IN THE HIGH COURT OF DELHI AT NEW DELHI
CRL.L.P. 241 of 2012
[Now converted into Criminal Appeal_______ of 2014 (to
be numbered by the Registry)]
INCOME TAX OFFICER ..... Petitioner
Through: Mr. P. Roy Chaudhuri with Mr. Rohit
Madan, Advocates.
versus
ANIL BATRA & ANR ..... Respondents
Through: Mr. Jeevesh Mehta with Mr. Kapil
Gulati, Advocates for R-2.
Proxy counsel for Mr. P.K. Sharma, Advocate
for R-1.
With
CRL.L.P. 242 of 2012
[Now converted into Criminal Appeal_______ of 2014 (to
be numbered by the Registry)]
INCOME TAX OFFICER ..... Petitioner
Through: Mr. P. Roy Chaudhuri with Mr. Rohit
Madan, Advocates.
versus
ANIL BATRA & ANR ..... Respondents
Through: Mr. Jeevesh Mehta with Mr. Kapil
Gulati, Advocates for R-2.
Proxy counsel for Mr. P.K. Sharma, Advocate
for R-1.
and
CRL.L.P. 243 of 2012
[Now converted into Criminal Appeal_______ of 2014 (to
be numbered by the Registry)]
INCOME TAX OFFICER ..... Petitioner
Through: Mr. P. Roy Chaudhuri with Mr. Rohit
Madan, Advocates.
Crl.L.P. Nos. 241, 242 and 243 of 2012 Page 1 of 10
versus
ANIL BATRA & ANR ..... Respondents
Through: Mr. Jeevesh Mehta with Mr. Kapil
Gulati, Advocates for R-2.
Proxy counsel for Mr. P.K. Sharma, Advocate
counsel for R-1.
CORAM: JUSTICE S. MURALIDHAR
ORDER
23.09.2014
1. These petitions raise an important question of law concerning the
liability of the Director of a company which has been proceeded against
by the Income Tax Department (,,ITD) under Section 276-B of the
Income Tax Act, 1961 (,,IT Act). The Court is of the view that there are
sufficient grounds for grant of leave to appeal. Accordingly, these three
petitions are allowed and the cases are directed to be registered as
criminal appeals and numbered as such by the Registry.
Criminal Appeal No. of 2014 (to be numbered by the Registry)
Criminal Appeal No. of 2014 (to be numbered by the Registry)
Criminal Appeal No. of 2014 (to be numbered by the Registry)
2. With the consent of learned counsel for the parties, the appeals are
taken up for final hearing.
3. The issue pertains to the assessment years (,,AYs), i.e., AY 1982-83,
1983-84, and AY 1984-85. With respect to the three AYs, show cause
notices (,,SCNs) under Section 276-B read with Sections 194 A and 200
of the IT Act were issued by the Inspecting Assistant Commissioner,
Income Tax (Assistant), Range XV, New Delhi addressed to "The
Principal Officer, M/s. Anil Batra & Associates (P) Limited, Batra
Cinema, Dr. Mukherjee Nagar, Delhi" regarding failure to pay the tax
Crl.L.P. Nos. 241, 242 and 243 of 2012 Page 2 of 10
deducted at source under Section 276 B of the IT Act.
4. As regards AYs 1983-84 and 1984-85 the trial Court by its judgment
dated 9th August 1995 convicted the company and its two directors, i.e.,
Mr. Anil Batra and Mr. C.L. Batra, Accused Nos. 2 and 3 (,,A-2 and A-3)
respectively. While all the three accused were directed to pay Rs. 7,000
each as fine, A-2 and A-3 were sentenced to undergo simple
imprisonment (,,SI) for three months each and in default of payment of
fine, A-2 and A-3 were to undergo SI for a further period of three
months each by an order on sentence dated 11th August 1995.
5. Aggrieved by the above orders dated 9th and 11th August 1995, the
three accused filed Criminal Appeal Nos. 31-34 of 2007 and the ITD
filed Revision Petitions Nos. 55 and 56 of 2007 for enhancement of
sentence. The aforementioned appeals and revision petitions were
disposed of by the judgment dated 24th September 2011 by the learned
District Judge and Additional Sessions Judge (Incharge) (West)/ARCT,
Delhi [,,DJ&ASJ] maintaining the conviction of the company (A-1) but
enhancing the fine to Rs. 50,000 for each of the assessment years. The
appeals by A-2 and A-3 were allowed and their convictions were set
aside.
6. As regards the AY 1982-83 the learned Additional Chief Metropolitan
Magistrate (,,ACMM) has by an order dated 3rd December 2011 in CC
No. 7/4/09 acquitted A-2 and A-3 while convicting the company (A-1)
for the offence under Section 276-B of the IT Act and by an order of the
same date the company (A-1) was sentenced to pay a fine of Rs. 50,000.
Crl.L.P. Nos. 241, 242 and 243 of 2012 Page 3 of 10
Aggrieved by the aforementioned orders dated 24th September 2011 of
the learned ASJ and order 3rd December 2011 of the learned ACMM, the
ITD has filed the present appeals.
7. The main ground on which A-2 and A-3 were acquitted is that the
SCNs issued by the ITD were only to the ,,principal officer of the
company and not to the individual directors, i.e., A-2 and A-3. In both
the impugned judgments, reliance has been placed on the decision of this
Court in Income Tax Officer v. Delhi Iron Works (P) Ltd. 2010 (175)
DLT 495. Before the learned DJ-ASJ the ITD had also placed reliance
on the decision of the Division Bench of the Madras High Court in
Income Tax Officer v. Dinesh Kumar Shah (1997) 223 ITR 68.
However, following the decision in Premwati v. Raghubans 1992 RLR
223 the learned ASJ held that it was the decision of the Delhi High Court
in Income Tax Officer v. Delhi Iron Works (P) Limited (supra) which
had to be followed. It is seen that even the learned ACMM in the
impugned order dated 3rd December 2011 adopted the same approach.
8. This Court has perused the judgment in Income Tax Officer v. Delhi
Iron Works (P) Ltd. (supra) which in turn referred to the decision of the
Supreme Court in Madhumilan Syntex Limited v. Union of India IV
(2007) SLT 14. The Supreme Court has in the said decision held that
before launching a prosecution under Section 276 B IT Act against the
directors of a company, the Assessing Officer has to issue notice under
Section 2 (35) of the IT Act expressing his intention to treat such
directors of a company as ,,principal officers. It was held that it would
be sufficient compliance if in the SCN issued to the company it is
mentioned that the Assessing Officer intends to treat the directors as
Crl.L.P. Nos. 241, 242 and 243 of 2012 Page 4 of 10
principal officers of the company under the IT Act.
9. A careful reading of the decision of the Supreme Court in
Madhumilan Syntex Limited (supra) reveals that it had arisen in
identical circumstances where the ITD had prosecuted a company under
Section 276 B read with Section 278 B IT Act. The only distinction
between the case of Madhumilan Syntex Limited (supra) and the case
on hand is that in that case the SCN issued expressly stated that the
directors were considered to be treated as ,,principal officers. However,
it appears that the Supreme Court also perused the complaint filed by the
ITD in which it was stated that the directors were considered as principal
officers. The relevant paragraphs of the decision in Madhumilan Syntex
Limited (supra) read as under:
"44. In the case on hand, in the show cause notice dated
March 11, 1991 issued under Section 276B read with
Section 278B of the Act, it was expressly stated by the
Income Tax Officer, TDS, Bhopal that the Directors were
considered to be Principal Officers under Section 2 (35) of
the Act. In the complaint dated February 26, 1992 filed by
Respondent No. 2-Commissioner also, it was stated that
Appellants were considered as Principal Officers. In the
above view of the matter, in our opinion, contention of the
learned counsel for the Appellants cannot be accepted that
the complaint filed against the Appellants, particularly
against Appellant Nos. 2-4 is ill-founded or not
maintainable.
45. It was argued that a separate notice and/or
communication ought to have been issued before issuance of
Crl.L.P. Nos. 241, 242 and 243 of 2012 Page 5 of 10
show cause notice under Section 276B read with Section
278B of the Act that the Directors were to be treated as
Principal Officers under the Act. In our opinion, however,
no such independent and separate notice is necessary and
when in the show cause notice it was stated that the
Directors were to be considered as Principal Officers under
the Act and a complaint was filed, such complaint is
entertainable by a Court provided it is otherwise
maintainable."
10. As far as the present case is concerned, in the complaint filed before
the learned ACMM it is stated by the ITD as under:
"1. That the Complainant is an Inspecting Assistant
Commissioner of Income Tax (Assessment) In Charge of the
assessment of Accused No. 1 which is a private limited
company. Accused Nos. 2, 3 and 4 are the
Directors/Principal Officer of the said company and were in
charge and responsible to Accused No. 1 for the conduct of
its business at the time when the offence, which is the
subject matter of this complaint, was committed. The
Complainant has been authorized and directed by the
Commissioner of Income Tax, Delhi-III, New Delhi, Shri
R.S. Aggarwal, under Section 279 (1) of the Income Tax
Act (hereinafter to be referred to as the Act) to file the
present complaint at his instance against the Accused. The
authorization of the Commissioner of Income Tax, Delhi-III,
New Delhi, is attached herewith and marked as Annexure-A.
In instituting this complaint, the Complainant is also acting
in the discharge of her official duties being a public
Crl.L.P. Nos. 241, 242 and 243 of 2012 Page 6 of 10
servant."
11. For the purpose of Section 278 B of the IT Act, the company can be
proceeded against by issuing a notice to the ,,principal officer of the
company as defined under Section 2 (35) of the IT Act, which reads as
under:
'Section 2 (35) "principal officer", used with reference to a
local authority or a company or any other public body or any
association of persons or anybody 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 officer thereof;'
12. The term ,,principal officer is also mentioned under Section 305 of
the Code of Criminal Procedure 1973 (,,Cr PC) which prescribes the
procedure to be followed where a company is an accused. It is possible
that at that stage of issuance of the SCN the ITD may not be aware who
are the directors in-charge of the company. That requirement flows from
Section 278 B of the IT Act which is a deeming provision and is
attracted when the offence is committed by a company. Section 278 B
reads as under:
"278B. Offences by companies
(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:
Crl.L.P. Nos. 241, 242 and 243 of 2012 Page 7 of 10
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- section (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 purposes of this
section,-
(a) "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
13. Section 278 B of IT Act makes the directors of the company in
charge of its affairs liable for the offence committed by it unless the
presumption is able to be rebutted by such director. This explains why
the Supreme Court in Madhumilan Syntex Limited (supra) expressly
rejected the arguments advanced on behalf of the directors in that case
that the complaint filed against the company was not maintainable
against the directors as well. It was further explained that "when in the
show cause notice it was stated that the directors were to be considered
as Principal Officers under the Act, and a complaint was filed, such
complaint is entertainable by a Court provided it is otherwise
maintainable." What was considered by the Supreme Court was not only
the wording of the SCN but also the wording of the complaint filed by
the ITD. The purpose of making explicit either in the SCN or in the
Crl.L.P. Nos. 241, 242 and 243 of 2012 Page 8 of 10
complaint, the intention of the ITD that it was proceeding against the
directors was to enable the directors to explain why they should not be
proceeded against. Even if in the SCN there was no express mention that
the directors were considered as ,,principal officers, in the complaint
filed by the ITD it was clearly stated that "Accused Nos. 2, 3 and 4 are
the directors/principal officer of the said company and were in charge
and responsible to Accused No. 1 for the conduct of ........."
14. In Madhumilan Syntex Limited (supra) it was held that the
proceedings against the Directors would be maintainable as long as the
complaint clearly stated that they were being treated as principal officers
of the company. Even otherwise for the purpose of Section 278 B of the
IT Act, once the offence is shown to have been committed by the
company, then the liability of the directors in charge of its affairs is
attracted. The burden then shifts to such directors to show that the
offence occurred without their knowledge or that they had exercised all
due diligence to prevent the commission of such offence. The law as
explained by the Supreme Court in Madhumilan Syntex Limited (supra)
has not been noticed by the DJ&ASJ or the ACMM in the present case
even while reference was made to the decision of this Court in Income
Tax Officer v. Delhi Iron Works (P) Limited (supra).
15. Consequently, this Court is of the view that both Courts erred in
acquitting A-2 and A-3, the directors of the company only because they
were not issued separate notices.
16. As far as the merits of the matter are concerned, it is seen that both
directors have signed the Companys balance sheets. Their defence that
Crl.L.P. Nos. 241, 242 and 243 of 2012 Page 9 of 10
they were not in charge of the affairs of the company is, therefore,
untenable.
17. Accordingly, this Court sets aside the impugned judgment dated 24 th
September 2011 of the learned DJ&ASJ and the impugned judgment
dated 3rd December 2011 of the learned ACMM and convicts the
Respondents, i.e., A-2 and A-3 for the offence under Section 276 B of
the IT Act for the aforementioned three assessment years.
18. The punishment for the offence under Section 276 B of the IT Act is
a minimum sentence of three months rigorous imprisonment with fine.
Considering that these matters pertain to AYs 1982-83 to 1984-85 and
given the long pendency of matters, the Court is of the view that A-2 and
A-3 should be given the benefit of probation.
19. Accordingly, while sentencing A-2 and A-3 to pay a fine of
Rs. 50,000 each for the offence under Section 276 B IT Act for each of
the AYs, and in default to undergo simple imprisonment for seven days,
the Court grants both A-2 and A-3 the benefit of probation and directs
each of them to file bond of good behaviour in the trial Court in the sum
of Rs. 10,000 each for the period of six months.
20. The appeals are disposed of in the above terms. The trial Court
record along with a certified copy of this order be delivered forthwith to
the concerned learned ACMM for further steps.
21. Order be given dasti.
S. MURALIDHAR, J.
SEPTEMBER 23, 2014
Rk
Crl.L.P. Nos. 241, 242 and 243 of 2012 Page 10 of 10
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