JUDGEMENT
M Duraiswamy, J. -
(1.)The petitioner has filed the above writ petition to issue a Writ of Certiorari, to call for the records on the file of the 2nd respondent with respect to the impugned order dated 03.11.2014 and to quash the same.
(2.)The brief case of the petitioner is as follows:-
(i) According to the petitioner, he is merely a Non-Executive Chairman of the Board of Directors of the Company and not at all in charge or control of the day-to-day affairs and operations of the Company, which is professionally managed by its Managing Director and other Managerial Personnel. The company has its Corporate Head Office at Delhi from where it is managed and controlled. On the other hand, the petitioner is residing and carrying on business at Chennai. The petitioner neither receive any sitting fees for participating in the Board Meetings of the company nor draw any salary from the company as he is not an employee of the company. Therefore, he can never at any probability be considered as the "Principal Officer" of the company and especially so when the Managing Director of the Company, Mr.K.Natrajhen has also been held as the "Principal Officer" of the very same company under section 2(35) of the Act by the very same 2nd respondent by a separate order dated 03.11.2014.
(ii) According to the petitioner, under section 276B of the Income Tax Act, a person, who is in charge of and is responsible to the company for the conduct of the business of the company, can be prosecuted. The test and criterion laid down by section 276B is entirely different and distinct from that laid down by section 2(35) of the Act. Section 2(35) is relevant only for imposing a penalty on a person and is not at all relevant for deciding whether he should be prosecuted for an offence under the Act. However, this factor has not at all been considered and the 2nd respondent has proceeded on the basis that the petitioner having been held to be the "Principal Officer", is, therefore, liable to be prosecuted for the offence under section 276B.
(iii) According to the petitioner, under section 278AA, no person shall be punished for any failure covered by section 276B if there was reasonable cause for such failure. On receipt of the impugned order, when the petitioner enquired, the company informed him that since acute financial and liquidity problems were faced by them, the company found it impossible to pay in time the full amount of tax deducted at source. The company submitted a plan for payment of the amount of tax deductible at source to the Income Tax Authorities, which plan was accepted without objection by the Authorities. This crucial factor by itself establishes that the Income Tax Authorities were fully aware of the acute liquidity and financial problems faced by the company which prevented it from making payment in time of the amount of tax deducted at source.
(iv) In the present case, there is no allegation whatsoever made by the Income Tax Department that any funds of the company have been diverted or that any money were available to the company for making payment of the tax deducted at source and that the company and its officials nevertheless willfully or contumaciously or dishonestly refrained from making payment of the tax deducted at source though the company was in a position to make the payment. In the absence of any such allegation having been made and proved by the Income Tax Authorities, it cannot be contended by the Income Tax Authorities that there was no reasonable cause for the delay in payment and therefore, the offence under section 276B was committed. The impugned order does not show any application of mind by the 2nd respondent to the crucial factor.
(v) Punishment for the offence under section 278 B is rigorous imprisonment for a term, which shall not be less than three months but which may extend to seven years with fine.
(vi) According to the petitioner, he is the resident of Chennai and Non-Executive Chairman of Board of Directors of Spice Jet Limited, a company incorporated under the Companies Act, 1956 having its corporate office at No.319, Udyog Vihar, Phase-IV, Gurgaon, Haryana. The petitioner is not receiving any remuneration whatsoever from the company. The company is engaged in the business of operation of scheduled low cost air transport services under the brand name "Spice Jet". The petitioner is residing at No.22, Adyar Club Gate Road, R.A.Puram, Chennai - 28 and not a resident of Delhi/NCR where the corporate office of the company is situated and from where the day-to-day operations of the company are carried out. The company is professionally managed entity whose day-to-day operations are managed by a team of experts/trained professionals. In addition to being a Director of the company, the petitioner is also involved in other business activities in Chennai, which include Television, Radio, Newspaper, DTH broadcasting etc. The petitioner is full time Executive Chairman of Sun TV Network Ltd., which is a public limited company, from which he draws remuneration as per the provisions of the Companies Act.
(vii) By letter dated 23.04.2014, the 2nd respondent sought supply of certain information from the company concerning various issues including Tax Deducted at Source ("TDS"). The notice also directed holding of hearing on 07.05.2014 at 11.00 a.m. The company, by way of its letter dated 07.05.2014, supplied most of the information sought by the 2nd respondent and sought an extension of 30 days for production of further documents. On 04.08.2014, the 2nd respondent issued summons to the company under section 131 of the Income Tax Act, directing its Chief Financial Officer to appear before it. The Chief Financial Officer of the company, viz., Mr.R.Neelakantan appeared before the 2nd respondent and his statement was recorded. In his statement, the Chief Financial Officer has categorically stated that due to huge losses being suffered by the company, the company was facing a financial crunch and was taking longer than usual to deposit TDS. Further, he has stated that while the company is complying with all provisions of law including the Income Tax Act as far as deduction of TDS is concerned, there has been some delay in depositing TDS.
(viii) The company sent a representation dated 12.08.2014 to the 2nd respondent informing about the huge losses suffered by it in the financial year 2013-14. The company also suggested a payment plan on the basis of some promoter capital infusion as well as daily collections to reduce its TDS liability. The 2nd respondent issued another communication dated 12.08.2014 seeking TDS related information/other information from the company concerning for the financial year 2012-13. This information was supplied by the company along with a covering letter dated 27.08.2014.
(ix) The company continued to deposit amounts towards TDS with the 2nd respondent and substantially complied with the proposal made by it with a few minor exceptions. Despite its best efforts to deposit the TDS amounts in spite of severe financial hardship being faced by the company, the 2nd respondent on 01.09.2014, issued a show cause notice to the petitioner under section 2(35) of the Income Tax Act regarding TDS for the financial year 2013-14. In the show cause notice it has been stated that the petitioner has been actively participating in functioning and management of company affairs and directed him to show cause as to why he should not be treated as a Principal Officer within the provisions of section 2(35) of the Income Tax Act. Since the notice dated 01.09.2014 was served on the petitioner only on the evening of 10.09.2014, i.e., the day on which his response to the notice was due, the petitioner sent a letter to the 2nd respondent seeking two weeks time to make a representation in the matter.
(x) At this juncture, it is pertinent to state that the 2nd respondent also issued identical show cause notices to the Managing Director of the company, viz., Mr.K.Natrajhen and to Mr.RakeshKumar, DGM (Finance & Taxation). Just as the show cause notice issued to the petitioner, the show cause notices issued to the Managing Director and DGM (Finance & Taxation) contained identical averments stating that both the recipients were actively participating in the functioning and management of the company affairs and therefore, required to show cause as to why they should not be treated as Non-Executive Principal Officer within the meaning of section 2(35) of the Income Tax Act. It therefore becomes clear that while issuing show cause notices, there was no application of mind by the 2nd respondent to the fact that the petitioner was not at all involved in the day-to-day affairs of the company and he is residing and carrying on business in Chennai.
(xi) On 23.09.2014, the petitioner sent a reply stating that he is only a Non-Executive Chairman and he is not in charge of the day-to-day affairs of the company. Further, he has stated that the company is professionally run by a team of experts, who managed the affairs of the company from its corporate Head Office located in Delhi/NCR whereas, he is residing and carrying on business at Chennai. The petitioner is no way involved in the day-to-day management of the company and neither hold any Executive nor full time position in the company, therefore, he cannot be held to be the Principal Officer of the company and sought for the withdrawal of the show cause notice.
(xii) The Managing Director of the company Mr.K.Natrajhen also filed a response to the show cause notice dated 15.10.2014, wherein he responded to the show cause notice on merits. The Managing Director of the company is involved in the day-to-day affairs and who is indeed the "Principal Officer" stated that the notice is premature and ought to be withdrawn. The notice also sought for an opportunity to be heard in person. Similarly, a reply to the show cause notice was also submitted by Mr.Rakesh Kumar, DGM (Finance & Taxation) of the company on merits as well.
(xiii) While the petitioner was in the process of preparing and filing reply to the show cause notice, the 2nd respondent issued further communications addressed to the company seeking supply of information regarding TDS payments for the financial years 2012-13, 2013-14 and first quarter of financial year 2014-15. The 2nd respondent addressed another letter dated 02.09.2014 to the company alleging that the company made partial payments against the payment plan submitted by it. The letter directed the company to make good the shortfall for the period August-October 2014 and threatened action in case of the company's failure to pay. The company sent their reply supplying the information sought for by the 2nd respondent on 08.09.2014.
(xiv) Despite the sincere efforts of the company to settle all TDS dues, the 2nd respondent continued to send intimidating letters to the company even upon a single days delay in depositing TDS and also made certain factually incorrect assertions. The company has presented a plan during the month of August and September, 2014 as on 30.09.2014. The company has already paid a sum of Rs.88.71 crores during the month of October and September 2014. The company also assured the 2nd respondent that it will stick to the payment plan and any minor deviations shall be addressed in seven working days. Despite substantial compliance by the company and also prompt supply of all documents requested by the 2nd respondent, the 2nd respondent continued to write letters to the company without appreciating the fact that the company had been complying with its payment plan.
(xv) By letter dated 01.10.2014, the 2nd respondent threatened coercive action against the company even if it had deposited TDS to the extent of Rs.88.71 crores against an outstanding of Rs.90 crores leaving a shortfall of only Rs.1.29 cores, which too was paid in the 1st week of October, 2014. In furtherance of the show cause notice, the 2nd respondent issued an order dated 03.11.2014 under section 2(35) of the Income Tax Act, which is impugned in this writ petition, holding that the petitioner is the Principal Officer of the Company within the meaning of Section 2(35) of the Income Tax Act. The impugned order merely states, without any basis or materials whatsoever "All major decisions are taken in the company under his consent. In that capacity he is certainly associated with the management and administration of the Company". The impugned order straightaway proceeds to hold that the petitioner is the Principal Officer of the company and accordingly he is liable to be prosecuted under section 276B of the Income Tax Act,1961 for the Tax Deducted at Source default committed by the company. The impugned order does not anywhere allege that there was dishonesty or contumacious conduct on the part of the company or that there was any diversion or mis-utilization of the funds or that it was possible for the company to pay the TDS amount further or earlier but it dishonestly hope not to do so. The impugned order does not even attempt to dispute the existence of the grave financial and liquidity problems of the company. The 2nd respondent completely disregarded section 278B of the Income Tax Act, which expressly provides that only such person who at the time of the offence as in charge of and was responsible to the company for the conduct of its business shall be held guilty for the offence under section 276B of the Income Tax Act shall be liable to be proceeded against.
(xvi) The 2nd respondent by way of separate order dated 03.11.2014, proceeded to hold the Managing Director of the Company to be the Principal Officer within the meaning of section 2(35) of the Income Tax Act. By letter dated 05.10.2014, the company wrote to the 2nd respondent confirming that it has met its commitment for the months of August and September 2014. It was stated that while the entire liability for the financial year 2013-14 with an exception of Rs.7.06 crores (which too was paid subsequently) has been paid and that in so far as the remaining liability of Rs.80 crores is concerned, the company proposes to discharge the same by paying an amount of Rs.2 crores per day (excluding Sunday and bank clearing holidays). In its letter, the company showed its bona fides and requested that no coercive steps be taken against the company and its officers. On 19.11.2014, the 2nd respondent issued another letter to the company alleging default in compliance with the schedule submitted by it.
(xvii) The 2nd respondent issued two show cause notices to the petitioner for the financial years 2013-14 and 2014-15 directing the petitioner to show cause as to why prosecution should not be launched against him. Inability to deposit the TDS in time due to financial hardship and lack of financial resources faced by a person cannot be a ground for prosecuting a person under section 276B of the Income Tax Act. The impugned order which holds the petitioner as the "Principal Officer of the company and therefore, liable to be prosecuted for the alleged default of the company under section 276B of the Income Tax Act, is liable to be set aside. In these circumstances, the petitioner has filed the above writ petition.
(3.)The brief case of the respondents is as follows:-
(i) According to the respondents, the lis in the present case arises out of the failure on the part of M/s. Spice Jet Limited to deposit the tax deducted by it at source from amounts paid/payable to third parties. M/s. Spice Jet Limited is an assessee on the file of the 2nd respondent and its TAN number is also registered with the 2nd respondent only and therefore, the facts which have a bearing with the dispute have arisen in Delhi only and not in the State of Tamil Nadu. The mere fact that the petitioner herein is residing in Chennai does not give rise to a cause of action arising in the state of Tamil Nadu. The place where the petitioner is residing has no bearing with the lis involved, which is the failure to deposit the tax deducted at source.
(ii) According to the respondents, the petitioner has filed a Criminal M.C. Petition No.381 of 2015 before the Delhi High Court against the criminal complaint that was filed pursuant to the order dated 03.11.2014 holding the petitioner as a Principal Officer of M/s. Spice Jet Limited. Hence, with regard to the very same issue i.e., failure to deposit the TDS within the time as stipulated under the provisions of the Income Tax Act, the petitioner is pursuing his remedies before different High Courts. The respondents being situate in Delhi and all the relevant records being available at Delhi and having regard to the fact that the records required in this Writ Petition and the Criminal Quash Petition before the Delhi High Court are the same, on the ground of forum convenience also the above writ petition ought to be dismissed. Therefore, the writ petition should be dismissed as not maintainable.
(iii) According to the respondents, the petitioner was inducted as Director and Chairman into the Board of Directors of M/s. Spice Jet Limited with effect from 15.11.2010 and the petitioner had expressed his plan of doubling their current fleet size and that he was excited to lead the airline on this growth path. Therefore, it is clear that the petitioner had taken active part in the conduct of the business of M/s. Spice Jet Limited and just because the company has a Managing Director and other Managerial Personnel, it does not mean that the Chairman/Director does not take part in the Management or Administration of the company. The fact that the petitioner resides in Chennai does not mean that he is not involved in the Management or Administration of the company as in today's world, it is not necessary to be physically present in the Corporate Office for the purpose of Administering/Managing a company. Thus, in accordance with Section 2(35) of th Income Tax Act, the 2nd respondent has rightly held that the petitioner should be the Principal officer of M/s. Spice Jet Limited.
(iv) Section 2(35) is for holding a person as a Principal Officer of a company and Section 278B clearly states that where an offence under this Act has been committed by a company and is attributable to any neglect on the part of any Director, Manager, Secretary or other Officer of the Company, such Director, Manager, Secretary or other Officer shall also deemed to be guilty of that offence. The petitioner, being a Director cum Chairman of M/s.Spice Jet Limited has been rightly held as Principal Officer and if there has been no neglect on his part in discharging his duties as Director cum Chairman, the same has to be proved by him before the Criminal Court. There is no necessity for the Department to prove that any funds of the company have been diverted in order to initiate action under the provisions of the Act. The provisions of Chapter XVII relating to deduction of tax at source are very stringent and mandatory. The amount deducted as tax at source is not money belonging to M/s. Spice Jet Limited, but, the money belonging to third parties and which has not been paid by M/s.Spice Jet Limited to third parties under an implicit understanding that the same will be deposited as TDS with the Department and such third party will be entitled to treat the same as part of his advance tax payments. The failure on the part of M/s. Spice Jet Limited, to deposit the TDS within the stipulated time has several implications.
(v) The default committed by M/s. Spice Jet Limited, came to the notice of the department in the course of survey conducted under section 133A of the Act. It is immaterial whether or not the Principal Officer is functioning at the same or different place. The Director/Chairman is covered under section 2(35)(b) of the Income Tax Act. On the basis of survey conducted under Section 133A of the Act, defaults of late payment of TDS and non deduction of TDS was noticed by the tax authorities of the jurisdiction and consequently after issuing a show cause notice under section 201 of the Income Tax Act immediately, at the premises of the company, the company was held as an assessee in default. Accordingly, the Director/Chairman is covered under section 2(35)(b) of the Income Tax Act, since he is connected with the Management and Administration of the company.
(vi) The Income Tax Act does not contain any stipulation of "day-to-day affairs of the company". All that section 2(35) stipulates is "concerned with the Management and Administration of the Company". Therefore, the contention of the petitioner that the petitioner is not a Principal Officer is liable to be rejected.
(vii) The plea that there was a reasonable cause for delay in payment of TDS to the Government account, taken by a deductor company is also not acceptable. Since the deductor has failed to deposit the tax into the Government Account within the prescribed time, it becomes an "assessee in default". Proceedings initiated under section 2(35) relates to proceedings under section 276B and are independent of recovery proceedings.
(viii) Prosecution has been initiated for huge delay which runs into more than 12 months in respect of various payments of the TDS. Payment being made by the deductor company were as per post survey record proceedings and do not relate to proceedings under section 276B. The fact that the petitioner is the promoter of the company and that he infuses capital goes to show that he is engaged in the management, administration and business of the company. Despite several opportunities were given, M/s. Spice Jet Limited did not stick to its payment plan and payments were made only after recovery proceedings initiated. Section 276B does not provide for any bona fides or mala fides. According to the respondents, there is no bar under the Income Tax Act to hold more than one person as Principal Officer. There cannot be any non-willful default in the failure to deposit the TDS on time, as the deductor company has no authority to retain and use the TDS amounts for its other purposes. It is for the petitioner to let in evidence and prove his innocence, if any in the Criminal Court and such factual disputes cannot be decided in a Writ Petition under Article 226 of the Constitution of India. In these circumstances, the respondents prayed for dismissal of the writ petition.