Conviction u/s 278B of Income Tax Act against independent director set aside. Generally and vaguely stated allegations not sufficient to satisfy the basic requirements of law.
ABCAUS Case Law Citation:
ABCAUS 2258 (2018) (03) TC
The Applicant had filed this criminal revision application before the Additional Sessions Judge (ASJ) assailing the legality and correctness of the order passed by the Additional Chief Metropolitan Magistrate (ACMM), Mumbai whereby the ACMM had issued the process against the appellant, for an offence punishable under Section 276B read with Section 278B of the Income Tax Act, 1961 (the Act).
As per the complaint filed by the Income Tax Department, there were 10 accused , (No.1 was a company and accused Nos.2 to 10 were the directors of the company). The main allegations in the complaint of the Income Tax was that during the FY 2009-10, TDS amounting to Rs.19,03,986/- was deducted from the payments of various parties, however, the same was not fully paid to the Government as required under the provisions of the Act.
The Applicant in the instant revision application was the accused No.10. His case was that he was independent director and not concerned with the day to day activities of the company.
It was submitted that the averments, made in the complaint to implicate the applicant in this case, were vague and general. In support of his contention that he was independent director the applicant produced on record certified copy of ‘Form No.32’ submitted, when he resigned as a director of the company.
The ASJ observed that the applicant had been made to face the prosecution in view of the provisions of Section 278 B(1) of the Income Tax Act. It was noted that under the provisions, the person in charge and responsible for the conduct of the business of the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against, unless 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.
It was observed that As far as the vicarious liability is concerned, the Hon’ble Supreme Court held that the Directors of the company are not ipso facto vicariously liable for acts or omissions of the Company. It was held that in order to make directors liable there must be necessary allegations attributable to each director as provided under the law.
It was observed that the provisions of Section 278 of the Income Tax Act are in pari materia with Section 141 of the Negotiable Instruments Act. The basic question was whether the statutory averments have been made in the complaint or not ? The ASJ opined that the allegations were not sufficient to satisfy the basic requirements of law. It had been generally and vaguely stated in the complaint that accused Nos. 2 to 10 were the directors/principle officers of the accused No.1. It was further vaguely stated that as such, they were responsible for the deduction at source and they had signed various documents for an on behalf of the company and had acted as principle officers of the company and, therefore, they were liable for the statutory compliance.
The ASJ thus observed that the complaint basically revealed that it was not
strictly according to the law. It did not specify the basic requirements of law. The vague and general allegations, as stated above, could not be said to be due compliance of the statutory requirement.
Besides, it was observed that the applicant had produced on record the certified copy of ‘Form No.32’, wherein, it had been categorically stated that he was an independent director. Applicant was neither Chairman nor Executive Director.
The ASJ opined that the evidence on record would show that the AVMM without ensuring the compliance of the mandatory provisions of Section 278(B) (1) of the Income Tax Act, issued the process against all the accused. The prosecution, if allowed to continue, would amount to abuse of process of law.
The Criminal Revision Application was allowed and the order passed by the ACCM was set aside.
