49. Kalanithi Maran vs. Union of India; 405 ITR 356 (Mad): Date of order: 28th March, 2018 Sections 2(35)(b) and 276B – Offences and prosecution – TDS – Failure to pay tax deducted at source to Revenue – Company – Principal officer – Non-executive chairman not involved in day-to-day affairs of company – Managing director admitting liability and entering into negotiations with Revenue – Prosecution of non-executive chairman – Not valid

Criminal proceedings u/s. 276B of
the Act were initiated against a company for non-payment of tax deducted at
source. Notice was issued to the petitioner who was the non-executive chairman
of the company treating him as the principal officer of the company and an
order was also passed.

The non-executive chairman filed a
writ petition and challenged the said action against him. The Madras High Court
allowed the writ petition and held as under:

“i)  U/s.
2(35)(b) of the Act, 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 states that it shall not render any
such person liable to any punishment, if he proves that offence was committed
without his knowledge.

ii)  The
assessee had stated that he was not involved in the day-to-day affairs of the
company and that he was only a non-executive chairman and not involved in the
management and administration of the company. The managing director himself had
specifically stated that he was the person in charge of the day-to-day affairs
of the company.

iii)  The second respondent, while passing the order naming the assessee
as the principal officer had not given any reason for rejecting the contention
of the managing director. The second respondent without any reason had named
the assessee as the principal officer. Merely because the assessee was the
non-executive chairman, it could not be stated that he was in charge of the
day-to-day affairs, management and administration of the company.

The second respondent should have
given the reasons for not accepting the case of the managing director as well
as the petitioner in their respective reply. The conclusion of the second
respondent that the assessee being a chairman and major decisions were taken in
the company under his administration was not supported by any material evidence
or any legally sustainable reasons. The second respondent had not produced any
material to establish that the petitioner was responsible for the day-to-day
affairs of the company.

iv) In
the absence of any material, the second respondent should not have come to the
conclusion that the assessee was the principal officer. The order which held
the assessee as the principal officer of the company and therefore, liable to
be prosecuted for the alleged default of the company u/s. 276B was not valid.”