INCOME-TAX OFFICER VS DINESH K. SHAH AND OTHERS CRIMINAL R.C. NOS.415 TO 417 OF 1987
1998 P T D 3791
[223 I T R 68]
[Madras High Court (India))
Before K.A. Swami, C. J. and A.R. Lakshmanan, J
INCOME-TAX OFFICER
Versus
DINESH K. SHAH and others Criminal R.C. Nos.415 to 417 of 1987, decided on 12/08/1996.
Income-tax---
----Offences and prosecution---Deduction of tax at source ---Firm---Partner-- Notice---Failure of firm to pay tax deducted at source to Revenue---Person who can be prosecuted---Partner who was in charge of affairs of firm-- Notice to firm is sufficient---Individual notice to partner is not necessary Indian Income Tax Act, 1961, Ss.2(35), 192, 194-A, 200, 276-B & 278-B.- [Shital N. Shah v. ITO (1991) 188 ITR 376; (1990) LW (Crl.) 478 (Mad.) and G. Anantharamiah v. ITO (1992) LW (Crl.) 173 (Mad.) overruled].
Section 276-B of the income Tax Act, 1961, 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 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 278-B of the Act deals with offences committed by companies. The definition of "company" for the purpose of the said section includes "a firm" It is seen from the Explanation to section 278-B of the Act that the partner of a firm or, as the case may be, a member of an association, is also liable to be convicted for an offence committed by the firm or other association if he is incharge of and is responsible to the firm or other association for the conduct of the business of the firm or association or if it is found that the offence is committed with the consent or connivance or is attributable to any neglect on the part of the partner or member concerned. The expression "a person in charge and responsible for the conduct of the affairs of a company" appearing in subsection (1) of section 278-B would also refer to a firm or other association in view of the Explanation to section 278-B. The test, therefore, to be applied to a Director in charge of a company must also necessarily, apply to the partner of a firm or, as the case may be, member of other association, in charge of a business. In that context, a person "in charge" must mean a person in over all control of the day-to-day business of the company or firm or other association. Therefore, any person who at the time the offence was committed was in charge of and was responsible to the company, which includes a firm, for the conduct of the business, can be proceeded against under section 278-B of the Act notwithstanding the fact that the person proceeded against may not be either the "principal officer" or the "person responsible for paying". In view of the provisions of this section, non-issuance of individual notices to any of the partners is of no consequence. It is not necessary to issue any such notice. Section 2(35) defines the expression "principal Officer" only with reference to a local authority or a company or any other public body or any association of persons or any body of individuals. The Act adopts the definition of the terms "firm" "partner" and "partnership" as contained in the Indian Partnership Act, 1932. Each partner is an agent of another.
Shital N. Shah v. ITO (1991) 188 ITR 376; (1990) LW (Crl.) 478
(Mad.) and G. Anantharamiah v. ITO (1992) LW (Crl.) 173 (Mad.) overruled.
Geethanjali Mills Ltd, v. Thiruvengadathan (V.) (1989) 179 ITR 558 (Mad.); Jain (D.K.) v. State AIR 1965 Al:. 525; Parmeet Singh Sawney v. Dinesh Verma (1988) 169 ITR 5; (1988) 1 Crimes 153 (Delhi); Pratap (M.R.) v. Muthukrishnan (V.M.) ITO (1992) 196 ITR 1 (SC); Pratap (M.R.) v Muthukrishnan (V.M.) ITO (1977) 110 ITR 655 (Mad.); Pratap (M.R.) v Muthuramalingam (V.M.) ITO (1984) 149 ITR 798 (Mad.). Raiasthan Pharmaceutical Laboratory v. State of Karnataka AIR 1981 SC 809; Ramaswami Moopanar (G.) v. E.S.I. Corporation (1990) LW (Crl.) 414 (Mad.) and Sham Sundar v. State of Haryana (1990) 67 Comp. Cas. 1:AIR 1989 SC 1982 ref.
Ramaswamy K., Special Public Prosecutor for Petitioner.
Ms. Napinnai for V. Gopinath for Respondents.
JUDGMENT
A. R. LAKSHMANAN, J.---The Income-tax Officer, Headquarters. T. D. S., and the Income-tax Officer, Salaries Circle, Madras, have preferred three complaints before the Additional Chief Metropolitan Magistrate (Economic Offences-I), Madras-8, against the respondents herein under section 276-B and section 276-B read with section 278-B of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), for their failure to deduct income-tax at source from the interest amounts paid to various persons as per section 194-A of the Act. The first respondent is the firm and the second respondent is the partner of the first respondent-firm.
The first respondent-company in E.O.C.C.Nos.292 to 360. of 1987 (Criminal R.C.No.417 of 1987) furnished its return of income, which was signed by the second respondent, in the form of trading, profit and loss account and balance-sheet for the accounting year ending September 30, 1982 (assessment year 1983-84), on December 30, 1985. In the statement accompanying the return, the firm claims to have paid interest to the extent of Rs.6,64,565.98 to various parties. Of these, there were payments of over Rs.1,000 in the aggregate during the financial year in respect of 68 parties. The respondents have failed to deduct tax of Rs.2,400, on the interest credited to Sri Finance Corporation on various dates. Since the first respondent had failed to deduct the tax at source as per the provisions of section 194A of the Act, show-cause notice under section 276-B of the Act was issued on October 31, 1986, calling for the assessee's explanation for non-deduction of tax at source under section 194-A of the Act, There was no response from the firm. For the failure on the part of the first respondent firm to deduct tax at source from the amount of interest paid to the creditors and thereafter to remit the same within seven days from the last day of the month in which deduction was made or within two months of the expiration of the month in which the date of crediting to the parties amount falls, to the credit of the Government of India's account as stipulated in Rule 30(1)(b) of the Income-tax Rules 1962. which is without reasonable cause or excuse, the Department seeks to prosecute the first respondent firm under-section 276E of the Act. The second respondent being the managing partner of the first respondent-firm at the material time, is responsible for the conduct of the business of the firm, and has committed the offence under section 276B read with section 278-B of the Act. Therefore, the above complaint was filed requesting the trial Magistrate to take the complaint on file, issue process to the accused/respondents and deal with them in accordance with law.
The first accused/first respondent in C.C.Nos.361 and 362 of 1987 on the file of the Additional Chief Metropolitan Magistrate (Economic Offences-I), Madras-8 (Criminal R.C. No.415 of 1987) is a partnership firm carrying on the business of marketing quality eyewares and the second accused, who is its partner, has signed the firm's annual return in Form No.24, under section 206 of the Act, For the assessment year 1986-87, relevant for the financial year ended March 31, 1986, the firm filed an annual return in Form No.24 under section 206 of the Act, on April 21, 1986. It also furnished the particulars in Form No.24. According to the particulars furnished, even though the employees had a taxable income, tax was not deducted at source in accordance with the provisions of section 192 of the Act. Therefore, a letter was issued on February 17, 1987, by the complainant to the assessee-firm requiring them to furnish monthly remittance particulars: The assessee in its reply dated February 20, 1987, has stated that since the annual income under this head does not exceed the minimum amount liable to tax, the monthly remittance particulars in Form No.24 are shown as "Nil". It is stated that the failure on the part of the firm to deduct tax at source under section 192 of the Act and to remit the same within the time stipulated is an offence punishable under section 276-B of the Act. The second accused/respondent being the partner, of the first accused- firm who had signed its annual return in Form No.24 and answerable to the first accused-firm for the conduct of the business of the firm is equally liable under section 276-B read with section 278-B of the Act.
The first accused in C.C. Nos.268 to 291 on the file of the Additional Chief Metropolitan Magistrate (Economic Offences-I), Madras-8, is the firm functioning at Madras and accused Nos.2 and 3, respondents Nos.l and 2 are the partners, who are responsible for the conduct of the business of the firm. They filed the return for the year ended on March 31, 1980, and the final accounts in the form of trading, profit and loss account and balance-sheet. In the statement of interest paid account, the firm had claimed to have paid interest to the extent of Rs.99,000 to eight persons. It is stated that the accused have delayed the remittance of tax deducted at source to the Government of India's account from the interest. The firm remitted the T.D.S. amount after a delay of nearly two months. Therefore, summons under section 131 of the Act were issued to the assessee on November 13, 1986, asking them to appear on November 21, 1986, with books of account for the years ended March 31, 1980, to March 31, 1983. On December 9, 1986, the assessee flied a letter, dated December 12, 1986, relating to the assessment year 1980-81 along with the particulars of interest paid, T.D.S. paid, etc. The assessee in their explanation had stated that all the depositors were already on the list of the assessee and due to misapprehension the depositors themselves paid advance tax on these interest payments. It is, therefore, stated that the failure on the part of the firm to deduct tax at source from the amount of interest paid to the creditors and thereafter remit the same within the time stipulated is without reasonable cause or excuse, and as such, the first accused/firm has committed the offence punishable under section 276-B of the Act and accused Nos. 2 and 3 respondents have committed the offence punishable under section 276-B read with section 278-B of the Act.
The learned trial Magistrate heard the learned special public prosecutor for the Income-tax Department on the question of maintainability of the complaints against the second accused (managing partner) without statutory notice under section 2(35)(b) of the Act treating the second accused as principal officer of the firm. The following, point was formulated by the learned magistrate for determination.
"Whether without statutory notice under section 2(35)(b) of the Income Tax Act, cognizance can be taken of the offence under section 276-B read with section 278-B of the Income Tax Act against the second accused, the managing partner of the firm?"
It was argued before the learned Magistrate on behalf of the Department that under section 2(35)(b) of the Act, since the principal officer includes agent and since a partner under the Indian Partnership Act is an agent for the business of the firm, no notice under section 2(35)(b) of the Act to treat such partner as principal officer of the firm is necessary. Rejecting the said contention, the learned Magistrate held that there is a legal lacuna in not issuing notice under section 2(35)(b) of the tact to the second accused, who is a partner of the first accused-firm, and who is sought to be made liable by virtue of section 278-B of the Act and because of that lacuna, a complaint cannot be taken cognizance of against the second accused. Therefore, rejecting the contention of the Department, the magistrate held that the managing partner of a firm will not come under the meaning "agent" in section 2(35)(b) of the Act and that the complaints are not legally sustainable against the second accused for non-issue of statutory notice under section 2(35(b) of the Act to make him liable under section 278-B of the Act. Thus, the complaints were taken on file only against the first accused-firm.
Aggrieved against the order of the Additional Chief Metropolitan Magistrate (Economic Offences-I), Madras-8, the Income-tax Officers, Headquarters, T.D.S., and Salary Circle have filed the three revisions under sections 397 and 401 of the Code of Criminal Procedure.
The matter came up before E.J. Bellie, J., on March 10,1994. Before the learned Judge, learned counsel for the first accused/firm cited two decisions of this Court in Shital N. Shah v. ITO (1991) 188 ITR 376 ; (1990) L. W. (Crl.) 478 by T. S. Arunachalam, J (as he then was) and G. Anantharamiah v. ITO (1992) L.W. (Crl) 173 by K.A. Swamidurai J., wherein it has been held that for prosecution of a partner of a firm for the offence of non-deduction of tax at source from the interest payable by the firm, a notice under section 2(35)(b) of the Act is a precondition. E.J. Bellie, J., felt that the said decisions are not correct and that no question of notice under section 2(35)(b) of the Act to a partner arises at all. The learned Judge has also felt that it is discernible that there is an error committed in having taken the view that a partner of a firm comes within the purview of section 2(35) of the Act. Therefore, the learned Judge thought it necessary to refer the matter to a Division Bench to have an authoritative binding judgment. That is how the matter is posted before this Bench.
The following is the order of reference by E.J. Bellie, J.
"This criminal revision petition case is by the Income-tax Officer, Headquarters, T.D.S., Office of the Commissioner, Madras-34 (hereinafter referred to as 'the Income-tax Officer'), against an order passed by the Additional Chief Metropolitan Magistrate, Economic Offences-I, Egmore, Madras, in Crl. M.P.No.242 of 1987 refusing to take cognizance of an offence compliance against the second accused in the case.
(2)The complaint was filed by the Income-tax officer against the first accused-firm and against the second accused---its managing partner under section 276-B read with section 278-B of the Income Tax Act for an offence of failure to deduct income-tax at source from the interest payable by the partnership firm.
(3)Before the case was taken cognizance, the learned Magistrate suo motu observing that as regards the second accused, the Income-tax Officer, should have issued statutory notice to him under section 2(35)(b) of the Income Tax Act and such notice having not been issued, the prosecution is incompetent against him, he took cognizance of the offence only against the first accused. Aggrieved by this order, the Income-tax officer has come up with this criminal revision case.
(4)Mr. K. Ramaswamy, learned counsel appearing for the revision petitioner/Income-tax Officer, contends that the order of the Court below is erroneous since no notice under section 2(35)(b) to the second accused is warranted.
(5)Mr Gopinath, learned counsel appearing for the second respondent/managing partner of the first respondent-firm cites two decisions of this Court. i.e., (i) Shital N. Shah v. ITO (1991) 188 ITR 376 ; (1990) L.W. (Crl.) 478 and (ii) G. Anantharamiah v. ITC (1992) L.W. (Crl) 173, wherein as ordered by the Magistrate, it has been held that for prosecution of a partner of a firm for the offence of non-deduction of tax at source from the interest payable by the firm, a notice under section 2(35)(b) is a pre-condition.
(6)On a careful analysis of the relevant sections in the Income Tax Act, 1 am clearly able to see that the said decisions of this Court are not correct and no question of notice under section 2(35)(b) to a partner arises at all.
(7)Now section 194-A of the Income Tax Act provides for deduction of income-tax from interest payable. Section 200 provides for payment of the deducted amount to the Government. These two sections cast a duty for deduction and payment of tax upon a person responsible for paying interest. Here it would be relevant to note that as per section 2(31) a person includes a firm. Under section 204, the meaning of person responsible for paying has been given. In this section, there are three clauses in respect of interest in clause (iii). As per this clause, the person responsible for paying is the payer himself, or, if the payer is a company, the company itself including the principal officer thereof. .
(8)Now, in our case, the payer is undoubtedly a partnership firm. Company' has been defined in section 2(17) of the Act. 'Firm' has been defined in section 2(23). Therefore, a firm cannot be said to be a company. They are in nature different from each other. Hence, when the clause (iii). reads. 'If the payer is a company, the company itself including the principal officer thereof', it refers only to a company defined under section 2(17) and not to a firm defined under section 2(23).
(9)Section 276-B is a penal section for failure to deduct or pay tax. As per this section, if a person fails to deduct or after deducting, fails to pay the tax as required by or under the provisions of subsection (9) of section 80-E or Chapter XVII-B, he shall be punishable. 1t is seen above that the person responsible for paying in our case is the firm itself. Therefore, for non-deduction of tax from interest payable, the firm is punishable.
(10)Under section 278-B 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. 1n this section itself, there is an explanation according to which for the purposes of this section, a company includes a firm. As regards the firm, the partners thereof are the persons who are in charge of the firm and they are responsible for the conduct of the business of the firm. Therefore, under section 278-B for the offence committed by the firm, the partners are deemed to be liable. Hence, if the allegation that tax has not been deducted from the interest payable by the firm is true, then under section 278-B alongwith the firm, the partners also would have committed an offence. This being the case, no notice under section 2(35)(b) arises at all.
(11)Firm does not come within the purview of section 2(35). This section relates to the local authority or a company or any other public body or any association of persons or anybody of individuals. Here it must be noticed that under section 2(31) person includes, ---
(i)an individual,
(ii)a Hindu undivided family,
(iii)a company,
(iv)a firm
(v)an association of persons or a body of individuals, whether incorporated or not,
(vi)a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-clauses. Company, public body or an association of persons or body of individuals mentioned in section 2(35) all come within the meaning of 'person' under section 2(31) and they are besides a firm. From this, it is clear that a firm is not within the ambit of section 2(35). Therefore, as said above, no question of giving any notice under section 2(35) arises in the case of a firm.
(12) In the abovesaid two judgments of this Court, it is discernible that there is an error committed in having taken the view that a partner of a firm comes within the purview of section 2(35). In this position, I think it is necessary to refer the matter to a Division Bench to have an authoritative binding judgment.
(13) Therefore, the office is directed to place the matter before my Lord, the Hon'ble Chief Justice to post the matter before a Division Bench or Full Bench."
It is also to be noticed that the second accused in E.O.C.C. Nos.292 to 360 of 1987/second respondent in Criminal R.C. No. 415 of 1987 filed Criminal M.P. No.7697 of 1987 under section 482 of the Code of Criminal Procedure to direct the Registry to issue notice to him for an opportunity being given to be heard on the question at issue. On August 5,1987, notice was ordered and Mr. V. Gopinath, Advocate, entered appearance on his behalf.
We have heard Mp. K. Ramaswami, the learned Special Public Prosecutor for the Income-tax Department/petitioner and Ms. Nappinnai, learned counsel for the respondents. She also argued the case on behalf of the managing partners of the first accused-firm.
It is contended by the learned Special Public Prosecutor, Mr. K. Ramaswami, as follows:
(a)The learned magistrate has misdirected himself on the question of law relating to section 2(35) of the Act and has failed to note that the "principal officer" defined under section 2(35)(b) of the Act relates to only the obligations under sections 194 and 204 of the Act and they relate to a company and not to a firm.
(b)The Court below ought to have held that the first accused, a partnership firm, is not a company, and therefore, there is no question of any principal officer being appointed or notices being served under section 2(35) of the Act. As such, the Court below has completely erred in applying section 2(35)(b) of the Act to section 278-B of the Act just because section 278-B includes a firm.
(c)The Court below had failed to note that the decision reported in M.R. Pratap v. V.M. Muthuramalingam, ITO (1984) 149 ITR 798 (Mad.) applies only to a company and its employees and does not apply to a firm.
(d)The Court below had failed to note th4t the words "company" and "director" have been given wider connotation only for the purpose of the other section of the Act.
Countering the arguments of the learned Special Public Prosecutor. Ms. Nappinnai, learned counsel appearing for the respondents in all these cases, contended that the complaints suffered from fundamental legal defects of non-issuance of the statutory notice under section 2(35)(b) of the Act to the second respondent/partner, treating him as the principal officer, so as to bring him within the meaning of section 278-B of the Act. It is further submitted that section 276-B of the Act, with which the second respondent is sought to be charged, prescribes stringent punishment of rigorous imprisonment which may extend to three years and fine, and in any event, it shall be for a minimum period of three months. The penal provisions of the Act have to be strictly observed and non-observance of the statutory procedure is illegal and any proceedings that are sought to be taken are vitiated and hence, unsustainable.
The following decisions were cited before us:
Shital N. Shah v. ITO (1991) 188 ITR 376; (1990) L.W. (Crl) 478 by T.S. Arunachalam, L(as he then was).
G. Anantharamiah v. ITO (1992) L.W.(Crl) 173 by K. Swamidurai, J.
M.R. Pratap v. V.M. Muthuramalingam. ITO (1984) 149 ITR 798 by S. Natarajan, J. (as he then was ).
M.R. Pratap, v. V.M. Muthu Krishnan. ITO (1992) 196 ITR 1 by the Supreme Court.
The points that arise for consideration in these revisions are: ,
(1)Whether the second accused in his capacity as the partner is liable for prosecution under section 276-B read with section 278-B of the Act? and
(2)Whether notice under section 2(35)(b) of the Act to a partner is a pre-condition?
Section 2(17) of the Act, defines 'company", which runs thus:
"2. (17) 'company' means,---
(i)any Indian company, or
(ii)anybody corporate incorporated by or under the laws of a country outside India, or
(iii)any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922 (11 of 1922), or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970, or .
(iv)any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company:
Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration."
Section 2(23) of the Act defines "firm". It runs thus:
"2(23) 'firm', 'partner' and 'partnership' have the meanings respectively assigned to them in the Indian Partnership Act, 1932 (9 of 1932) ; but the expression 'partner' shall also include any person who, being a minor, has been admitted to the benefits of partnership. "
Two essential conditions necessary to form the relation of partnership are; (i) there should be an agreement between persons to share the profits as well as the losses of the business; and (ii) the business must be carried on by all or any of them acting for all, within the meaning of the definition of "partnership" under section 4 of the Indian Partnership Act. The principle of agency has been held to be implicit in the second requirement.
Section 2(31) of the Act defines "person" as follows:
"2. (31) 'person' includes,---
(i) an individual,
(ii) a Hindu undivided family,
`
(iii)a Company,
(iv)a firm,
(v)an association of persons or a body of individuals, whether incorporated or not,
(vi)a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-clauses:"
Section 2(35) of the Act defines "principal officer" as follows:
"2.(35) 'principal officer', used with reference to a local authority or a company or any other public body or any association of persons or anybody 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."
Section 192 of the Act deals with deduction at source in the case of salaried people. Section 194-A of the Act deals with interest other than interest on securities. Section 200 of the Act deals with duty of person deducting tax. When the tax has been deducted at source, it does not lie at the risk of the Revenue and unless the tax so deducted is deposited or paid, the person who has deducted, continues to be responsible. A default in payment of tax deducted at source to the credit of the Central Government attracts penalty under section 201(1) read with section 221, interest under section 201(1-A) and prosecution under section 276-B of the Act. The relevant rule for this section is rule 30 of the Income-tax Rules, 1962, which provides for time and mode of payment to Government account of the tax deducted at source.
Section 201(1-A) of the Act provides for payment of simple interest at 15 per cent. per annum if any such person, principal officer or company, does not deduct or after deducting fails to pay the tax as required by or under the Act. Section 221(1) of the Act provides for penalty in case of default in payment of tax.
section 276-B of the Act reads as follows:
"276-B. 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. "
The above section was substituted by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. Prior to its substitution, section 276-B as inserted by the Finance Act, 1968, with effect from April 1, 1968, and later on substituted by the Taxation Law as (Amendment) Act, 1975, with effect from October 1, 1975, and amended by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from September 10, 1986, stood as under:
"276-B. Failure to deduct or pair tax.---If a person fails to deduct or after deducting, fails to pay the tax as required by or under the provisions of subsection (9) of section 80-E, or Chapter XVII-B, he shall be punishable,---
(i)in a case where the amount of tax which he has failed to deduct or pay exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;
(ii)in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine."
Under the amended provision, section 276-B of the Act provides for prosecution only in respect of a failure to pay to the Government the tax deducted at source. The offence of failure to deduct tax at source under the provisions of Chapter XVII-B now attracts penalty under section 271-C of the Act. Reference to section 80-E has been omitted consequent on the omission of section 80-E. A uniform punishment has been provided for the offences, which is rigorous imprisonment for at least three months extending up to seven years and fine. Even under the old section, the burden of proving the existence of reasonable cause or excuse was shifted to the assessee with effect from September 10,1986. Under the new section also, the position continues to be the same. Prior to April 1, 1989, the breach or contravention which attracted prosecution under this section related to the failure of a person without reasonable cause or excuse, to deduct, or, after deducting, to fail to pay, the tax as required by or under the provisions of sub-section (9) of section 80-E or Chapter XVII-B of the Act. It provided that a person failing without reasonable cause or excuse to deduct or after deducting to pay the tax as required by the provisions hereinbefore mentioned, shall be punishable with rigorous imprisonment for a term which may extend to six months and shall also be liable to tine, which shall not be less than a sum calculated at 15 per cent per annum on the amount of such tax from the date on which such tax was deducted, to the date on which such tax was actually paid. An imposition of rigorous imprisonment at least for a fraction of six months was imperative under the provision. In fixing the amount of fine, the Court may take into account circumstances such as the recurrent nature of the defaults and the interest lost by the Government due to the failure.
Under section 278-B, a limited company as well as 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 (sic).
Section 278-B of the Act runs thus:
"278-B. (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 subsection 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 subsection (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---
(i) a firm ; and
(ii)an association of persons or a body of individuals whetherincorporated-or not'; and
(b) director, in relation to---
(i)a firm, means a partner in the firm;
(it)any association of persons or a body of individuals, means anymember controlling the affairs thereof. "
This section, which was inserted by the Taxation Laws (Amendment) Act, 1975, with effect from October 1, 1975, does not apply to an offence committed prior to that date. A person "in charge of" the business is the person who is in overall control of the day-to-day business,
The effect of this section is to make every person who was in charge of and was responsible to the company for the conduct of the business of the company at the time the offence was committed, apart from the managing director, who signed the return, liable to be proceeded against and punished. The position earlier was that only the principal officer (which term included the managing director' in the case of a company) could be prosecuted and punished. Under section 278-B of the Act, the basic requirement is that the prosecution must prove that the persons concerned were in charge of, and were responsible to, the company or the firm as the case may be. for the conduct of the business of the company or the firm at the time when the offence was committed. It is only then that they can be vicariously prosecuted along with the company or the firm as the case may be. The proviso to subsection (1) will come into operation only after the initial onus cast on the prosecution under the main section gets discharged. In view of the provisions of this section, non-issuance of individual notices to any of the partners is of no consequence, rather it is not necessary to issue any such notice. Section 2(35) of the Act as pointed out earlier defines the expression "principal officer" only with reference to a local authority or a company or any other public body or any association of persons or any body of individuals. The Act adopts the definition of the terms "firm", "partner", and "partnership" as contained in the Indian Partnership Act, 1932. Each partner is an agent of the others. Consequently, all the partners are jointly and severally liable for the acts of one or other of the partners of the firm and are also entitled to share the profits and losses. (Vide the decision reported in Geethanjali Mills Ltd. v. Thiruvengadathan (1989) 179 ITR 558 (Mad.)).
A consistent, view has been expressed by Courts that a company being a juridical person cannot be made liable for corporeal punishment like imprisonment. It is also held that if the contravention is by a company, the persons who may be held guilty and punished are : (i) the company itself;(ii) every person who, at the time the contravention was committed was in charge of, and was responsible to, the company for the conduct of the business of the company (in short, the person in charge); and (iii) any director, manager, secretary or other officer of the company with whose consent or connivance or acts of neglect attributable to whom the offence had been committed, i.e., an officer of the company. Any one or more or all of them be prosecuted and punished. The person in charge may also be prosecuted.
It is seen from the Explanation to section 278-B of the Act that the partner of a firm or, as
the case may be, a member of other association, is also liable to be convicted for an offence committed by the firm or other association if he is in charge of and is responsible to the firm or other association for the conduct of the business of the firm or association or if it is found that the offence is committed with the consent or connivance or is attributable to any neglect on the part of the partner or member concerned. The expression "a person in charge and responsible for the conduct of the affairs of a company" appearing in subsection (1) of section 278-B would also refer to a firm or other association in view of the Explanation to section 278-B. The test therefore, to be applied to a director in charge of a company must also necessarily apply to the partner of a firm or, as the case may be, member of other association, in charge of a business. In that context, a person "in charge" must mean a person in overall control of the day-to-day business of the company or firm or other association.
Sections 4 and 18 of the Indian Partnership Act, 1932, should also, be beneficially noticed in this context. Section 4 reads as follows:
"4.Definition of 'partnership' 'partner' 'firm' and 'firm name'.---,'Partnership' is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.
Persons who have entered into partnership with one another are called individually 'partners' and collectively 'a firm', and the name tinder which their business is carried on is called the 'firm name'."
The components of the definition of "partnership" consist of:(a) person, (b) a business carried on by all of them or any of them acting for all, and (c) an agreement between those persons to carry on such business and to share its profits. It is the relationship between those persons, which constitutes the partnership. In other words, the following important elements must 'be there in order to establish partnership. (a) there, must be an agreement entered into by all parties concerned:(b) the agreement must be to share profits of business; and (c) the business must be carried on by all or any of the persons concerned acting for all.
Section 18 of the Indian Partnership Act runs as follows:
"18. Partner to be agent of the firm.---Subject to the provisions of this Act, a partner is the agent of the firm for the purposes of the business of the firm."
Section 18 of the Indian Partnership Act makes a partner the agent of the firm for the purposes of the business of the firm. It is thus clear that a partner is liable for the acts of the other partners and vice versa as a principal is liable for the acts of his agent done in the ordinary course of business. The effect of section 18 is to-make every partner an agent of the, firm and make him jointly and severally liable for all the acts of the firm.
In the light of the above discussion and analysis of the relevant sections of the Income Tax Act and the Indian Partnership Act, we have .to see whether the decisions of this Court in Shital N. Shah v. ITO (1991) 188 ITR 376;(1990) L.W. (Crl) 478 and G. Anantharamiah v. ITO (1992) L.W. (Crl.) 173, are correct and whether the notice under section 2(35)(b) of the Act to a partner is a pre-condition.
All the three complaints given by the Department relate to the partnership firms. All of, them have been rejected by the Magistrate on the ground that the complaints against the partners are not legally sustainable for the non-issue of statutory notice under section 2(35)(b) of the Act to make them liable under section 278-B of the Act. We have already seen the scope. of sections i94-A, 200, 204, 276-B and 278-B of the Act. Sections 194-A and 200 of the Act cast a duty for deduction and payment of tax upon a person responsible for paying interest.
In Shital N. Shah v. I.T.O. (1991) 188 ITR 376; (1990) L. W. (Crl.) 478, T.S. Arunachalam, J.(as he then was), who decided the case on August 27, 1990, had taken the view that the view the words "any person who is responsible for paying" found in section 194-A of the Act had to be read in conjunction with section 204 of the Act, which furnishes the meaning of "person responsible for paying". We are unable to endorse and subscribe to the views of the learned judge in the above case. It is not necessary that prosecution under section 278-B of the Act can be launched only against the company and "its principal officer". There is no warrant to give a restricted meaning to the following expression found in section 278-B of the Act: "Every person who was in charge and was responsible to the company for the conduct of the business of the company at the time when the offence was committed would be liable. Such person, who was in charge of and was responsible to the company and for the conduct of the business may be the 'principal officer' as defined in section 2(35) of the Apt or 'person responsible for paying".
The interpretation placed by the learned judge, T. S. Arunachalam, J. (as he then was), is contrary to the express language of section 278-B of the Act. Therefore, any person who at the time the offence was committed was in charge of and was responsible to the company, which includes a firm for the conduct of the business, can be proceeded against under section 278-B of the Act notwithstanding the fact that the person proceeded against may not be either the "principal officer" or the "person responsible for paying". The intention of parliament is, therefore, not to confine the prosecution under section 278-B of the Act only against the "principal officer" and the person responsible for paying".
We also came across another decision of T.S. Arunachalam, J. (as he then was) reported in G. Ramaswami Moopanar v. E.S.I. Corporation (1990) L.W. (Crl) 414, decided on August 8,1990. The learned Judge had considered the question of law as to whether a director of a company or a partner of a firm be prosecuted as a "principal employer" falling within the fold of section 2(17) of the Employees' State Insurance Act as it stood prior to its amendment by the Central Act 29 of 1989, in and by which section 86 A of that Act was introduced in the said Act (amended with effect from October 29, 1989).
Section 86-A of the Employees' State Insurance' Act reads as follows:
"86-A. Offences by companies.---(i) If the person committing an offence under this Act is 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 subsection shall render any person liable to any punishment, if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence.
(2)Notwithstanding anything contained in subsection (1), where an offence under this Act has been committed with the consent or connivance of, or is attributable to, any neglect on the part of any director or manager, secretary or other officer of the company, such director, manager, secretary or other officer shall 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,---
(i) 'company' means anybody corporate and includes a firm and other association of individuals; and
(ii) 'director' in relation to,---
(a) a company, other than a firm, means the managing director or a whole time director;
(b) a firm means a partner in the firm."
On a comparison of section 86-A of the Employees' State Insurance Act with section 278-B of the Act, it is seen that they are verbatim the same. Section 86-A of the Employees' State Insurance Act has been inserted by the Employees' State Insurance (Amendment) Act 29 of 1989. This provision is analogous to similar provisions contained in various statutes such as the Essential Commodities Act, the Electricity Act, the Prevention of Food Adulteration Act, etc., in which for the offences under such Acts, prosecution can be launched against both natural and artificial persons. It is provided that if a person committing the offence is a company, then 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 prosecuted against and punished accordingly. The proviso to subsection (1) safeguards the interest of the persons who can prove that the offence was committed without his knowledge or that he exercised due diligence to prevent such offence. The onus is upon such person to prove any one of the above circumstances and if he so proves, he shall not be liable for punishment.
Subsection (2) of section 86-A of the Employees' State Insurance Act contains a deeming provision. It states, where an 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 be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. For the purpose of this section, "company" has been given an extended meaning. It means any body corporate and includes a partnership firm or other association of individuals. This means that "company" will include not only public or private limited companies registered under the Indian Companies Act, but also statutory corporations, partnership-time or any society registered under the Societies Registration Act or any State Societies Registration Act.
In interpreting similar provisions in the Drugs and Cosmetics Act, 1940, the Supreme Court in the decision in Rajasthan Pharmaceutical Laboratory v. State of Karnataka, AIR 1981 SC 809;(1981) 2 SCR 604, has held that the directors who are not directly in charge of the management of the company cannot be held liable.
In this context, we may also beneficially refer to section 10 of the Essential Commodities Act, 1955. Section 10 of the said Act contains similar provisions to section 86-A(1) of the Employees' State Insurance Act.
Two things have to be proved, viz., (i) the company must be charged for the same. offence; and (ii) the persons, besides the company sought to be made liable, must be in charge of and responsible to the company for the conduct of the business.
While dealing with a similar situation with reference to the provisions of the Prevention of Food Adulteration Act, 1954, the Allahabad High Court in the decision in D.K. Jain v. State, AIR 1965 All 525 held that a reading of section 17(2) of the Prevention of Food Adulteration Act, makes it obvious that the legislature has taken care to provide that natural persons made vicariously liable for an offence under the Act, committed by a company or anyone of its employees are to be punished only when it is established that they had some nexus with the crime either because of their connivance with it or due to their criminal negligence which had resulted in its commission. The Allahabad High Court has further held that to make a person liable for the offence committed by the company or its salesman who was physically present on the scene it must be proved that the offence was committed with his connivance.
In the decision in G. Ramaswami Moopanar v. E.S.I. Corporation (1990) L.W. (Crl) 414, T.S. Arunachalam, J. (as he then was) had observed as follows:
"By this provision, if a person committing an offence under the Act was a company; it makes 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 liable to be proceeded against and punished. A similar provision regarding vicarious liability, is found in several Acts, for example, the Prevention of Food Adulteration Act, Essential Commodities Act, Indian Explosives Act, Indian Electricity Act, etc. The liability is sought to be fastened only when such person was in charge of and responsible for the conduct of the business of the company at the time when the offence was committed. If such a person were to be prosecuted after satisfying the basic requirement of the section, even then it would be open to such a person to prove that the offence was committed without his knowledge or he was unable to prevent the commission of the offence in spite of his having exercised all due diligence. It is, therefore, fairly clear that the Legislature had taken note of the defence which may be feasible On the contrary, if the principal employer fails t pay the contribution he is liable to pay under the Act, the offence is complete and prima facie there appears to be no defence open for him. Therefore, it is possible to hold, that the legislature, when it introduced this welfare legislation, did not intend to punish ever partner or every director for non-payment of the contribution, for apart from being directors or partners, they may not have the ultimate control over the affairs of the factory. In that context, it is quite possible, that under section 2(17) of the Act, the meaning of the word 'principal employer' refers to the owner or the occupier or the manager of the factory if he had been so named. The liability, therefore, in such event, will rest on such person, who has complete control over the affairs of the factory. If the partners and directors were liable to be proceeded against under section 2(17) of the Act, it appears to my mind, that there was no need for the legislature to introduce section 86-A, by Act 29 of 1989, making the company and persons in charge of and responsible for the conduct of the business of the company liable for the offence under the Act. A similar provision in section 278-B was introduced in the Income Tax Act on October 1, 1975. "
The Delhi High Court while considering the insertion of section 278-B in the Income Tax Act, in the decision in Parmeet Singh Sawney v. Dinesh Verma (1988) 169 ITR 5;1 Crimes 153, held as follows:
"Before the introduction of this section (section 278-B), a firm alone could have been proceeded against. Mr. Jolly states that 'firm' includes its partners and they as well could be prosecuted. I must at once point out that Mr. Jolly is labouring under a misconception. Under the Partnership Act, partners, of course, will be liable for all the liabilities but we are in a different field. Section 278-B, which (A. R. Lakshmanan, J) was brought into existence on October 1. 1975, for the first time, made every person connected with the affairs of the company liable for prosecution. The fact of the matter is that earlier to the introduction of section 278-B, the partners could not be prosecuted and the firm alone could be prosecuted. The person referred to in section 276-B is in the context of the definition of 'person' as contained in section 2(31) of the Income Tax Act. Otherwise also, Mr. Sethi's contention seems to be strong that in case the partners were to be proceeded against in the absence of section 278-B, there was no need for the Legislature to introduce section 278-B as has been done in the year 1975."
It may be relevant at this stage to refer to the observations of the Supreme Court in the decision reported in Sham Sundar v. State of Haryana (1990) 67 Comp Cas 1; AIR 1989- SC 1982, 1984. While considering provisions similar to section 86-A of the Employees' State Insurance Act (introduced by Act 29 of 1989), it was stated as. follows (at page 4 of 67 Comp. Cas.):
But we are concerned with a criminal liability under a penal provision and not a civil liability. The penal provision must be strictly construed in the first place. Secondly, there is no vicarious liability in criminal law unless the statute takes that also within its fold. Section 10 does not provide for such liability. It does not make all the partners liable for the offence whether they do business or not.
It is, therefore, necessary to add an emphatic note of caution in this regard. More often it is common that some of the partners of a firm may not even be knowing of what is going on day-to-day in the firm. There may be partners, better known as sleeping partners who are not required to take any part in the business of the firm. There may be ladies and minors who were admitted only for the benefits of partnership. They may not know anything about the business of the firm. It would be a travesty of justice to prosecute all the partners and ask them to prove under the proviso to subsection (1) that the offence was committed without their knowledge. It is significant to note that the obligation of the accused to prove under the proviso that the offence took place without his knowledge or that he exercised all due diligence to prevent such offence arises only when the prosecution establishes that the requisite condition mentioned in subsection (1) is established. The requisite condition is that the partner was responsible for carrying on the business and was during the relevant time, in charge of the business. In the absence of any such proof, no partner could be convicted."
The Supreme Court in M.R. Pratap v. V.M. Muthukrishnan, ITO (1992) 196 ITR 1, while affirming the decision of the Madras High Court in M.R. Pratap v. V.M. Muthukrishnan, ITO (1977) 110 ITR 655 stated as follows headnote);
"The word 'person' used in section 277 of the Income Tax Act, 1961 (as the Act stood prior to its amendment with effect from October 1, 1975), refers not only to the assessee but also to the person who has made the false verification in the return on behalf of the assessee. The managing director who verifies the return filed on behalf of the company, which is the assessee, would be the principal officer within the meaning of the definition in section 2(35). In view of section 139 read with section 140(c), the return has to be signed by the principal officer of the company. A statutory obligation is cast on the principal officer to sign the tax returns filed on behalf of the company. The subsequent amendments made by the Taxation Laws (Amendment) Act, 1975, will not in any way alter the position with regard to the operation of the provisions of the Income Tax Act as against the managing director of a company when he has signed the return in such capacity. The effect of the new section 278-B, inserted by the Amendment Act of 1975, is to make every person connected with the affairs of the company, apart from the managing director who had signed the return, liable to be proceeded against and punished in relation to an offence by the company."
S. Natarajan, J. (as he then was), in the decision reported in M.R. Pratap v. V.M. Muthuramalingam, ITO (1984) 149 ITR 798 (Mad), held as follows (headnote):
"Section 276-B of the Income tax Act, 1961, does not refer to a managing director but only to a person. The definition of person, as contained in section 2(31), refers to the various categories of assessees who can be treated as persons within the meaning of the Income Tax Act. The principal officer as defined in section 2(35) will automatically take in the secretary, treasurer, manager or agent of, inter alia, a company but as far as the managing director is concerned, he can be treated as the principal officer of the company only if the Income-tax Officer gives notice to him. of his intention to treat him as such. Consequently, if any one connected with the company is not the secretary, treasurer, manager or agent, then he cannot be treated as the principal officer of the company unless the Income-tax Officer has served a notice on him as envisaged under section 2(35)(b) of the Act. Section 192(1) does no, refer to a director or managing director but only to a person responsible for paying income chargeable under the head 'Salaries' Consequently, the managing director of a company cannot be held liable under section 276-B unless the Income-tax Officer has served a notice on him under section 2(35)(b) and' informed him of his intention to treat him as the principal officer of the company."
The decision in G. Anantharamiah v. ITO (1992) L.W. (Crl) 173 was decided by K. Swamidurai, J. In that case, the first accused was a partner ship firm carrying on business as film exhibitors. The second accused is the managing partner and the third accused was the joint managing partner of the first accused firm and the fourth accused was an employee of the first accused-firm, in charge of financial borrowings, bank transactions, interest payments, etc. The Income-tax Officer, Madras-34, filed a complaint under section 276-B read with section 278-B of the Act for failure to remit the tax deducted at source to the credit of the Government of India within the time prescribed under section 200 of the Act read with rule 30(1)(b)(i)(2) of the Income-tax Rules, 1962. The main contention raised by the fourth accused, was, that he was not the person responsible to and in charge. of the company for the conduct of the business of the company and so, he should not be charged for the alleged offences. The learned Judge, after referring ,to sections 200, 276-B 'and 278-B of the Act, and following the decision in Shital N.Shah v. 1T0 (1991) 188 ITR 376;(1990) L.W.(Crl) 478, held that the prosecution has failed to prove that the fourth accused is a person responsible for payment of tax deducted to the Government and is also a person in charge of and responsible for paying the said amount. Therefore, the learned judge held that the charge as against the fourth accused under sections 276-B and 278-B of the Act is not maintainable.
As already seen. T.S. Arunachalam, J. (as he then was), has decided two cases in Ramaswami Moopanar (G) v. E.S.I. Corporation (1990) L.W.(Crl) 414 on August 8,1990, and Shital N. Shah v. ITO (1991) 188 IT14376; (1990) L.W.(Crl) 478 on August 27, 1990. Undoubtedly, the decision in Ramaswtimi Moopanar (G) v. E.S.I. Corporation (1990) L.W. (Crl) 114, dated August 8, 1990 and in particular the passage extracted by us, has not been brought to the notice of the learned Judge at the time of hearing of the case reported in Shital N. Shah v. ITO (1991) 188 ITR 376; (1990) L.W. (Crl) 478. It is seen that section 278-B of the Act was introduced only on October 1,1975 The decision of T. S. Arunachalam J. (as he then was), in Ramaswami Moopanar (G) v~ E.S.1. Corporation (1990) L.W. (CrI) 414, has been rendered after the introduction of section 86-A of the Employees' State Insurance Act, under which persons in charge of and responsible for the conduct of the business are liable for the offences under the Act, and the offence in question in that case had taken place after the introduction of section 8b-A of the Employees' State Insurance Act. Though prior to the introduction of section 86-A of the Employees' State Insurance Act, the director of a company and partner of a firm by virtue of being a director or partner is not a "principal employer" as contemplated by section 2(17) of the Employees' State Insurance Act and, therefore, not personally liable td pay the contribution under the Employees' State Insurance Act. The position came to be altered as pointed out above on the introduction of section 86-A of the Employees' State Insurance Act. Therefore, we find it difficult to subscribe to the view expressed in Shital N. Shah v. ITO (1991) 188 ITR 376;(1990) L.W.(Crl) 478.
As already seen, section 276-B of the Act 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 '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 278-B of the Act deals with offences committed by the companies. The definition "company" for the purpose of the said section includes "a firm". Therefore, the expression "company" used in section 278-B of the Act has to be understood so as to include a firm. If an, offence is committed by a firm, only the person who was in charge of and was responsible to the firm for the' conduct of the business of the firm at the time when the offence was committed, as well as the firm shall be proceeded against and punished accordingly. Subsection (2) of section 278-8 of the Act, which opens with a non obstante clause, provides that where an offence under the 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 be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Subsection (2) of section 278-B of the Act takes away the burden cast on the prosecution by subsection (1) thereof, to prove that at the time the offence was committed by a company or a firm, persons against whom the prosecution is launched were in charge of and were responsible to the company or the firm as the case may be for the conduct of the business of the company or the firm. At the same time, subsection (2) of section 278-B casts a burden on the prosecution to prove that the offence has been committed with the consent or connivance of, is attributable to any neglect on the part of any director, manager, secretary or other officer of the company. In such an event, such director, manager, secretary or other officer shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. 'In a case falling under sub section (21 of section 278-B of the Act. whether the persons prosecuted were in charge of and were responsible for the company for the conduct of type business of the company need not be proved. Such proof is necessary only when the case falls under section 278-B(1) of the Act. In the event the prosecution proves the essential ingredients of section 276-B(1) of the Act, the accused would have a right to prove that the offence was committed despite due diligence to prevent the commission of such offence. That is the distinction between the two sections.
Section 204 of the Act enumerates as to who are the "persons, responsible for paying" for the purposes of sections 192, 193, 194, 194-A and 194-B of the Act. For the purposes of prosecution under section 278-B of the Act, the only requirement is that the person proceeded against should have been in charge of and responsible to the firm and for the conduct of the business of the firm at the time when the offence was committed. It may be that such person may also be the "person responsible for paying" as contemplated in section 204 of the Act or a "principal officer" as defined in section 2(35) of the Act. It is not as if the prosecution under the section can be launched only against the "principal officer" as defined in section 2(35) of the Act or against the "person responsible for paying". The person proceeded against for prosecution under section 278-B of the Act should have been in charge of and was responsible to the firm for the conduct of the business of the firm, even though such a person may not satisfy the definition of "principal officer". In other words, it is not as if prosecution is contemplated only against a "principal officer". If that were the intention of Parliament, then, the language of the section would be different and the section would have stated that the prosecution can be launched only against the "principal officer".
In the light of the above discussion, we are of the view, that the order of the Court below is contrary to law. The Court below has misdirected itself on the question of law relating to sections 2(35) and 2(38)(b) of the Act. On a careful analysis of the relevant sections of the Act and the provisions of the allied Acts and of the decisions referred to supra, we are of the view, that the finding of the Court below is not correct. Accordingly, we hold that no question of issuing notice under, section 2(35)(b) of the Act to a partner arises at all. We are unable to subscribe to the views expressed by T.S. Arunachalam, J. (as he then was), in Shital N. Shah v. I.T.O. (1991) 188 ITR 376; (1990) L.W. (Crl) 478 and K. Swamidurai, J. in G. Anantharamiah v. I.T.O. (1992) L.W. (Crl) 173, since the said decisions do not lay down the correct proposition of law. Therefore, in the light of the aforesaid discussion we overrule both the above decisions. The reference is answered accordingly.
For the foregoing reasons, all the revisions are allowed. The orders of the Court below are set aside. The Court below is directed to proceed with the cases in accordance with law and in the light of the observations made in this order.
M.B.A./1599/FCRevision allowed.