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10. Under Section 278B where an offence under this Act has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. In this section itself, there is an explanation according to which for the purposes of this section, a company includes a firm. As regards the firm, the partners thereof are the persons who are in charge of the firm and they are responsible for the conduct of the business of the firm. Therefore, under Section 278B for the offence committed by the firm, the partners are deemed to be liable. Hence, if the allegation that tax has not been deducted from the interest payable by the firm is true, then under Section 278B along with the firm, the partners also would have committed an offence. This being the case, no notice under Section 2(35)(b) arises at all.

31. It is seen from the Explanation to Section 278B of the Act that the partner of a firm or, as the case may be, a member of other association, is also liable to be convicted for an offence committed by the firm or other association if he is in charge of and is responsible to the firm or other association for the conduct of the business of the firm or association or if it is found that the offence is committed with the consent or connivance or is attributable to any neglect on the part of the partner or member concerned. The expression "a person in charge and responsible for the conduct of the affairs of a company" appearing in Sub-section (1) of Section 278B would also refer to a firm or other association in view of the Explanation to Section 278B. The test, therefore, to be applied to a director in charge of a company must also necessarily apply to the partner of a firm or, as the case may be, member of other associations, in charge of a business. In that context, a person "in charge" must mean a person in overall control of the day-to-day business of the company or firm or other association.

50. The Delhi High Court while considering the insertion of Section 278B in the Income-tax Act, in the decision in Parmeet Singh Sawney v. Dinesh Verma, [1988] 169 ITR 5 ; 1 Crimes 153, held as follows (at page 7) :

" Before the introduction of this section (Section 278B), a firm alone could have been proceeded against. Mr. Jolly states that 'firm' includes its partners and they as well could be prosecuted. I must at once point out that Mr. Jolly is labouring under a misconception. Under the Partnership Act, partners, of course, will be liable for all the liabilities but we are in a different field. Section 278B, which was brought into existence on October 1, 1975, for the first time, made every person connected with the affairs of the company liable for prosecution, The fact of the matter is that earlier to the introduction of Section 278B, the partners could not be prosecuted and the firm alone could be prosecuted. The person referred to in Section 276B is in the context of the definition of 'person' as contained in Section 2(31) of the Income-tax Act. Otherwise also, Mr. Sethi's contention seems to be strong that in case the partners were to be proceeded against in the absence of Section 278B, there was no need for the Legislature to introduce Section 278B as has been done in the year 1975."

56. As already seen, Section 276B of the Act provides that if a person fails to pay to the credit of the Central Government, the tax deducted at source by him as required by the provisions of Chapter XVII-B, he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine. Section 278B of the Act deals with offences committed by the companies. The definition "company" for the purpose of the said section includes "a firm". Therefore, the expression "company" used in Section 278B of the Act has to be understood so as to include a firm. If an offence is committed by a firm, only the person who was in charge of and was responsible to the firm for the conduct of the business of the firm at the time when the offence was committed, as well as the firm shall be proceeded against and punished accordingly. Sub-section (2) of Section 278B of the Act, which opens with a non obstante clause, provides that where an offence under the Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of any director, manager, (secretary or other officer of the company), such director, manager, secretary or other officer shall be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Sub-section (2) of Section 278B of the Act takes away the burden cast on the prosecution by Sub-section (1) thereof, to prove that at the time the offence was committed by a company or a firm, persons against whom the prosecution is launched were in charge of and were responsible to the company or the firm as the case may be for the conduct of the business of the company or the firm. At the same time, Sub-section (2) of Section 278B casts a burden on the prosecution to prove that the offence has been committed with the consent or connivance of, is attributable to any neglect on the part of any director, manager, secretary or other officer of the company. In such an event, such director, manager, secretary or other officer shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. In a case falling under Sub-section (2) of Section 278B of the Act, whether the persons prosecuted were in charge of and were responsible for the company for the conduct of the business of the company need not be proved. Such proof is necessary only when the case falls under Section 278B(1) of the Act. In the event the prosecution proves the essential ingredients of Section 276B(1) of the Act, the accused would have a right to prove that the offence was committed despite due diligence to prevent the commission of such offence. That is the distinction between the two sections.