A person cannot be held liable for prosecution under Section 276B of the Income Tax Act, 1961, for the company's failure to deposit TDS without proof that the person was responsible for the company's failure to deposit TDS.

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 Limi