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CASE NO.:

Appeal (crl.) 1377 of 1999

PETITIONER:

MADHUMILAN SYNTEX LTD. & ORS

RESPONDENT:

UNION OF INDIA & ANR

DATE OF JUDGMENT: 23/03/2007

BENCH:

C.K. THAKKER & P.K. BALASUBRAMANYAN

JUDGMENT:

J U D G M E N T

C.K. THAKKER, J.

The present appeal is filed by the appellants against

an order passed by the High Court of Madhya Pradesh

(Indore Bench) on March 12, 1999 rejecting in limine

Miscellaneous Criminal Petition No. 4730 of 1998.

The facts giving rise to the present appeal are that

appellant No.1 Madhumilan Syntex Ltd. is a Public

Limited Company registered under the Companies Act,

1956. Appellant Nos. 2 to 4 are its Directors. Appellant-

Company deals in the production and business of yarn at

Madhumilan Cinema Building, Ahata. The tax

assessment of the Company is done by the Deputy

Commissioner of Income Tax (Tax Assessment), Special

Range No.1, Indore. It was the case of the respondents

that for the Assessment Year 1989-90, Returns were

submitted by the Company on December 29, 1989. On

verification of the Returns, it was found that though an

amount of Rs.1,29,348/- was deducted by the Company

as Tax Deducted at Source ('TDS' for short), it was not

credited by the Company in the account of the Central

Government as required by Sections 194C and 200 of the

Income Tax Act, 1961 (hereinafter referred to as 'the Act')

read with Rule 30 of the Income Tax Rules, 1962

(hereinafter referred to as "the Rules"). It is, however, not

in dispute that the amount of TDS was credited by the

Company with interest later on. But there was delay on

the part of the Company in depositing such amount.

Income Tax Officer (TDS), Bhopal, therefore, issued a

notice to the appellants on March 11, 1999 alleging

therein that there was failure to credit TDS to the Central

Government as required by Section 276B of the Act by

them. The appellants had thus committed an offence

punishable under Section 278B of the Act. A show-cause

notice was, therefore, issued against the appellant-

Company as also against appellant Nos. 2 to 4 (and one

Smt. Chandraprabha Modi) being principal officers of the

appellant-Company. The Income Tax Officer, TDS,

Bhopal asked the appellants to show-cause as to why

proceedings should not be initiated against them. The

appellants were asked to submit their reply on or before

March 18, 1991 failing which it would be presumed that

they had nothing to say in the matter and action would

be taken accordingly. It was also stated in the notice that

the appellant Nos. 2 to 4 (and Smt. Chandraprabha Modi)

were to be considered as 'principal officer' within the

meaning of Section 2(35) of the Act.

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The appellants filed a reply to the show-cause notice

raising various objections. It was, inter alia, contended

that they had not committed any offence nor violated

provisions of the Act. It was stated that it was not a case

of 'no payment' of TDS. The amount of tax along with

interest had been paid and statutory provisions had been

complied with. There was some delay in receiving loan

from Industrial Development Bank of India (IDBI) due to

which TDS could not be paid in time. Moreover, because

of construction of one unit by the Company, there was

shortage of liquid funds and hence the payment could

not be made. There was thus a 'reasonable cause' for

non-payment of amount within the prescribed period but

the payment had been made with interest and there was

no loss to Revenue. It was, therefore, submitted that no

case had been made out for taking action against the

appellants and notice was required to be revoked.

The Commissioner of Income Tax, Bhopal-

respondent No. 2 herein, vide his order dated February 4,

1992 granted sanction to prosecute appellants under

Section 279 of the Act observing therein that the

assessee had committed default under Section 194C of

the Act in paying TDS to the credit of the Central

Government. It was also observed that the reason put

forward by the Company was not correct. He, therefore,

granted sanction to prosecute the appellant-Company as

well as the Directors of the Company. In view of sanction

to prosecute, accorded by the Commissioner, a complaint

was filed against the appellants on February 26, 1992 in

the Court of the Additional Chief Judicial Magistrate

(Economic Crime), Indore.

The appellants filed applications under Section 245

of the Code of Criminal Procedure, 1973 (hereinafter

referred to as 'the Code') for discharge from the case

contending that they had not committed any offence and

the provisions of the Act had no application to the case. It

was alleged that proceedings were initiated mala fide. In

several other similar cases, no prosecution was ordered

and the action was arbitrary as also discriminatory.

Moreover, there was 'reasonable cause' for delay in

making payment and the case was covered by Section

278AA of the Act. The Directors further stated that they

could not be treated as 'principal officers' under Section

2(35) of the Act and it was not shown that they were 'in

charge' of and were 'responsible for' the conduct of

business of the Company. No material was placed by the

complainant as to how the Directors participated in the

conduct of business of the Company and for that reason

also, they should be discharged.

The trial Court, however, rejected the prayer of the

appellants. According to the Court, the contention raised

by the appellants required evidence as to whether a

particular accused was or was not a 'principal officer' of

the Company and it can be considered only at the trial

and an appropriate decision could be taken. According to

the Court over and above the Company, other accused

persons were Directors and as they were treated as

principal officers, the prayer for discharge could not be

granted. The applications were accordingly rejected.

The appellants being aggrieved by the above order of

the trial Court, filed Revision Petition being Criminal

Revision No. 358 of 1994 in the Court of the Sessions

Judge, Indore under Section 397 read with Section 399

of the Code. The First Additional Sessions Judge, Indore

(MP), vide his order dated July 10, 1998 rejected the

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revision filed by the appellants-applicants and confirmed

the order passed by the trial Court.

The appellants moved the High Court of M.P.

(Indore Bench), by filing Miscellaneous Criminal Petition

under Section 482 of the Code on December 14, 1998. It

appears that the petition was dismissed for default of

appearance on February 2, 1999. An application for

restoration was filed on March 12, 1999 which was

allowed and the matter was restored to file but was heard

on the same day, and by the impugned order, it was

summarily rejected. The said order has been challenged

by the appellants in this Court.

On July 26, 1999, notice was issued and further

proceedings were stayed. Leave was granted on December

15, 1999 and stay was ordered to continue. The matter

has now been placed for final hearing before us.

We have heard learned counsel for the parties.

Mr. Ranjit Kumar, Senior Advocate appearing for

the appellants raised several contentions. He submitted

that the orders passed by the Courts below as well as by

the High Court deserve to be set aside. According to him,

the present case is neither a case of 'non deduction' of

tax nor of 'non payment' of tax. The tax required to be

deducted at source had been deducted by the Company

and the said amount had also been credited in the

account of Central Government. Only thing was that

there was some delay on the part of the Company in

crediting the amount. In some cases, there was delay of

few days only (two days). As such, there was no reason

to prosecute the Company and/or its Directors. It also

cannot fall within the mischief of the Act so as to give rise

to criminal liability. It was also submitted that Company

is not a natural person but merely a legal or juristic

person and hence it cannot be punished. If it is so,

obviously, for such act, Directors or Officers of the

Company also cannot be punished. The action of the

respondents, therefore, is illegal and not warranted by

law. The counsel also submitted that appellant Nos. 2 to

4 cannot be said to be 'principal officers' under the Act

and no prosecution can be initiated against them. 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 who has been served with a notice that he

would be treated as principal officer of the Company. No

such notice had been issued by the respondents. Notice

which had been issued in the instant case is to show

cause as to why prosecution should not be launched

against them as they were to be treated as principal

officers under the Act. Such notice cannot be said to be a

notice to treat a particular officer as 'principal officer'

under the Act. It was also submitted that criminal

prosecution is a drastic step and should not be taken

lightly particularly when there are several provisions in

the Act providing for payment of interest, penalty, etc.

Recourse to prosecution should be had as a last resort.

According to the appellants, there was non-application of

mind on the part of the second respondent-

Commissioner of Income Tax in granting sanction under

Section 279 of the Act. The second respondent has not

considered the relevant facts, reasons and grounds relied

upon by the appellants as to why the amount could not

be deposited. The circumstances pleaded by the

appellants in their reply to the show cause notice clearly

disclosed that there was 'reasonable cause' for delay in

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depositing the amount and it was not a fit case for

prosecution of appellants.

The counsel also urged that in any case, appellant

No.4 is a lady who cannot be said to be in charge of

business or management and at least to that extent, the

order to prosecute her is not sustainable.

As to the order passed by the High Court, it was

submitted that on two grounds the order deserves to be

set aside. Firstly, the matter was dismissed for default

and when application for restoration was filed, the High

Court allowed the application, restored the matter but

insisted the appellants to proceed with the matter on

merits on the same day which could not have been done.

Secondly, the petition was dismissed summarily by a

cryptic order without recording reasons. The matter

raised important questions of law which could not have

been dismissed in such a manner.

Finally, it was submitted that the so called default

relates to 1989-90, and almost two decades have passed.

Moreover, the Revenue has not suffered. In the facts and

circumstances, therefore, by exercising plenary powers

under Article 136 read with Article 142 of the

Constitution, the proceedings may be ordered to be

dropped even if they could have been taken. The

appellants had suffered a lot and this Court may now

close the proceedings.

Mr. K. Radha Krishnan, Senior Advocate for the

respondents, on the other hand, supported the order

passed by the Courts below. According to him, when the

tax was deducted at source and was not paid within the

prescribed period and sanction to prosecute the

appellants was granted by the second respondent, the

action of filing a criminal complaint cannot be said to be

illegal, unlawful or otherwise objectionable. Other points

as to 'reasonable cause', circumstances in which the

payment could not be made within the statutory period

and other defences can be considered at the time of trial

and not now. At the stage of framing of charge, the Court

only considers whether prima facie case has been made

out. Once there is material to show that the amount was

not paid in the manner provided by law, proceedings

cannot be quashed.

Having given anxious and thoughtful consideration

to the rival contentions of the parties, in our opinion, it

cannot be said that by ordering charges to be framed,

any illegality has been committed by the trial Court.

As far as an objection against the order passed by

the High Court is concerned, we are not impressed by the

argument of the learned counsel. It is true that the

petition was dismissed for default on 2nd February, 1999.

It is also true that an application for restoration of the

matter was made by the appellants on March 12, 1999

and the matter was restored to file asking the advocate

for the applicants to argue the case. But, it cannot be

contended that the Court could not have insisted on the

appellants-applicants and/or their counsel to proceed to

conduct the case on merits. We have come across several

cases in High Courts as well as in this Court where a

case is dismissed for default to secure the presence of the

learned counsel. Normally, when the matter is called out

and the advocate is absent, a Court may adjourn the

matter to next date of hearing. But it may also dismiss

the matter for default so as to secure appearance of the

advocate. He may apply for restoration of the case either

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by written application or by oral prayer and the Court

may restore it asking him to argue the case so that an

appropriate order may be passed on merits. Appearance

of a party or his advocate and prayer for recalling an

order of dismissal for default may be a good ground for

restoring the matter but it cannot be said to be a good

ground for restoration of the matter for hearing in future.

In other words, a matter may be restored for hearing and

not for adjournment. We are, therefore, unable to uphold

the argument of the learned counsel that the Court could

not have insisted on the advocate to argue the matter

after the order of dismissal for default was recalled and

restoration was ordered.

Similarly, we do not see force in the contention that

the petition could not have been dismissed in limine

without recording reasons. It was not a substantive

appeal which was heard by a Court. An application for

discharge of accused was rejected by the trial Court.

Revision petition was also dismissed by the Sessions

Court and the said order was challenged before the High

Court under Section 482 of the Code (Inherent power of

High Court). If the High Court did not think it fit to

exercise inherent powers in the light of the controversy

raised, question involved and the stage at which the

applicants had approached the Court, it cannot be said

that the Court must pass detailed speaking order or

record reasons in support of such order. That contention

also, therefore, has no force.

Before adverting to the controversy raised in the

appeal, it is necessary to consider the relevant provisions

of the Act. Chapter XVII deals with "Collection and

Recovery of Tax" and 'Deduction at Source' in certain

cases. It requires certain persons to deduct tax at source

and also consequences of failure to deduct or pay such

tax. Whereas 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 lays down

consequences of failure to deduct or to pay such tax.

Chapter XXII relates to offences and prosecutions.

Section 276B deals with "Failure to pay tax. The section

at the relevant time read as under;

276B. Failure to pay the tax deducted at source.

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 three months but which may

extend to seven years and with fine.

Section 278B covered cases where offences were

committed by Companies. The section stated;

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

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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\027

(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.

Clause (20) of Section 2, inter alia, defines 'Director'

in relation to a Company having the meaning assigned to

it in the Companies Act, 1956. [Section 2(13) of the

Companies Act, 1956 defines 'Director'. The definition is

inclusive and includes "any person occupying the

position of Director by whatever name called"]. Clause

(31) of Section 2 defines 'person' which includes

Company. Clause (35) defines 'principal officer' and it

reads;

(35) "principal officer", used with reference to a

local authority or a company or any other

public body or any association of persons or

any body 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.

From the above provisions, 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 no doubt true that Company is not a natural

person but 'legal' or 'juristic' person. That, however, does

not mean that Company is not liable to prosecution

under the Act. 'Corporate criminal liability' is not

unknown to law. The law is well settled on the point and

it is not necessary to discuss it in detail. We may only

refer to a recent decision of the Constitution Bench of

this Court in Standard Chartered Bank & Ors. V.

Directorate of Enforcement & Ors., (2005) 4 SCC 530 : JT

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(2005) 5 SC 267. In Standard Chartered Bank, it was

contended on behalf of the Company that when a statute

fixes criminal liability on corporate bodies and also

provides for imposition of substantive sentence, it could

not apply to persons other than natural persons and

Companies and Corporations cannot be covered by the

Act. The majority, however, repelled the contention

holding that juristic person is also subject to criminal

liability under the relevant law. Only thing is that in case

of substantive sentence, the order is not enforceable and

juristic person cannot be ordered to suffer imprisonment.

Other consequences, however, would ensue, e.g. payment

of fine etc.

K.G. Balakrishnan, J. (as His Lordship then was),

speaking for the majority, summarized the law thus;

"As the company cannot be sentenced to

imprisonment, the court cannot impose that punishment,

but when imprisonment and fine is the prescribed

punishment the court can impose the punishment of fine

which could be enforced against the company. Such a

discretion is to be read into the Section so far as the

juristic person is concerned. Of course, the court cannot

exercise the same discretion as regards a natural person.

Then the court would not be passing the sentence in

accordance with law. As regards company, the court can

always impose a sentence of fine and the sentence of

imprisonment can be ignored as it is impossible to be

carried out in respect of a company. This appears to be

the intention of the legislature and we find no difficulty

in construing the statute in such a way. We do not think

that there is a blanket immunity for any company from

any prosecution for serious offences merely because the

prosecution would ultimately entail a sentence of

mandatory imprisonment. The corporate bodies, such as a

firm or company undertake series of activities that affect

the life, liberty and property of the citizens. Large scale

financial irregularities are done by various corporations.

The corporate vehicle now occupies such a large portion

of the industrial, commercial and sociological sectors that

amenability of the corporation to a criminal law is

essential to have a peaceful society with stable economy.

In our opinion, therefore, it cannot be successfully

contended that prosecution could not have been ordered

against the Company and no charge could have been

framed.

So far as Directors are concerned, it is alleged in the

show-cause notice as well as in the complaint that they

were 'principal officers' of the Company. In the show-

cause notice, it was asserted that the appellants were

considered as principal officers under Section 2(35) of the

Act. In the complaint also, it was stated that the other

accused were associated with the business of the

Company and were treated as principal officers under

Section 2(35) of the Act and hence they could be

prosecuted. Dealing with an application for discharge,

the trial Court observed that accused No.1 was Company

whereas other accused were Directors. Whether they

could be said to be principal officers or not would require

evidence and it could be considered at the stage of trial

and the application was rejected. In Revision, the First

Additional Sessions Judge took similar view.

The learned counsel contended that the Courts

committed an error of law in ordering prosecution against

the Directors. The counsel, in this connection, invited

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our attention to certain decisions. In Municipal

Corporation of Delhi v. Ram Kishan Rohtagi & Ors., AIR

1983 SC 67, the accused invoked the jurisdiction of the

High Court under Section 482 of the Code praying for

quashing of criminal proceedings initiated against them

under the Prevention of Food Adulteration Act, 1947.

Whereas accused No. 1 was Manager of the Company,

accused Nos. 2-5 were Directors. A complaint was filed

by the Food Inspector of the Municipal Corporation, inter

alia, alleging that 'Morton toffees' sold by the accused did

not conform to the standards prescribed for the

commodity. The Metropolitan Magistrate issued

summons to all the accused for violating the provisions of

the Act. It was contended on behalf of the accused that

proceedings were liable to be quashed as it was not

shown that accused persons were in-charge of and

responsible for the conduct of business. The High Court

allowed the petition and quashed the proceedings.

Aggrieved Municipal Corporation challenged the decision.

This Court was called upon to consider as to whether the

High Court was right in quashing the proceedings against

the accused.

The Court reproduced clause (5) of the complaint

which read thus\027

"That the accused No. 3 is the Manager,

of accused No. 2 and accused Nos. 4 to 7 are

the Directors of accused No. 2 and as such

they were in charge of and responsible for the

conduct of business of accused No. 2 at the

time of sampling." (emphasis supplied)

Considering the above clause, this Court held that

as far as the Manager was concerned "it was not and

could not be reasonably argued that no case is made out

against him because from the very nature of his duties, it

is manifest that he must be in the knowledge about the

affairs of the sale and manufacture of the disputed

sample". But so far as accused Nos. 4 to 7 were

concerned, it was alleged that they were Directors.

Interpreting the words 'as such' the Court observed that

there was no clear averment that the Directors were in

charge of and responsible for the conduct of business

and the complainant has merely presumed that the

Directors of the Company must be guilty because they

were holding a particular office.

This Court, in the circumstances, observed;

"So far as the Manager is concerned, we

are satisfied that from the very nature of his

duties it can be safely inferred that he would

undoubtedly be vicariously liable for the

offence, vicarious liability being an incident of

an offence under the Act. So far as the

Directors are concerned, there is not even a

whisper nor a shred of evidence nor anything

to show, apart from the presumption drawn by

the complainant, that there is any act

committed by the Directors from which a

reasonable inference can be drawn that they

could also be vicariously liable. In these

circumstances, therefore we find ourselves in

complete agreement with the argument of the

High Court that no case against the Directors

(accused Nos. 4 to 7) has been made out ex

facie on the allegations made in the complaint

and the proceedings against them were rightly

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quashed."

A similar question came up for consideration before

the Court in Municipal Corporation of Delhi v. Purshotam

Dass Jhunjunwala & Ors., AIR 1983 SC 158. There also,

a complaint was filed under the Prevention of Food

Adulteration Act, 1947 against the Directors of the

Company.

In para 5 of the complaint, it was stated;

"That accused Ram Kishan Bajaj is the

Chairman, accused R.P. Neyatia is the

Managing Director and accused Nos. 7 to 12

are the Directors of the Hindustan Sugar Mills

Ltd and were in charge of and responsible

to it for the conduct of its business at the

time of commission of offence."

(emphasis supplied)

Setting aside the order of the High Court quashing

the proceedings against the Directors and distinguishing

Ram Kishan Rohtagi, the Court held that there was a

clear averment as to the active role played by the accused

and the extent of their liability. A prima facie case for

summoning of accused was, therefore, made out and the

High Court was wrong in holding that allegations were

vague. Further details could be given only in evidence.

In Puran Devi & Ors. V. Z.S. Klar, Income Tax Officer,

(1988) 169 ITR 608, the High Court of Punjab & Haryana

held that a person or a partner of a firm prosecuted for

false verification of return must have been in charge of

and responsible to the firm for the conduct of its

business. Necessary allegations, therefore, must be

made in the complaint.

In K. Subramanyam v. Income Tax Officer, (1993)

199 ITR 723, the High Court of Madras held that before

prosecuting a person under the Act, it must be proved

that the person was 'in charge' of and 'responsible to' the

Firm or Company for the conduct of business. The Court

observed that the word used is 'and' and not 'or'. Both

the ingredients, therefore, have to be pleaded and proved

by the prosecution and the burden is on the prosecution

that the accused was 'in charge of' and 'responsible to'

the Firm or Company.

In Jamshedpur Engineering & Machine

Manufacturing Company Ltd. & Ors. v. Union of India &

Ors., (1995) 214 ITR 556, the High Court of Patna

(Ranchi Bench) held that no vicarious liability can be

fastened on all Directors of a Company. If there are no

averments in the complaint that any Director was 'in

charge of' or 'responsible for' conduct of business,

prosecution against those Directors cannot be sustained.

In M.A. University & Ors. v. Deputy Commissioner of

Income Tax (Assessment), (1996) 218 ITR 606, the High

Court of Kerala held that when there was failure to

deduct tax at the source by a firm, prosecution can be

launched for violating the provisions of the Act against

the Firm. But if the complaint is filed against partners

also, there must be specific allegation that such partners

were responsible for conduct of business of firm. In

absence of such allegation, proceedings against the

partners cannot continue.

Attention of the Court was also invited to a decision

of this Court in Sham Sunder v. State of Haryana, (1989)

4 SCC 630. In Sham Sunder, this Court indicated that it

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is not uncommon that some of the partners of a firm may

not even be knowing what is going on day to day in the

firm. There may be partners known as 'sleeping

partners' who are not required to take any part in the

business of the firm. Then there may be ladies and

minors who are admitted to the partnership firm only for

the benefit of business. They also may not be aware

about the business of the firm. 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. The requisite condition, according to this

Court, was that 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.

Reference was also made to State of Karnataka v.

Pratap Chand & Ors., (1981) 2 SCC 335. In that case,

this Court held that 'person in charge' would mean a

person in over all control of day to day business. A

person who is not in over all control of such business

cannot be held liable and convicted for the act of firm.

In Monaben Ketanbhai Shah & Anr. v. State of

Gujarat & Ors., (2004) 7 SCC 15 : JT (2004) 6 SC 309,

dealing with the provisions of Sections 138 and 141 of

the Negotiable Instruments Act, 1881, this Court

observed that when a complaint is filed against a firm, it

must be alleged in the complaint that the partners were

in active business. Filing of the partnership deed would

be of no consequence for determining the question.

Criminal liability can be fastened only on those who at

the time of commission of offence were in charge of and

responsible for the conduct of business of the firm. The

Court proceeded to observe that it was because of the

fact that there may be sleeping partners who were not

required to take any part in the business of the firm;

there may be ladies and others who may not be knowing

anything about such business. The primary

responsibility is on the complainant to make necessary

averments in the complaint so as to make the accused

vicariously liable. "For fastening the criminal liability,

there is no presumption that every partner knows about

the transaction. The obligation of the appellants to prove

that at the time the offence was committed they were not

in charge of and were not responsible to the firm for the

conduct of the business of the firm, would arise only

when first the complainant makes necessary averments

in the complaint and established that fact."

Finally, the counsel referred to S.M.S.

Pharmaceuticals Ltd. v. Neeta Bhalla & Anr., (2005) 8 SCC

89 : JT (2005) 8 SC 450, wherein this Court 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. Without such averment, no criminal

liability would arise.

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 Section

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 levelled or averments made by the

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complainant. It is a matter of evidence and an

appropriate order can be passed at the trial.

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.

It was urged that a separate notice and/or

communication ought to have been issued before

issuance of show cause notice under Section 276 B 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.

In view of the aforesaid discussion, the sanction to

prosecute granted by the second respondent cannot be

held illegal or unlawful nor the complaint can be held bad

in law.

The next contention that since TDS had already

been deposited to the account of the Central

Government, there was no default and no prosecution

can be ordered cannot be accepted. Mr. Ranjit Kumar

invited our attention to a decision of the High Court of

Calcutta in Vinar & Co. & Anr. v. Income Tax Officer &

Ors., (1992) 193 ITR 300. Interpreting the provisions of

Section 276B, a Single Judge of the High Court observed

that "there is no provision in the Income Tax Act

imposing criminal liability for delay in deduction or for

non-payment in time. Under Section 276B, delay in

payment of income tax is not an offence". According to

the learned Judge, such a provision is subject to penalty

under Section 201(1) of the Act.

We are unable to agree with the above view of the

High Court. Once a statute requires to pay tax and

stipulates period within which such payment is to be

made, the payment must be made within that period. If

the payment is not made within that period, there is

default and an appropriate action can be taken under the

Act. Interpretation canvassed by the learned counsel

would make the provision relating to prosecution

nugatory.

The learned counsel is right in stating that one of

the appellants is a female-member. The counsel is also

right in contending that in some of the cases referred to

by him, this Court held that normally a lady member

may not be aware of day to day business of the Firm or

the Company. Without laying down general rule, it would

be sufficient if we observe that in the case on hand, she

was also treated as 'principal officer' under the Act and

hence proceedings cannot be dropped at this stage

against her.

As to contention that the case is squarely covered

by Section 278AA of the Act and that no offence has been

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committed in view of 'reasonable cause' shown by the

appellants, we may state that the question can be

decided on the basis of evidence which would be adduced

by the parties before a competent Court. Hence, even

that contention, does not detain us.

It is true that the Act provides for imposition of

penalty for non payment of tax. That, however, does not

take away the power to prosecute accused persons if an

offence has been committed by them. A similar

contention was raised before this Court in Rashida

Kamaluddin Syed & Anr. v. Shaikh Saheblal Mardan

(Dead) Through LRs & Anr., JT (2007) 4 SC 159 that since

a civil suit was filed for recovery of amount, no criminal

proceedings could have been initiated.

Negating the contention, one of us (C.K. Thakker, J.)

stated;

Finally, the contention that a civil

suit is filed by the complainant and is

pending has also not impressed us. If a

civil suit is pending, an appropriate order

will be passed by the competent Court.

That, however, does not mean that if the

accused have committed any offence,

jurisdiction of criminal court would be

ousted. Both the proceedings are

separate, independent and one cannot

abate or defeat the other.

(emphasis supplied)

It is true that the matter relates to remote past.

Alleged non-payment of TDS pertains to 1989-90. It is

also true that the complaint was filed in the beginning of

1992 and more than fifteen years have passed but it

cannot be ignored that prosecution could not be over in

view of the fact that applications were made by the

appellants for their discharge under Section 245 of the

Code initially in the trial Court, then in the Sessions

Court and then in the High Court. Even after dismissal

of the petition by the High Court, the appellants

approached this Court and obtained interim stay of

further proceedings. It is because of the pendency of

proceedings and grant of interim relief that the case

remained pending. It, therefore, cannot be urged that

there was failure, negligence or inaction on the part of

the prosecuting agency in not proceeding with the

matter. The ground of delay, in our considered opinion,

cannot help the appellants.

Finally, the learned counsel submitted that an

appropriate direction may be issued to the trial Court so

that personal presence of respondent Nos. 2-4 may be

dispensed with and they may be granted exemption from

appearance. In our opinion, it would not be appropriate

to issue such direction to the Court. We have, however,

no doubt that if such a prayer is made by the appellants,

the Court would consider the prayer in its proper

perspective and will pass an appropriate order. If

personal presence of appellant Nos. 2-4 is not necessary,

the Court would grant exemption on such terms and

conditions as it would think appropriate.

For the foregoing reasons, the appeal deserves to be

dismissed and is hereby dismissed.

Before parting with the matter, however, we may

clarify that we have not entered into merits of the matter

and have decided the question raised by the appellants

as to maintainability of criminal complaint. We may not

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be understood to have expressed any opinion one way or

the other on merits and as and when the matter will

come up for trial, it will be decided strictly on its own

merits without being inhibited by the observations made

by us hereinabove. All contentions of all parties are kept

open.