Company liquidation does not erase TDS criminal liability, Delhi court rules
The liquidation of a company cannot erase its criminal liability for failing to deposit tax deducted at source (TDS), nor can it shield the director responsible for the default from prosecution, a Delhi court has held.
The Additional Chief Judicial Magistrate (ACJM), Central Delhi, made the observations while sentencing M/s Naftogaz India Pvt Ltd and its director in a case involving a TDS default of more than Rs 17.68 crore for the financial year 2009-10.
In its August 19 order, the court described the failure to deposit TDS deducted from payments into the government's account as a serious fiscal offence and imposed a fine of Rs 10 lakh on the company.
The fine is to be paid by the official liquidator from the company's assets or funds in accordance with law and subject to directions of the competent Company Court or the National Company Law Tribunal (NCLT).
The company's director was sentenced to one year and 10 months of rigorous imprisonment and fined another Rs 10 lakh.
However, acting on an application under Section 430(3) of the Bharatiya Nagarik Suraksha Sanhita (BNSS), the court suspended the sentence for 30 days and released the convict on bail on furnishing bail bonds. The matter has been listed for September 25, 2026.
Finance Ministry sources said the order reinforces the Revenue's prosecution policy that delayed deposit of TDS constitutes a serious offence warranting penal consequences.
The case originated from an Income Tax Department survey conducted by the TDS Delhi charge on January 9, 2012, at the company's premises in Sector 2, Noida.
During the survey, authorities found that the company had deducted more than Rs 17.68 crore in TDS during FY 2009-10 but had wilfully failed to deposit the amount within the prescribed period under the Income-tax Act.
The company had also admitted that the cumulative TDS payable for FY 2009-10 and 2010-11 stood at around Rs 21.22 crore as on the date of the survey.
According to the Finance Ministry, all TDS returns for 2009-10 and 2010-11 had been filed late, while returns for FY 2011-12 had not been filed at all.
The ACJM court held that the offence of non-deposit of TDS is complete once the deducted tax is not remitted within the statutory period.
It further held that the subsequent liquidation of the company does not extinguish its criminal liability and does not absolve the director responsible for the company's affairs under Section 278B of the Income-tax Act, 1961.
(With inputs from PTI)
