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2016 DIGILAW 503 (GAU)

Commissioner of Income Tax v. Gayatri Devi

2016-06-03

PARAN KUMAR PHUKAN

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JUDGMENT AND ORDER : Paran Kumar Phukan, J. In both these revision petitions, common questions of law and fact are involved and as such, I am going to dispose of the revisions with a common judgment for the sake of convenience and brevity. 2. The Assistant Commissioner of Income Tax, Investigation Circle-II(1), Guwahati (hereinafter called the complainant) being a public servant lodged two complaints before the learned Chief Judicial Magistrate, Kamrup against M/s. Ganga Flour and Rice Mills (hereinafter called the firm) with its partners alleging that the firm being a registered partnership firm, is an assessee of Income Tax, having deducted tax at source from the interest as shown in the Balance Sheet filed along with the Income Tax Return for the assessment years 1987-88 and 1988-89 failed to credit the tax so deducted to the credit of the Government account and thereby, committed an offence punishable under Section 276B of the Income Tax Act. The complaints have been registered as C.R. No.520/92 and C.R. No.521/92 for the assessment year 1987-88 and 1988-89, respectively against the firm and its three partners namely-Sarada Devi Sikaria, Kailash Sikaria and Gayatri Devi Sikaria. 3. Both the cases came up for trial before the learned Addl. Chief Judicial Magistrate, Kamrup, Guwahati. 4. During the trial, the prosecution examined Shri R.N. Chakraborty, Assistant Commissioner of Income Tax, Investigation Circle-II(1), Guwahati. Two of the partners, namely, Sarada Devi Sikaria and Kailash Ch. Sikaria were discharged from the case by the learned Addl. Chief Judicial Magistrate and the trial proceeded only against thepresent accused-petitioner, who is also one of the partners of the said firm. 5. The accused-petitioner denied having committed any offence under the Income Tax Act and in her defence statement she admitted having signed the Income Tax Return, Ext-2, but denied that she had any knowledge. According to her, she is a housewife and she was not involved in the management of the firm and apart from putting her signature in the Income Tax Return, she had no knowledge regarding the affairs of the firm. However, she declined to adduce defence evidence. The learned Addl. According to her, she is a housewife and she was not involved in the management of the firm and apart from putting her signature in the Income Tax Return, she had no knowledge regarding the affairs of the firm. However, she declined to adduce defence evidence. The learned Addl. Chief Judicial Magistrate on conclusion of the trial, found her guilty under Section 276B of the Income Tax Act and convicted and sentenced her in both the cases to simple imprisonment for 3(three) months and she was also ordered to deposit the entire amount, which had not been deposited, before the Income Tax Authorities. 6. Being highly aggrieved and dissatisfied with the judgment of the learned Addl. Chief Judicial Magistrate, the accused-petitioner preferred appeals in both the cases before the learned Addl. Sessions Judge (Ad-hoc) No.3, Kamrup, Guwahati and the learned appellate court set aside the judgment and order of the learned Addl. Chief Judicial Magistrate and recorded acquittal in both the criminal appeals being Crl. Appeal Nos.73/2004 and 74/2004, hence these revisions preferred by the complainant, Assistant Commissioner of Income Tax, challenging the judgment of the learned Additional Sessions Judge(Ad-hoc) No.3, Kamrup, Guwahati. 7. Mr. S. Sarma assisted by Mr. R. Mishra, the learned counsel appearing on behalf of the Revisionist submitted that the learned appellate court has committed an error by holding that the Income Tax Act as it stood in the year 1986 is applicable in the instant case, holding at the same time that the words “without reasonable cause or excuse” has not been established, inasmuch as the Section 276B has been amended with effect from 10.09.1986 and the words “without reasonable cause or excuse” has been omitted. Next submission is that since the accused-respondent admitted having filed the Income Tax Returns and verified the same, she is liable to be prosecuted under Section 276B of the Act and service of notice under Section 2(35)(b) is not a condition precedent. 8. In controversion, Mr. Next submission is that since the accused-respondent admitted having filed the Income Tax Returns and verified the same, she is liable to be prosecuted under Section 276B of the Act and service of notice under Section 2(35)(b) is not a condition precedent. 8. In controversion, Mr. G.N. Sahewalla, the learned Senior Counsel appearing on behalf of the accused-respondent while admitting that the words “without reasonable cause or excuse”, which formed the part of the original section were omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986 with effect from 10.09.1986, strenuously submitted that since no notice under Section 2(35)(b) has been served on the accused-respondent by the complainant expressing his desire to treat her as “principal officer” of the company, she cannot be held liable under Section 276B of the Act. Mr. Sahewalla also submitted that no sanction has been accorded for prosecution of the accused-respondent and on this count also she is liable to be acquitted. 9. Before adverting to the controversy raised in the revisions, it is necessary to consider the relevant provisions of the Income Tax Act. Chapter XVII deals with “collection and recovery of tax” and “deduction at source”. In some cases law requires certain persons to deduct tax at source and the consequences for failure to deduct or pay such tax. Section 200 provides that any person deducting any sum under the Act, has to pay within the prescribed period, the sum so deducted to the credit of the Central Government. Section 201 provides the consequences, in case of failure to deduct or pay such tax. 10. Section 194A clearly mandates the deduction of tax at source on credit or payment of interest other than “interest on security”. Section 194A(4) uses the expression “person responsible for making the payment” and “Principal officer” has been defined under Section 2(35) of the Act. The secretary, manager, treasurer or agent of a company is “principal officer” in terms of Sections 2(35)(a). Apart from that any other person connected with the management or administration of a company to whom notice is served by the Assessing Officer, treating him as the “principal officer” would also fall within the ambit of definition of Principal officer” as provided under Section 2(35)(b) of the Act. Apart from that any other person connected with the management or administration of a company to whom notice is served by the Assessing Officer, treating him as the “principal officer” would also fall within the ambit of definition of Principal officer” as provided under Section 2(35)(b) of the Act. In order that a person can be said to be a “principal officer” as defined under Section 2(35)(b) of the Act, the following ingredients must be satisfied: (i) He must be a person connected with the management or administration of the company and (ii) The Income Tax Officer must have served upon him a notice of his intention of treating him as the “principal officer” of the company. 11. A conjoint reading of sections 194A(4) and 204(iii) makes it clear that in case of a company, the company itself, including the “principal officer” of the company would be responsible to deduct the tax at source and deposit the same with the Department and in case of contravention of section 194A, company itself besides its “principal officer” would be liable for prosecution. 12. Section 276B provides 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 not be less than 3(three) months, but which may extend to 7(seven) years and with fine. 13. Section 278B covered cases where offences are committed by companies. Section is reproduced below: “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 : 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 purpose 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.” 14. The above provisions makes it amply clear that whenever a company is required to deduct tax at source and to pay it to the account of the Central Government, failure on the part of company in deducting or in paying such amount, is an offence made punishable under Section 276B of the Act. 15. Keeping in view of the above provisions of the law, let me now turn to the complaints lodged by the complainant before the learned Chief Judicial Magistrate, which reveals that it was filed against M/s. Ganga Flour and Rice Mills and its partners, namely, Sarada Devi Sikaria, Gayatri Devi Sikaria and K.C. Sikaria. However, the learned Addl. Chief Judicial Magistrate discharged the accused Sarada Devi Sikaria and K.C. Sikaria and framed charge only against the accused-respondent Gayatri Devi Sikaria and even no charge against the company has been framed. There is nothing in the charge framed by the learned Addl. Chief Judicial Magistrate to show that the accused-respondent was the partner of the firm and as such partner, she has failed to deduct the tax and also failed to credit the same in the Government account. Although the complaint was filed against the company and the three partners, but there is nothing to show in the complaint that any of the partners was sought to be treated as “principal officer” of the company or the firm. Although the complaint was filed against the company and the three partners, but there is nothing to show in the complaint that any of the partners was sought to be treated as “principal officer” of the company or the firm. There is also no whisper in the complaint that the accused-respondent was the person connected with the management and administration of the firm. The learned Addl. Chief Judicial Magistrate appears to have proceeded against the accused-respondent only on the ground that she was responsible for payment of income tax as she used to submit the Tax Return to the authorities concerned. For the aforesaid reason only, the court discharged the other two accused and even did not proceed against the company. 16. Mr. Sahewalla, the learned Senior Counsel raised the question that for filing of the Income Tax Returns, she cannot be said to be a “principal officer” under the Act and no prosecution can be initiated against her. It was urged that to be a “principal officer” with reference to a company, it must be shown that such person is connected with the management or administration of the company and she has been served with a notice that she would be treated as a “principal officer” of the company. But in the instant cases, no such notice has been issued to the accused-respondent. There is also not a single whisper in the complaint that she was to be treated as the “principal officer” of the company or that she is connected with the management or administration of the company. 17. Mr. Sahewalla also submitted that the accused-respondent was a sleeping partner and a housewife having no knowledge about the affairs of the company and only for putting her signature in the Income Tax Returns, she cannot be held liable under the Act without evidence to the affect that she was connected with the management or administration of the company. 18. It is seen from the records that all the notices were issued by the Income Tax authorities in the name of M/s. Ganga Flour and Rice Mills and no notice appears to have been sent to the accused-respondent as contemplated under Section 2(35)(b) of the Income Tax Act. In fact, there is nothing to show whom the Income Tax authorities intended to treat as the “principal officer” of the company. In fact, there is nothing to show whom the Income Tax authorities intended to treat as the “principal officer” of the company. There is also nothing in the evidence of the PW-1 to show that the accused-respondent was sought to be treated as “principal officer” of the company or that she was connected with the management or the administration of the company as no notice was served on her by the Assessing Authority treating her as a “principal officer”. In the instant cases, there is no denial that the accused-respondent is one of the partners of the company and she submitted Income Tax Returns and verified the same for the assessment years 1987-88 and 1988-89 and she admitted having put her signatures in the Returns and the verifications, but she denied having any knowledge regarding the affairs of the company in her defence statement under Section 313 CrPC. Neither there is any averment made in the complaint nor in the evidence that any notice as contemplated under Section 2(35)(b) of the Act has been served on her. Even in the demand notices and assessment orders issued by the Income Tax authorities to the company, there is not a single whisper that she was to be treated as “principal officer” of the company. For non-prosecution of the company by the learned Addl. Chief Judicial Magistrate and also for the discharge of the other two persons, no objection appears to have been raised and no higher court was approached against the order of discharge. It is a settled proposition that if the Income Tax authorities seek to prosecute the director along with the company for an offence punishable under Section 276B of the Act, then a notice is required to be issued under Section 2(35)(b) of the Act to such partner expressing intention to treat him/her as “principal officer” of the company. 19. Mr. Sahewalla to buttress his submissions relied on the decisions in the following cases: (1) Puran Devi and Ors. v. Z.S. Klar Income Tax Officer; (2) K. Subramanyam v. Income Tax Officer; (3) Jamshedpur Engineering & Machine Manufacturing Company Ltd. and Ors. v. Union of India and Ors.; (4) M.A. University and Ors. v. Deputy Commissioner of Income Tax (Assessment); (5) Sham Sunder v. State of Haryana; (6) State of Karnataka v. Pratap Chand and Ors., 1981 Cri. v. Z.S. Klar Income Tax Officer; (2) K. Subramanyam v. Income Tax Officer; (3) Jamshedpur Engineering & Machine Manufacturing Company Ltd. and Ors. v. Union of India and Ors.; (4) M.A. University and Ors. v. Deputy Commissioner of Income Tax (Assessment); (5) Sham Sunder v. State of Haryana; (6) State of Karnataka v. Pratap Chand and Ors., 1981 Cri. LJ 595 and (7) S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Anr. 2005 Cri LJ 4140. 20. The sum and substance of the observations made by the courts in the first four cases referred to above is that it is incumbent on the part of the prosecution to plead and prove that the accused-respondent is “in charge of” and “responsible to” the firm or company. 21. Sham Sunder v. State of Haryana (supra), the Honourable Apex Court observed that in some cases the partners may not be knowing about the affairs of the Firm and there may be “sleeping partners” who are not required to take part in any business of the firm and there may be ladies and minors who are included as partners for profit of the firm and they may not be aware of the business of the firm, in such cases, it would be a travesty of justice to prosecute all the partners and ask them to prove that the offence was committed without their knowledge. In such cases, it is for the prosecution to prove that the partner was responsible for carrying on business and was during the relevant time, in charge of the business. 22. In Pratap Chand and Ors. (supra) and Monaben Ketanbhai Shah and Anr. v. State of Gujarat and Ors., 2004 Cri. LJ 4249, the Apex Court made similar observations and in Neeta Bhalla (supra), the Apex Court has held that essential averments must be made in the complaint that the person against whom complaint is made was in charge of and responsible for the conduct of business of the company. It has been specifically held that without such averment no criminal liability would arise. 23. In Madhumilan Syntex Ltd. and Ors. It has been specifically held that without such averment no criminal liability would arise. 23. In Madhumilan Syntex Ltd. and Ors. v. Union of India (UOI) and Anr., reported in AIR 2007 SC 1481 , the Apex Court by referring to the decisions rendered by different High Courts and the Supreme Court has held that to hold a person responsible under the Act, it must be shown that he/she is a “principal officer” under Section 2(35) of the Act or is “in charge of” and “responsible for” the business of the company or firm. 24. In the instant cases, there is nothing in the evidence oral or documentary to show that any notice under Section 2(35) was issued to the accused-respondent expressing intention to treat her as the “principal officer” and evidence is also lacking to show that she was the person “in charge” and responsible for “conduct of business” of the firm, no averment to this effect has also been made in the complaint. 25. Under these facts and circumstances no criminal liability could be attributed to the accused-respondent even though she put her signatures in the Income Tax Returns submitted to the Income Tax Authorities showing deduction of tax at source, but failed to credit the same in the account of the Government. 26. Resultantly, I do not find any infirmity in the judgment passed by the learned Addl. Sessions Judge(Ad-hoc), Kamrup, Guwahati by setting aside the judgment of the learned Addl. Chief Judicial Magistrate, Kamrup. Accordingly, the judgment of the appellate court is affirmed. The accused-respondent is acquitted and set at liberty forthwith. 27. The bail bond of the accused-respondents stands discharged. 28. Mr. Sahewalla learned senior counsel at the time of hearing of the case submitted that the Firm is ready to pay the income tax which has been assessed by the petitioner. 29. In view of the submission it is ordered that this judgment of acquittal would not be a bar for the income tax authorities to realize the taxes due to it from the partnership firm of which the respondent is one of the partner, as per rules.