V. Kanakaraj, J.@mdashThe above criminal appeals have been directed against the judgment dated March 9, 1987, made in respectively E. O.
C. C. No. 1374 to 1380 of 1985 and E. O. C. C. No. 1381 and 1382 of 1985 by the Court of Additional Chief Metropolitan Magistrate,
Egmore, Madras, finding the accused therein not guilty of the offences u/s 276B and Section 276B read with Section 278B of the Income Tax
Act, 1961, and under Sections 120B, 420 and 511 of the Indian Penal Code in the case concerned with C. A. No. 524 of 1987 and u/s 276B
and Section 276B read with Section 278B of the Income Tax Act, 1961, regarding the case concerned with C. A. No. 525 of 1987, Since the
parties and the nature of the offences are one and the same both the above appeals have been jointly heard and common judgment is delivered
herein.
2. The charge, as framed by the trial court against the respondents/ accused is that A1-company failed to deduct the full amount of Income Tax at
source or having deducted it failed to remit the tax deducted at source from the interest amount paid to New India Maritime Agencies (P.) Ltd.,
represented by the fifth accused as required u/s 194A of the Income Tax Act, 1961, for the financial years ended with December 31, 1973, to
December 31, 1979 (in the case concerned with C. A. No. 524 of 1987), Rs. 37,108, Rs. 42,891, Rs. 55,806, Rs. 63,469, Rs. 60,195, Rs.
65,109 and Rs. 68,728, respectively, into the credit of the Central Government and (in the case concerned with C. A. No. 525 of 1987) the
financial year ended with December 31, 1980, and December 31, 1981, Rs. 57,338 and Rs. 50,706, respectively, into the credit of the Central
Government within the period of two months specified in Rule 30(1)(b) of the Income Tax Rules, 1962, read with Sections 200 and 204 of the
Income Tax Act, 1961, and thereby committed an offence punishable u/s 276B(ii) (7 counts) (concerned with C. A. No. 524 of 1987) and (2
counts) (concerned with C. A. No. 525 of 1987) of the Income Tax Act, 1961.
3. Secondly, that A2 to A5 being directors of the first accused company from January 1, 1973, to December 31, 1979 (concerned with C. A.
No. 524 of 1987), and January 1, 1980, to December 31, 1981 (concerned with C. A. No. 525 of 1987), responsible to the first accused
company for the conduct of the business, have by their failure to deduct or after deduction failure to remit the tax deducted at source to the credit
of the Central Government from the interest amount paid to the New India Maritime Agencies (P.) Ltd., represented by the fifth accused as
required u/s 194A read with Section 200 of the Income Tax Act, 1961, the sum as aforementioned in charge No. 1, thereby committing an
offence punishable u/s 276B(ii) read with Section 278B (7 counts) concerned with C. A. No. 524 of 1987 (2 counts) and C. A. No. 525 of 1987
and
Thirdly (C. A. No. 524 of 1987 alone) that A2 being the managing director of A-1 company and A3 to A5 being the directors of A1 responsible
for its management and A7 being the sister concern of A1 and A5 being its managing director and A3 and A4 being directors of A7, being
responsible for its management between December, 1973, to December, 1979, agreed to do an illegal act, namely, failing to deduct or having
deducted failing to remit into the credit of the Central Government within two months specified in Rule 30(1)(b) of the Income Tax Rules, 1962,
read with Sections 200 and 204 of the Income Tax Act, 1961, and the tax deductible at source on interest for the period from 1973 to 1979,
respectively, the sum of Rs. 37,108, Rs. 42,891, Rs. 55,806, Rs. 63,469, Rs. 60,195, Rs. 65,109 and Rs. 68,728 and thereby attempted to
cheat the Income Tax Department from levying interest due on the tax deducted at source and thereby A1 to A5 and A7 committed an offence
punishable u/s 420 read with Section 511 of the Indian Penal Code (7 counts).
4. In proof of the case concerned with C. A. No. 524 of 1987 the appellant/ prosecution had examined five witnesses for oral evidence as P. Ws.
Nos. 1 to 5 and had marked 29 documents for documentary evidence as exhibits P1 to P29 and the accused named therein are seven in number,
whereas, the case concerned with C. A. No. 525 of 1987. In proof of the above charge the prosecution had examined four witnesses for oral
evidence as P.Ws. Nos. 1 to 4 and had marked 18 documents for documentary evidence as exhibits P1 to P18, wherein the accused are six in
number. The only alteration being the seventh accused, New India Maritime Agencies (P.) Ltd., concerned in C. A. No. 524 of 1987, has not
been made an accused in the other case concerned With C. A. No. 525 of 1987 and all the other six accused have been arrayed in the same
manner in both the cases.
5. With the above evidence placed before the trial court and weighing the same with the legal yardstick and appreciating the said evidence in its
own way in the context of the position of law pertaining to the subject, ultimately the trial court had arrived at the conclusion to acquit all the
accused therein in both the above matters, challenging which the complainant/Department has come forward to file the two separate memorandums
of criminal appeals but in both offering the same grounds which are common to both such as: (i) that the lower court misdirected itself on question
of law relating to Section 278B of the Income Tax Act, and its application thereof; (ii) that the trial court failed to appreciate the evidence of
prosecution that once the deduction of tax deducted at source is done u/s 194A it is the duty of the company to remit the same to the Government
account within the time prescribed under Rule 30 of the Income Tax Rules; (iii) that the lower court failed to note that Section 194A clearly states
that any interest paid to any person either in cash or by issue of cheque or by draft or by any other mode, shall deduct Income Tax thereon at rates
and its finding that in cases of transferring into the accounts of the persons, the offence is not committed and the company or the director is not
liable is contrary to law ; (iv) that the lower court failed to note that in a private company which the directors and the managing director who are
responsible for the planning of the company and they are responsible under the statute to carry out the duty to deduct the tax at source as required
by the law ; (v) that the finding of the trial court that the directors are not responsible for the deduction and payment of the tax at source is
complete misunderstanding of the law especially in view of Section 278B of the Income Tax Act; (vi) that the lower court holding that in the
absence of a notice u/s 2(35) of the Income Tax Act issued by the Income Tax Officer to the directors, they cannot be made liable for the non-
deduction is incorrect especially when the decision on which the trial court has been challenged and pending before the Supreme Court and
especially a petition for special leave has been granted and the case having been admitted and kept pending; (vii) that the lower court was in
complete error to state that the company was not in a position to pay because of financial stringency and hence the delay is not wilful is incorrect
and is contrary to law ; (viii) that the interpretation of without reasonable cause or excuse in Section 276B by the lower court is incorrect and is not
in consonance with the principle of interpretation of statutes ; (ix) that the lower court holding that it is for the prosecution to prove there was no
reasonable cause or excuse for the non-deduction or after deduction non-payment within the time is contrary to the established principle of law ;
(x) that the lower court has failed to note that the circumstances under which the delay in payment has occurred are exclusively within the
knowledge of the accused and it is for the accused to prove the said circumstances u/s 106 of the Evidence Act ; (xi) that the lower court ought to
have held that accused Nos. 1 to 6 clearly conspired in the postings of the interest due on payment of interest in such a manner as to evade interest
payable to the Department on the tax deducted at source.
6. Prior to entering to dissect the merits of the above appeals it is relevant to note the guidelines provided by the apex court as per its judgment
reported in S. Madhavan Nair v. State of Kerala [1975] MLJ (Crl.) 239, wherein it has been held that ""in an appeal u/s 417 of the Code of
Criminal Procedure, against an order of acquittal, the High Court has full power to review at large the evidence on which the order of acquittal was
founded and to reach the conclusion that upon the evidence the order of acquittal should be reversed. No limitation should be placed upon that
power unless it be found expressly stated in the Code, but in exercising the power conferred by the Code and before reaching its conclusion upon
facts the High Court should give proper weight and consideration to such matters, as (1) the view of the trial judge as to the credibility of the
witnesses ; (2) the presumption of innocence in favour of the accused, a presumption certainly not weakened by the fact that he has been acquitted
at his trial; (3) the right of the accused to the benefit of any real and reasonable doubt; and (4) the slowness of an appellate court in disturbing a
finding of fact arrived at by a judge who had the advantage of seeing the witnesses. The High Court should also take into account the reasons given
by the court below in support of its order of acquittal and must express its reasons in the judgment which led it to hold that the acquittal is not
justified. Further if two conclusions can be based upon the evidence on record, the High Court should not disturb the finding of acquittal recorded
by the trial court and if acquitting the accused is not unreasonable, the occasion for the reversal of that view would not arise.
7. In the light of the above judgment and in consideration of the arguments advanced on the part of learned counsel for the respondents/ accused
and on perusal of the judgment of the trial court, the grounds of the above appeals and the other facts and circumstances connected to the case
and of course the evidence made available before the trial court, if this court is to go into the merits of the case, it is relevant to consider those
points brought forth by the respondents in the form of written sub missions, wherein it is contended that the trial court has based its acquittal
judgment mainly on three grounds : They are :
(i) that the Department did not issue the statutory notice to respondents/accused Nos. 2 to 5 as required u/s 2(35) of the income tax Act, 1961,
treating them as the principal officers before launching a prosecution for the offence u/s 276B of the Income Tax Act, 1961, which requirement is
mandatory ;
(ii) that the ingredients of Section 490 of the Indian Penal Code, has not been attracted and the prosecution has not let in any evidence in this
regard. None of the prosecution witnesses speak anything about this aspect ;
(iii) that the respondent/accused No. 1-company, Roshni Cold Storage (P.) Ltd., has been incurring heavy losses from the date of its incorporation
and hence there was reasonable cause and excuse for the delayed remittance of the tax deducted at source which fact was admitted by the
Department.
Ground No. 1 : The statutory notice as required u/s 2(35) of the Income Tax Act, 1961, was not issued to respondents Nos. 2 to 5/ accused Nos.
2 to 5 treating them as the principal officers of the accused No. 1-company before launching the prosecution for an offence u/s 276B of the
Income Tax Act, 1961. Such a notice as contemplated u/s 2(35)(b) of the Income Tax Act, 1961, is a mandatory requirement in view of the
meaning of ""person responsible for payment"" u/s 204. Section 194A imposes liability to deduct tax at source on the credit or payment of interest
other than ""interest on securities"". Section 194A(4) uses the expression ""the person responsible for making payment"". u/s 204(iii), the expression
person responsible for paying"" means--. . .""if the payer is a company, the company itself including the principal officer thereof"". The contravention
of Section 194A is made an offence punishable u/s 276B. If the offence is committed by the company, the prosecution for the offence u/s 276B
has to be launched against the company itself and its principal officer. The expression ""principal officer"" is defined u/s 2(35) wherein under Sub-
clause (a) the persons mentioned therein become liable for any violation as the principal officer. The managing director or director is not included
within the ambit of Sub-clause (a) of Section 2(35). In the case of the Income Tax Officer seeking to prosecute the managing director or director
along with the company for an offence u/s 276B, then he has to issue a notice under Sub-clause (b) of Section 2(35) expressing his intention to
treat the managing director or director as the principal officer of the company. It is an admitted fact that no notice as required u/s 2(35)(b) was
issued to respondents/accused Nos. 2 to 5 and their acquittal on this ground is supported by the ruling rendered by this court in M.R. Pratap Vs.
Y.M. Muthuramalingam, Income Tax Officer, Central Circle-III, Madras, , wherein it was held (headnote) :
Consequently, the managing director of a company cannot be held liable u/s 276B unless the Income Tax Officer has served a notice on him u/s
2(35)(b) and informed him of his intention to treat him as the principal officer of the company.
The introduction of Section 278B into the statute book with effect from October 1, 1975, by the Taxation Laws (Amendment) Act, 1975, does
not alter or take away the mandatory requirement of issuing notice as contemplated u/s 2(35)(b) for an offence u/s 276B. While inserting Section
278B, no corresponding changes have been introduced either u/s 2(35)(b) or u/s 204(iii) of the Income Tax Act, 1961. Thus, such a statutory
notice as contemplated u/s 2(35)(b) is mandatory only for offence u/s 276B in view of the meaning of ""person responsible for paying"", ""if the payer
is a company, the company itself including the principal officer thereof"" in Section 204(iii). For other offences under the Income Tax Act, 1961,
such as under Sections 276C, 277, 276CC, etc., such a notice as contemplated u/s 2(35)(b) to either the managing director or director is not
necessary as there was no expression akin to the expression used in Section 204 in any of the provisions related to those offences under Sections
276C, 276CC, 277, etc. This position is made clear in the decision reported in Geethanjali Mills Ltd. v. V. Thiruvengadathan [1989] 179 ITR 558
, wherein, his Lordship, after taking note of the ruling rendered in M.R. Pratap Vs. Y.M. Muthuramalingam, Income Tax Officer, Central Circle-
III, Madras, , has Ruled that the (page 568) ""determination of the ''principal officer'' is necessary only in the case of deduction of tax at source as in
the case of salaries and interest other than interest on securities, etc., and not otherwise."" In the case reported in Geethanjali Mills Ltd. v. V.
Thiruvengadathan [1989] 179 ITR 558 , the offence alleged in the complaint is under Sections 276C(1), 277 and 278B of the Income Tax Act,
1961. Relying on this decision in Geethanjali Mills Ltd. v. V. Thiruvengadathan [1989] 179 ITR 558 , extracting the Sections 194A, 200 and 204,
his Lordship observed in para. 2 at page 568 :
From a cursory perusal of all the Sections extracted above, as rightly pointed out by learned counsel for the Revenue, the determination of the
''principal officer'' is necessary only in the case of deduction of tax at source as in the case of salaries and interest other than interest on securities,
etc., and not otherwise.
Further, it was made clear in the above ruling that non-issuance of individual notices for other offences such as Section 276C, 276CC or 277 is of
no consequence. Therefore it is very clear that even after the introduction of Section 278B with effect from October 1, 1975, it is mandatory to
issue notice u/s 2(35)(b) in case the prosecution is for the offence u/s 276B and not otherwise.
Endorsing the above view of this court, the Punjab and Haryana High Court, in the case reported in Greatway (P) Ltd. and Others Vs. Assistant
Commissioner of Income Tax, , has Ruled (headnote) ""that in the absence of appointment of a principal officer by issuing a notice by the Assessing
Officer, the prosecution, if any, could only be launched against the petitioner-company"".
At page 397 in the ruling, it was observed in para. 1: ""The complaint is significantly silent as to whether any person had been appointed as the
principal officer of the petitioner-company. In the absence of such an appointment, a director or the managing director of the company could not
be prosecuted. It appears that the Assessing Officer was himself at fault and that fault has been tried to be covered by an argument by learned
counsel for the respondent that the managing director and the directors will be deemed as agents of the company. However, an agent of the
company cannot be equated with the principal officer as defined in Section 2(35) of the Act. The prosecution of the persons other than the
petitioner-company, would, thus, be bad on this short ground alone.
In view of the above three rulings, the prosecution of the managing director and other directors without issuing notice u/s 2(35)(b) is bad in law.
Ground No. 2 : The trial court finding on the other charge u/s 420 of the Indian Penal Code, is well founded. It is highly misconceived that the
charge u/s 420 of the Indian Penal Code, could be levelled in the matter of levying interest, especially when the statute stipulates that such charging
of interest is mandatory, and after the collection of such interest. The trial court has rightly held that the ingredients of Section 420 of the Indian
Penal Code are not made out. The prosecution has not let in any evidence to prove the charge u/s 420 of the Indian Penal Code. The charge is
based on mere surmises and not on any evidence. None of the prosecution witnesses speak anything about this aspect. The charge is very vague
and the same is quite contrary to the facts of the case. Accused No. 7-company, New India Maritime Agencies Pvt. Ltd. has been paying its
advance tax in huge amounts very promptly. Its contribution by way of payment of tax is enormous. The payment of advance tax during the
relevant assessment years is stated as hereunder :
Details of advance tax paid from 1973 to 1982
For the year ended Assessment year Advance tax>
30-6-1973 1974-75 1,25,482
30-6-1974 1975-76 1,74,147
30-6-1975 1976-77 2,38,885
30-6-1976 1977-78 4,38,330
30-6-1977 1978-79 1,79,106
30-6-1978 1979-80 2,86,650
30-6-1979 1980-81 2,19,704
30-6-1980 1981-82 2,47,135
30-6-1981 1982-83 3,01,450
30-6-1982 1983-84 2,37,490
Levelling a charge u/s 420 of the Indian Penal Code, against accused No. 7-company and its directors, the respondents/accused Nos. 2 to 5
would amount to killing the goose which lays golden eggs. There is no necessity for accused No. 7-company to indulge in any kind of activity as
alleged. The payment of tax structure by accused No. 7-company as stated above clearly disproves, the charges u/s 420 of the Indian Penal
Code. The trial court''s finding in dismissing the charge u/s 420 of the Indian Penal Code, is very well founded.
Ground No. 3 : The trial court has found that accused No. 1-company had been incurring heavy losses right from the date of its incorporation, i.e.,
February 10, 1972, and, therefore, it had reasonable cause or excuse for the delayed remittance of tax deducted at source. On the other hand, the
prosecution has not established that accused No. 1-company acted without any reasonable cause or excuse. By exhibits P5, P9 and P12, accused
No. 1-company had proved that it has sufficient cause for the delayed remittance of tax deducted at source. P.W. 2 in his cross-examination has
admitted that accused No. 1-company incurred a loss of Rs. 1,83,397 for the year ending December 31, 1973, relevant for the assessment year
1974-75, loss of Rs. 3,59,041 for the year ending December 31, 1975, relevant for the assessment year 1975-76, loss of Rs. 3,14,013, for the
year ending December 31, 1977, for the assessment year 1977-78 loss of Rs. 4,04,086 for the year ending December 31, 1978, relevant for the
assessment year 1978-79.
8. Thus accused No. 1-company had been incurring heavy losses from the assessment year 1974-75 to 1982-83 and the loss was carried over
every year was assessed to nil (NA) for the assessment years 1974-75 to 1982-83. A1ong with the written statement, accused No. 1-company
has also filed the challans for payment of tax deducted at source, interest, etc. Thus, accused No. 1 demonstrated that it had reasonable cause or
excuse for the delayed remittance of tax deducted at source. The trial court has rightly relied upon the decision in P.N.B. Finance and Industries
Ltd. Vs. Gita Kripalani, ; Income Tax Officer, Ward-C Vs. Taurus Equipment (P.) Ltd. and Another, and SEQUOIA CONSTRUCTION CO.
P. LTD. AND OTHERS Vs. P. P. SURI, ITO, CENTRAL CIRCLE XX, NEW DELHI., and Ruled that accused No. 1-company had
reasonable cause or excuse for the delayed remittance of tax deducted at source. The decision of the Punjab and Haryana High Court reported in
Greatway (P) Ltd. and Others Vs. Assistant Commissioner of Income Tax, , also lends support to the above view. The prosecution witnesses
themselves have admitted that accused No. 1-company was in terrific financial stringency. The trial court has rightly come to the conclusion that
accused No. 1-company has had reasonable cause and excuse in the delayed remittance of tax deducted at source. For conclusion, the trial court
has based its reliance on the following three rulings.
(1) P.N.B. Finance and Industries Ltd. Vs. Gita Kripalani, ;
(2) Income Tax Officer, Ward-C Vs. Taurus Equipment (P.) Ltd. and Another, ; and
(3) SEQUOIA CONSTRUCTION CO. P. LTD. AND OTHERS Vs. P. P. SURI, ITO, CENTRAL CIRCLE XX, NEW DELHI., .
9. The Punjab and Haryana High Court has also held that it is the duty of the prosecution to prove that there was no reasonable cause or excuse in
the case reported in Greatway (P) Ltd. and Others Vs. Assistant Commissioner of Income Tax, . In this regard, the cumulative or carry over of
accused No. 1 is stated hereunder :
Rs.
31-12-1975 loss 16,73,264
31-12-1976 loss 18,52,732
31-12-1977 loss 22,91,340
31-12-1980 loss 28,66,198
31-12-1981 loss 16,70,517
31-12-1982 loss 13,74,410
10. In view of the colossal loss incurred and carried over by accused No. 1-company every year, it made a request to its sister company, New
India Maritime Agencies P. Ltd. (accused No. 7) to waive the interest on the outstanding amounts. Accused No. 7-company after some
negotiations agreed and waived the interest with effect from January 1, 1982. In the meantime, accused No. 1-company had paid and deducted
tax on interest erroneously. Further, the assessments of the creditor company, New India Maritime Agencies P. Ltd. itself for all the assessment
years in question have been completed and the Income Tax was paid by the creditor on the whole of its income including ""interest income"" which it
had earned from accused No. company at the end of each accounting year in question. In Commissioner of Income Tax Vs. Divisional Manager,
New India Assurance Co. Ltd., , the Madhya Pradesh High Court has observed (headnote) :
Where the regular assessment of an employee has been completed and the amount of tax fully paid by him, the Income Tax Officer, Salaries
Circle, has no jurisdiction u/s 201 of the Income Tax Act, 1961, to demand further tax from the employer in respect of the tax alleged to have
been short deducted in respect of the employee.
11. The statute requires that either the creditor or the debtor should pay the full Income Tax payable on the interest amount. In this case, the
ereditor, New India Maritime Agencies P. Ltd. had given a certificate that for all the years in question, it had already paid the Income Tax on the
whole of its income including the interest income. Hence, the ends of justice require that the whole matter should get extinguished. Therefore, there
is no loss to the exchequer caused in any way.
12. In conclusion, the appeal against the acquittal is liable to be dismissed on the following grounds :
(1) No statutory notice as contemplated u/s 2(35)(b) of the Income Tax Act, 1961, was issued to accused Nos. 2 to 5 as discussed supra and,
hence, the acquittal of accused Nos. 2 to 5 relying on this court''s ruling rendered in M.R. Pratap Vs. Y.M. Muthuramalingam, Income Tax
Officer, Central Circle-III, Madras, , cannot be canvassed ;
(2) Accused No. 1-company had incurred colossal loss and carry over losses during the relevant years which fact was admitted by the
Department by itself and accused No. 1-company was assessed to ""nil"" assessment (NA) in the impugned assessment years, and, therefore,
accused No. 1-company had reasonable cause or excuse in the delayed remittance of tax deducted at source. Paucity of funds and financial
stringency are reasonable cause as Ruled in (1) P.N.B. Finance and Industries Ltd. Vs. Gita Kripalani, ; (2) Income Tax Officer, Ward-C Vs.
Taurus Equipment (P.) Ltd. and Another, ; SEQUOIA CONSTRUCTION CO. P. LTD. AND OTHERS Vs. P. P. SURI, ITO, CENTRAL
CIRCLE XX, NEW DELHI., and (4) Greatway (P) Ltd. and Others Vs. Assistant Commissioner of Income Tax, . Hence, the acquittal of
accused No. 1 is fully justified ;
(3) The creditor company, accused No. 7, has waived the interest on the outstanding amounts due from accused No. 1-company. Further, in the
regular assessment, the creditor company has already paid the Income Tax on the whole of its income including the interest income for the relevant
assessment years. Therefore, ""when once it was referred by the creditor himself in his regular assessment, the right to recover the same from the
debtor who should have deducted the same the lapse of the debtor simply becomes extinguished.
13. Further, it is now 23 years from the alleged date of the commission of the offence. In Kuldip Rai Chopra, Income Tax Officer, ""D"" Ward Vs.
Sohan Singh Dhiman, , it has been observed (headnote) :
Held further, that in an appeal against acquittal the High Court cannot be called upon to reassess the credibility of the evidence, when the view
taken by the trial court was not shown to be so patently erroneous as to cause miscarriage of justice.
14. In Banwari and Others Vs. Income Tax Officer and Another, , the Supreme Court has Ruled by observing (headnote) :
(i) that, for more than a decade, the proceedings were pending in the trial court and no useful purpose would be served by proceeding with the
complaint after the lapse of such a long time ; the matter had become stale;
(ii) that, on the facts, the Magistrate could not be said to have been grossly wrong in inferring that the mention of the wrong date was merely a
bona fide mistake.
15. Relying on the aforesaid ruling of the apex court, this court in Fourth ITO v. A.K. Srinivasan [1994] 205 ITR 64 has Ruled (headnote) :
However, that since the offence was said to have been committed in the year 1976-77 and the order of acquittal was passed in 1984, no useful
purpose would be served by ordering re-trial at this length of time especially when the respondent has already undergone imprisonment till the
rising of the court and paid the fine in respect of the offences committed in connection with the same transaction.
16. In the case on hand, the first assessment year in which the offences are alleged to have been committed was in 1974-75 and the accused were
acquitted by the trial court on March 18, 1987. Not only the interest had been waived by the creditor but also the entire tax had been paid by the
creditor company in its regular assessment and, hence, there was no loss to the exchequer.
17. For the aforesaid reasons, the acquittal of the accused by the trial court is based on sound principles of law and the rulings rendered by various
High Courts and the Supreme Court.
18. P.W. 3 was the complainant and the Income Tax Officer, Headquarters (TDS) from January 1, 1985, who filed the complaint based on exhibit
P17, authorisation dated October 30, 1985, u/s 279(1) of the Income Tax Act, passed in his favour by the Chief Commissioner of Income Tax,
Madras. P.W. 4 was one, who was the predecessor of P.W. 3 and this witness on perusal of the file in respect of A1-company submitted exhibit
P18 office note, dated December 7, 1984, stating thereby that in spite of repeated correspondence there was no proper response from A1-
company for which the reply given by A1 is in exhibit P19, dated April 6, 1984, in respect of tax deducted at source, informing part payment and
seeking further time for the balance payment and that after going through the procedures, penalty of Rs. 52,000 for the accounting years ending
with December 51, 1973, to December 31, 1981, was levied on September 17, 1984, and that had not been paid by A1-company till January
18, 1985 ; that on July 2, 1984, he issued exhibit P20 show-cause notice to A1-company, as to why he should not be prosecuted for
contravention of Section 276B of the Income Tax Act.
19. P.W. 5, the Income Tax Officer, in his evidence would depose that A7-company was the Income Tax assessee under his jurisdiction ; that for
the year ending with June 30, 1974, in the assessment year 1975-76, A7-com-pany filed the Income Tax returns in respect of the assessment
order passed on that return and the matter was pending in appeal before the Tribunal, that A5 was the managing director of A7-company and he
filed A7''s Income Tax returns for the year ending with June 30, 1975, showing Rs. 38,497 as Income Tax deducted at source and exhibit P21 is
the return for the year 1975, that along with exhibit P21, A7-company also filed exhibit P22 under Form No. 19A by A1-company showing Rs.
38,497 as tax deducted at source payable on or before March 1, 1975, and the same had been paid only on August 5, 1977. Hence, the tax
deducted at source was not given credit for the assessment year 1976-77 for A7-company, but given credit to only in the actual year of payment
of A1-company. Similarly A5 the managing director A7-company, filed for the accounting year ending with June 30, 1976. Assessing the evidence
of the prosecution witnesses 1 to 5 who were examined before the trial court, P.W. 1, the Income Tax Officer, Head Quarters, besides stating that
A1 is a private limited company, of which A2 is the managing director, A3 to A5 are the directors, A6 is the manager and A7 is the private limited
company and sister concern of A1 and in A7-company A3 and A4 are the directors, and A5 is the managing director, the officers of both A1 and
A7-companies are located at one and the same place ; that A7-company had been lending money to A1 for which A1 had credited annual interest
in favour of A7-company ; that on receipt of exhibit P1 letter from P.W. 5 the immediate predecessor he issued exhibit P2 show-cause notice
dated March 2, 1983, to A1; that since there was no response, exhibit P3 notice dated March 14, 1983, had been sent ; that A1-company sent
exhibit P-5 covering letter dated March 21, 1983, enclosing exhibit P4 and exhibit P6 series which are the xerox copies of the tax deducted at
source remittance challans for the year ending with December 31, 1977, pleading thereby that want of liquid funds had caused delayed remittance
of tax deducted at source amounts. Due to borrowings from A7-company that the secretary of A7-company appeared as the representative of
A1-company and in spite of direction to file further details it was not done. Exhibit P7, dated June 27, 1983, was the letter addressed to the A1-
company.
20. P. W. 2 was the additional in-charge of the office of the Income Tax Officer, headquarters, during the relevant period and he would depose
that under exhibit P8 letter A1-company was fixed for hearing on November 26, 1983, and under exhibit P9 requisition dated November 24,
1983, of A1 sought further time and hence he sent summons to A1 under exhibit P10, dated December 16, 1983, and after little more
correspondence on January 14, 1984, issued to A1-company exhibit P14, letter/notice demanding Rs. 2,88,863 as arrears and Rs. 2,84,489
towards interest thus making a total demand of Rs. 5,74,352, that notice had also been sent to A7-company under exhibit P15 series (8 in
number) by his successor confirming his demand, made under exhibit P14 ; exhibit P23, is the Income Tax returns, dated June 21, 1979, showing
Rs. 61,128 as tax deducted at source and along with exhibit P23, Income Tax returns; A7-company filed exhibit P24 tax deducted at source
certificate dated March 27, 1979, issued by A1-com-pany in respect of Rs. 53,128 as tax deducted at source as not yet paid. Later on January 4,
1982, this witness wrote to P.W. 1''s predecessors under the original of exhibit P1, requisition, requesting to look into the matter. A5 filed for the
year ending with June 30, 1977, exhibit P25 Income Tax returns dated December, 11, 1980, claiming Rs. 1,26,045 as tax deducted at source, for
other interests; that along with exhibit P25 Income Tax returns A7-company filed exhibit P26 tax deducted at source certificate, dated December
31, 1976, for Rs. 64,981 intimating that it would be paid later by A1-company. A5 also filed for the accounting year ending June 30, 1978, exhibit
P27, Income Tax returns, dated February 17, 1982, showing Rs. 61,628 as tax deducted at source for other interests ; that along with exhibit P27
Income Tax returns, A7-company also filed exhibit P28 tax deducted at source certificate, dated December 10, 1978, intimating that this sum
would be paid by A1-company that A5 also filed for the accounting year ending with June 30, 1979, exhibit P29 Income Tax return dated
December 15, 1982, showing Rs. 1,27,193 as tax deducted at source for other interests ; that u/s 139(8) of the Income Tax Act, interest can be
charged for delayed filing of Income Tax returns and such interest could be charged on balance of Income Tax due that since the Income Tax due
on interest was not paid in time in respect of A7-company by A1-company, the credit for such tax deducted at source was given only for the years
of payment by A1-company in respect of the assessment for A7-com-pany, thus interest u/s 139(8) charged against A7-company was reduced
giving indirect benefit to A7-company.
21. The trial court in consideration of the above evidence placed before it and in further consideration of the pleading of the accused during the
questioning by the court u/s 315 of the Criminal Procedure Code, and further considering the facts, figures and circumstances of the case as
projected by the prosecution and ultimately to weigh the evidence in terms of the requirements of law, has framed five points which are :
(i) Whether after introduction of Section 278B of the Income Tax Act on October 1, 1975, notice u/s 2(35)(b) to the directors of the company is
necessary ?
(ii) Whether A2 as managing director and A3 to A5 as directors of A1-company are liable for delayed remittance of Income Tax deducted at
source on the interest on borrowings from A7-company ?
(iii) Whether A1 to A5 and A7-company attempted to cheat from levying interest on tax deducted at source ?
(iv) Whether A1-company''s delayed remittance of tax deducted at source was without reasonable cause or excuse ? and
(v) Is exhibit P17 authorisation to prosecute valid ?
22. The trial court considering point No. 5 whether the authorisation granted to prosecute the case is valid has cited the case reported in Swarna
Mahal v. Central Excise and Customs Department [1977] MLJ (Crl.) 175, wherein it has been held that though for a sanction to prosecute
application of mind is necessary, for an authorisation to be granted such application of mind is unnecessary and has accepted the same considering
the other cases reported in T.S. Baliah Vs. T.S. Rengachari, . wherein it has been held that the authorising authority need not file the complaint
himself, but can depute a subordinate to file the complaint for an offence under the Income Tax Act. The trial court would conclude ultimately that
in this case the authorisation given under exhibit P17 is valid thus deciding point No. 5 in favour of the prosecution.
23. Dealing with point No. 1, citing a decision of this court reported in M.R. Pratap Vs. Y.M. Muthuramalingam, Income Tax Officer, Central
Circle-III, Madras, , wherein it has been held that notice u/s 2(35)(b) of the Income Tax Act is necessary for the managing director of a company
to be treated as principal officer, to make him liable for being prosecuted for an offence u/s 276B of the Act committed by the company. Further
noting that there is no contra-decision available from any other quarter and in spite of objection by the other side on the ground that the said
judgment was on appeal in the Supreme Court, since the trial court thought that it was still binding on it, considered the view to decide the said
point and after wide discussions would ultimately arrive at the conclusion upholding"" the ruling of this court rendered by Justice S. Natarajan (as he
then was) and would end up saying that as long as Section 2(35)(b) is applicable to a company, introduction of Section 278B does not alter the
position to get out of the said ruling in respect of an offence u/s 276B and thus deciding point No. 1 against the prosecution.
24. So far as point No. 2 that tax deducted at source deducted for interest on borrowings from A7-company by A1-company were not remitted
within the time allowed and, hence, the accused became liable to be dealt with u/s 276B of the Income Tax Act, the trial court would further
contend in para 24 of its judgment that already under point No. 1 it has been concluded that A2 to A5 as managing directors and directors of A1-
company cannot be found guilty unless there is an allegation in the complaint and established by evidence that they, in respect of this tax deducted
at source in any way consented, connived or neglected this statutory obligation of A1-company. There is no such allegation in the complaint or any
acceptable evidence on this aspect against A2 to A5. The further contention of the complainant that Section 204 is only an inclusive definition and
does not exclude Section 278B, by the aforestated decision of Justice S. Natarajan (as he then was) and it has been concluded that the managing
director and directors cannot be made liable for the commission of the offence. Further citing the contention of A2 that on the death of one P.C.
Kachapeswaran Iyer, alias P.C.K. Iyer, who was the accountant of A1-company that he had been caused to attend to the correspondence for the
tax deducted at source liability to have been shown in the balance-sheet as contingent liability, there is no evidence to that effect. Furthermore,
notice u/s 2(35)(b) since being held necessary, and further since there is no material to raise the rebuttable presumption either u/s 278B(1) or (2)
against the directors of A1-company, Section 278B cannot be invoked against A2 to A5 for the first two years ending with December 31, 1973,
and December 31, 1974, since Section 278B which came into existence on October 1, 1975, not being retrospective in operation. The trial court
would ultimately answer point No. 2 in favour of the accused.
25. So far as point No. 3 whether A1 to A5 and A7-company attempted to cheat from levy of interest on tax deducted at source, the trial court
dealing with the same in para. 25 of its judgment, would contend that admittedly A7 is the sister concern of A1 and A3 to A5 are the common
directors of both companies ; that the allegations in respect of attempt to cheat is itself vague and the evidence of P.W. 5 in this regard is not clear.
There is not even an allegation of conspiracy or attempt to cheat. It is not only the interest u/s 201(1A) for delayed remittance of tax deducted at
source had been given credit in respect of A7 company''s assessment only during the years when tax deducted at source amounts were paid, but
not in the years when the interest was shown in the Income Tax return of A7-company, which is made clear in the evidence of P.W. 5. Hence, the
tax deducted at source amount with A1 and A7 was not given credit till the actual payment of tax deducted at source by A1-company and hence
in the opinion of the trial court the ingredients of Section 420 of the Indian Penal Code could not be appreciated at all either against A1 to A5 or
against A7-company and that at best it would be temporary misappropriation by A1-company falling u/s 409 of the Indian Penal Code. But there
is no allegation or evidence to that effect. Hence, the trial court had concluded that Ai to A5 joining hands with A7 attempted to cheat the Income
Tax Department for levying Section 201(1A) interest or even penalty due to tax deducted at source u/s 221 for the relevant seven years had not
been established thus answering this point in favour of the accused.
26. Ultimately, dealing with point No. 4 whether A1-company delayed remittance of tax deducted at source was without reasonable cause or
excuse in para. No. 26 of its judgment, the trial court discussing the said point and contending thereby that admittedly, A1 and A7 were sister
concerns with A3 to A5 as their common directors and the interest credited had been correctly shown as receipts in A7''s Income Tax returns
though according to the accused it was only mercantile system of credit without actual payment of interest to A7-company. But the burden of
proof ""without reasonable cause or excuse"" since cast on the prosecution the burden that A1-company acted with reasonable cause or excuse
promptly and the delay had occurred on account of reasonable cause or excuse and this proof is not as onerous proof as it has been cast on the
prosecution ; that default for delayed tax deducted at source payment should be deliberate and conscious as held in the case reported in P.N.B.
Finance and Industries Ltd. Vs. Gita Kripalani, , by the Delhi High Court, that failure to deduct or failure to pay if deducted has not been by itself
made penal and such an act if done without reasonable cause or excuse alone can be made penal. Further, stating that there was no evidence on
record as to whether the accused acted without reasonable cause or excuse and the trial court ultimately arrived at the conclusion that the
prosecution had failed to prove this aspect of the case also beyond reasonable doubt. The trial court would ultimately arrive at the conclusion to
decide this point also in favour of the accused. Ultimately, the trial court finding that none of the accused had been found guilty of any of the
offences that they were charged under, would order their acquittal.
27. It cannot be denied that the general provisions of criminal law and the norms of criminal jurisprudence the Rules and procedures that are
adopted are the same for the case arising on violation of the provisions of the Income Tax laws as any case put up in every other criminal case. A
case arising out of the Income Tax Act is also subject to the Rule that the accused is presumed innocent and that the burden to discharge the said
innocence is paramountly on the prosecution. However strong the suspicion against the accused, if every reasonable possibility of innocence has
not been excluded, he is entitled to acquittal. Whenever circumstances arise, they must be proved and not by themselves presumed. No single item
of evidence can be singled out and given prominence nor the accused''s theory of the case can be withdrawn from consideration. What constitutes
failure or causing delay or evasion in the payment of Income Tax is a question of law whether on evidence the particular crime has been committed
is a question of fact. If, therefore, the evidence regarding either failure or causing delay or evasion in payment of the Income Tax leaves room for
doubt and does not displace the presence of innocence wholly, the charge cannot be said to have been established. Only because innocent and
honest Government servants should not be made scapegoats on baseless and make-believe allegations or charges of the prosecuting officials to
make out a case for reasons many, the law as laid down by various judicial pronouncements requires strong corroborative evidence that could be
gathered either from oral or documentary evidence or even from the circumstances encircling the whole case. The standard of evidence and the
proof required by law from the Department being proof beyond reasonable doubts, unless each and every aspect of the case is proved with such
abundant and overwhelming evidence, the case cannot be said to have been proved to sustain a conviction.
28. Hence, for all the above discussions held scrutinising carefully the reasons assigned by the trial court for each and every point of which the trial
court has appreciated the evidence in the context of the position of law based on the propositions arrived at by different courts, this court does not
see any reason to interfere with the well considered and well merited judgment passed by the trial court. No patent errors of law nor perversity in
approach by the trial court in any manner has been brought forth by the appellant/Department so as to make this court reasonably to interfere with
the decision of the trial court.
29. In the result, the above criminal appeals in Criminal Appeal No. 524 of 1987 and 525 of 1987 fail and the same are dismissed. The judgment
dated March 18, 1987, respectively, made in E. O. C. C. Nos. 1374 to 1380 of 1985 and E. O. C. C. Nos. 1381 and 1382 of 1985, by the
Court of Additional Chief Metropolitan Magistrate, Egmore, Madras-8, are hereby confirmed.
