Section 278B of ITA, 1961 : Section 278B: Offences By Companies

Explanation using Example

Imagine a scenario where XYZ Pvt. Ltd., a company, fails to deposit the TDS (Tax Deducted at Source) amount to the government within the stipulated time frame, which is an offence under the Income-tax Act, 1961. According to Section 278B, not only is the company (XYZ Pvt. Ltd.) held responsible and liable for the offence, but also the individuals who were in charge of the company at the time the offence was committed.

For instance, Mr. A, the Managing Director of XYZ Pvt. Ltd., was overseeing the company's operations during the period when the TDS was not deposited. Under Section 278B(1), Mr. A would be deemed guilty alongside the company and could face legal action. However, if Mr. A can prove that he had no knowledge of the offence or that he exercised due diligence to prevent the offence (for example, by showing that he had established proper procedures for tax compliance which were not followed by a subordinate), he might not be held liable.

Further, if it is discovered that the Chief Financial Officer (CFO), Mrs. B, had either given her consent for the delay or was negligent in her duty to ensure the deposit of TDS, she would also be deemed guilty under Section 278B(2) and could face prosecution.

Lastly, as per Section 278B(3), since the offence involves both imprisonment and fine, the company would be liable to pay the fine, while Mr. A and Mrs. B could be proceeded against and punished with imprisonment or fine as per the Act's provisions.