Eckhard Garbers vs. DCIT (Sessions Court)

Received on : 02/03/2019.
Registered on : 02/03/2019.
Decided on : 16/12/2019.
Duration : 0Y,
9M,
14D.
IN THE COURT OF SESSIONS AT GREATER MUMBAI
CRIMINAL REVISION APPLICATION NO.267 OF 2019
IN
C.C. NO.231/SW/2018
Eckhard Garbers, ]
Adult, Age : 50 years, ]
Occupation : Business, ]
Residing at Isle of Man. ]
(Through Mr. Ajit Allwyn D’Souza, ]
Constituted Attorney). ] … Applicant/
(Original Accused No.7)
V/s.
Shri Shubham Agrawal, ]
Dy. Commissioner of Income Tax ]
(TDS)1(
2), Mumbai, Smt. K. G. ]
Mittal Ayurvedic Hospital Building, ]
Charni Road (West), ]
Mumbai – 400 002. ] … Respondent
CORAM : HIS HONOUR THE ADDL. SESSIONS JUDGE
M. S. MUNGALE (C.R.NO.44).
DATE : 16th December, 2019.
Shri Sujay Kantawala a/w Shri Subhash Jadhav I/b Parinam Law
CNR NO. : MHCC020033652019
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Associates, Ld. Advocate for applicant.
Shri Amit K. Munde, Ld. Spl.P.P. for respondent.
O R D E R
1. The respondent/Deputy Commissioner of Income Tax, has
filed criminal case bearing C.C. No.231/SW/2018 against the revision
applicant/original accused No.7 and other six accused persons with
allegation that the accused No.1/Company had deducted Income Tax
by way of TDS from the various parties and the total amount for the
financial year 20162017
i.e. the period from 01/04/2016 to
31/03/2017 was Rs.1,87,18,459/,
but, immediately, the said Income
Tax amount was not credited to the Central Government, but
subsequently, by delay between 1 month to 11 months, the said
amount was credited to the Government and as such, offences
punishable under Section 276B
r/w. 278B
of the Income Tax Act,
1961, is attracted. The accused No.1 is the Company registered under
the Companies Act, 1956, whereas the accused Nos.2, 3 and 5 to 7 are
impleaded as the Directors and the accused No.4 is impleaded as the
Chief Finance Officer of the said Company. The learned Additional
Chief Metropolitan Magistrate, 38th Court, Ballard Pier, Mumbai, by
order dated 24/07/2018, issued process against the accused persons
for the offences punishable under Section 276B
r/w. 278B
of the
Income Tax Act, 1961. Being aggrieved by the said order of issue of
process, the applicant/accused No.7 has preferred this criminal revision
application.
2. In the revision application, the applicant/accused No.7 has
contended that he is a foreign national person and as such, he was just
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professional and an Independent Director. He has not participated in
day to day business of the Company. He was not incharge
of day to
day business and as such, as per Section 278B
of the Income Tax Act,
he is not liable for criminal proceeding. Further, before filing the said
complaint, he had already submitted his resignation with effect from
23/09/2015 and the appropriate Form No.DIR11
was submitted in the
office of the Registrar of Companies and as such, criminal case against
him is not maintainable. It is further contended that in the complaint,
the complainant has given his residential address on the address of the
Company which is wrong. He resides at Isle of Man country and his
address is mentioned in the Form No.32 submitted in the office of the
Registrar of Companies. The revision applicant/accused No.7 has
produced copy of Form No.32 on record.
3. It is further contended that if the accused resides out of
jurisdiction of the Court of Metropolitan Magistrate which takes
cognizance of the case, then it is mandatory to postpone the issue of
process and direct to hold enquiry and carry out investigation.
However, the complainant gave wrong address of the
applicant/accused No.7 and thereafter, without applying judicial mind,
the learned Additional Chief Metropolitan Magistrate issued order of
process against the applicant/accused No.7. On these grounds, the
applicant/accused No.7 has requested to set aside the order of issue of
process passed against him and discharge him from the prosecution.
4. The revision application is opposed by the
respondent/Deputy Commissioner of Income Tax Department by filing
reply. The respondent has contended that the TDS amount mentioned
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by the revision applicant/accused No.7 in his revision application, was
recovered by the accused No.1/Company from the various parties
during financial year, but, did not immediately deposit the same to the
Government Treasury. This fact was revealed in a survey action under
Section 133A(2A) of the Income Tax Act, 1961, on 14/02/2017. It was
revealed that the said TDS amount was deposited by the Company by
delay of 1 month to 11 months. Therefore, show cause notices were
issued to the accused No.1/Company, all the Directors and Chief
Finance Officer of the Company. All the said notices were served on the
address of the Company. However, reply was not given. When fresh
notice was issued, reply was given by the Company. Any of the
Directors has not given personal reply. The reply given by the Company
was not satisfactory, therefore, by obtaining sanction from the
Commissioner of Income Tax, the complaint is filed against the
accused.
5. It is further contended that the accused Nos.2 to 7, being
Directors, were incharge
and responsible to the Company for the
conduct of the business and as such, along with the Company and Chief
Finance Officer, all the Directors are also vicariously liable for
prosecution and as such, the learned trial Magistrate has rightly issued
process against the accused persons for the offences punishable under
Section 276B
r/w. 278B
of the Income Tax Act, 1961. On these
grounds, the respondent has requested to dismiss the revision
application.
6. The following points arise for my determination, followed
by my findings against each of them with reasons to follow :5
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POINTS FINDINGS
1. Whether it is necessary to interfere in the
impugned order of issuance of process passed
by the learned trial Magistrate passed against
the applicant/accused No.7 for the offences
punishable under Section 276B
r/w. 278B
of
the Income Tax Act, 1961 ?
In the affirmative.
2. What order ? As per the final
order.
R E A S O N S
POINT NO.1 :7.
Heard the arguments submitted by the learned Advocate
Shri Sujay Kantawala for the revision applicant, the learned Spl.P.P.
Shri Amit Munde for the respondent/Deputy Commissioner of Income
Tax. Perused the copy of complaint and other documents produced on
record.
8. As per Form No.32 of the Registrar of Companies office
produced by the applicant/accused No.7, he was Director of the
accused No.1/Company with effect from 29/03/2012. The
applicant/accused No.7 has contended that he had resigned from the
Company with effect from 23/09/2015. However, he has not produced
the copy of resignation letter and the prescribed form DIR11
submitted
to the Registrar of Companies. Therefore, prima facie, the contention of
the applicant/accused No.7 that he had resigned from the Company on
23/09/2015 is not established by the applicant/accused No.7.
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9. Now about merits of the case. The complaint is filed under
Section 276B
r/w. 278B
of the Income Tax Act, 1961. Section 278B
which deals with offencec by Companies provides as under :“(
1) Where an offence under this Act has been
committed by a company, every person who, at the time
the offence was committed, was in charge of, and was
responsible to, the company for the conduct of the
business of the company as well as the company shall be
deemed to be guilty of the offence and shall be liable to,
be proceeded against and punished accordingly :
Provided that nothing contained in this subsection
shall render any such person liable to any punishment if
he proves that the offence was committed without his
knowledge or that he had exercised all due diligence to
prevent the commission of such offence.”
10. On perusal of the impugned complaint, it appears that in
paragraph 8 of the complaint, there are certain averments regarding
position and liability of the accused persons. The said clause is
reproduced as under :“
8. It is further respectfully submitted that the Accused
are being the directors Accused are also liable for the
said acts, omission and contravention committed by the
Accused and therefore they are also liable to be
prosecuted and to be punished for the act committed by
the Accused as per U/s.276B
of the I.T. Act, 1961.”
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11. Except the aforesaid averment which is in vague nature,
there is nothing in the complaint showing how each of the
accused/Directors were incharge
of and responsible for the day to day
business of the accused No.1/Company. The learned Advocate for the
applicant/accused No.7 has contended that as per legal ratio down in
various judgments by Their Lordships of the Hon’ble Supreme Court
and the Hon’ble Bombay High Court, only vague pleadings that the
accused/Director was incharge
and responsible for day to day business
of the Company is not sufficient. But, there must be additional
sufficient averment showing how the particular Director had
participated in the day to day affairs of the Company and if such
averment is not there, the prosecution cannot lie against the Director.
In this regard, reliance has been placed on the ruling of the Hon’ble
Supreme Court in the case of Municipal Corporation of Delhi Vs. Ram
Kishan Rohtagi and others reported in AIR 1983 SC 67. In paragraph
15 of the judgment, it is observed by their Lordships of the Hon’ble
Supreme Court as under :“
15. So far as the Manager is concerned, we are
satisfied that from the very nature of his duties it can be
safely inferred that he would undoubtedly be vicariously
liable for the offence ; vicarious liability being an
incident of an offence under the Act. So far as the
Directors are concerned, there is not even a whisper nor
a shred of evidence nor anything to show, apart from
the presumption drawn by the complainant, that there
is any act committed by the Directors from which a
reasonable inference can be drawn that they could also
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be vicariously liable. In these circumstances, therefore,
we find ourselves in complete agreement with the
argument of the High Court that no case against the
Directors (accused Nos.4 to 7) has been made out ex
facie on the allegations made in the complaint and the
proceedings against them were rightly quashed.”
12. Reliance has also been placed on the ruling of the Hon’ble
Bombay High Court in the case of Homi Phiroz Ranina and others Vs.
State of Maharashtra and others reported in 2003 Bom.C.R. (Cri.)
793. In paragraph 11 of the judgment, it is observed by their Lordships
of the Hon’ble Bombay High Court as under :“
11. Unless the complaint disclosed a prima facie case
against the applicants/accused of their liability and
obligation as principal officers in the day today affairs
of the company as directors of the company under
section 278(b) the applicants cannot be prosecuted for
the offences committed by the company. In the absence
of any material in the complaint itself prima facie
disclosing responsibility of the accused for the running
of the day to day affairs of the company process could
not have been issued against them. The applicants
cannot be made to undergo the ordial of a trial unless
it could be prima facie showed that they are legally
liable for the failure of the company in paying the
amount deducted to the credit of the company.
Otherwise, it would be a travesty without their
knowledge. The Supreme Court in the case of (Shyam
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Sunder v. State of Haryana)3, in A.I.R. 1984 S.C. 53
held as follows :“
It would be a travesty of justice to prosecute all
partners and ask them to prove under the proviso to
subsection
(1) that the offence was committed without
their knowledge. It is significant to note that the
obligation for the accused to prove under the proviso
that the offence took place without his knowledge or
that he exercised all due diligence to prevent such
offence arises only when the prosecution establishes
that the requisite condition mentioned in subsection
(1) is established. The requisite condition is that the
partner was responsible for carrying on the business
and was during the relevant time incharge
of the
business. In the absence of any such proof no partner
could be convicted.”
13. Thus, in view of the aforesaid legal ratio laid down by
Their Lordships of the Hon’ble Supreme Court and the Hon’ble Bombay
High Court, in the complaint, there must be detail averment showing
how the particular Director/accused was participating in day to day
conduct of the business of the Company and that he was incharge
of
and responsible to the Company for its business and if such averments
are missing, the Court cannot issue process against such Director.
14. The learned Spl.P.P. for the respondent has contended that
in the sanction letter, the Commissioner of Income Tax, has discussed
how the Directors of the Company are liable for prosecution. However,
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even in the said sanction letter, there is no whisper about participation
by the applicant/Director in day to day business of the Company.
Therefore, on this ground itself, the order of issue of process passed
against the applicant/accused No.7 is liable to be set aside.
15. The further argument of the learned Advocate for the
applicant/accused No.7 is that the applicant/accused No.7 does not
reside within the jurisdiction of the Court and as such, it was
mandatory for the learned Additional Chief Metropolitan Magistrate, as
per amended Section 202 of the Code of Criminal Procedure to
postpone the order of issue of process and order to make enquiry and
investigation, but, any such enquiry was not held and in very vague
nature, the order of issue of process is passed.
16. It appears that the complainant had given address of the
applicant/accused No.7 on the address of the accused No.1/Company
and on that basis, the learned trial Magistrate had taken cognizance
and the complainant, being public officer, without holding any enquiry,
passed order of issue of process. It appears that the complainant had
given misleading address of the applicant/accused No.7 by mentioning
his residential address on the address of the Company itself. In the
sanction letter, it was mentioned by the sanctioning authority i.e. the
Commissioner of Income Tax that the survey was held under 133A(2A)
of the Income Tax Act, 1961, and during enquiry, the statement of the
Chief Finance Officer i.e. the accused No.4 Shri Ramesh T. Patel was
recorded. The enquiry report of the statement of the accused No.4 was
not annexed to the complaint. Under Section 133A(2A) of the Income
Tax Act, there are wide powers to the Income Tax authorities to make
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enquiry by visiting the office premises of the Company and even to
check the account books and other documents and also, to attach the
documents and use the same in any proceeding under the Income Tax
Act. While making enquiry with the accused No.4, the Income Tax
Officer could get information from him about details of Directors, their
tenure, their residential addresses, particularly of foreigner persons,
who are Directors of the Company. Further, the Income Tax Officer has
not explained on which basis of documents, he had mentioned the
address of the accused No.7/applicant on the address of the Company.
Due to misleading address of the applicant/accused No.7 mentioned by
the respondent/complainant in the complaint, the further mandatory
enquiry under Section 202 of the Code of Criminal Procedure was not
held by the learned trial Magistrate.
17. In view of the aforesaid legal ratio, the Chief Finance
Officer, who was responsible for the day to day finance matters
including recovery of TDS from the customers and to deposit in the
account of the Central Government, was prima facie responsible for the
criminal prosecution for the alleged default committed, but, certainly,
the Director, who is not incharge
of and not responsible for day to day
business of the Company, is not liable for criminal prosecution, unless
specifically it is described in the complaint how he is involved in day to
day conduct of the business of the Company.
18. Therefore, in view of the aforesaid discussion, the order of
issue of process passed by the learned Additional Chief Metropolitan
Magistrate against the applicant/accused No.7, is liable to be set aside.
Hence, accordingly, I answer the point No.1 in the affirmative and
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answer the point No.2 as per the following order :O
R D E R
1. Criminal Revision Application No.267 of 2019 is allowed.
2. The order of issue of process dated 24/07/2018 passed by
the learned Additional Chief Metropolitan Magistrate, 38th Court,
Ballard Pier, Mumbai, in C.C.No.231/SW/2018 is hereby set aside to
the extent of the applicant/accused No.7 Eckhard Garbers.
3. The applicant/accused No.7 is discharged from the charge
of an offence punishable under Section 276B
r/w. 278B
of the Income
Tax Act, 1961.
4. The bail bonds of the applicant/accused, if any, stand
cancelled.
5. Criminal Revision Application stands disposed off
accordingly.
(M. S. Mungale)
Additional Sessions Judge,
City Civil & Sessions Court,
Date : 16/12/2019. Gr. Mumbai.
Directly typed on Laptop on : 16/12/2019.
Signed on :
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“CERTIFIED TO BE TRUE AND CORRECT COPY OF THE ORIGINAL
SIGNED JUDGMENT/ORDER.”
UPLOAD DATE AND TIME NAME OF STENOGRAPHER
30/12/2019 at 4.15 p.m. Bahushruta Y. Jambhale
Name of the Judge ( With Court
Room No.)
H.H.J. Shri. M. S. Mungale
(Court Room No.44)
Date of Pronouncement of
JUDGMENT/ORDER
16/12/2019.
JUDGMENT/ORDER signed by
P.O. on
30/12/2019.
JUDGMENT/ORDER uploaded on 30/12/2019.