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2019 DIGILAW 201 (AP)

Parthasarathi v. Income Tax Officer

2019-08-21

D.V.S.S.SOMAYAJULU

body2019
JUDGMENT 1. This Criminal Petition is filed by the petitioners under Sec. 482 of the Code of Criminal Procedure to quash the proceedings against them in C.C.No.36 of 2018, on the file of theSpecial Judge for Economic Offences at Visakhapatnam, for the alleged offences under Sec. 276-B read with 278-B(1) and (2) of the Income Tax Act-1961 (in short "the Act"). 2. This Court has heard Sri Sathakarni. K, learned counsel for the petitioners and Smt. M. Kiranmayi, learned standing counsel for the Income Tax Department. 3. The petitioners claim to be independent / non-executive Directors of Bio Ethanol Agro Industries Ltd., -Accused No.1. As per the said complaint an amount of Rs.6, 29, 018.00 was not remitted towards TDS to the Central Government's account. Therefore, claiming the said amount and penalty, a private complaint was filed in the Court of the Special Judge for Economic Offences at Visakhapatnam. Questioning the same, the present petition is filed under Sec. 482 of Cr.P.C. 4. Essential grounds urged by the learned counsel for the petitioners are that the petitioners are not directors, who are incharge of the day to day affairs of the company. He also states no notice under Sec. 2 (35) of the Act was given to the petitioners treating them as principal officers of the company. On these two essential grounds, the learned counsel argues that the entire proceedings are liable to be quashed. Learned counsel for the petitioners relies upon two judgments reported in Homi Phiroze Ranina v State of Maharashtra, (2003) 131 TAXMAN 100 (Bom.) = Manu/MH/1715/2003. and Kalanithi Maran v Union of India and Ors., (2018) 256 TAXMAN 260 (mad.) = Manu/TN/1631/2018. and argues that no notice under Sec. 2 (35) of the Act has been issued treating the non-executive directors / petitioners as principal officers and that there are no allegations or averments to show that the present set of petitioners are involved in the day to day affairs of the company as directors. Hence, he submits that the prosecution against them should be quashed at this stage itself. 5. In reply to this, learned Standing Counsel for the Income Tax Department relies upon Sec. 278-B of the Act and argues that where the offence has been committed by the company, the Directors, Manager, Secretary or other officer shall also be deemed to be guilty. 5. In reply to this, learned Standing Counsel for the Income Tax Department relies upon Sec. 278-B of the Act and argues that where the offence has been committed by the company, the Directors, Manager, Secretary or other officer shall also be deemed to be guilty. Learned counsel relies upon Sec. 278-B sub clause 2 of the Act. She also argues that a separate notice under Sec. 2 (35) of the Act is not necessary and that the complaint itself constitutes notice. She also states that this is a matter to be decided during the course of the trial and that quashing of the proceedings is not called for. She relies upon the judgment reported in Madhumilan Syntex Ltd., and Others v Union of India and another, (2007) 290 ITR 199 . of the Apex Court of India. Even the counsel for the petitioners during the course of his reply arguments relied upon this judgment. 6. The petitioners have come before this Court with a very specific allegation that they are not responsible for the day to day affairs of the company. It is their case that they are not involved in the actual physical day to day management of the 1st Accused company. The cases relied upon by the petitioners are to the effect that the prosecution can only be continued if the petitioners are actually involved in the management, administration and day to day affairs of the company. A reading of the judgment of the Hon'ble Supreme Court of India in Madhumilan Syntex Ltd., case (3 supra) is also to the same effect. Learned counsel for the petitionersalso relied upon the same judgment. In para-33 of the said judgment it is clearly held as follows: "33. From the statutory provisions, it is clear that to hold a person responsible under the Act, it must be shown that he/she is a 'principal officer' under Sec. 2 (35) of the Act or is 'in charge of' and 'responsible for' the business of the Company or Firm. It is also clear from the cases referred to above that where necessary averments have been made in the complaint, initiation of criminal proceedings, issuance of summons or framing of charge, cannot be held illegal and the Court would not inquire into or decide correctness or otherwise of the allegations leveled or averments made by the complainant. It is also clear from the cases referred to above that where necessary averments have been made in the complaint, initiation of criminal proceedings, issuance of summons or framing of charge, cannot be held illegal and the Court would not inquire into or decide correctness or otherwise of the allegations leveled or averments made by the complainant. It is a matter of evidence and an appropriate order can be passed at the trial." 7. A reading of the above shows that this finding was arrived at after considering the case law on the subject referred in the previous paragraphs. Ultimately, their Lordships of the Hon'ble Supreme Court of India held that a person can be held to be responsible under the Act if it is shown that he is in-charge of, responsible for the business of the company or the firm. In the case before the Hon'ble Supreme Court of India it was held, in the very paragraphs reproduced above, that there were necessary averments in the complaint about the accused being in-charge of and responsible for the affairs of the company. In addition, in paragraph 34 of the said judgment the Hon'ble Supreme Court of India held that the other notices that were issued clearly pointed out that the accused in the case were treated as principal officers. 8. In the case on hand, the available material, which is filed and relied upon by both the counsel is the private complaint that is filed. A reading of the complaint does not show that there is any averment whatsoever that the present set of petitioners are involved in the day to day affairs of the company or that they are responsible for the business of the company. The private complaint, which is in two pages, does not also disclose that the accused / present set of petitioners are actually involved in the affairs of the company or that they are responsible for the day to day management of the company. Even the plain language reading of Sec. 278-B of the Act shows that where the offence is committed by a company every person, who by the time of offence was committed "was in-charge of, and was responsible to, the company for the conduct of the business of the company" shall be held to be guilty of the offence and shall be liable to be prosecuted. 9. 9. If the present private complaint is examined against the above mentioned legal backdrop, it is clear that in the complaint that is filed there are absolutely no averments to show that the present set of petitioners are in any way responsible for the day to day affairs of the company. The complaint is bereft of details needed to prove against the petitioner. 10. As far as the point urged that a separate notice is not issued; in the judgment before the Hon'ble Supreme Court of IndiaMadhumilan Syntex Ltd., case (3 supra)it was held that a separate notice is not necessary, because in the show cause notice the petitioners were described as principal officers and in the complaint also it was stated that the persons therein were principal officers. In view of the averments in the complaint and in the earlier show cause notice the Hon'ble Supreme Court of India held that a separate notice under Sec. 2 (35) of the Act is not necessary. In the case on had as mentioned earlier there are no averments to the effect that the present set of petitioners are the principal officers. No notice under Sec. 2 (35) was issued as agreed by the learned counsel for petitioner. In that view of the mater, on this ground also this Court is of the opinion that the petitioners cannot be treated as principal officers. 11. For both these reasons, the power under Sec. 482 of Cr.P.C. is being exercised in favour of the petitioners herein by quashing the proceedings. As there is no material to show that the petitioners are principal officers. The Criminal Petition is allowed. All further proceedings against the present set of petitioners, whoare Accused Nos.3 to 5 in C.C.No.36 of 2018, on the file of learned Special Judge for Economic Offences at Visakhapatnam, are quashed. Consequently, the miscellaneous petitions, if any shall stand closed.