Bangalore District Court
The Income Tax Department By The vs M/S.Vir Retail Private Limited on 4 September, 2021
1 CC No.92/2014
BEFORE THE SPECIAL COURT FOR ECONOMIC
OFFENCES: AT BANGALORE.
Dated this the 4th day of September 2021.
:Present:
Smt. Preeth. J., B.A.(L)., LL.B.,
Presiding Officer, Special Court
For Economic Offences, Bangalore.
CC.No.92-2014.
Complainant: The Income Tax Department by the
Assistant Commissioner of Income Tax,
TDS Circle -18(2), H.M.T. Bhavan,
Bangalore - 560 032.
(By Sri. S.S.H., Advocate (Spl.P.P)]
Vs.
Accused: 1. M/s.VIR Retail Private Limited,
No.107, Industrial Suburb, 2nd Stage,
Yeshwanthapur, Bangalore - 560 022.
(A company registered under Companies
Act, rep. by its Managing Director.)
2. Nitin N. Mandhana, Director,
M/s.VIR Retail Private Limited, No.333
Embassy Woods, Cunningham Road,
Bangalore - 560 052
3. Shashikant G. Mandhana, Director,
M/s. VIR Retail Private Limited,
No.106, 3rd Main, 2nd Stage, 1st Block,
Aswantinagar, Dollars Colony,
Bangalore - 560 034.
(By Sri. S.S.N., Advocate)
2 CC No.92/2014
JUDGMENT
1. The accused herein have faced the trial for the offence punishable under section 276B of the Income Tax Act, 1961, based on the complaint instituted by the Income Tax Department represented by its Assistant Commissioner of Income, TDS Circle-18(2), H.M.T. Bhavan, Bangalore.
2. The brief facts of the case are that the first accused being a registered company is engaged in the business of manufacturing and distributing the garments. The second and third accused persons are the Directors of the first accused/company and they are responsible for the day-to- day conduct of business thereof. The first accused after having deducted the TDS from the salary of its employees and other payments filed quarterly statement as required under section 203 of the Income Tax Act through online. But on verification, it was found that the first accused had not remitted the TDS beyond the stipulated period as prescribed in Rule 30 of the Income Tax Rules. Thus, there was one year delay in remitting the TDS to the Government.
3 CC No.92/2014
3. Since the first accused did not remit the TDS amount within prescribed period of time without any justifiable cause, and there was default on the part of second and third accused in discharging their duties as Directors, notices under section 2(35) of the Income Tax Act were issued to them on 05.03.2013, treating them as Principal Officers of the first accused/company. So also, the Commissioner of Income Tax (TDS) decided to launch prosecution against all the accused for the offence punishable under section 276B of the Income Tax Act, and also accorded the sanction under section 279 of the Act, on 31-01-2014, authorizing the Assistant Commissioner of Income Tax (TDS) Circle-18(2), Bangalore, to file the complaint against them. For these reasons, the complainant has prayed that the accused be punished in accordance with law.
4. After the complaint being filed, the cognizance was taken for the offence alleged and criminal case was registered against the accused persons by dispensing with sworn statement as the complainant's representative is a Public Officer. Then, the accused appeared before the 4 CC No.92/2014 court in pursuance of the summons and were enlarged on bail. The copies of complaint and other documents were furnished to them.
5. Subsequently, the evidence before charge was recorded.
In as much as there were no grounds to discharge the accused, the charge was framed and substance of accusation was read over and explained in the language known to them. They pleaded not guilty and claimed to be tried. As such, the complainant was called upon to lead evidence.
6. In order to bring home the guilt of the accused, the complainant has examined its Assistant Commissioner and the Deputy Commissioner of Income Tax as PW1 and PW2, and got eight documents marked as exhibits in its favour.
7. After the closure of the evidence of the complainant, the statements of the accused as required under section 313 of Cr.P.C. have been recorded. They have denied the incriminating evidence appearing against them and have not chosen to lead evidence in defence.
5 CC No.92/2014
8. Heard the arguments advanced by both the advocates for the complainant and accused. Upon hearing their arguments and on going through the materials on record, the following points arise for determination of the court:
Point No.1: Whether the complainant has proved that the accused No.1 company has committed the offence punishable under section 276B of the Act?
Point No.2: Whether the complainant has proved that the accused No.2 and 3 were in charge of and responsible for the conduct of the business of the accused No.1 Company during the relevant period, hence they are liable for the punishment for the offence punishable under section 276B as provided under section 278B of the Act? Point No. 3: What order?
9. My findings on the above said points are as under:
Point No.1: In the Negative, Point No.2: In the Negative, Point No.3: As per the Final orders for the following:
REASONS
10. Point No.1: The accused No.1 is a Limited Company and the complainant came up with case that accused No.1 deducted the TDS for the Financial Year 2009-10, but not 6 CC No.92/2014 deposited the deducted TDS within time. Ld. counsel for the accused argued that the sanctioning authority has not applied its mind while according sanction to prosecute the accused No.1 to 3. As such, the prosecution is bad in law. The sanction order is produced and marked by the complainant as Ex.P.1. On perusal of the same, it goes to show that the sanctioning authority has taken into consideration all the relevant materials and then issued Ex.P1. Thus, the line of argument by the Ld. counsel for the accused that sanction is bad in law is not sustainable.
11. Sri.Ujjawal Kumar, the then Assistant Commissioner of Income Tax (TDS), Circle-18(2), Bangalore is examined as PW2. He has deposed that the accused had deducted tax at source during the Financial Year 2009 - 2010, but had not remitted the same within the prescribed time as per the Act and Rules. The letter addressed to accused No.1 which is dated:18-09-2012 enclosed with the details of the TDS deducted and remitted belatedly is produced and got marked as Ex.P5. Though, this document is marked without any objection from the side of the accused, during the course of arguments Ld. Counsel for the accused submitted 7 CC No.92/2014 that the enclosed details cannot be taken into consideration since certificate under section 65B of the Indian Evidence Act is not enclosed. Admittedly, certificate under section 65B of the Indian Evidence Act, is necessary to prove the computer generated record. In the present case, Ex.P5 which is the computer generated document showing the details of the TDS deductions and delayed payment is not accompanied with the certificate under section 65B of the Indian Evidence Act to remove the deficiency. As such, Ex.P5 is hit by the provisions of section 65B of the Indian Evidence Act. As such, the said document cannot be relied upon as the same is inadmissible.
12. It is argued by the counsel for the accused that the complainant has not treated accused No.1 company as defaulter as per section 201 of the Act and the complainant has also not imposed or levied any penalty on accused No.1 as required under section 221 of the Act. This is also admitted by PW2 in the cross-examination. Now the question here is whether the prosecution of the accused under section 276B of the Act could be sustained without determination of the liability of the accused under section 8 CC No.92/2014 201 of the Act. A bare reading of section 201of the Act, makes it clear that without prejudice to any other consequences, which the accused may incur; he is deemed to be an assessee in default in respect of such deduction. Therefore, it follows that in a case of failure to deduct or to pay the tax deducted at source, accused may invite penalty consequent upon the adjudication it may also without prejudice to any other consequences lead to prosecution of the accused. So far as prosecution under section 276B is concerned, it is not controlled either by section 201(1A) or section 221. In this regard, it is necessary to rely upon the judgment of the Hon'ble High Court of Karnataka between Onora Hospitality Pvt. Ltd. VS ACIT wherein, it is held that prosecution under section 276B is, it is not controlled either by section 201(1A) or section 221. As such, the limb of argument on the point of not treating the accused No.1 as defaulter and not imposing penalty before sanction to prosecute or before lodging this complaint, has no force in it.
13. Ex.p.8 is the reply dated:30-08-2012 issued by accused No.1 company. On perusal of the same, it goes to 9 CC No.92/2014 show that the same is signed by the Authorized signatory of the accused No.1 company. The contents of the said documents goes to show that, the accused No.1 has remitted the TDS belatedly. Admittedly, the said Authorized signatory is not a party to this complaint. As could be seen from the cause title of the complainant, the accused No.1 is said to have been represented by the Managing Director. But who is the said Managing Director is not named. Moreover, the Directors of the accused No.1 company are arrayed as accused No.2 and 3 which goes to show that they are not the Managing Directors of the accused No.1 company. The certified copy of the judgment passed by this court in CC.No.259/2018 is produced along with two more judgments passed by this court. The above referred case is pertaining to the very same accused persons. Since, the said judgment is the court document; this court is inclined to take judicial note of the same. As could be seen from the said judgment, it goes to show that the accused No.1 company is liquidated. Moreover, when the alleged Managing Director of the accused No.1 company is not arrayed as accused/party in the present case, the accused 10 CC No.92/2014 No.1 which is a legal entity cannot be convicted for the alleged offence. Accordingly, this Point No.1 is answered in Negative.
14. Point No.2: The accused No.2 and 3 who are the Directors of the accused No.1 company are treated as Prl. Officers of accused No.1 and it is stated that they are is responsible for the day today conduct and business of accused No.1. Hence, they are vicariously liable for the offence committed by accused No.1 by virtue of 278B of the Act. The accused No.2 and 3 have taken up the contention that they are not the Prl. Officers of accused No.1. The documents on record discloses that notice under section 2(35) of the Act was issued to the accused No.2 and 3 treating them as Prl. Officers. But that alone will not make them vicariously liable for the offence committed by accused No.1. Under Section.278B of the Act, the basic requirement, which the prosecution must prove will be that the accused No.2 and 3 were in charge of, and were responsible to, for the conduct of the business of the company, it is only then, that they can be vicariously prosecuted along with the company. The proviso to 11 CC No.92/2014 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 a decision reported in (2007) 4 SCC 70 between S.M.S. Pharmaceuticals Ltd., Vs. Neela Bhalla and another, by referring to section 141 of the Negotiable Instruments Act, which is analogous to section 278B of the Act held that "under section 141, a Director does not automatically become vicariously liable for offence committed by company - It has to be averred in 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 section 141 have to be read conjointly and disjunctively - Liability of Director to be determined on the date on which the offence was committed".
15. In another decision reported in (2007) 9 SCC 481, between N.K.Vashi Vs. Shekhar Singh and others, 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 12 CC No.92/2014 Directors were in charge and responsible for the conduct of the business of the company - Description should be clear." In another decision reported in (2010) 3 SCC 330, between National Small Industries Corporation Limited Vs. Harmeet Singh Paintal and another, 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 decisions referred above, it has been reiterated that burden is upon the complainant to plead and prove that the accused No.2 and 3 are vicariously liable for the act done by the accused No.1 company. Here, in this case, except averments to the effect that accused No.2 and 3 are responsible for the day today conduct and business of accused No.1 company, there is no cogent evidence to substantiate the same. Ld. counsel for the complainant argued that accused No.2 and 3 have not denied the status 13 CC No.92/2014 given in the notice issued under section 2(35) of the Act. But, for that reason alone, it cannot be held that accused No.2 and 3 are the Prl. Officers of accused No.1 company. Thus, the court is of the considered opinion that the complainant has failed to prove that the accused No.2 and 3 were responsible for day today affairs of the accused No.1 company. As such, the accused No.2 and 3 are not vicariously liable for the Criminal Act of the accused No.1 company as provided under section 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 By exercising the power conferred under section 248(1) of the Cr.P.C. the accused No.1 to 3 are acquitted from the charge of offence punishable under section 276B, R/w.sec.278B of Income Tax Act, 1961. The bail bonds of accused No.2 and 3 shall stand cancelled.
(Typed by me on the computer, corrected by me and then pronounced th by me, in open court on this the 4 day of September - 2021.) PRESIDING OFFICER.14 CC No.92/2014
ANNEXURE:
List of the Witnesses examined on behalf of the Complainant:
P.w.01 - Smt.Shilpa N.C., P.w.02 - Ujjawal Kumar.
List of the Documents exhibited on behalf of the Complainant:
Ex.p.01 -
Sanction Order, Ex.p.02 -
Complaint, Ex.p.02 -
(a) Sig. of P.w.1, Ex.p.03 -
O/c of Notice dated: 05.03.2013, Ex.p.04 -
O/c of Notice dated: 05.03.2013, Ex.p.05 -
O/c of Letter dated: 18.09.2012, Ex.p.06 -
O/c of Letter dated: 19.02.2013, Ex.p.07 -
O/c of Show Cause Notice dated: 13.08.2012, Ex.p.08 - Reply Letter dated: 30.08.2012. List of Witnesses examined on behalf of the Accused:
Nil.
List of Documents examined on behalf of the Accused:
Nil.
(PREETH J.,) PRESIDING OFFICER, SPL. COURT FOR ECONOMIC OFFENCES, BANGALORE.15 CC No.92/2014