Income Tax Officer vs M/S Delhi Iron Works (P) Ltd. & Ors.
2010 Latest Caselaw 5121 Del

            IN THE HIGH COURT OF DELHI: NEW DELHI

+ Crl. L.P. 85/2010, Crl. L.P. 86/2010
Crl. L.P. 87/2010, Crl. L.P. 88/2010
Crl. L.P. 89/2010, Crl. L.P. 90/2010
Crl. L.P. 91/2010, Crl. L.P. 92/2010
Crl. L.P. 93/2010

%                 Judgment decided on: 11th November, 2010

INCOME TAX OFFICER                               ................Petitioner

                            Through:     Ms.Sonia Mathur,
                                         Sr.Standing Counsel with
                                         Mr.Pankaj Prasad, Junior
                                         Standing Counsel & Mr.Rajat
                                         Soni,       Adv.       with
                                         Mr.H.P.Thakur, Inspector-IT
                                         Department.


                            Versus

M/S DELHI IRON WORKS (P) LTD. & ORS.              ..........Respondents

                            Through:     Mr. Harsh Pandey, Adv.

Coram:
HON'BLE MR. JUSTICE A.K. PATHAK

       1. Whether the Reporters of local papers
          may be allowed to see the judgment?                     No

       2. To be referred to Reporter or not?                      No

       3. Whether the judgment should be
          reported in the Digest?                                 Yes


A.K. PATHAK, J. (Oral)

1. By the above petitions, petitioner seeks leave to appeal

against the judgment dated 8th September, 2009 passed by

Additional Chief Metropolitan Magistrate (ACMM), Delhi

whereby respondent no. 3 i.e. director of the respondent no.1,

has been acquitted of the offence under Section 276-B of the

Income Tax Act, 1961 (for short hereinafter referred to as "the

Act").

2. These petitions are disposed of together as not only the

parties but the facts and the questions of law involved therein

are same.

3. Briefly stated, facts of the case are that the petitioner

had filed complaints before the ACMM praying therein that the

respondent be summoned, tried and punished under Section

276-B of the Act. It was alleged that the respondent no. 1 was

a private limited company; while respondent No. 3 was its

Director and "Principal Officer" and was responsible for

managing the day-to-day affairs of the company. Respondents

had failed to deduct the tax at source (TDS) from the interest

paid to M/s Bhanamal & Co. (P) Ltd., M/s Banwari Lal & Sons

(P) Ltd. and M/s Bhanamal Gulzari Mal (P) Ltd., and deposit

the same with the Income Tax Department, within the

prescribed period, thus, had committed offence punishable

under Section 276-B of the Act. Respondent no. 3 was

impleaded as an accused being "principal officer" of the

company within the meaning of Section 2(35) of the Act.

4. Charge under Section 276-B IPC was framed against the

respondents to which they pleaded not guilty and claimed

trial.

5. After holding trial, while respondent no. 1 was convicted

under Section 276-B of the Act, respondent no. 3 has been

acquitted on the ground that no notice was served on him

under Section 2(35) of the Act treating him as "principal

officer", before launching the prosecution under Section 276-B

of the Act, inasmuch as, the notice issued to the company was

defective in the sense it was not mentioned therein, that the

department intended to treat the directors of the company as

"principal officers". Respondent no. 3 has been acquitted for

the non compliance of Section 2(35) of the Act.

6. For the discussions made hereinafter, I do not find the

view taken by ACMM to be perverse or suffering from any

manifest error, necessitating the grant of leave to appeal to

petitioner.

7. Section 194-A of the Act mandates the deduction of tax

at source on the credit or payment of interest other than

"interest on securities". Section 194-A (4) uses the expression

"the person responsible for making the payment". Section

204 of the Act defines the expression "person responsible for

paying". Relevant would it be to refer to Section 204 of the

Act, which reads as under :-

"Section 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, section 194E, section 194EE, section 194F, section 194G, section 194H, section 194-I, section 194J and section 194K, 194L sections 195 to 203 and section 285, the expression "person responsible for paying" means -

(i) In the case of payment of income chargeable under the head "Salaries" other than payments by the Central Government or the Government of a State, the employer himself or, if the employer is a company, the company itself, including the principal officer thereof;

(ii) In the case of payments of income chargeable under the head "Interest on securities" other than payments made by or on behalf of the Central Government or the Government of a State, the local authority, corporation or company, including the principal officer thereof;

(iia) In the case of any sum payable to a non- resident Indian, being any sum representing consideration for the transfer by him of any foreign exchange asset, which is not a short- term capital asset, the authorised dealer responsible for remitting such sum to the non-resident Indian or for crediting such sum to his Non-resident (External) Account maintained in accordance with the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder;

(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."

8. Perusal of Section 204 (iii) clearly shows that in case of a

company, the company itself, including the principal officer

thereof, would be responsible to deduct the tax at source and

deposit it with the department.

9. Infringement of Section 194-A (4) is an offence

punishable under Section 276-B of the Act. In case an offence

is committed by a company, the prosecution for the offence

under Section 276-B has to be launched against the company

itself and its principal officer.

10. Section 2(35) of the Act defines the expression "principal

officer". Relevant it would be to refer to Section 2 (35) herein

which reads as under :-

"(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 or 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;"

11. A perusal of the aforesaid provision clearly shows that

the director is not included within the ambit of Sub-clause (a)

of Section 2(35) of the Act. In case the Income Tax Officer

seeks to prosecute the director along with the company for an

offence punishable under Section 276-B of the Act, then he

has to issue a notice under Sub-clause (b) of 2(35) of the Act

expressing his intention to treat the director as "principal

officer" of the company.

12. In this case, admittedly, no notice, as was required

under Section 2 (35) of the Act, had been issued to respondent

no.3. Only a show cause notice was issued to the company

wherein it was not mentioned that Assessing Officer intended

to treat the director of the company as "principal officer" for

the purpose of launching prosecution under Section 276-B of

the Act.

13. In Greatway (P) Ltd. & Ors. Vs. Asstt. CIT [1993] 199

ITR 391(P&H), Punjab & Haryana High Court has held that in

the absence of appointment of a principal officer by issuing a

notice by the AO, the prosecution, if any, could only be

launched against the petitioner-company. Similar is the view

expressed in ITO Vs. Roshini Cold Storage (P) Ltd. and Ors.

(2000) 245 ITR 322 (Mad). In this case Madras High Court

held that in case Income Tax Officer sought to prosecute the

director along with company for an offence under Section 276-

B of the Act then it was incumbent upon him to issue a notice

under sub-clause (b) of 2(35) of the Act expressing his

intention to treat the director as "principal officer" of the

company and in absence thereof, director shall be entitled to

the acquittal.

14. In Sushil Suri and Ors. Vs. State & Ors. (2008) 303

ITR 86 (Delhi), a Single Judge of this Court has held that

before a prosecution under Section 276-B of the Act can be

launched against the director he should have been notified

that department/AO has intention of treating him as

"principal officer" of the company. In absence of such notice

under Section 2(35)(b) of the Act, prosecution against the

director cannot be continued and is bound to fail.

15. In Madhumilan Syntex Ltd. and Others vs. Union of

India (2007) 290 ITR 199 (SC), the Supreme Court has held

as under:-

"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 276- B read with Section 278B. It is sufficient that in the show-cause notice under section 276-B 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."

(emphasis supplied)

16. Legal preposition which emerges from the above is that

before launching a prosecution under Section 276-B of the Act

against the directors of a company, Assessing Officer has to

issue notice under Section 2(35) of the Act expressing his

intention to treat such directors of a company as "principal

officers". However, it may not be necessary to issue a separate

notice or communication to all the directors that they are to be

treated as "principal officers". It would be sufficient

compliance if in the show cause notice issued to the company

it is mentioned that the directors are to be considered as

principal officers of the company under the Act.

17. In this case neither a notice was issued to respondent

no. 3 under Section 2(35) of the Act the department intended

to treat him "principal officer" nor in the show cause notice

issued to the company it was mentioned that department is

intended to treat the directors of the company as "principal

officers", for the purpose of launching prosecution under

Section 276-B of the Act.

18. For the foregoing reasons, I do not find any justification

to grant leave to appeal to the petitioner.

19. All the above petitions are dismissed. Since main

petitions have been dismissed all the miscellaneous

applications are also disposed of as infructuous.

A.K. PATHAK, J.

NOVEMBER 11, 2010 ga