ASHOK GOPALRAO KALMANKAR AND ANOTHER V. THE DEPUTY COMMISSIONER OF INCOME TAX HYDERABAD

CRLRC/389/2017

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The case revolves around allegations against the petitioners, who were directors of a company, for filing a false income tax return and evading tax. The Deputy Commissioner of Income Tax filed a complaint alleging that the company and its directors, including the petitioners, were responsible for underreporting tax liabilities. The petitioners sought discharge from the charges, which was initially denied by the trial court. They then filed a revision petition in the High Court, arguing that their roles as independent directors did not involve day-to-day management or responsibility for tax filings, and thus they should not be held liable under the Income Tax Act. The High Court, after reviewing the evidence and legal provisions, agreed with the petitioners' arguments and allowed their discharge.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 692589 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 16-02-2022
• Assessment Year: misc
• Other Referred Cases: S.M.S Pharmaceuticals Ltd. v. Neeta Bhalla and Ors.
• Laws Referred To: Cr.P.C, Income Tax Act, 1961, Companies Act, 2013
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: B NARASIMHA SARMA
• Assessee Lawyers: CH PUSHYAM KIRAN
• Keywords: Criminal Revision; Discharge Petition; Economic offences; Independent directors; Vicarious Liability
• Section: 150; 245; 276C(2); 401; 397; 277; 278B

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD WEDNESDAY ,THE SIXTEENTH DAY OF FEBRUARY TWO THOUSAND AND TWENTY TWO PRESENT THE HONOURABLE DR. JUSTICE CHILLAKUR SUMALATHA CRIMINAL REVISION CASE NO: 389 OF 2017 Criminal Revision Case under Sectionc3gT and 401 of Cr.P.C against the Order dated 19.01.2017 passed in Crl.M.P No. 3106 of 2016 in C.C' No' 88 of 2016 on the file of the Court of the Special Judge for Economic Offences, Hyderabad . Between: 1 2 Ashok Gopalrao Kalmankar, S/o. Gopalrao Ramkishna Kalmanar, Aged 68 years, Ocb: Retired, Rl/o. H.No. 3-5-874113113, Flat No. 201, Aasra Apts.' Hyderguda, Hyderabad. Ul. Sirisn Bommakanti Narasimha, S/o. Sitarama Sastry Bommakanti, Aged 53 vears, Occ : Chartered Accountant, F/o. 6-3-865/1/1 , lmperial lvlanor, Flat No.- 107 Green Lands, Arneerpet, Hyderabad. ...PETITIONERS/ACCUSED No' 4& 6 . END The Deputy Commissioner Of lncome Tax ,Circle. 3 (1), 7th Floor, B Block lT Tower, Ac guards, Masab Tank, Hyderabad, Rep , by S-pl. PP. , High Court at Hyderibad\" represented Spl. Public Prosecutor, High Court. Hyderabad' ,..RESPONDENTiCOMPLAINANT IA NO: 2 OF 2020 Petition under section 482 cPc praying that in the circumstances stated in the affidavit filed in support of the petition, the High court may be pleased to pass an order extending the interim order dated lo-o2- 2020 granted by this ilon,ble Court in l.A.No. 1 ol 2O2O in CRLRC No. 389 of 2Ol7 for a period of 6 months. a Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to extend the order dated 2O-12-2021 granted by this Hon'ble High Court in LA. No. 1 ol 2021 ln l.A. No. I o'f 2O2O in CRLRC.No. 389 of 2017 lor a period of 6 months . pejtition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to extend the order dated 29-11--2021 granted by this Hon'ble High Court in l.A. No. 1 of 2027 in CRLRC.No. 389 of 2017 for a period of 6 months . I CRLRCMP. NO: 613 OF 2017 I Pdtition under Section 482 of Cr PC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased [leas-ed to stay all further proceedings including the appearance of the Petitioners in C.C. No. BB of 2016 on the file of Special Judge for Economic Offences, Hyderabad and pass such further or other order(s) as this Hon'ble Court deems fit and proper in the circumstances of the case. Counsel for the Petitioners :SRl. CH.PUSHYAM KIRAN Counsel for the Respondent : SRl. B.NARASIMHA SARMA, SPECIAL PUBLIC PROSECUTOR The Court made the following: ORDER lA NO: 'l OF 2022 lA NO: 1 OF 2021 I DT.CSL,J Crl.R.C.No.389 2017 THE HONOURABLE DR.JUSTICE CHILLAKUR SUMALATHA cRL.R.C.NO.389 0F 2017 ORDER: Heard the submission of the learned counsel for the petitioners as well as the learned Standing Counsel who is representing the Department of Income Tax. The Court gave due consideration to the submissions made as well as the contents of the decisions relied on. 2. This is a petition filed under Sections 397 and 401 of the Code of Criminal Procedure (Cr.P.C) seeking the Court to set-aside the order that is rendered by the Special Judge for Economic Offences, Hyderabad, in Crl.M.P'No.3106 of 2016 in CC.No.88 of 2016, dated 19.01.2077. The petitioners herein have moved the above Criminal Misceilaneous Petition i.e. Crl.M.P.No.3106 of 2016 under Section 245 of Cr.P.C. seeking the Court to discharge them from CC.No.B8 of 2016. The petitioners herein were arrayed as accused 4 and 6 in the calendar case. The said request was negatived by the Court of Special Judge for Economic Offences, Hyderabad and aggrieved by that, the petitioners are before this Court through this revision case' DT.CSL,J Crl.R.C.No.389_2017 Thus, in the backdrop of the above factual scenario, the point that emerges for consideration is, Wlether there exists ang justifiable grounds to inuoke the reuisional jurisdiction of this Court and to set-aside the order dated 19.O1.2O17 that is rendered bg the Court of Special Judge for Economic Offences, Hyderabad, in Crl.M.P.No.3106 of 2O16inCC.No.188 of 2016. 3. The facts of the case in nutshell which ultimately culminated to filing of the present Revision Petition are that the Deputy Commissioner of Income Tax, Circle-3(1), Hyderabad, filed a complaint before the Special Judge for Economic Offences, Hyderabad, against accused Nos.I to 6. As per the contents of the said complaint, the | *t accused is the Company registered under the Companies Act, 1956. The other accused are the Managing Directors/Whole-Time Directors/ Directors of the said Company and they are responsible for the day to day affairs of the Company. Accused No.l is engaged in the business of manufacturing stabilizers, power savers a:rd power transformers. Accused No.1 filed its original return of income for the assessment year 20 1 3- 14 declaring the 2 Dr.CSL,l Crl.R.C.No.389_2017 lncome as Rs.34,21,25,67O/-. It determined the net aggregate liability as nil and filed its return. The accused claimed that self assessment tax of Rs.8,84,48,800/- was paid. However, the actual amount paid 1S only Rs.8,84,488/-. Thus, a show-cause notice was issued for initiation of proceedings. The Company gave a reply that out of the total tax liability, an amount of Rs.3.67 crores was paid by way of advance tax, TDS and self assessment tax Balance of Rs.8.7crores is due to be paid. Thus, all the accused with an intention to evade ta-x, filed a false return and therefore committed the offence punishable under Section 276 C(2 of the Income Tax Act, 196 1 . Further, the accused No.2, knowing fully well aware, has given a false verification and therefore, he has committed the offence punishable under Section 277 of the Income Tax Act, 196 1. Also, since the offence is committed by the Company, its Directors are liable to be punished under Section 27BB of the Income Tax Act, i96 1. Disputing their liability and contending that they have not committed any offence, the petitioners who are accused Nos.4 & 6, filed a discharge 3 petition and the same was numbered as Crl.M.P.No.3106 of DT.CSL,J Crl.R.C.No.389 2017 2016, seeking for their discharge. The said request was opposed by the respondent by filing a counter. The trial Court on considering the entire material that is brought on record through the petition, counter and the evidence of PWs 1 & 2, came to a conclusion that the petitioners a,r'e deemed to be responsible for the affairs of A1 Company zLs per the contents of Section 278 B of the Income Tax Act, 1961 and therefore, they are not entitled for discharge. The said observation is assailed by the petitioners/ accused Nos.4 & 6. 4. Making his submission, the learned counsel for the petitioners contented that the petitioners are no way concerned with the affairs of the Company arrd indeed, they are Independent Directors of A1's Company and the position of the Independent Directors is different from that of other Directors. The learned counsel also stated that the role of Independent Directors is cleariy iaid down under Section 1 50 of Companies Act, 20 13 and furthermore, the petitioners seized to be the Directors of the Company from 4 the year 20J4. Learned counsel for the petitioners took Dr.CSL,l Crl,R.C,No,389 2017 this Court to the contents of Form No.32 which discloses the particulars of appointment of Managing Director, Director(s), Manager and Secretary and the changes among them. The said document reveals that in A1's Company, the l\"t petitioner i.e. A,4 is appointed as an Independent Additional Director on 30.12.2OO9. Likewise, the learned counsel has also brought to the notice of this Court the contenrs of Form 32 in respect of the !\"a petitioner i.e. accused No.6 which reveals that the 2nd petitioner 1S appointed as Independent Additional Director in the l\"t accused company on 30.12.2OO9. The genuineness and the averments of these documents is not disputed by the learned Standing Counsel appearing for the respondent 5. The learned counsel for the petitioners further submitted that except narrating at Para 2 of the complaint that the petitioners herein are responsible for the day to day affairs of the Company, nothing is mentioned in the complaint about their participation and indeed, they are not responsible for assessing the income tax and filing the Income Tax returns and therefore, as they are not liable 5 Dr.CSL,l Crl.R.C.No.389 2017 under any of the provisions of Income Tax Act 196 l, more so under Sections 276 C(21 and 278 B of the Income Tax Act, 1961. He said that they ought to have been discharged b1' the trial Court, but it did not do so and therefore, the petitioners are before this Court. 6. Seriously assailing with the said submission, the learned Standing Counsel who is appearing for the resporfdent, submitted that putting into scrutiny the contents of the complaint and the evidence of PWs | & 2, the learned Judge of the trial Court came to conclusion that there aie no grounds to discharge and indeed, the accused Nos.2 to 6 who were at the helm of affairs, are responsible for making false declaration. The learned Standing Counsel also stated that when the tax payable is more than Rs.8 crores, they made a false declaration that the total amount is paid and indeed the actual amount paid is only Rs.8,84,000/-. 7. Section 276 C of Income Tax Act, 196 1, prescribes punishment for willful attempt to evade tax or the penalty or the interest chargeable or imposable under the Act. As 6 per the version of the respondent, the petitioners herein have committed the offence punishable under Section 276C(2) which says that z/ qnA person tuiUfullg attempts in anA manner what so euer to affect the payment of tax, penaltg or interest under the Act, he shall be punishable with rigorous impisonment for a term which shall not be Iess than three months but u-thich mag extend to two gears and shg,ll also liable to fi.ne. The other offence which as per the version of the respondent/complainant the petitioners have committed is under the provisions of Section 278 B of the Income Tax Act. 8. Section 278 B of Income Tax Act, 1961, deals with the offences by Companies and says that uthen an offence under tLLe Income Tax Act, 1961 is committed by a compang, euery person uho at the time of commission of offence was incharge, was responsible to for conduct of business of the companA as well as the companA shall be deemed to be guilty of the offence and shall be liable for punishment. Stating that when the persons who, though are Directors of the company, are not involved in the actual 7 DT.CSL,J Crl.R.C.No.389_2017 DT.CSL,J Crl.R.C.No.389 2017 8 conduct of the business, they cannot be roped with the liability, the learned counsel for the petitioners relied upon the decision of the Honbie Apex Court in the case between S.M.S Pharmaceuticals Ltd. v. Neeta Bhalla and Ors.r wherein their Lordships at Para t held as follows:- \" While analyzing Section 141 of the Act, it will be seen that it operates dn cases tahere an offence under Section 138 is committed bg a companA. The key fuords tuhich ocanr in the Section are \"euery person\". These are general utords and take euery person connected uith a companA utithin their sueep. Therefore, these words houe been ightlg qualified by use of the uords \"who, ot the time the offence u.tas committed, uas in charge of and uas responsible to the company for the conduct of the business of the companA, as well as the company, shall be deemed to be guilty of the offence etc.\" Whot is required is that the persons who are sought to be made ciminally liable under Section 141 should be at the time the offence utas committed, in charge of and responsible to the compang for the conduct of the business of the companA. Euery person connected uith the companA shall not fall within tLe ambit of the prouision. It is only those persons who utere in charge of and responsible for conduct o.f business of the compong at the time of commission of an offence, ulho taill be liqble 'uraruu/sc/oozzlzoos Dr,C5L,l Crl.R.C.No.389 2017 for ciminal action. It follort-ts from this that if a director of a company u.tho was not in charge of and was not responsible for the conduct of the business of the company at the releuant time, uill not be liable under the prouision. The liability aises from being in charge of and responsible for conduct of business of the company at the releuant time uLhen the offence uras committed and not on the basis of merelg holding a designation or office in a company. Conuerselg, a person not holding any office or designation in a companA mag be liable if he satisfes the main requirement of being in charge of and responsible for conduct of business of a Compang at the releuant time. Liabilitg depends on the role one plags in the offairs of a Company and not on designation or stahts. If being a Director or Manager or Secretary tuas enough to cast criminal liability, the Section would haue said so. Instead of \"euery person\" the section would haue said \"euery Director, Manager or Secretary in a Company is liable\". .. etc. The legislature is ougre that it is a case of ciminal liabilitg uthich means serious consequences so far as the person sought to be mode liable is concerned. Tlerefore, onlg persons taho can be said to be connected uith the commission of a cime at the releuant time haue been subjected to action. . . ... ...\" In the said case, the controversy arose when 9 prosecution was launched against the officers of the Dr.CSL,l Crl.R.C.No.389 2017 10 Company uncler Sections 138 & 14 1 of the Negotiable Instruments Act, 1BB 1 9. Section 141 of the Negotiable Instruments Act, 1881, deals with the offences by the Companies attracting the provisions of Section 138 of the Negotiabie Instruments Act, 1881. The wording in Clause 1 of Section 141 of Negotiable Instruments Act stands in similar footing as that of Clause 1 of Section 278 B of the Income Tax Act, 196 1 . Therefore, it is incumbent on the part of the respondent to show that the petitioners are responsible for the conduct of the business of the Company. Neither the averments in the complaint nor the evidence of PWs I & 2 goes to show that on verification of the connected records, it was found that the petitioners were at the helm of a-ffairs. Even PWs L & 2 did not speak that they found the petitioners herein to be dealing with the day to day affairs of the company. On what basis they have mentioned that they are responsible for day to day affairs of the company, in the complaint filed, is not stated any-ruhere. Though there is no necessity for mentioning each and every detail DT.CSL,J Crl.R.C.No.389 2017 11 in the complaint filed, yet when the witnesses in support of the case of the complaint enter into the witness box and give evidence, there is every necessity on their part to justify the version made by the complainant through the complaint. However, the evidence of PWs 1 & 2 does not disclose any mention as to how they came to conclusion that the petitioners herein are the helm of affairs or that thev were looking after the day to day affairs of Al's Company. 10. Section 150 of the Companies Act, 2013 deals with the Manner of Selection of Independent Directors and Maintenance of data of Independent Directors. The said provision is extracted as under:- \"(I) Subject to the prouisions contained in sub-section B) of section 149, an independent director mag be selected from a data bank containing names, addresses and qualiftcations of persons uho are eligible and uilling to act os independent directors, maintained bg angbody, institute or association, as maA be notified bg tLLe Central Gouernment, hauing expertise in creation and maintenance of such data bank and put on their DT.CSL,J Crl.R.C.No.389 2017 t2 website for the use by the compang making the app ointrnent of such directors: Provided that responsibilitg of exercising due diligence before selecting a person from the data bank refered to aboue, as an independent director shall lie tuith the companA making such appointment. p) fhe appointment of independent director shall be approued by the companA in general meeting as -prouided in sub-section Q) of section 152 and the explanatory statement annexed to the notice of the general meeting called to consi.d.er the said appointment shall indicote the justification for choosing the appointee for appointment as independent director. (3) The data bank referred to in sub-section (7), shall create and maintain dato of persons uilling to act as independent director in accordance uith such ntles as maA be prescibed $) The Central Gouernment may prescribe the manner and procedure of selection of independent directors u.tho fuUill the qualifi\"cations and requirements specified under section 149.\" Therefore, by the contents of the above provision, it is clear that the Independent Directors are selected basing on their expertrse, basing on the data bank that is being Dr.CSL,.l Crl.R.C.No,389 2017 13 maintained and who are eligible and willing to act as Independent Directors. Thus, as submitted by the learned counsel for the petitioners, their role in the day-to-day aifairs of the company would be minimal and nominal. This Court does not find at least one mention in speciiic that these petitioners have participated in the day- to- day affairs of the company or ol the conduct of the business of the coppany. Also, nothing is on record to show their participation in assessment of tax and its payment. 1 1. Learned Standing Counsel submits that if trial is permitted to be proceeded with, and if the petitioners are found not guilty, they would be acquitted and therefore their discharge is not desirable. The penal provisions which are referred in the complaint are in respect of the vicarious liability which must be strictly construed. A bald statement in the complaint that accused 2 to 6 i.e. Managing Director/Whole time Director/Directors are involved in the day to day affairs of the company and were responsible for the conduct of the business of the company and has filed returns, is not sufficient. The averments of DT.CSL,J Crl.R.C.No.389 2017 1,4 the complaint should be specific and clear as against the role played by each accused as Director/Additional Director or the Manager of the company. Their participation in the conduct of the business should be specifically shown. In case those averments are not specificaliy narrated, yet those averments should be brought on record through the evidence of witnesses which would_be recorded before framing of charges in a private complaint. Hence, this Court is of the view that as the role played by the petitioners is nowhere mentioned in the complaint and as the complaint being a private complaint and recording of evidence of witnesses is desirable and it was done so by the trial Court before framing charges and as the evidence of those witnesses i.e. PWs 1 & 2 also does not disclose the role played by the petitioners so as to make them responsible for the offences that are alleged to have been committed by the respondent/complainant, this Court is of the view that the learned Judge of the trial Court ought to have exercised his power judiciously and ought to have discharged the petitioners. However, he did not do so. Dr.CSL,l Crl.R.C.No.389_2017 15 12. Therefore, this Court considers that the relief sought for through this Revision Petition is justifiable. Resultantly, the Criminal Revision Petition is allowed. The order under challenge i.e. the order rendered by the Court of Special Judge for Economic Offences, Hyderabad, in Crl.M.P.No.3106 of 2016 in CC.No.S8 of 2016 dated 19.O1.2017 is thus set-aside. Consequently, the petitioners i.e. aceused Nos.4 & 6 are discharged from the case in C.C.No.8S of 2016, on the file of the Court of Special Judge for Economic Offences, Hyderabad. Stay granted through orders dated 14.03.2017 is vacated. At request of the learned counsel for the Respondent/Complainant, the trial Court is directed to proceed with the trial and dispose of the matter as expeditiously as possible preferably within a period of six months from the date cif receipt of copy of this order. closed. ,TRUE COPY// SdIK.SREENIVASA RAO JOINTx'EGISTRAR (l-t SECTION OFFICER 1. The Special Judge for Economic Offences, Hyderabad . 2. One CC to SRl. CH.PUSHYAM KlRANlAdvocate [OPUC] 3. Two CCs to SRl. B.NARASIMHA SARMA, Special Public Prosecutor, High Court for the State of Telangana, at Hyderabad IOUI 4. Two CD Copies 5. One Spare CoPY To, 1 3. Misceilaneous petitions, if any pending, shall stand I I L H OURT DATE D: 1 610212022 ORDER I CRLRC.No.389 ot 2017 ALLOWING THE CRI-.R.C. t ',i. S t ( o o ). 2 0 Jtlr{ ltja t rri! GH I (. - *z Z 4 6 o I I ? il I @ "