u/s. 313 of Cr.P.C. The accused persons denied incriminatory evidence found against them. The accused persons not chosen to lead either oral or documentary evidence.
7. Heard the arguments of the learned counsels of the complainant and accused persons. Perused the complaint and the evidence on record. The points that arise for my consideration are:
Point No.1: Whether the complainant has proved that the accused No.1 company has deducted the tax at source amounting to Rs.13,89,937/- and Rs.7,09,644/- for the Financial Year 2009-10 and 2010-11, but failed to credit the same to the Central 5 CC.No.100-16 Government Account within the prescribed time and thereby committed the offence punishable u/s. 276B of the Act? Point No.2: Whether the complainant has proved that the accused No.2 was in charge of and responsible for the conduct of the business of the accused No.1 Company during the relevant period, hence he is liable for the punishment for the offence punishable u/s.276B as provided u/s.278B of the Act?
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: Accused No.1 is a Limited Company and the complainant come up with case that accused No.1 deducted the TDS for the Financial Year 2009-10 and 2010-11, but not deposited the deducted TDS within time. At the first instance, it is argued that the complainant affixed the signature on blank papers and on that complaint was prepared. There is no reliable evidence in this regard. For not affixing the seals and signature at proper place, it 6 CC.No.100-16 cannot be held so. Ld counsel argued that the sanctioning authority not applied it mind while according the sanction, hence prosecution is bad under law. Ex.P.1 is the sanction order and perusal of the order discloses all the relevant materials were considered. Thus the argument that sanction is bad in law is not sustainable.
10. The then Asst. Commissioner of Income Tax (TDS), Circle 18(2), Bangalore examined as P.w.1 - Sri. Ujjawal Kumar, deposed that on going through the system, it found that accused No.1 deducted TDS of Rs.7,09,644/- for the Financial Year 2010-11 and TDS of Rs.13,89,937/- for the Financial Year 2009-10. Ex.p.11 and 12 are the certified copies of the TDS statements submitted by the accused No.1. The objection was raised stating that Ex.p.11 and 12 are the hard copy down loaded from the system, hence without certificate u/s.65B(4) of the Evidence Act, those documents cannot be admitted in evidence. Though, TDS statements were stored in computer, it is a public documents and the public officer is empowered to certify such documents.
7 CC.No.100-16
11. Added to this, the genuinity of the TDS statements are not disputed. Accused No.1 not taken up the contention that it had not deducted the TDS or that deducted TDS was remitted within the time prescribed under Rule.30 of the Income Tax Rules. Ex.p.7 is the reply dated: 06.02.2013 and wherein, it is stated that company facing huge financial problems and accounts were declared as N.P.A. The offence u/s.276B of the Act gets committed on the failure to deposit the deducted TDS from various sources. The accused can prove that the TDS was not actually deducted or had any justifiable reason for not depositing the deducted TDS. The financial crunch is not the justifiable reason for not depositing the deducted TDS. Once the TDS amount is deducted, then the deductor is legally bound to remit the same to the Government. Accused No.1 had no right to retain the TDS amount and make use of the same for any purpose. The financial difficulty is not the defense for the default of remitting the deducted TDS.
12. Ld. Counsel of the accused argued that deducted TDS were remitted with interest and there was no intention on the part of accused No.1 to misappropriate the deducted 8 CC.No.100-16 TDS. It is settled legal proposition that mens-rea is not required to be proved and remittance of TDS with interest will not absolve the deductor from the criminal liability. 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.194a /200/276b of the Act. If the accused fails to make deduction of tax at source, he is liable to be punished for the said offence. If the firm accused fails to pay tax deducted at source, the prosecution and punished under Section.276b is valid." Madras High Court in the case of Rayala Corporation Pvt., Ltd., Vs. V.M. Muthuramalingam, Income Tax Officer, reported in 1981 ITR 129 675, it has been held that "Sec.276B of the Income Tax Act, 1961, attracts to the delayed payments and not only to the case of total failure to pay the tax deducted tax. Delhi High Court in the case of Rishikesh Balkishan Das Vs. I.D. Manchanda reported in 1987 ITR (167) 49 which is held that "Section.276B of 'the Act', also does not contain the word 'knowingly'. It provides punishment for 9 CC.No.100-16 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. Therefore, in a case under Section.276B read with Section. 194A of the Act, mens-rea was not required." Thus the financial difficulty and for lack of mens-rea, it cannot be held that accused No.1 not committed the alleged offence.
13. Ld. counsel of the accused relied upon the ruling rendered in the case of State Vs. M.R. Natarajan, reported in 2012 SCC Online Mad.335, wherein it is held at Para No.25 that "it is well settled principle of law once the accused facing the criminal trial, the presumption that he is innocent, once he acquitted, he is declared as innocent. In such circumstances, burden is heavily upon the prosecution to prove the guilt of the accused beyond reasonable doubt. It is also well settled principle, if two views are possible; the view favouring the accused is to be taken into consideration." The provision contained in the Act, prevails over the general law. Sec.278AA of the Act 10 CC.No.100-16 says that burden of proving the reasonable cause is upon the defaulter in remitting the deducted TDS.
14. It is for the accused No.1 to show that there was reasonable cause for the failure to deposit the deducted TDS within time. Sec.278AA of the Act places the burden on the accused to prove this aspect. The accused No.1 not shown such reasonable cause. Accused taken up only the technical defense and factual grounds coming within the purview of Sec.278AA of the Act is not brought on record. Thus, the court is of the considered view that the complainant succeeded in proving that accused No.1 by not depositing the deducted TDS within stipulated time, committed the offence punishable u/s.276B of the Act. Accordingly, this point No.1 is answered in affirmative.
15. Point No.2: Accused No.2 is arrayed as Prl. Officer of accused No.1 and it is stated that he is responsible for the day today conduct and business of accused No.1, hence vicariously liable for the offence committed by accused No.1 by virtue of 278B of the Act. Accused No.2 taken up the contention that he is not the Prl. Officer of accused No.1. The documents on record discloses that 11 CC.No.100-16 notice u/s.2 (35) of the Act was issued to the accused No.2 treating him as Prl. Officer. But that alone will not make the accused No.2 vicariously liable for the offence committed by accused No.1. Ld. counsel of the accused relied upon the ruling rendered in the case of Shital N. Shah and 5 others Vs. Income Tax Officer, Madras-34, reported in 1990(2) MWN (Cr.), wherein, it is held that "under Section.278B of the Act, the basic requirement, which the prosecution must prove will be that the petitioners were in charge of, and were responsible to, the firm for the conduct of the business of the firm, it is only then, that they can be vicariously prosecuted along with the company. The proviso to section.278-B(1) of the Act will come into operation only after the initial ones cast on the prosecution under the main Section gets discharged." In the case of S.M.S. Pharmaceuticals Ltd., Vs. Neela Bhalla and another, reported in (2007) 4 SCC 70, by referring to Sec.141 of the Negotiable Instruments Act, which is analogous to Sec.278B of the Act held that "under Sec.141, a Director does not automatically become vicariously liable for offence committed by company - It has to be averred in 12 CC.No.100-16 the complaint that the person proceeded against was in charge of, and responsible to the company for the conduct of its business - The said two requirements laid down in Sec.141 have to be read conjointly and disjunctively - Liability of Director to be determined on the date on which the offence was committed - In the present case, the complaint showed that it was only accused No.2 and not Respondent No.1 who was actively associated with the affairs of the company - Mere mentioning of name of Respondent No.1 in purported resolution which authorized accused No.2 to do certain acts on behalf of company, was of no consequence." In the case of N.K.Vashi Vs. Shekhar Singh and others, reported in (2007) 9 SCC 481, wherein, it is held that "for launching a prosecution against the alleged Directors, there must be a specific allegation in the complaint as to the part played by them in the transaction - Allegation should be clear and unambiguous as to how the Directors were in charge and responsible for the conduct of the business of the company - Description should be clear." In the case of National Small Industries Corporation Limited Vs. Harmeet Singh Paintal and 13 CC.No.100-16 another, reported in (2010) 3 SCC 330, wherein, it is held that "not every person connected with the company but only those in charge of and responsible for conduct of business of the company at the time of commission of offence, held, vicariously liable, hence, Director of accused company who was not in charge of or responsible for the conduct of its business at the time of commission of offence, held, not so liable."
16. In the rulings referred above, it has been reiterated that burden is upon the complainant to prove the required ingredient as to prove the vicarious liability. Here, in this case, except averments to the effect that accused No.2 is responsible for the day today conduct and business of accused No.1 company, there is no reliable evidence to substantiate this stand. Ld. counsel of the complainant argued that accused No.2 not denied the status given in the notice issued u/s.2 (35) of the Act. But, for that reason alone, it cannot be held that accused No.2 is the Prl. Officer of accused No.1. Thus, the court is of the considered view that the complainant failed to prove that the accused No.2 was responsible for day today affairs of the accused No.1 14 CC.No.100-16 company, hence he is vicariously liable for the Criminal Act of the accused No.1 company as provided u/s.278B(1) of the Act. Accordingly, this point No.2 is answered in negative.
17. Point No.3: In view of my findings on Points No.1 and 2, I proceed to pass the following order.
ORDER By exercising the power conferred u/s.248 (1) of Cr.P.C. the accused No.2 is acquitted from the charge of offence punishable u/s.276B of the Income Tax Act, 1961.
By exercising the power conferred u/s.248 (2) of Cr.P.C. the accused No.1 convicted for the offence punishable u/s.276B of the Income Tax Act, 1961.
Bail bond of accused No.2 shall stand cancelled. To hear regarding sentence on accused No.1. (Dictated to the Stenographer, directly on computer, typed by her corrected and then th pronounced by me, in open court on this the 5 day of April - 2019.) PRESIDING OFFICER.
15 CC.No.100-1609.04.2019 ORDER ON SENTENCE
18. Heard on sentence of the learned counsel of accused No.1 and Spl. P. P.,
19. The learned counsel of accused No.1 company, argued that due to the acute financial problems TDS amounts were not remitted and with great difficulty TDS amount with interest were paid. The learned counsel of the complainant argued that the accused No.1 Company willfully neglected to deposit the TDS, hence prayed to impose maximum possible fine.
20. The accused No.1 is juristic person, hence substantial sentence cannot be awarded. It appears that due to financial difficulty TDS were not were not credited to the Account of the Government. It is submitted that company is in the verge of closure. Thus, I hold fine of Rs.25,000/- has to be imposed. Accordingly, the court has to pass the following:-
ORDER The accused No.1 company is sentenced to pay fine of Rs. 25,000/- (Rupees Twenty Five Thousand 16 CC.No.100-16 only) for having committed the offence punishable u/s.276B of the Income Tax Act, 1961.
The accused No.2 shall pay the fine imposed on accused No.1 Company.
Bail bonds of the accused shall stand cancelled. (Dictated to the Stenographer, directly on computer, typed by her corrected and then pronounced by me, in open court on this the 9th day of April - 2019.) PRESIDING OFFICER.
ANNEXURE:
ON BEHALF OF THE COMPLAINANT:
Witnesses:
P.w.01 - Ujjawal Kumar, P.w.02 - Mehare Yogesh Prabhakarrao, P.w.03 - Smt.N.C.Shilpa.
Documents:-
Ex.p.01 - Sanction order, Ex.p.02 - Complaint, Ex.p.02 - (a) Sig. of P.w.2, Ex.p.03 - Notice dated:12.08.2013, Ex.p.04 - Reply dated:04.09.2013, Ex.p.05 - Notice dated:07.01.2014, Ex.p.06 - A/c of Notice dated:12.02.2013, Ex.p.07 - Reply dated:06.02.2013, Ex.p.08 - Reply dated:18.02.2013, Ex.p.09 - C/c of Notice dated:30.01.2013, Ex.p.10 - C/c of Notice dated:12.02.2013, Ex.p.11 - A/c of TDS Statement for the Financial Year 2009 -10, Ex.p.12 - A/c of TDS Statement for the Financial Year 2010-11.17 CC.No.100-16
MATERIAL OBJECTS: Nil.
ON BEHALF OF THE ACCUSED: Witnesses & Documents: Nil.
(SHANTHANNA ALVA M.) PRESIDING OFFICER, SPL. COURT FOR ECONOMIC OFFENCES, BANGALORE.