The Bombay High Court has annulled the legal proceedings initiated against the directors of M/s. Hubtown Ltd. under Sections 276B and 278B of the Income Tax Act. This action followed a belated deposit of TDS, despite the company having already rectified this by depositing the same with accrued interest as stipulated in section 201(1A) of the Income Tax Act.
The Respondent No.1 – Income Tax officer has filed complaints under Section 279 (1) of the I.T Act along with sanction to prosecute the petitioners for the offences as referred to above.
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The complainants alleged that M/s. Hubtown Ltd (hereinafter referred to as “assessee”) is a Company incorporated under the Companies Act, 1956. It was brought to the notice of the respondent No.1 by the assessee that it has deducted TDS amounts but delayed in paying the same to the Government Treasury within the prescribed time limit.
Despite show cause notices being issued and explanations tendered by the petitioners and directors, the department concluded that the company and its directors were liable under Section 204 and had committed an offence under Section 200, read with Rule 30 of the Income Tax Rules.
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The directors argued that they were not principal officers and could only be held vicariously liable if they met the statutory requirements of Section 278B. They contended that mere directorship does not automatically imply responsibility for the company’s business conduct, citing precedents from other legal frameworks.
Additionally, the directors submitted that no order designating any petitioner as the “Principal Officer” of the company had been issued under Section 201(1) or Section 201(3) of the Income Tax Act. They reiterated that the TDS deducted by the company had already been remitted with interest, as per Section 201(1A) of the Income Tax Act.
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The Division Bench noted that, “the Revenue has chosen not to invoke the provisions of Section 221 r/w Section 201(1) of the I.T Act to impose penalty against the company or the principal officer of the company for “failure to pay the whole or any part of tax, as required by or under this Act”.”
It was thus held that “The Revenue cannot now be permitted to prosecute the petitioners for the same substantive act which is also categorized as an “offence” under Section 276B of the I.T. Act. As such, further trial of the petitioners by the Criminal Court cannot be permissible which would tantamount to abuse of process of the Court.”
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The Single Bench of Justice Prithviraj K. Chavan noted that the tax department opted not to levy penalties under Section 221 in conjunction with Section 201(1) of the Income Tax Act for the company’s failure to remit taxes as required by the law.
The petitioners were represented by Puneet Jain, Pawan Ved, Sajal Yadav, Aishwarya Kantawala, Diya Jayan i/b Mr. Meghashyam Kocharekar and Suresh Kumar represented the respondent-revenue.
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