bombay high court

Bombay High Court: In a petition challenging orders issuing process and fresh summons against the petitioner, and seeking to quash criminal case for offences punishable under Section 276-B read with Section 278-B of Income Tax Act, 1961 (‘1961 Act’), R.N. Laddha, J. quashed and set aside prosecution against the petitioner since notice was not duly served as required under Section 2(35)(b) of 1961 Act.

Factual Background

The petitioner served as an independent, non-executive, and nominee director on the Board of a company from 27-06-2007 till 12-11-2011. For 2008-2009, the said company failed in depositing TDS amount of almost 3 Crores to the credit of Central Government within the prescribed period but was subsequently paid in September 2010.

It was submitted that the petitioner came to know about the criminal case and orders passed thereunder only on 5-09-2022 when he received a copy of summons on 3-08-2022. It was alleged that the Magistrate concerned issued process mechanically and without application of mind, failing to appreciate that the complaint lacked any specific averments or unambiguous allegation regarding the petitioner’s role in committing the alleged offence. It was contended that the petitioner was not the principal officer under Section 2(35) of 1961 Act, was never served with any notice being treated as the same as per the requirements under Section 2(35)(b) to initiate prosecution under Sections 276-B read with 278-B of 1961 Act.

On the contrary, the Counsel representing the State supported the process followed by the Magistrate stating that the required notice was sent to the assessee company on 16-12-2013 to nominate principal officer. The person so nominated was rejected by the department since the said person was not a company director at the time of offence. Thereafter, another opportunity was offered to nominate the principal officer, particularly stating that in the absence of any reply, all 13 directors of the company were to be treated as principal officers for initiating appropriate action without further intimation.

It was further pointed out that the petitioner regularly attended meetings of the Board at the time of commission of offence, hence, he was well aware of all legal and administrative matters of the company and could not benefit from his designation as an independent director to absolve him from prosecution.

Court’s Analysis

The Court perused Section 276-B of 1961 Act laying down the punishment for non-payment of TDS to the credit of Central Government. It further explained that the term ‘person’ defined under Section 2(31) of 1961 Act included a company. As per Section 2(35) of 1961 Act“principal officer with reference to a local authority or a company or any other public body or any association of persons or any body of individuals, meant:

  1. the secretary, treasurer, manager or agent of the authority, company, association or body, or

  2. 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.”

The Court explained that for treating a person as ‘Principal Officer’ under Section 2(35)(b) of 1961 Act, conditions to be satisfied are:

  1. he must be a person connected with the management or administration of the company; and

  2. the Assessing Officer must have served upon him notice of intention of treating him as the principal officer of the company.

The Court referred to M.R. Pratap v. V.M. Muthuramalingam, 1983 SCC OnLine Mad 272, wherein, the Madras High Court held that any person connected with the company not being the secretary, treasurer, manager or agent, cannot be treated as a principal officer of the company unless the ITO has served a notice as required under clause (b) of the section 2(35). The Court expressed that “In that case, admittedly, the Department did not serve the petitioner therein, who was a managing director, with a notice treating him as a principal officer; thus, he could not be held liable under section 276B of the Act.”

The Court highlighted that it was not stated on behalf of the State that the notice under Section 2(35) of 1961 Act was served upon the petitioner. That although he was not classified under Section 2(35)(a) to be treated as a principal officer without notice, but he fell under the category of persons specified under Section 2(35)(b), wherein, he could be treated as a principal officer only upon service of notice to prosecute under Sections 276-B and 278-B of 1961 Act. The Court pointed out that “Though the Department claimed that it sent the notice to the assessee company and its directors, the fact remains that it was never delivered to the petitioner. Further, the record does not indicate that the Department took any steps to ensure the delivery of the notice before initiating prosecution. Since the Department did not comply with the mandatory condition as enumerated in Section 2(35)(b), this Court finds it difficult to accept the contention of respondent No.1/Department that it followed all necessary procedures before initiating prosecution against the petitioner.”

It further perused the impugned order which indicated that before issuing process, the Magistrate did not consider relevant provisions of 1961 Act to determine whether mandatory notice under Section 2(35)(b) was delivered to the accused. The Court clarified that the order of issuing process was not an empty formality and required the Magistrate to apply mind before issuing process, or otherwise, it “may put the wheels of criminal law in motion and summon an innocent individual to stand trial”.

The Court explained that it did not get into grounds of petition since the notice was not complied with, which went to the root of the matter and dented the petitioner’s prosecution. Thus, the Court allowed the instant appeal, quashed and set aside the impugned orders qua petitioner only.

[Anish Modi v. Union of India, Criminal Writ Petition No. 3962 of 2022, decided on 20-12-2023]

Advocates who appeared in this case :

For Petitioner: Senior Advocate Vineet Naik, Advocate Vikrant Singh Negi, Advocate Ekta Tyagi, Advocate Pratik M. Thakkar, Advocate Priyamvada Singhania, Advocate Anjali Shah, Advocate Sneha Barange; DSK Legal

For Respondent: Advocate Suresh Kumar, Advocate Mohini Chougule, Assistant Public Prosecutor SD Shinde

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