1. The criminal revision is directed against the order of the Chief Metropolitan Magistrate, Madras, in M. P. No. 3269 of 1979 in C. C. No. 2652 of 1974, on the file of his court, refusing to discharge the 2nd accused without trial. The criminal miscellaneous has been filed to quash the proceedings in C.C. No. 2652 of 1974, in so far as the 2nd accused is concerned.
2. The revision case and the misellaneous petition have come to be filed in the following circumstances : The Income-tax Officer, Madras, filed a complaint against M/s. Rayala Corporation Pvt. Ltd. (accused No. 1) and its managing director, Sri M. R. Pratap (accused No. 2) for non-payment within the prescribed time of income-tax deducted from the salaries of the employees of the company. The case was taken on file against the two accused under s. 276B read with s. 200 of the I.T. Act, 1961 (hereinafter referred as 'the Act'), and rule 30 of the I.T. Rules, 1962 (hereinafter referred to as 'the Rules'), and process was issued to the accused.
3. After receipt of process, the two accused filed Crl. M. P. No. 25 of 1976 on the file of this court and prayed for quashing of the proceedings against them. Various contentions were raised by them such as that only total non-payment of tax deductions and not delayed payment of tax will fail under s. 276B of the Act, that for delayed payment of tax, the Department can only levy penalty and cannot resort to prosecution and that, in any event, the second accused, viz., the managing director, cannot be held guilty of the offence complained of, because he is not the principal officer of the company or the person responsible for paying the income-tax. The petition was heard by me and by order dated June 29, 1979, I rejected the contentions and dismissed the petition.
4. In so far as the last contention is concerned, I held as follows :
'Thus it may be seen that if the employer is a company, the company as well as the principal officer thereof have to be treated as ' person responsible for payment'. In section 2(35), the term 'principal officer' has been defined. The definition takes within its fold not only (a) secretary,. treasurer, or manager or agent of the authority, company, association or body, but also (b) any person connected with the management or administration of the company.... upon whom the Income-tax Officer has served a notice of his intention to treating him as the principal Officer thereof. A combined reading of section 204 and section 2(35)(b) will, therefore, go to show that a director or managing director will also fall within the definition of 'principal officer' provided the Income-tax Officer has served a notice of his intention of treating him as such. If, therefore, the second petitioner had been issued a notice as contemplated in section 2(35)(b) and treated as the 'principal officer' then notwithstanding the fact that he is the managing director, he can be treated as the 'principal officers'. Similarly, notwithstanding the fact that he is not actually the person making deductions of income-tax from the salaries paid to the employees, he will still constitute a person responsible for paying. In that view of the matter, the 2nd contention of the petitioners has not been issued notice by the Income-tax Officer and treated as the principal officer of the company. The situation may, however, be different if such a notice had not been given to the 2nd petitioner has not been notice by the Income-tax officer and treated as the principal officer of the company. The situation may, however, be different if such a notice had not been g iven to the 2nd petitioner. But that is a matter to be gone into by the trial court, because it involves taking of evidence.
5. Consequent on the dismissal of Crl. M. P. No. 25 of 1976, the case was taken up for trial by the Chief Metropolitan Magistrate, Madras. The 2nd accused filed a petition in M. P. No. 3269 of 1979, praying for his discharge from the proceedings on the ground that the ITO had not served on him a notice under s. 2(35)(b) of the Act to intimate that the Department would be treating the second accused as the principal officer of the company.
6. The Chief Metropolitan Magistrate dismissed the petition holding that the Income-tax Department had been treating the managing director as the principal officer of the company and, secondly, in M. R. Pratap v. V. M. Muthukrishnan, ITO : 110ITR655(Mad) , it has been held that a managing director is liable to be treated as the principal officer of a company and punished under s. 277 of the Act for filing an incorrect return of income.
7. Mr. N. C. Raghavachari, learned counsel for the petitioner (2nd accused). contends that the Chief Metropolitan Magistrate has failed to take note of the pronouncement of this court in the earlier petition, Cr. M. P. No. 25 of 1976, that a managing director or director of a company can be held to be a principal officer of the company only if the ITO has served a notice of his intention to treat the managing director or director as principal officer of the company. In this case, according to the counsel, it is not only the contention of the petitioner, but the admitted stand of the complainant also that the ITO has not issued any notice to the petitioner informing him of his intention to treat the petitioner as the principal officer of the company. His further argument is that the decision in M. R. Pratap v. V. M. Muthukrishnan. ITO : 110ITR655(Mad) ., will have no application to the facts of this case, because s. 276B and s. 277 of the Act stand on different footings. Arguing contra, the learned counsel for the Income-tax Department states that the petitioner will undoubtedly constitute the principal officer of the company, in view of his position as managing director and, therefore, he can also be proceeded with under s. 276B for delayed payment of the tax collections. His further contention is that the ratio in M. R. Pratap v. V. M. Muthukrishnan was well be applied to this case also.
8. The short question for consideration is, whether the petitioner in his capacity as managing director is liable for prosecution under s. 276B of the Act. The said section reads as follows :
'276B. If a person, without reasonable cause or excuse, fails to deduct or after deducting, fails to pay the tax as required by or under the provisions of sub-section (9) of section 80E 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 extent 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 extent to three years and with fine'.
9. On a reading of the section, it may be seen that stringent punishment is provided for any person contravening the section. If the tax amount is respect of which default in payment has occurred exceeds one hundred thousand rupees, the punishment can extent up to seven years rigorous imprisonment besides fine, but in any case, the sentence of imprisonment should not be less than one hundred thousand rupees, and the punishment may extend up to three years' rigorous imprisonment and fine, and, in any event, it shall be for a minimum period of three months.
10. Coming now to the interpretation of s. 276B, the section does not refer to the managing director or director or the principal officer etc. It merely refers to a person. The word ' persons ' has been defined in s. 2(31) 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 proceedings sub-clauses'.
11. The definition contained in s. 3(31) is not helpful for deciding the controversy on hand, because it only refers to the various categories of assessee who can be treated as a person within the meaning of the Act. Then we may look s. 2(35), which defines 'principal officer'. The definition is to the following effect-
'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 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 Income-tax Officer has served a notice of his intention of treating him as the principal officer thereof'.
12. Under sub-clause (a), the secretary, treasurer, manager or agent will automatically constitute a 'principal officer'. In their absence, it is open to the ITO to treat any one else as a 'principal officer' of the company, provided he gives a notice to the person concerned of his intention of treating him as the principal officer of the company. To enable the ITO to do so, sub-clause (b) has been enacted. The resultant position would, therefore, be the if any one who is 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 ITO has served a notice as envisaged under s. 2(35)(b) of the Act. It is the light of these provisions, we have to consider the claim of the petitioner that he is not the principal officer and as such, he cannot be prosecuted for an offence under s. 276B. Then we come to s. 192 which provides for deduction of tax at source. Subs. (1) of s. 192 reads as follows :
'192. (1) Any person responsible for paying any income chargeable under the head 'salaries' shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year.
There is reference here also to a person responsible for paying any income chargeable under the head 'Salaries'. But, there is no reference to a director or a managing director. Therefore, it follows that the managing director of a company, like the petitioner cannot be held liable under s. 276B unless the ITO has served a notice on him under s. 2(35)(b) and informed him of his intention to treat him as the principal officer of the company.
13. In the instant case, it is admitted by the Department that no such notice as contemplated under. 2(35)(b) has been served on the petitioner. Hence, the petitioner's contention that he cannot be proceeded with for the delayed payment of the tax amount by the company, is a well-founded one. On the first occasion itself, when Cr. M. P. NO. 25 of 1976 was disposed of, it was pointed out by me in the order that if the managing director had been issued a notice as contemplated in s. 2(35)(b) and treated as the principal officer, then irrespective of the fact that he is not the secretary, treasurer, manager or agent, or 'the person' actually making deduction of the income-tax on the salaries paid to the employees, he will still constitute a person responsible for paying the deducted tax amounts to the Department. However, the quashing of the proceedings against the managing director was not ordered at that time, because it was not known whether the ITO had issued notice to the managing director informing him that he would be treated as the principal officer of the company. It was on account of that the following observation was made :
'It is not the petitioner's case that the 2nd petitioner has not been issued notice by the Income-tax Officer and treated as the principal officer of the company. The situation may, however, be different if such a notice had not been given to the 2nd petitioner. But that is a matter to be gone into by the trial court because it involves taking of evidence.
14. The petitioner has now come forward with this petition saying that the Department has not served any notice on him under s. 2(35)(b) and this fact is not disputed by the Department itself. In such circumstances, the contentions of the petitioner has to be accepted.
15. So far as the decision in M. R. Pratap v. V. M. Muthukrishnan, ITO : 110ITR655(Mad) is concerned, the ratio laid down therein will not have application to the facts of this case. Section 277 deals with filing of a false statement in any verification made under the Act or the Rules etc. The section lays down that if a person makes a statement in any verification under the Act or the Rules or delivers an account or statement, which is false, then he should be punished with imprisonment up to seven years rigorous imprisonment and fine where there is evasion of tax of over one hundred thousand rupees or with sentence up to three years rigorous imprisonment and fine if the evasion of tax is less than that amount. The word 'person' used in that section will have reference to the actual person making the statement in the verification or delivering an account or statement, which is false. If a managing director had made a false statement in a verification or delivered a false account or statement, then he would undoubtedly be liable under s. 277 of the Act. However, the liability is not on account of his status as managing director, but on account of his criminal act in having signed a false statement or delivering a false account or statement. But in so far as an offence under s. 276B is concerned, it would be only the company, and the principal officer of the company, who will be liable for the failure to deduct income-tax from the salaries of the employees or failure to pay the tax after deduction of the amount from the salaries of the employees. The learned Chief Metropolitan Magistrate is, therefore, not right in taking the view that the petitioner can be treated as the principal officer of the company, even if notice has not been served on him under s. 2(35)(b) and called upon to defend the charge leveled against him by the Income-tax Department. The revision as well as the criminal miscellaneous petition, therefore, deserve to succeed and will accordingly stand allowed. As a consequence, thereof, the proceedings in C.C. No. 2652 of 1974 on the file of the Chief Metropolitan Magistrate, Madras, will stand quashed as against the petitioner herein (second accused).