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1. The Income-tax Officer, Headquarters, TDS, and the Income-tax Officer, Salaries Circle, Madras, have preferred three complaints before the Additional Chief Metropolitan Magistrate (Economic Offences-I), Madras-8, against the respondents herein under Section 276B and Section 276B read with Section 278B of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for their failure to deduct income-tax at source from the interest amounts paid to various persons as per Section 194A of the Act. The first respondent is the firm and the second respondent is the partner of the first respondent-firm.

2. The first respondent-company in E. O. C. C. Nos. 292 to 360 of 1987 (Criminal R. C. No. 417 of 1987) furnished its return of income, which was signed by the second respondent, in the form of trading, profit and loss account and balance-sheet for the accounting year ending September 30, 1982 (assessment year 1983-84), on December 30, 1985. In the statement accompanying the return, the firm claims to have paid interest to the extent of Rs. 6,64,565.98 to various parties. Of these, there were payments of over Rs. 1,000 in the aggregate during the financial year in respect of 68 parties. The respondents have failed to deduct tax of Rs. 2,400, on the interest credited to Sri Finance Corporation on various dates. Since the first respondent had failed to deduct the tax at source as per the provisions of Section 194A of the Act, show-cause notice under Section 276B of the Act was issued on October 31, 1986, calling for the assessee's explanation for non-deduction of tax at source under Section 194A of the Act. There was no response from the firm. For the failure on the part of the first respondent-firm to deduct tax at source from the amount of interest paid to the creditors and thereafter to remit the same within seven days from the last day of the month in which deduction was made or within two months of the expiration of the month in which the date of crediting to the parties amount falls, to the credit of the Government of India's account as stipulated in Rule 30(1)(b) of the Income-tax Rules, 1962, which is without reasonable cause or excuse, the Department seeks to prosecute the first respondent-firm under Section 276B of the Act. The second respondent being the managing partner of the first respondent-firm at the material time, is responsible for the conduct of the business of the firm, and has committed the offence under Section 276B read with Section 278B of the Act. Therefore, the above complaint was filed requesting the trial magistrate to take the complaint on file, issue process to the accused/respondents and deal with them in accordance with law.

4. The first accused in C. C. Nos. 268 to 291 of 1987 on the file of the Additional Chief Metropolitan Magistrate (Economic Offence-I), Madras-8, is the firm functioning at Madras and accused Nos. 2 and 3, respondents Nos. 1 and 2 are the partners, who are responsible for the conduct of the business of the firm. They filed the return for the year ended on March 31, 1980, and the final accounts in the form of trading, profit and loss account and balance-sheet. In the statement of interest paid account, the firm had claimed to have paid interest to the extent of Rs. 99,000 to eight persons. It is stated that the accused have delayed the remittance of tax deducted at source to the Government of India's account from the interest. The firm remitted the TDS amount after a delay of nearly two months. Therefore, summons under Section 131 of the Act were issued to the assessee on November 13, 1986, asking them to appear on November 21, 1986, with books of account for the years ended March 31, 1980, to March 31, 1983. On December 9, 1986, the assessee filed a letter dated December 12, 1986, relating to the assessment year 1980-81 along with the particulars of interest paid, TDS paid, etc. The assessee in their explanation had stated that all the depositors were already on the list of the assessee and due to misapprehension, the depositors themselves paid advance tax on these interest payments. It is, therefore, stated that the failure on the part of the firm to deduct tax at source from the amount of interest paid to the creditors and thereafter remit the same within the time stipulated is without reasonable cause or excuse, and as such, the first accused/firm has committed the offence punishable under Section 276B of the Act and accused Nos. 2 and 3/respondents have committed the offence punishable under Section 276B read with Section 278B of the Act.

Consequently, the managing director of a company cannot be held liable under Section 276B unless the Income-tax Officer has served a notice on him under Section 2(35)(b) and informed him of his intention to treat him as the principal officer of the company."

54. The decision in G. Anantharamiah v. ITO, [1992] L. W. (Crl.) 173 was decided by K. Swamidurai J. In that case, the first accused was a partnership firm carrying on business as film exhibitors. The second accused is the managing partner and the third accused was the joint managing partner of the first accused-firm and the fourth accused was an employee of the first accused-firm, in charge of financial borrowings, bank transactions, interest payments, etc. The Income-tax Officer, Madras-34, filed a complaint under Section 276B read with Section 278B of the Act for failure to remit the tax deducted at source to the credit of the Government of India within the time prescribed under Section 200 of the Act read with Rule 30(1)(b)(i)(2) of the Income-tax Rules, 1962. The main contention raised by the fourth accused, was, that he was not the person responsible to and in charge of the company for the conduct of the business of the company and so, he should not be charged for the alleged offences. The learned judge, after referring to Sections 200, 276B and 278B of the Act, and following the decision in Shital N. Shah v. ITO, [1991] 188 ITR 376 ; [1990] L. W. (Crl.) 478, held that the prosecution has failed to prove that the fourth accused is a person responsible for payment of tax deducted to the Government and is also a person in charge of and responsible for paying the said amount. Therefore, the learned judge held that the charge as against the fourth accused under Sections 276B and 278B of the Act is not maintainable.