(Prayer: These Criminal Petitions Are Filed Under Section 482 Cr.Pc With A Prayer To Quash Proceedings Initiated By Spl.Court For Economic Offences, Bangalore In C.C.No.49/2013, C.C.No.77/2013 and C.C.No.78/2013 Against The First And Second Petitioners.)
Nagamohan Das, J.
1. In these three petitions the petitioners have prayed for quashing the proceedings in C.C. No. 49/2013, 77/2013 and 78/2013 on the file of Special Court (Economic Offences), Bangalore City.
2. The parties are same in all the three petitions. The respondent filed three cases before the Economic Offences Court against the petitioners for the financial years 2009-10, 2010-11 and 2011-12 for the offences punishable under Section 276-B read with Section 278-B of Income Tax Act.
3. Petitioner No. 1 is a registered company engaged in the business of operating passenger air lines in India. Petitioner No. 2 is the Chairman and Managing Director of petitioner No. 1 company responding for the day-to-day business of the company. On 18.03.2011 respondent - Income Tax Department conducted a survey on the premises of petitioner No. 1 under Section 133-A of the Income Tax Act (for short `the I.T. Act'). During the course of survey the respondent department noticed from the records available in the premises of petitioner No. 1 that they have deducted tax at source and failed to remit the same to the Government account for the financial years 2009-10, 2010-11 and 2011-12 to the tune of Rs.400,56,08,659/- (Four hundred crores fifty six lakhs eight thousand six hundred fifty nine only). During the course of verification of the records, at the time of survey and in the subsequent proceedings after the survey it was detected that the petitioner No. 1 company had deducted TDS on various payments and failed to remit the same to the Government accounts. Petitioner No. 1 company, its principal officer and the authorized representatives admitted the liability of TDS and failed to pay the same.
4. The Assessing Officer passed an order on 30.12.2011 under Section 201(1) and 201(1-A) of the I.T. Act treating petitioner No. 1 company as an assessee in default and levied interest for not remitting the TDS within the stipulated time and raised a demand. Petitioner No. 1 company being aggrieved by the order of assessing authority preferred an appeal before the Commissioner (Appeals) and the same came to be dismissed vide order dated 29.02.2012 confirming the order of assessing Officer. Further the petitioner No. 1 company filed second appeal before the Income Tax Appellate Tribunal (for short `ITAT), Bangalore. The ITAT vide order dated 25.05.2012 allowed the appeal filed by the petitioner No. 1 company, set aside the order of assessing officer and the Commissioner of appeals and remanded the matter back to the assessing officer for reconsideration in accordance with law after providing an opportunity to the petitioners. The respondent Income Tax Department being aggrieved by the order of remand passed by the ITAT approached this Court in ITA No. 164, 165 and 166/2012. Learned Single Judge of this Court granted an interim order of stay, staying the remand order passed by the ITAT in case Nos. 369- 371/Bang/2012.
5. In view of the stay order granted by this Court the Assessing Officer issued demand notice to the petitioners. Therefore the petitioners approached this Court in I.T.A. Nos. 239, 240 and 241/2012 challenging the order of ITAT remanding the matter and also the demand notice. This Court granted in interim order subject to the petitioners depositing 50% of the demand.
6. When the matter stood at that stage the respondent income tax department, after obtaining sanction as required under law, filed three private complaints against the petitioners for the offences punishable under Section 276-B and 278-B of the I.T. Act in C.C. Nos. 49/2013, 77/2013 and 78/2013 on the file of Special Court (Economic Offences) Bangalore. The Special Court vide order dated 30.03.2013 had taken cognizance of the offences against the petitioners, registered the cases and issued summons. Aggrieved by this order of the trial Court and the entire proceedings, the petitioners are before this Court seeking quashing of the same.
7. Learned Senior Counsel Sri. Harin Raval and Sri. D.L.N. Rao appearing for the petitioners contend that when the order of assessing officer treating the petitioners as assessee in default and levying interest for not remitting TDS within the stipulated time is set aside by the ITAT then the private complaints for offences punishable under Section 276-B read with Section 278-B of the I.T. Act before the Special Court are not maintainable. The interim order granted by this Court in I.T.A. No. 165/2012 and connected matters is only restraining further proceedings pursuant to the order of remand but, it will not amount to revival of the order of assessing officer. Therefore the very initiation of criminal proceedings against the petitioners before the special Court are liable to be dismissed as not maintainable. It is contended that without quantification of the salaries paid and the tax deducted at source the proceedings initiated before the Special Court are liable to be dismissed. In the complaint filed by the respondent it is not pleaded what is the accrual of payment and what is the actual payment made to the employees as salaries and actual deductions. In the absence of any such pleadings the question of deducting the tax at source and remittance of the same will not arise. The alleged admission of the liability to pay tax deducted at source by the petitioners is categorically negatived by the ITAT and as such no reliance can be placed on the alleged admissions by the petitioners. It is further contended that as per the proviso to Section 279(1) of the I.T. Act it is necessary that a direction or instruction from the officer mentioned therein is necessary for passing an order of sanction by the Chief Commissioner, Director General or Commissioner. In the instant case there is no such direction or instruction from the officer mentioned in the proviso to Section 279(1) of the I.T. Act. Therefore the sanction order dated 05.03.2013 issued by the Commissioner to prosecute the petitioners is bad in law and contrary to the mandatory requirement specified in the proviso to Section 279(1) of the I.T. Act. The ACIT [TDS Circle - 16(2)] sought for sanction but, it was given to ACIT [TDS Circle - 16(1)] and he has filed the complaints before the Special Court and as such they are bad in law. Reliance is placed on number of decisions.
8. Per contra Sri. Mohan Parasaran, learned Solicitor General of India contends that the complaint filed by the respondent department is not based on the order of assessing officer under Section 201(1) and Section 201(A) of the I.T. Act. The complaint against the petitioners is based on the records and the categorical admissions made by the petitioners and their authorized representatives. It is contended that the quantification of the salaries paid to the employees and the actual deduction of tax at source is not necessary for initiation of proceedings for the offences punishable under Section 276-B and 278-B of the I.T. Act. It is contended that the complaint against the petitioners contain the necessary ingredients to constitute an offence against the petitioners and the same is supported by documentary evidence produced before the Special Court. It is true that the Assistant Commissioner of Income Tax (TDS Circle 16(2)) sought sanction from the Commissioner of Income Tax to prosecute the petitioners. During the pendency of the proceedings before the Commissioner there came to be change of jurisdiction from TDS Circle 16(2) to TDS Circle 16(1). By taking notice of this change of jurisdiction, the Commissioner has rightly passed the order of sanction permitting ACIT, Circle 16(1) to prosecute the petitioners and as such there is no illegality. It is contended that the order of sanction is in accordance with Section 279(1) of the I.T. Act. Reliance is placed on number of decisions.
9. Heard arguments on both the side and perused the entire petition papers. Only relevant decisions are referred in the course of judgment. On the basis of pleadings and the arguments the following points will arise for my consideration.
i. Whether the complaints filed by the respondents against the petitioners before the Special Court in C.C. No. 49/2013, 77/2013 and 78/2013 are not maintainable since the order of assessing officer treating the petitioners as an assessee in default under Section 201(1) and 201(1-A) of the I.T. Act is set aside by the Income Tax Appellate Tribunal?
ii. Whether the criminal proceedings against the petitioners are liable to be quashed for want of necessary ingredients in the complaint filed before the special Judge?
iii. Whether the order of sanction under Section 279(1) passed by Commissioner of Income Tax Department to prosecute the petitioners is bad in law?
On Point No. i
10. Chapter XXII of the I.T. Act relates to offences and prosecutions. Section 276-B deals with failure to pay tax deducted at source. This section specifies that wherever a company is required to deduct tax at source and to pay to the account of the Central Government, failure on the part of the company in deducting or not paying such amount is an offence under the Act and has been made punishable. Chapter XVII of the I.T. Act specifies the collection and recovery of tax. Section 201 in Chapter XVII of the I.T. Act specifies the consequences of failure to deduct or pay tax deducted at source. Section 201(1-A) of the I.T. Act specifies the levy of interest. From the above provisions it is clear that wherever a company fails to deduct the tax at source and remit the same to the account of the Central Government, attracts criminal prosecution and also recovery proceedings. The criminal proceedings are independent of recovery proceedings. The criminal proceedings are not dependent on the recovery proceedings. Therefore the pendency of proceedings initiated under Section 201(1) and Section 201(1-A) of the I.T. Act is not a legal impediment to continue the criminal prosecution against the petitioners. The pendency of proceedings under Section 201(1) and 201(1-A) of the I.T. Act cannot act as a bar to the institution and continuance of criminal prosecution for the offences punishable under Section 276-B of the I.T. Act. Quantification of amount for the purpose of initiation of criminal proceedings is not necessary. Therefore I am of the considered opinion that the proceedings initiated against the petitioners cannot be quashed on the ground that the proceedings under Section 201(1) and Section 201(1-A) of the I.T. Act are pending.
11. Respondents contend that the criminal prosecution against the petitioners is not founded upon the order of the Assessing Authority under Section 201(1) and Section 201(1-A) of the I.T. Act. On the other hand the complaint against the petitioners is based on the admission and representation in the form of letters written on behalf of the petitioner No. 1 company. In support of this contention the respondents have relied on the letters written by the petitioner No. 1 company Annexure R-4 dated 17.11.2011, Annexure R-9 dated 21.12.2011, Annexure R-10 dated 05.01.2012, Annexure R-11 dated 27.01.2012, Annexure R-12 dated 21.02.2012, Annexure R-14 dated 02.03.2012, Annexure R-15 dated 09.03.2012, Annexure R-16 dated 15.03.2012. From these documents it is seen that the petitioner No. 1 company, petitioner No.2 - Chairman and Managing Director, the authorized representatives and other concerned officials admit the deduction of tax at source, failure to credit the same to the account of the Central Government and pleaded for some time to pay the same. According to respondents the account books maintained by the petitioner No.1 company also specifies the deduction of tax at source and failure to credit the same to the account of the Central Government. It is on the basis of these documentary evidence, admissions and the audited accounts the criminal prosecution is initiated against the petitioners. Therefore the outcome of the proceedings initiated by the Assessing Authority under Section 201(1) and 201(1-A) of the I.T. Act has no bearing on the prosecution proceedings. Therefore point No. i is answered in negative and against the petitioners.
On Point No. ii
12. A reading of the complaints specifies the relevant financial years, the amount deducted at source and failure to pay the same to the account of the Central Government. Even the details of non-remittance of TDS of salaries for each financial year and month- wise is also specified. The correspondence between the parties wherein the petitioners have admitted the liability is also referred in the complaint and the same are relied on. Therefore the complaint filed by the respondent contains the necessary ingredients for taking cognizance of offence against the petitioners. Therefore the contention that on the ground of lack of necessary averments in the pleadings the proceedings are to be quashed is hereby rejected. Accordingly, point No. ii is answered in negative and against the petitioners.
On Point No. iii
13. Section 279(1) of the I.T. Act reads as under:
279. Prosecution to be at instance of [Chief Commissioner or Commissioner].
(1) A person shall not be proceeded against for an offence under section 275A [section 275B], section 276, section 276A, section 276B, section 276BB, section 276C, section 276CC, section 276D, section 277 [section 277A] or section 278 except with the previous sanction of the Commissioner or Commissioner (Appeals) or the appropriate authority;
Provided that the Chief Commissioner or, as the case may be, Director General may issue such instructions or directions to the aforesaid income-tax authorities as he may deem fit for institution of proceedings under this sub-section.
A reading of the above section specifies that it contains two parts : The first part specifies that except with the previous sanction of the Commissioner or Commissioner (Appeals) or appropriate authority no person shall be proceeded against for an offence under Section 276-B. The second part, that is, the proviso to sub-section (1) of Section 279 specifies that the Chief Commissioner or as the case may be, the Director General may issue such instructions or directions to the Income Tax authorities as he may deem fit for institution of proceedings under this subsection.
14. The contention of the learned counsel for the petitioners that it is only on the instructions or direction of Chief Commissioner or Director General, the Commissioner can issue a sanction and not on his own is unacceptable to me. The Commissioner or Commissioner (Appeals) or appropriate authority may issue sanction to prosecute a person. In addition to that the Chief Commissioner or the Director General may also give instructions or directions to the income tax authorities for issue of sanction to initiate criminal action. Proviso to sub-section (1) of Section 279 of the I.T. Act only specifies that instructions or directions to the income tax authorities. In this proviso there is no mention with regard to the instructions or directions to Commissioner or the Commissioner (Appeals). Therefore it is not necessary for the Commissioner or Commissioner (Appeals) to issue sanction only on the instructions or directions of the Chief Commissioner or Director General. Therefore proviso to sub-section (1) of Section 279 is not a condition precedent for issue of an order of sanction by the Commissioner or the Commissioner (Appeals) under subsection (1) of Section 279 of the I.T. Act.
15. It is contended that the Assistant Commissioner of Income Tax, TDS Circle 16(2) sought sanction from the Commissioner of Income Tax. The Commissioner of Income Tax had given sanction authorizing the Assistant Commissioner of Income Tax, TDS Circle 16(1) to initiate criminal proceedings against the petitioners and as such the same is bad in law. It is not in dispute that the case of petitioner No.1 company was pending before the ACIT, TDS Circle 16(2) and subsequently the case of the assessee was transferred to ACIT, TDS Circle 16(1). By taking note of this development the Commissioner passed an order authorizing ACIT, TDS Circle 16(1) to initiate criminal proceedings. It is necessary for the Commissioner to take into consideration the developments that had taken place pending consideration of the request for sanction. In the instant case the Commissioner rightly, by taking into consideration, the subsequent development passed the order of sanction. I find no error or illegality in the order of the Commissioner.
16. Petitioner No. 2 is the Chairman and Managing Director of petitioner No. 1 Company. It is contended that the name of petitioner No. 2 do not find a place in the order under Section 201 IPC and Section 201(A) of the I.T. Act. Further petitioner No. 2 was not in charge of the day-to-day business of petitioner No. 1 company in relation to deduction of tax at source and remittance of the same to the account of the Central Government. Therefore treating petitioner No. 2 as the Principal Officer of petitioner No. 1 company for the purpose of initiation of criminal proceedings is contrary to law. I decline to accept this contention of the learned counsel for the petitioners. Admittedly the annual report of petitioner No.1 company specifies that petitioner No. 2 is the Chairman and Chief Executive Officer of petitioner No. 1 company. In the complaint it is specifically pleaded that petitioner No. 2 being the Principal Officer of petitioner No.1 company is directly responsible for the default in deducting the tax at source and non-remittance of the same to the account of the Central Government. It is contended that petitioner No. 2 is responsible for the day-to-day conduct and business of petitioner No. 1 company. By treating petitioner No. 2 as the Principal Officer of petitioner No.1 company under Section 2(35) of the I.T. Act proceedings are initiated. The Supreme Court in the case of Madhumilan Syntex Ltd., and others Vs. Union of India and another (2007) 290 ITR 199 (SC) held as under:
43. 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 the correctness or otherwise of the allegations levelled or averments made by the complainant. It is a matter of evidence and an appropriate order can be passed at the trial.
17. On 02.01.2014 petitioners filed an application under Section 482 Cr.P.C. bringing to the notice of this Court a subsequent event and a document supporting the same. The subsequent event is, treating one Sri. T.R. Venkatadri, Assistant Vice President (Regional Accounts South and Taxation) of petitioner No. 1 company as the Principal Officer under Section 2(35-B) of the I.T. Act. Learned counsel for the petitioners contend that in view of this development proceedings initiated against petitioner No. 2 are liable to be quashed. I decline to accept this contention of the learned counsel for the petitioners. A reading of Section 2(35-B) of the I.T. Act specifies that there is no bar for treating more than one person as the Principal Officer for initiation of criminal proceedings. The Supreme Court in the case of Madumilan Syntex supra, held as under:
27. So far as the 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 the company whereas the other accused were the 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 a similar view.
Therefore the subsequent event treating one Sri. T.R. Venkatadri as the Principal Officer of petitioner No.1 company will not result in quashing of the proceedings against petitioner No. 2. It is open for the respondent authorities to proceed against the company, its directors or any other principal officer or officers responsible for default. The trial Court to consider this question in the trial. Accordingly point No. iii is answered in negative and against the petitioners.
18. For the reasons stated above, the petitions are hereby dismissed.