Hemant Mahipatray Shah v. Anand Upadhyay

Case snapshot

Sections / provisions: 276B; 278B; 201(1A)

Questions before the Court / Tribunal

• See the source-driven case record below.

Material facts and background

IN THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL APPELLATE JURISDICTION CRIMINAL WRIT PETITION NO.3034 OF 2022 a/w CRIMINAL WRIT PETITION NO.3035 OF 2022 a/w CRIMINAL WRIT PETITION NO.3036 OF 2022 a/w CRIMINAL WRIT PETITION NO.3037 OF 2022 a/w CRIMINAL WRIT PETITION NO.3038 OF 2022

….. Mr. Puneet Jain a/w Mr. Pawan Ved, Mr. Sajal Yadav, Ms. Aishwarya Kantawala, Ms. Diya Jayan i/b Mr. Meghashyam Kocharekar, for the Petitioners. Mr. Suresh Kumar a/w Ms. Jyoti Yadav, for Respondent No.1. Ms. R.S. Tendulkar, A.P.P, for Respondent No.2 – State. ….. CORAM : PRITHVIRAJ K. CHAVAN, J. RESERVED ON : 12th July, 2024. PRONOUNCED ON : 12th August, 2024.

of this Court under Section 482 of the Code of Criminal Procedure, 1973 (for short “Cr. P.C”) r/w Article 227 of the Constitution of India impugning issuance of process on the basis of the complaints filed by the Income Tax Officer under Section 279 (1) of the Income Tax Act, 1961 (for short “I.T Act”) to prosecute them for

under Section 279 (1) of the I.T Act along with sanction to prosecute the petitioners for the offences as referred hereinabove. The complainants alleged that M/s. Hubtown Ltd (hereinafter referred to as “assessee” ) is a Company incorporated under the Companies Act, 1956. It was brought to the notice of the respondent No.1 by the assessee that it has deducted amounts of Rs. 13,11,35,617/- during the Financial Year 2011-2012 (Relevant Assessment Year 2012-13); Rs.14,54,20,798/- during the Financial Year

Financial Year 2016-2017 (relevant assessment year 2017-2018) , Rs. 12,70,04,846/- during the financial year 2014-2015 (Relevant Assessment Year 2015-2016) and Rs.8,78,68,793/- during the Financial Year 2017-2018 (relevant Assessment Year 2018-2019) but delayed in paying the same to the Government Treasury within the prescribed time limit.

Appellant / assessee submissions

I heard Mr. Puneet Jain, learned Counsel for the petitioners at

various provisions of the I.T Act and the case laws on the subject. He would argue that the petitioners are not the principal officers and they could only be held vicariously liable provided they fulfill the statutory requirements of section 278B of the I.T Act which is 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. He would emphasize that the complaint is bereft of essential ingredients, in the sense, the person sought to be proceeded against vicariously should be both “In-charge” and “responsible” for conducting the business of the company. No such basic averments are present in the complaint and, therefore, interference of this Court is essential.

Mr. Jain would argue that just because a person is Director, it

respondent No.1 while taking strong exception to the arguments of Mr. Jain would argue that in view of Section 204 of the I.T Act, the petitioners are responsible as Directors of the Company to deduct TDS. Merely because demand was made before the show cause notice would not wipe out the offence. Mr. Sureshkumar has placed reliance on a decision of the Hon’ble Supreme Court in a case of Madhumilan Syntex Ltd and others Vs. Union of India and another1.

reliance on a decision of the Supreme Court in case of Madhumilan Syntex Ltd (supra), which, according to Mr. Sureshkumar still holds the field. However, Mr. Jain, learned Counsel for the petitioners countered that the decision in case of

Revenue / respondent submissions

Learned Counsel for the respondents waives service.

a considerable length as well as Mr. Suresh Kumar, learned Counsel for the respondents. I have also perused the affidavits-in-reply as well as affidavits in rejoinder.

At this stage, learned Counsel for the respondents places

Court / Tribunal analysis and reasoning

“In view of Section 200, 201 (Chapter XVII), 276B, 278B (Chapter XXII) and 2 (20), 31 and 35 of the I.T Act, it is clear that wherever 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 the company in deducting or in paying such amount is an offence under the Act and has been made punishable. It, therefore, cannot be said that the prosecution against a Company or its Directors in default of deducting or paying tax is not envisaged by the Act. It is held that although a Company is not a natural person but “legal” or “juristic” person that does not mean that Company is not liable to prosecution under the Act. “Corporate Criminal Liability” is not unknown to law”.

“15. In view of the above facts and arguments of both the parties, the Court has gone through the materials available on record. For ready reference, 276 (B) of the said Act is quoted hereinbelow:“276 (B) Failure to pay tax to the credit of the Central Government under Chapter XII-D or Chapter XVII-B Section 276B of the Income Tax Act, 1961 lays down that if a person fails to pay to the credit of the Central Government: (I) The tax deducted at source by him as required by or under the provisions of Chapter XVII-B; or

April, 2008 contemplate that prosecution ought not be launched where the tax has been deposited. The words “where the amount of default has been deposited in the meantime” in the Circular dated 28th May, 1980 signify such intent and the words “in addition to the recovery steps as may be necessary in such cases” in Circular dated 24th April, 2008 also signify that there are pending arrears which need to be recovered. Mr. Jain is, therefore, right in his contention that the ratio laid down in Madhumilan Syntex Ltd and others Vs Union of India and another (supra), would not be made applicable in view of the Circular dated 24th April, 2008 and, therefore, it cannot be treated as a precedent for the period after 24 th April,

the Magistrate and, therefore, they approached this Court. A Single Judge of this Court made following observations;

were shouldered by the applicants. Furthermore applicant Nos.1 and 3 are also practising Advocates and therefore, they cannot by law act as full time Directors. They could only act as non-executive Directors not exercising any administrative powers or performing any administration duties. 13. Unless the complaint disclosed a prima facie case against the applicants/accused of their liability and obligation as Principal Officers in the day to day affairs of the Company as Directors of the Company under section 278 (b) the applicants cannot be prosecuted for the offences committed by the Company. In the absence of any material in the complaint itself prima facie disclosing responsibility of the accused for the running of the day to day affairs of the Company process could not have been issued against them. The applicants cannot be made to undergo the ordeal of a trial unless it could be prima facie showed that they are legally liable for the failure of the Company in paying the amount deducted to the credit of the Company. Otherwise, it would be a travesty of justice to prosecute them and ask them to prove that the offence is committed without their knowledge. The Supreme Court in...

“determination” can, therefore, be done only while passing an order under section 201 (1) of the I.T Act. Section 204 (iii) of the I.T Act also defines and fixes the responsibility for paying tax in relation to the company on its “Principal Officer”.

prosecute a person which expressly applies to a Director. Emphasis is on the words “with the consent”, “connivance” or “attributable to the neglect” of such Director, Manager, Secretary or other office of the company. The offence in the present case being an offence under Section 276B of the I.T Act would, therefore, imply that the “failure to pay” the TDS deducted, must have direct relation namely consent, connivance or neglect of such person.

Operative decision and relief

passed by the Additional Sessions Judge, Mumbai on 2 nd May, 2022 are also quashed and set aside.

The Petitions are disposed of as above with no order as

Authorities and precedents appearing in the judgment

• Ltd vs The State Of Bihar and others 3
• Sundar v. State of Haryana reported in (1989)
• In S.M.S. Pharmaceuticals Ltd. v. Neeta
• In Aneeta Hada v. Godfather Travels & Tours (P)

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on the statutory and factual issues recorded above. The operative result is classified as Quashed Or Set Aside. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

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