KOLLA ASHOK KUMAR V. THE DY COMMISSIONER OF INCOME TAX CIRCLE NO. 16 (2)

CRLP/10092/2016

AI Insights

The case involves Kolla Ashok Kumar, an independent director of M/s. Mid Field Industries Limited, who faced criminal charges under the Income Tax Act for alleged non-payment of taxes by the company. The complaints, filed by the Deputy Commissioner of Income Tax, accused the company and its directors of failing to pay taxes despite being aware of their liabilities. The petitions sought to quash these complaints, arguing that the petitioner, being an independent director, had no involvement in the company's daily operations or financial decisions. The court examined the roles and responsibilities of independent directors and the specific allegations against the petitioner.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 753130 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 29-11-2022
• Assessment Year: misc
• Other Referred Cases: S.M.S. Pharmaceuticals Limited vs. Neeta Bhatla and Others
• Laws Referred To: Criminal Procedure Code, Income Tax Act, 1961, Companies Act, 2013
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: B SHARMA
• Assessee Lawyers: DHULIPALLA RAVI PRASAD
• Keywords: Abuse of Process; Economic offences; Independent Director; Quash Proceedings; Vicarious Liability
• Section: 149; 150; 482; 276C; 27BB

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD TUESDAY ,THE TWENTY NINTH DAY OF NOVEMBER TWO THOUSAND AND TWENTY TWO PRESENT THE HONOURABLE DR. JUSTICE CHILLAKUR SUMALATHA CRIMINAL PETITION NO: 10092 AND 10't10 OF 2016 CRL.P.No.10092 of 2016 : Between: Kolla Ashok Kumar, S/o. Ramanadam K, Aged about 54 years, Independent Director M/s. Mid. Field lndustries Limited, F.No. G1, PIot No. B4lA, Road No. 1I Jubilee Hills, Hyderabad ...PETITIONERiACCUSED No.5 AND The Dy Commissioner of lncome Tax, Circle No. 16 (2), 6th Floor, Room No. 6'11, Ayakar Bhavan, Basheerbagh. Hyderabad ...RESPONDENT/COMPLAINANT . Petition under Section 482 of Cr. P.C praying that in the circumstances stated in the Memorandum of Grounds of Criminal Petition, the High Court may be pleased to quash the C.C.No. 86 of 2015 on the file of the Special Judge for Economic Offences-Cum-Vlll Metropolitan Sessions Judge at Hyderabad on the ground of abuse of process of law, arbitrary and unreasonable, contrary to principles of natural justice. CRL.P.M.P. NO: 10909 OF 20'16 Petition under Section 482 of Cr. P.C praylng that in the circumstances stated in the Memorandum of Grounds of Criminal Petition,the High Court may be pleased to stay all further proceedings including the apeparance of the petitioenr herein in CC.N o. 8612015 on the fie of the Special Judge for Economic Offences cum Vlll Metropolitan Sessions Judge at Hyderabad. CRL.P.No.101'10 of 2016 : Between: Kolla Ashok Kumar, S/o. Ramanadam K, M/s. Mid. Field lndustries Limited, F.No Hills, Hyderabad. ...PETITIONERYACCUSED No.5 AND The Dy Commissioner of lncome Tax, Circle No. 16 (2), 6th Floor, Room No. 611, AyakarBhavan'Basheerbagh'Hyderabad ...RESpoNDENT/coMpLAINANT Aged about 54 years, lndependent Director G1, Plot No. 84/A, Road No. 11 Jubilee Petition uncl rr Section 482 of Ct.P.C praying that in the ,:ircumstances stated in the l Iem, ,randum of Grounds of Criminal Petition, the l-ligh Court may be pleased to qua: h the C.C.No. 87 of 2015 on the file of th3 .lpecial Judge for Economic Offencer -Cum-Vlll Metropolitan Sessions Judge a llyderabad on the ground of abuse )f process of law, arbitrary and unreason,ab e, contrary to principles of natura justice. These Petil ons are coming on for hearing, ul)o r perusing the Memorandum of Gr runds of Criminal Petition and upon hearirg the arguments of Sri Dhulipalla V.A.t Ravi Prasad, Advocate for the Petitioner in both Crl.Ps. and Sri B.Narasimha Sl :rma, Senior S.C for lncome Tax on behall c'the Respondent in both Crl.Ps The Court m de the following: COMMON ORDER THE HON,BLE DT. JUSTICE CHILLAKUR SUMALATHA CRIMINAL PETITION Nos.1OO92 AND 1011O OF 20L6 COMMON ORDER: Since the parties, facts and circumstances and the question of 1ar'r' involved are one and the same, both the criminal petitions are taken r-rp together for cliscussion and disposal through this common order. 2. Heard Sri Dhulipalla ,'.A.S.ltavi Prasad, li:arr-red counsel for the petitioner as u ell as Sri B.Narasimha Sharma, learned Senior Star-rdir-rg Counsel lor Income Ta-x Department, representing the respondent. 3. The party, by namc Kolla Asl-rol< Kumar, has filed both the criminal petitions seeking the Court to quash the proceedings that are pending against him in C.C.No.86 ol 2015 and C.C.No.87 of 2015 before the Court ol Special Judge for Trial of Economic Offences, Hyderabad. The petitioner in both the Calendar Cases is arrayed as Accused No.5. Further, in both the Calendar Cases, the same person is arrayed as an accused being the independent Director of M/ s. Mid F'ield Industries Limited, Hyderabad. Different complaints were filed by the lh.('sL..l Crl.P. os. l(l't9; . lttll0 o[ )016 Deput',' Comn issioner of [ncome Tax agairtst ]vl 's.' 4id Field Industrie s Lin itecl and its Directors, hori ever on different causes of actio r 4. The aller ation in C.C.No.B7 of 2015 so frrr a,., Accused No.1-Compan rs concerned is lhat, lor 'he rt:,tr ended on 31.03.20 I 1, vhich is relevant to the Assrrssrnent year 2O1l-201.2, A :cused No. 1-Company filed its reirrrns; of income on 29.09.2Oi 1 rleclaring its income as 15,75.9.3 91(),t -. It has shorl n tl're t ix liabilitr. AS Rs.5,74,00,0U0/ . rr srulting lt1 demand of Rr.6,00,09,94O1- due to non-paln1('r.t ol' advance tax and se ll as st ssment tax. 5. So far as the complaint in C.C.No.B(r ol 20 15 is concerned, th: contents are that, for the year uhLch ended on 31.O3.2O12, *,hich is relevant to the Asse,;srlent Year 2O12-2O I 3, A :cused No. 1-Comparry filed its retr-rr ns of income on 30.09.20.1 2 cleclaring its income as Rs.2ll.6,5,O2,9OOl-, resulting in dr mand of Rs.8,84,48 ,l9O /- due to li6rn'payment of advance tax a. rcl self assessment tax. 6. In both the complaints, it is stated that irr ,;pi,e of being aware ol its ti x liability, tax was not paid and tL r: -e rt,ere hear.y l)r.(.11, .l ( rl.['.. ot. ll)092 & l0ll0o! 2016 credits and balances in the Bank durir-rg the accounting period and that the assessee faited to pa1'the taxes even after repeated persuasion. Hence, the accused persons are liable for punishment for the offences punishablc under Section 27BB read with Section 276C of the lncome Tax Act, 196 1. 7. Makir-rg his submission, Icarneci counsel for the petitioner contended that the petitioncr is an independent Director and the same is evident even as per the contents of the complaint. Learned counsel for the petitiorrcr lurtl-rcr submits that before lodging the complaint therc is clcrr' liabilitl on the part of the complainant to examine, s'hethel thc violation has taken piace with the knorvledge attributable to zr particul.rr person or not. Learned counsel submits that thc petitioner, being an independent Director, has r-t o role to plal, ir-, the day-to-day affairs of the Company. Learned counsel states that the petitioner is neither a decision making authority nor rs responsible for conduct of the busincss of the company. Learned counsel further states that the independent Directors would be nominated without any po /ers or control or sanction to operate either Bank accounts or ttre financia.l transactions of . the Company l)r.CSl,,.l ( rl-l'. t, . l(trt9.l li ll)ll0 of 2l)16 B. Learned 'ounsel states that there is n(, pr-o(r' to :ho.'r'that the petitioner, al any time, had participated in an1'of ,l-re affairs and the busi ress of the Company. Le;Lrned r)ou nsel also submits that f' er:tion 276 of the Income Tax is lai: to runish an assessee, n,ho is guilty of evasion of tax and n( I tl-r(-' persons, who are not ar the helm of affairs and thurs; in itiation of proceedings r g;rinst the petitioner, u'ho is an in,lcpendent Director. is b:r i:n 1au,- J 9. Orr tl-re other hand, the submissiorr of i,: ,u'ncd Scnior Standing Cor nsel for Income Tax Departrne:rr : 1lr.rt as the petitioner is o -re, of the Directors of the Accusecl , r. I .Company, he is arrayed rs Accused No.5 10. The alle ;ation that is levelled against lhc pst iticner is that he is liable -or punishment under Section 2 7'iiB read rvith Section 276(( ) of the Income Tax Act, for willftLlll, er,ading the payment of ti x. 1 1. Ttre mr Lnner of selection of independent I)irectors is provided ur-rc: :r Section 150 of the Companies ,.:t, 2013. The said provisior reads as under: DT,CSL, J Crl.t'.. os. l(t(19) & l(jll(tof 2016 150. Manner of sclcction of independent Directors and maintenance of databank of independent Directors - (1) Subject to thc provisions contained in Sub- Section (6) of Section 149, an indcpcnrlcnt director may be selected lrom a data bank containing names, addresses and qualifications of persons who are eligible and willing to act as independent directors, maintained by any body, institute or association, as rnay be notilied by the Central Government, having expert isc in creation and maintenance of such data bank and put on their websitc for the use bv the coml).til : marking the appointment of such clirectors: Provided that responsibilitv oi' excrcising clue diligence before selecting a person frorn thc clata bank referred to above, as an indepen(lcnl clircctor shall lic with the company making such appoirltnlcrlt. (2) The appointment of indcpc'nckrnt dircclor shall be approved b1, thc compitnv in general mect ing as provided in Sub-Section (2) ol Scction 152 and the explanatory statement anncxcd to lhe notir:e ol lhc general meeting callcd to considcr thc said appointment shall indicate the justification for choosing the appointce for appointment as independent dirr-'ctor. (3) The data bank relerred to in Sub-Section (1), shall create and maintain data of pcrsons willing to act as independent director in accordance rvith such rules as may be prescribed. (a) The Central Governmen t may prescribe the manner and procedure of selectior-r of independent directors who fulfill the qualifications and requirements speci{ied under Section 149. 12. By the above said provision, it is clear that the Central Government has got authority to pro\"'idc thc manner and procedure ol selection ol independent Directors. It is also clear : - r)r(51.. J (-rl.l' or. llltt2 ,t l0ll0ol 2016 that those itrr ependent Directors Iould bc the y,et's;ons, '\"r'ho fulfill the qLr rlilications and requircmen ts sl). rilicd under Section 149 o; the Companies Act, 20i3. 13. The con, e ntion of the petitioner is th:rt he h acL no role to play in perfor nance of the da1.-to-day affairs o1 :hr: Company (, and he had no1, conducted the business. r'rt least, his that thc inclc rcn 6 i.e. Managing I)irector/Whole time Director/ Dire.:tc,r s are involved ir tl-re day lo day affairs of the com;rzLrry a.rd were rcsporrsib. ' lbr thc conduct of the business of t rt' clmpany ancl has fi :ci rcturns, is not sufficient. The avcrrn,'n -sr of the co:nplaint should be specific and clear :rs ap:ainst thc rolc plr,, ci bt' cach accLrsed as D,rc( l,l-l c ctitional Dircctor or lhc M:tnagcr of thc cornprr '. 'I'hcir pirr-tirril>irLr rr in the conduct of the businoss :ih rLrld llc spcc:i1-i<'zr Il' slrou,rt. In casc] those avernl('nLs irre not slrtciiicerll lrirrr:ILcd, ]-et those avermen: s s,hr,r.rlci bc brought o r : c<;ord through tlrc evidence of u,itncsr;cs u,hich t,oulcl he rr:cordccl belorc framing of charges i: it private complerinl I Icncc, this Court is of the vie,.v tha Ls thc rolc plar,'ed b., I he pe t.itiorrers is norvhere rnenl io1r :d in the con-rplair-rl and as the complaint being a priv;1r c cornplaint ancl recor ling of cvidcnce of witnesses is desirzrbic and it u ers done s() bv thc trial Court before framing :l ar'5ies zrnd as the evi lence of those witnesses i.e. PWs 1 & 1i also does not discl,: sr' t he role played by the petitioner:; so as to make the rr responsible for the oflences that. a:e alleged to have bee r committed by the respondent/ cornpla inrt nt, this Court is rf tl-re view that the learned .Tudge c,f the trial Court oul ;ht to have exercised his power judicrorrsly ancl ought to -rave discharged the petitioners. Hou e', er, he did not do so. ' 19. 'l'trus, t 1e above decisions make it abunda.r.rtli clear that to tag the l)€, itioner rvith the liability, there sir l.Llcl be specific averment as o his participation in the affrirs cf lhc Company li Withourr anr, ;uch avcrmcnt, the complaint cannol l,,c: proceeded with before thc Court of Larv and tlrc nct re slllt ,oLlld be I) 51.. J < rl.l'. os. llr9: & l0ll0 t,f 2016 Ilt nothing but acquittal. The reforc, tl'ris Court is of the vic , that the request of the petitioner for quash of the proceedings is justifiable. When no case is madc out b-t the contents of the complaint itself against thc pctitioncr. continuation of proceedings would amount to abuse of thc process of the Court. Therefore, tl-ris Cor-rrt holds that both thc Crirnir-ral Petitiorrs are liable to be allou'ed. 20. Resultantl-v, both rhc (lriminirl l)cLitions are allou'ecl. The proceedings thal :trc perlding :rgainsl lhc petitior)er C.C.Nos.86 of 2Ol5 and 87 of iZOllj belbrc tl.re Court of Special Judge for Trial of licor-romic Offcnccs, Il-r'clcrabarcl, are hereby quashed. 21. As a sequel, pending Miscellancous Applications, il any, shall stand closed. SD/- I. NAGA LAKSHMI DEPUTY REGISTRAR //TRUE COPY// c,JI) SECTION OFFICER 4. Two CD CoPies ,o,.,. ,n\" Soeciar Judge for Economic offences-cum-V* triretropo'tan sessions Judqe at HYderabad z blltcd'to s\" dhutipalta v A S Ravi Pra-sqd . Advocate (ol-uc.) 5 6;; dc i6 Sii a.N\"i\"li,ni Sn\"'u, s c ror lncome rax (oPUC) ks^ ,' - HIGH COUIiT CSL,J DATED:291' 112022 COMMON ( IFIDER CRLP.ltJo.1rr092 AND 10110 of 2016 ALLOWIN( BOTH THE CRL.PS >j= :.a,'-.'- t.bsrA r€ r 0E[ ltr I a ./z /!r t!5 .., ^)r'---' 1/v 1z v\" { 1 "