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Judgment
Swamidurai, J.—The 4th accused in E.O.C.C. Nos. 431 to 568 of 1986 on the file of the learned Additional Chief Metropolitan Magistrate (EO2), Egmore, Madras, is the petitioner. Aggrieved with the order made by the lower court in Crl.M.P.685/86 filed by him under S.245 Cr.P.C., this revision petition is filed.
The petitioner along with three other accused was charged for offences under Ss.276-B and 278-B of the income tax Act. The petitioner/4th accused filed a Crl.E.O.M.P.685/86 for discharging him under S.245 Cr.P.C. The facts which led to the filing of the said application are as follows:
The first accused is Shri Shyam Sayee Corporation. Accused 2 and 3 are Managing Partners of the first accused firm. The 4th accused, the petitioner herein is an employee of the first accused firm. Three witnesses have been examined in the lower court. The Income Tax Officer, Headquarters, Madras-34 filed a complaint under Ss.276-B read with 278-D of the income tax Act, 1961 for failure to remit tax deducted at source to the credit of Government of India within the time prescribed under Rule 30(1)(b)(2) of the income tax Rules, 1962 and under S.409 of the Indian Penal Code for the year ending 31.3.1977.
The first accused is a partnership firm carrying on business as film exhibitors in Sathyam Theatre Complex, Madras. The second accused is the Managing Partner and the third accused is the Joint Managing Partner of the first accused firm and the fourth accused is the employee of the first accused firm in charge of financial borrowings, bank transactions and interest payments etc. The first accused paid interest to M.V.S.K. Appa Rao for the financial year ending with 31.3.1977 from which it deducted income tax at source as per the provisions of S.194-A of the Income tax Act, 1961 of Rs. 1067-37 on 31.3.1977 and the first respondent should remit to the credit of Government of India within seven days from the last day of the month in which deduction was made. But this was paid only on 21.6.1977, i.e., after a delay of two months beyond the period specified and permitted under S.200 of the Income tax Act, 1961 read with Rule 30(1)(b)(2) of the Income tax Rules, 1962. The first accused failed to remit the tax deducted without reasonable cause and thus committed the offence punishable under S.276-A of the Income tax Act, 1961. The accused 2 and 3 are in charge of and responsible to the firm for the conduct of the business and are equally punishable for the offence under S.276-B read with 278 B of the Income tax Act, 1961. The 4th accused, being an employee of the first accused firm and who is looking after the financial borrowings, bank transactions, interest payments and deduction tax at source from interest payment and remitting such amounts to the credit of the Government of India, is similarly in charge of and responsible to the firm for the conduct of the business of the firm and he is one of the persons responsible and is equally punishable for the offence under S.276-B read with S.278-B of the Income tax Act. All the accused withheld the remittance of the tax deducted at source beyond the maximum period of seven days following the month in which the tax was deducted and thereby committed the offence of criminal breach of trust, punishable under S.409, I.P.C.
Three witnesses have been examined on the side of the prosecution. Exs.P.1 to P.214 were marked. Exs.P.1 to P.130 are the authorisations given by Chief Commissioner of Income Tax, Madras to file the complaints. Exs.P.131 to P.138 do not concern with the petitioner. At this stage, the 4th accused/petitioner filed E.O.M.P.No.685/86 under S.245 Cr.P.C. for discharging him.
The main contention raised by the learned counsel for the petitioner in this application for discharging the petitioner is that the petitioner is not the person responsible to and is in charge of the company for the conduct of the business of the company as well as the company and so that he should not be charged for the alleged offences. Learned counsel for the petitioner pointed out the relevant provisions of the Income tax Act. S.200 of the Income tax Act reads as follows:
Any person deducting any sum in accordance with the provisions of Ss.192 to 194, S.194-A, S.194-B, S.194-BB, S.194-C, S.194-D and S.195 shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs.
S.276-B of the Income Tax Act reads as follows:
If a person fails to deduct or after deducting, fails to pay the tax as required by or under the provisions of sub-S.(9) 80E or Chapter XVII-B, he shall be punishable-
(i) in a case where the amount of tax which he has failed to deduct or pay exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;
(ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine.
S.278-B of the Income Tax Act reads as follows:
278-B(1). 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:
Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.
(2) Notwithstanding anything contained in sub-S.(1), where an offence under this 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 also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
Explanation: For the purpose of this S.(1) "company" means a body corporate and includes-
(i) a firm; and
(ii) an association of persons or a body of individuals whether incorporated or not; and
(b) "director" in relation to-
(i) a firm, means a partner in the firm;
(ii) any association of persons or a body of individuals, means any member controlling the affairs thereof.
Learned counsel for the petitioner submitted that the petitioner is not a partner of the firm, the first accused. The petitioner has not been served with a notice under S.2(35) of the Income Tax Act treating the petitioner as the principal officer of the company and no document was filed to prove that the petitioner is treated as a principal officer of the company. So learned counsel for the petitioner Mr. T.K. Seshadri submitted that the petitioner is not a person responsible for paying the amount under S.200 of the Income Tax Act and that he is also not responsible for deducting the income tax at source and payment of the amount. Therefore, he contended that the petitioner cannot be stated to be in charge of and responsible to the company for the conduct of the business of the company within the meaning of S.278(b) of the Income Tax Act. Learned counsel for the petitioner also referred to the evidence of P.Ws.1 to 3 and also the Exhibits P.131 to P.214 by which, he stated, it could not be found that the petitioner has committed the offences within the meaning of S.276(B) of the Act. S.276(B) of the Act contemplates that the person without reasonable cause or excuse failed to deduct or after deducting fails to pay as required by or under the provisions of the Act alone will be liable for the said offence. Therefore, before the petitioner is accused of such offence, two ingredients have to be satisfied by the respondent, namely, (a) the petitioner should be the person coming under S.278(B) read with S.204 and S.2(35) of the Act and (b) such a person without reasonable cause or excuse failed to deduct or after deducting failed to pay the tax. Learned counsel for the petitioner also pointed out that the evidence of P.Ws.1 to 3 and Exs.P.131 to P.214 would not show that the petitioner could be said to be in charge and in the conduct of the business of the first accused firm within the meaning of S.278(b) of the Act. The evidence of P.W.2 is clear that the petitioner was an employee of the first accused firm and that there is no evidence let in by P.Ws.1 to 3 to show that the petitioner had committed the offence satisfying the ingredients of S.276-B of the Act falling within the definition of S.278(B) of the Act.
Learned counsel for the petitioner also submitted that the complaint is not evidence and it is only a pleading and the respondent has failed to prove the case against the petitioner under S.276(B) read with 278(b) of the Income Tax Act.
Mr. K. Ramaswami, learned Central Government Advocate for Income Tax cases, rebutting the contentions of the petitioner pointed out from the counter statements filed by the respondent before the lower court, wherein the petitioner had signed various exhibits, along with accused 2 and 3 relating to Income tax returns and so the petitioner is a person responsible to the firm for the conduct of the business, namely, looking after the financial borrowings, bank transactions, deduction of tax at source from interest and interest payments, remitting the deducted amount to the credit of Government of India. No doubt S.276-B is the penal section for failure to pay the amount within the time prescribed under S.200 read With 194-A of the Income Tax Act and Rule 30 of the Income tax Rules. Learned counsel for the respondent referred to the provisions of S.278(B)(2) of the Act wherein it is clearly shown that if the offence has been committed by the firm with the consent or connivance of or is attributable to any neglect on any one''s part, any Director, Manager, or other officer of the Company they shall also be deemed to be guilty of the offences charged and they shall be liable to be proceeded against and punished. Learned counsel for the respondent also pointed out S.2(35) of the Act and submitted that it has no application to the facts of this case, since the first accused is a firm and not a company. The company is defined in S.2(17) of the Income tax Act and under S.204 of the Act, a firm is not included in the company. According to him, wherever firm is included in a company, the Act has made it clear by addition of an explanation as in S.278(B) and other Sections. According to him, there are sufficient materials for framing a charge against the accused.
Now we will consider S.2(17) of the Income tax Act. Company is defined under the abovesaid section as follows:
"Company" means-
(i) any Indian company, or
(ii) any body corporate incorporated by or under the laws of a country outside India, or
(iii) any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income tax Act 1922 (11 of 1922) or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970 or
(iv) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company.
In the case on hand, the first accused is a body of partners. S.2(35) of the Act reads as follows:
"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 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 office thereof.
Therefore, the contention of the learned counsel for the respondent that the first accused does not come within the definition of company cannot be accepted since the definition of company includes any institution, association or body and it is the case of the petitioner that the first accused is a firm and that it is assessable and accordingly it was assessed under the Income tax Act. Therefore, the first accused can be construed as a company, as per the definition of the said Act and therefore, the provisions of the Income tax Act are attracted. As per S.278-B of the Act where an offence under this Act has been committed by a company of, 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. The petitioner is admittedly an employee of the first accused firm and therefore, he cannot be held to be a person in charge and was responsible to the company for the conduct of the business of the company. Admittedly, no notice was served on the petitioner under S.2(35) of the Act treating the petitioner as the Principal Officer of the first accused firm and no document was filed by the petitioner to prove that the petitioner was the principal officer of the first accused firm. S.276(B) of the Act reads that if a person fails to deduct or after deducting, fails to pay the tax as required by or under the provisions of sub-S.(9) of S.80E or Chapter XVII B, he shall be punishable as per the provisions of sub-clause (i) and (ii) of the above section. S.200 of the Act reads that any person deducting any sum in accordance with the provisions of Ss.192 to 194, S.194A, S.194B, S.194BB, S.194C, S.194D and S.195, shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs. S.204 of the Act reads that for the purposes of Ss.192 to 194, S.194-A, S.194-B, S.194-BB, S.194-C, S.194-D, Ss.195 to 203 and S.285, the expression "person responsible for paying" means-(i) in the case of payments 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. In this case, the petitioner is neither the company nor the principal officer and therefore, he is not a person responsible for paying as per S.204 of the Act and it is not his duty to pay the said sum under S.200 of the Act. S.276 B of the Act reads that if a person fails to pay to the credit of the Central Government, the tax deducted at source by him as required by or under the provisions of Chapter XVII-B, he shall be punishable with rigorous imprisonment for a term which shall hot be less than three months but which may extend to seven years and with fine.
In support of the contention the learned counsel for the petitioner, relied upon the judgment reported in Shital N. Shah & others v. I.T.O. Madras 1990 L.W.(Crl.) 478. That was a case where prosecution was laid against the partnership firm for failure to remit tax deducted at source under S.194-A of the Act and credit the same to the Government of India. This Court (Arunachalam, J.) held that to persons who do not fall under the category of secretary, treasurer, manager, or agent of the authority, company or body etc., failure to serve notice on the part of the Income tax Officer stating his intention to treat any one of them as principal officer connected with the administration of firm, prosecution is not maintainable and accordingly, the criminal proceedings were quashed. In that case, the petitioner was prosecuted under S.276-B read with 278-B of the Income tax Act for having failed to deduct and remit the tax deducted at source under S.194-A of the Act and credit the same to the Government of India within the time prescribed under the Rules. It was held in that case the words
any person who is responsible for paying" found in S.194-A of the Act, have to be read in conjunction with, S.204-A of the Act, which furnishes the meaning of "person responsible for paying". The contravention alleged on these prosecutions relate to S.194-A of the Act and this contravention is covered under S.204(iii) of the Act. This provision makes it abundantly clear that if a payer is a company, the company itself including the principal officer thereof will be the ''person responsible for paying''. If that be so, it is fairly apparent that the company itself including the principal officer thereof were liable for prosecution for the alleged contravention. S.2(35) would then step in to find out as to who the principal officer would be. This section has been extracted earlier, and it appeared to be clear that the partners of the firm do not fall within that fold unless the income tax Officer had served a notice on any of them of his intention of treating them as the principal officer of the firm, connected with the management or administration whereof. That not being the prosecution case the present prosecution against the partners appear to be not sustainable at alt. Under S.278-B of the Act, the basic requirements which the prosecution must prove will be that the petitioners were in charge of and were responsible to the firm for the conduct of the business of the firm, it is only then, that they can be vicariously prosecuted along with the company. The Proviso to S.278-B(1) of the Act will come into operation only after the initial onus cast on the prosecution under the main Section gets discharged.
The criminal proceedings in that case were quashed.
The decision referred to above, do apply to the facts of this case and in this view, the prosecution has failed to prove that the 4th accused/petitioner 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 charge as against the petitioner under Ss.276-B and 278-B of the Income tax Act are not maintainable. The prosecution, therefore, being an abuse of process of law, is liable to be quashed. The findings of the lower court are set aside and this criminal revision case is allowed.