Offences and prosecution – Principal Officer – Assessee was a Non-Executive Chairman of Board of Directors of company based in Delhi/NCR region – AO passed an order u/s. 2(35) with respect to TDS default of company treating assessee as Principal Officer of company and launched prosecution proceedings against the assessee u/s. 276B – Where there was no material to establish that assessee was in-charge of day-to-day affairs, management, and administration of his company, AO could not have named him as Principal Officer and accordingly he could not have been prosecuted u/s. 276B for TDS default committed by his company

24.  Kalanithi Maran vs.
UOI; [2018] 92 taxmann.com 308 (Mad): Date of Order:
28^th March, 2018: F. Ys. 
2013-14 and 2014-15

Sections 2(35) and 276B of I.
T. Act, 1961

Offences and prosecution –
Principal Officer – Assessee was a Non-Executive Chairman of Board of Directors
of company based in Delhi/NCR region – AO passed an order u/s. 2(35) with
respect to TDS default of company treating assessee as Principal Officer of
company and launched prosecution proceedings against the assessee u/s. 276B –
Where there was no material to establish that assessee was in-charge of
day-to-day affairs, management, and administration of his company, AO could not
have named him as Principal Officer and accordingly he could not have been
prosecuted u/s. 276B for TDS default committed by his company

The assessee was a
Non-Executive Chairman of the Board of Directors of company Spice Jet Limited
based in Delhi /NCR region. The company was engaged in the business of
operation of scheduled low cost air transport services under the brand name
‘Spice Jet’. The assessee was residing and carrying on business at Chennai and
was not receiving any remuneration whatsoever from the company. The assessee
was full time Executive Chairman of Sun TV Network Ltd., which is a public
limited company, from which he drew remuneration as per the provisions of the
Companies Act. There was failure on part of Spice Jet Limited to deposit tax
deducted at source from amounts paid/payable to third parties for F.Ys. 2013-14
to 2014-15. The Assessing Officer passed an order dated 03/11/2014 u/s. 2(35)
of the Income-tax Act, 1961 with respect to TDS default of Spice Jet to the
tune of Rs. 90 crore treating the assessee as the Principal Officer of the
Company within the meaning of section 2(35). By the impugned order, while
naming the assessee as the Principal officer, the Assessing Officer also held
that the assessee was liable for prosecution u/s. 276B for the Tax Deducted at
Source default committed by the company. The assesse filed writ petition
chalanging the said order of the Assessing Officer.

The Madras High Court allowed
the writ petition and held as under:

“i)  The assessee was a Non-Executive Chairman of the Board of Directors
of the Company. Admittedly, the corporate office of the company is at Delhi. It
is not in dispute that the assessee is residing at Chennai and the impugned order
dated 03/11/2014 naming the assessee as the Principal Officer was served on the
assessee at Chennai at his residential address. It is also pertinent to note
that the show-cause notice dated 01/9/2014 was served on the assessee at his
residential address at Chennai. When the assessee had taken a stand that he is
not involved in the day-to-day affairs of the company and was also not drawing
any salary from the company, it cannot be stated that the assessee cannot file
the writ petition at the place where he received the show-cause notice as well
as the impugned order.

ii)   In the instant case, admittedly the assessee is challenging the
order treating him as the Principal Officer, which was received by him at
Chennai and was brought to his knowledge only at Chennai. Though the authority
is at Delhi, it is clear that part of cause of action had arisen at Chennai. As
per article 226(2) of the Constitution of India, the writ petition is
maintainable before a High Court within which the cause of action wholly or in
part, arises for the exercise of such power, notwithstanding that the seat of
such Government or authority or the residence of such person is not within
those territories. That apart, though the company’s registered corporate office
is at Delhi and the TAN number is at Delhi assessment, the assessee in this
writ petition has not challenged the assessment order, but, has challenged only
the impugned order naming him as the Principal Officer. In these circumstances,
this Court has jurisdiction to entertain the writ petition.

iii)  U/s. 2(35)(b), the Assessing Officer can serve notice only to
persons who are connected with the management or administration of the company
to treat them as Principal Officer. Section 278B clearly states that it shall
not render any such person liable to any punishment, if he proves that offence
was committed without his knowledge.

iv)  In the instant case, the assessee has stated that he was not
involved in the day-to-day affairs of the company and that he is only a
Non-Executive Chairman and not involved in the management and administration of
the company. Whereas, the Managing Director, himself has specifically stated
that he is the person in-charge of the day-to-day affairs of the company.

v)   The Assessing Officer, while passing the impugned order naming the
assessee as the Principal Officer, has not given any reason for rejecting the
contention of the Managing Director. When the Managing Director himself has
stated that he is the person who is in-charge of the day-to-day affairs of the
management and administration of the company and that the petitioner is not so,
the Assessing Officer without any reason has named the assessee as the
Principal Officer. Merely because the assessee is the Non-Executive Chairman,
it cannot be stated that he is in-charge of the day-to-day affairs, management
and administration of the company. The Assessing Officer should have given the
reasons for not accepting the case of the Managing Director as well as the
assessee in their respective reply. The conclusion of the Assessing Officer
that the assessee being a Chairman and major decisions are taken in the company
under his administration is not supported by any material evidence or any
legally sustainable reasons.

vi)  It is clear that the assessee was not involved in the management,
administration and the day-to-day affairs of the company, therefore, the
assessee cannot be treated as Principal Officer. In these circumstances, the
impugned order dated 03/11/2014 is liable to be set aside. Accordingly, the
same is set aside. The writ petition is allowed.”