No Immunity to Companies from Prosecution merely because of Punishment prescribed is Mandatory Imprisonment: Karnataka HC [Read Judgment]

The Karnataka High Court has held that there is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which the punishment prescribed is Mandatory Imprisonment.

Petitioners are sought to be prosecuted under section 276-B of the Income Tax Act, 1961 for failure to remit the tax deducted at source during the financial year 2010-2011 and 2011-2012 amounting to Rs.1,57,85,655/- and Rs.1,35,54,167/- respectively.

The impugned actions by the petitioners were on the grounds like the show-cause notice is issued in respect of nine companies whereas the prosecution is launched only against the petitioners which are legally untenable and the show cause notice was issued only to petitioner No.1 namely Managing Director and not to the Company are defective and contrary to section 276 of the Act and also contended that the impugned sanction in the instant case has been accorded without application of mind. Lastly, it is contended that the section provides for a mandatory term of imprisonment coupled with a fine in respect of the offences committed by a company.

The Judgement was rendered by Justice John Michael Cunha on a writ petition filed by M/S Avesthagen limited.

The arguments of learned counsel for petitioners based on Annexure-‘B’ is totally misconceived and cannot be a ground to quash the proceedings and even the sanction order does not reflect any errors warranting interference by this Court. Hence, this argument is also rejected.

The court overruled views in as held in the case of THE ASSISTANT COMMISSIONER, ASSESSMENT-II, BANGALORE & Others vs. M/s. VELLIAPPA TEXTILES LTD., & Another, no criminal prosecution could be sustained for the offences under sections 276, 277 and 278 of the Act when the offences are rendered punishable with fine and imprisonment and hold that there is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which the punishment prescribed is mandatory imprisonment.