Delayed Income Tax TDS Deposit Does Not Extinguish Criminal Liability, Managing Director Must Face Trial: Delhi HC [Read Order]

In a recent ruling, the Delhi High Court held that belated deposit of Tax Deducted at Source (TDS) does not extinguish criminal liability and that a Managing Director cannot avoid prosecution because of disputed facts.

Dr. Manoj Khanna, the petitioner, sought to quash the criminal complaint and the summoning order passed against him for failing to deposit deducted TDS on time. The petitioner and another director were alleged to be the responsible officers of the company during the relevant period.

The petitioner's counsel argued that he was wrongly summoned and that the other director, who was the CEO and whole-time director, was solely responsible for the deduction and deposit of TDS. They further argued that the TDS had eventually been deposited, though belatedly and that this should be taken into account. They also relied on replies submitted by the co-director, claiming that responsibility had been admitted by him.

The Income Tax Department opposed the petition and argued that the petitioner was the Managing Director at the relevant time and was in charge of the day-to-day affairs of the company. The department explained that a detailed sanction order had been passed after considering the material on record, and that subsequent payment of TDS does not wipe out criminal liability. They also pointed out that the defences raised by the petitioner involved disputed facts which could only be examined during trial.

Justice Amit Mahajanobserved that at the stage of considering a petition for quashing, it is not permissible to examine disputed facts or conduct a mini-trial. The court explained that the foundational facts, namely deduction of TDS and delay in depositing the same, were not disputed. It further observed that the petitioner’s position as Managing Director during the relevant period was also not in dispute.

The court pointed out that both directors had blamed each other for the default, and no unimpeachable material had been produced to conclusively show that the petitioner was not responsible. It also explained that under Section 278B of the Income Tax Act, persons in charge of and responsible for the conduct of the business of the company can be prosecuted, and Section 278E raises a statutory presumption of culpable mental state which can only be rebutted during trial.

The court held that belated payment of TDS does not automatically absolve an accused of criminal liability, and that issues such as reasonable cause or financial difficulty are matters to be examined at trial. Since the petitioner failed to show that the prosecution was an abuse of process, the court declined to quash the complaint or the summoning order.

The petition was dismissed.

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