Case Note & Summary
The petitioners, directors of M/s. Hubtown Ltd., challenged the issuance of process against them under Section 276B r/w 278B of the Income Tax Act, 1961, for delayed deposit of Tax Deducted at Source (TDS). The Income Tax Officer filed complaints alleging that the company deducted TDS amounts totaling over Rs. 78 crore across six financial years but delayed depositing them to the government treasury. Show cause notices were issued, and after considering explanations, the CIT (TDS) granted sanction under Section 279(1) to prosecute the company and its directors. The Additional Chief Metropolitan Magistrate issued process, which was confirmed by the Additional Sessions Judge in revision. The petitioners invoked the inherent jurisdiction of the High Court under Section 482 Cr.P.C. and Article 227 of the Constitution. The court examined the scope of Section 276B, noting that it covers 'failure to pay' TDS, not mere 'delay in deposit'. Since the TDS was admittedly deposited with interest under Section 201(1A), the prosecution was not maintainable. The court also found that no notice under Section 2(35)(b) was issued to treat any director as 'Principal Officer', and no order under Section 201(1) r/w 201(3) was passed deeming them as 'assessee in default'. Furthermore, the complaint lacked specific averments that the directors were in-charge of and responsible for the conduct of the business, as required under Section 278B for vicarious liability. The court quashed the complaints and set aside the orders of issuance of process and the revisional orders.
Headnote
A) Criminal Law - Prosecution for Delayed TDS Deposit - Section 276B r/w 278B Income Tax Act, 1961 - Failure to Pay vs. Delay - The court held that Section 276B covers cases of 'failure to pay' TDS and not mere 'delay in deposit' of TDS. Since the TDS was admittedly deposited with interest under Section 201(1A), the prosecution under Section 276B was not maintainable. (Paras 24-25)
B) Criminal Law - Vicarious Liability of Directors - Section 278B Income Tax Act, 1961 - Requirement of Specific Averments - The court held that for vicarious liability under Section 278B, the complaint must contain specific averments that the director was in-charge of and responsible for the conduct of the business of the company. Mere status as a director does not attract liability. The complaint lacked such averments. (Paras 13-14, 23)
C) Criminal Law - Principal Officer - Section 2(35) r/w Section 201(1) Income Tax Act, 1961 - Necessity of Notice and Order - The court held that no notice under Section 2(35)(b) was issued to treat any petitioner as 'Principal Officer', and no order under Section 201(1) r/w 201(3) was passed deeming them as 'assessee in default'. Without such procedural compliance, prosecution cannot proceed. (Paras 19-20)
D) Criminal Law - Consent, Connivance, Negligence - Section 278B(2) Income Tax Act, 1961 - Absence of Averments - The court noted that the complaint did not contain any averment regarding 'consent', 'connivance', or 'negligence' as required under Section 278B(2) to fasten liability on directors. (Para 23)
Issue of Consideration
Whether the prosecution of directors under Section 276B r/w 278B of the Income Tax Act, 1961 for delayed deposit of TDS is sustainable when the TDS has already been deposited with interest and no order under Section 201(1) has been passed deeming them as assessee in default, and whether the complaint contains necessary averments for vicarious liability under Section 278B.
Final Decision
The court allowed the petitions, quashed the complaints in C.C. No.529/SW/2019, C.C. No.532/SW/2019, C.C. No.530/SW/2019, C.C. No.2365/SW/2018, C.C. No.531/SW/2019, and C.C. No.27/SW/2020, and set aside the orders of issuance of process dated 16th November 2019, 6th March 2019, 16th November 2019, and 25th January 2021, as well as the revisional orders dated 2nd May 2022.
Law Points
- Section 276B of Income Tax Act covers failure to pay TDS
- not mere delay in deposit
- Section 278B requires specific averments of being in-charge and responsible for conduct of business
- Section 2(35) requires notice to treat a director as principal officer
- Section 201(1) requires order deeming assessee in default
- vicarious liability cannot be presumed without statutory compliance
Case Details
2024 LawText (BOM) (08) 2811
Criminal Writ Petition No.3034 of 2022 with Criminal Writ Petition No.3035 of 2022, Criminal Writ Petition No.3036 of 2022, Criminal Writ Petition No.3037 of 2022, Criminal Writ Petition No.3038 of 2022, Criminal Writ Petition No.3039 of 2022
Mr. Puneet Jain a/w Mr. Pawan Ved, Mr. Sajal Yadav, Ms. Aishwarya Kantawala, Ms. Diya Jayan i/b Mr. Meghashyam Kocharekar for the Petitioners, Mr. Suresh Kumar a/w Ms. Jyoti Yadav for Respondent No.1, Ms. R.S. Tendulkar, A.P.P, for Respondent No.2 – State
Hemant Mahipatray Shah and another
Anand Upadhyay and another / Sahil Arora and another
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Nature of Litigation
Criminal writ petitions under Section 482 Cr.P.C. and Article 227 of the Constitution challenging issuance of process and revisional orders confirming prosecution for delayed deposit of TDS.
Remedy Sought
Quashing of complaints, orders of issuance of process, and revisional orders confirming the same.
Filing Reason
The petitioners, directors of M/s. Hubtown Ltd., were prosecuted under Section 276B r/w 278B of the Income Tax Act for delayed deposit of TDS, despite the TDS having been deposited with interest and without compliance with procedural requirements under Sections 2(35) and 201(1).
Previous Decisions
The Additional Chief Metropolitan Magistrate issued process against the petitioners. The Additional Sessions Court dismissed the revision applications and confirmed the issuance of process.
Issues
Whether Section 276B of the Income Tax Act covers mere delay in deposit of TDS or only failure to pay TDS.
Whether the complaint contains necessary averments to attract vicarious liability under Section 278B of the Income Tax Act.
Whether prosecution can proceed without a notice under Section 2(35)(b) treating a director as principal officer and without an order under Section 201(1) deeming the assessee in default.
Submissions/Arguments
Petitioners argued that Section 276B covers failure to pay, not delay; TDS was deposited with interest; no notice under Section 2(35) or order under Section 201(1) was passed; complaint lacks averments of being in-charge and responsible for conduct of business.
Respondent argued that directors are responsible under Section 204; delay does not wipe out offence; reliance on Madhumilan Syntex Ltd.
Ratio Decidendi
Section 276B of the Income Tax Act, 1961 covers cases of 'failure to pay' TDS and not mere 'delay in deposit' of TDS. For vicarious liability under Section 278B, the complaint must contain specific averments that the director was in-charge of and responsible for the conduct of the business of the company. No notice under Section 2(35)(b) was issued to treat any director as 'Principal Officer', and no order under Section 201(1) r/w 201(3) was passed deeming them as 'assessee in default'. Without such procedural compliance, prosecution cannot proceed.
Judgment Excerpts
This Section covers cases of 'Failure to Pay' and not mere 'Delay in Deposit' of TDS.
No notice has been issued by the 'Assessing Officer' to any of the petitioners under Section 2 (35) (b) of the I.T Act to treat any of them as 'Principal Officer' of the Company.
No order as contemplated under Section 201 (1) r/w Section 201 (3) of the I.T Act has been passed treating any of the petitioners as 'Principal Officer' of the company and by which such Principal Officer is whereby 'deemed to be assessee in default'.
The petitioners are 'Directors' of the Company, however, no averment has been made in the complaints regarding 'Consent', 'Connivance' or 'negligence' as required under Section 278B (2) of the I.T Act.
Procedural History
Income Tax Officer filed complaints under Section 279(1) of the Income Tax Act with sanction to prosecute the petitioners for offences under Section 276B r/w 278B. The Additional Chief Metropolitan Magistrate issued process on 16th November 2019, 6th March 2019, 16th November 2019, and 25th January 2021. The petitioners filed Criminal Revision Applications before the Additional Sessions Court, which were dismissed on 2nd May 2022. The petitioners then filed the present criminal writ petitions under Section 482 Cr.P.C. and Article 227 of the Constitution.
Acts & Sections
- Income Tax Act, 1961: 2(35), 200, 201(1), 201(1A), 201(3), 204, 221, 276B, 278B, 279(1)
- Code of Criminal Procedure, 1973: 482
- Constitution of India: Article 227
