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TDS Deducted By Company Already Deposited With Interest: Bombay High Court Quashes Notice Against Directors
Mariya Paliwala
18 Aug 2024 8:42 AM GMT
The Bombay High Court has quashed the issuance of process served on the directors of the company, M/s. Hubtown Ltd., for offenses punishable under sections 276B and 278B of the Income Tax Act for delay in depositing the TDS as the TDS deducted by the company had already been deposited with interest as provided under section 201(1A).The bench of Justice Prithviraj K. Chavan has observed that...
The Bombay High Court has quashed the issuance of process served on the directors of the company, M/s. Hubtown Ltd., for offenses punishable under sections 276B and 278B of the Income Tax Act for delay in depositing the TDS as the TDS deducted by the company had already been deposited with interest as provided under section 201(1A).
The bench of Justice Prithviraj K. Chavan has observed that the department has chosen not to invoke the provisions of Section 221 read with Section 201 (1) of the Income Tax Act to impose penalties against the company or the principal officer of the company for “failure to pay the whole or any part of tax, as required by or under this Act." The department cannot be permitted to prosecute the petitioners for the same substantive act, which is also classified as an “offence” under Section 276B of the Income Tax Act. Further trial of the petitioners by the criminal court cannot be permissible, which would tantamount to abuse of process by the court.
The income tax officer has filed complaints under Section 279(1) of the Income Tax Act, along with sanction to prosecute the petitioners for the offenses referred to hereinabove. The complainants alleged that the assessee was incorporated under the Companies Act, 1956. It was brought to the notice of the department by the assessee that it had deducted amounts of Rs. 13,11,35,617 during the financial year 2011–2012 but delayed paying the same to the government Treasury within the prescribed time limit.
The show cause notices were issued to the assessee and its directors. The petitioners and directors tendered their explanations to the respondent department. However, the department arrived at the conclusion that the assessee and its directors are responsible for paying tax as per Section 204 of the Income Tax Act and have, therefore, committed default under Section 200 of the Income Tax Act r/w Rule 30 of the Income Tax Rules without reasonable cause or to pay the tax so deducted under the various sections of the Income Tax Act from payments made to various parties, which amounts to an offense punishable under Section 276B read with Section 278B of the Income Tax Act.
The directors contended that they are not the principal officers and they could only be held vicariously liable provided they fulfill the statutory requirements of Section 278B, which are more or less analogous with the provisions of Section 141 of the Negotiable Instruments Act, 1881, Section 34 of the Drugs and Cosmetics Act, as well as Section 10 of the Essential Commodities Act. The complaint is bereft of essential ingredients, in the sense that the person sought to be proceeded against vicariously should be both “in charge” and “responsible” for conducting the business of the company. Just because a person is a director, it cannot be presumed that he is in charge of and responsible for the conduct of the business of the company. There is no automatic presumption of vicarious liability.
The directors argued that no order as contemplated under Section 201(1) r/w 201(3) of the Income Tax Act has been passed treating any of the petitioners as “Principal Officer” of the company and by which such principal officer is “deemed to be an assessee in default." No notice under Section 2 (35)(b) of the Income Tax Act has been issued by the “Assessing Officer” to any of the petitioners to treat any of them as the “Principal Officer” of the company. It is an admitted fact that the TDS deducted by the company has already been deposited with interest as provided under Section 201(A) of the Income Tax Act.
The department contended that, in view of Section 204 of the Income Tax Act, the petitioners are responsible as directors of the company to deduct TDS. Merely because demand was made before the show, notice would not wipe out the offence.
The court, while allowing the petition of the directors, held that it is incumbent upon the department to prove that the offence in question 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 of the company shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished.
Counsel For Petitioner: Puneet Jain, Pawan Ved, Sajal Yadav, Aishwarya Kantawala, Diya Jayan i/b Mr. Meghashyam Kocharekar
Counsel For Respondent: Suresh Kumar
Case Title: Hemant Mahipatray Shah and another vs Anand Upadhyay and another
Case No.: Writ Petitions No. 3034 of 2022, 3035 of 2022, 3036 of 2022, 3037 of 2022, 3038 of 2022 and 3039 of 2022