Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise
Status: Live and central to every corporate prosecution.
Finance Act, 2026: Not amended by the Finance Act, 2026.
Mechanism: Where an offence is committed by a company, the person in charge of and responsible to it for the conduct of its business, as well as the company, are deemed guilty; with a due-diligence/without-knowledge proviso and an officer-consent/connivance/neglect limb.
Litigation profile: High — governed by a rich vicarious-liability jurisprudence (including, by analogy, the Negotiable Instruments Act line).
A. COMMENTARY
The two limbs of corporate vicarious liability
Section 278B deems certain individuals guilty when a company commits an offence under the Act. Sub-section (1) reaches every person who, at the time of the offence, was 'in charge of, and was responsible to, the company for the conduct of [its] business', as well as the company itself — subject to a proviso exonerating one who proves the offence was committed without his knowledge or that he exercised all due diligence. Sub-section (2) independently reaches any director, manager, secretary or other officer with whose consent or connivance, or due to whose neglect, the offence was committed. Sub-section (3) preserves the company's own liability to fine where the offence carries imprisonment and fine. The Explanation extends 'company' to firms and associations, and 'director' to partners and controlling members.
Specific averment of responsibility is essential
The settled discipline — most fully worked out under the cognate section 141 of the Negotiable Instruments Act, 1881 and applied to section 278B — is that vicarious liability must be specifically pleaded: the complaint must contain a clear averment that the person was in charge of and responsible for the conduct of the company's business at the relevant time. A bald or omnibus averment naming all directors will not do (Homi Phiroze Ranina; National Small Industries Corp; K.K. Ahuja). Managing directors and signatories who, by virtue of their office, are necessarily in charge stand on a different footing (Gunmala Sales).
The company must itself be arraigned; company prosecutable despite mandatory imprisonment
Two structural rules govern. First, the company must itself be made an accused: arraignment of the company is a condition precedent to prosecuting its directors under a vicarious-liability provision (Aneeta Hada). Secondly, the Constitution Bench in Standard Chartered Bank settled that a company is not immune from prosecution merely because the offence prescribes a mandatory term of imprisonment together with fine; the court will impose the fine. This overruled Velliappa Textiles and is foundational to corporate prosecutions under sections 276B/276C/277/278 read with section 278B. In the TDS context, prosecution of directors as principal officers additionally requires a section 2(35)(b) notice (see section 276B).
B. STATUTORY TEXT (verbatim — pre-Finance Act, 2026 text)
Text reproduced verbatim from the bare Act; section 278B is not amended by the Finance Act, 2026.
Offences by companies.
278B. (1) Where an offence under this Act has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.
(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
(3) Where an offence under this Act has been committed by a person, being a company, and the punishment for such offence is imprisonment and fine, then, without prejudice to the provisions contained in sub-section
(1) or sub-section (2), such company shall be punished with fine and every person, referred to in sub-section
(1), or the director, manager, secretary or other officer of the company referred to in sub-section (2), shall be liable to be proceeded against and punished in accordance with the provisions of this Act.
Explanation.—For the purposes of this section,—
(a) "company" means a body corporate, and includes—
(i) a firm; and
(ii) an association of persons or a body of individuals whether incorporated or not; and
(b) "director", in relation to—
(i) a firm, means a partner in the firm;
(ii) any association of persons or a body of individuals, means any member controlling the affairs thereof.
C. AUTHORITIES
The authorities are grouped by corporate prosecutability, the necessity of arraigning the company, and the discipline of specific averment (drawing on the closely-analogous NI Act section 141 jurisprudence).
Cluster 1 — A company is prosecutable; the company must be arraigned
Standard Chartered Bank v. Directorate of Enforcement (2005) 4 SCC 530 (SC, CB)
Facts Whether a company could be prosecuted for an offence carrying a mandatory term of imprisonment together with fine.
Held / ratio A company can be prosecuted and convicted even for offences carrying mandatory imprisonment and fine; the court imposes the fine, the imprisonment being incapable of execution against an artificial person. Velliappa Textiles overruled.
Significance The cornerstone of corporate criminal liability under the Act.
Facts A vicarious-liability prosecution (NI Act section 141, the analogue of section 278B) was maintained against a director though the company itself had not been arraigned as an accused.
Held / ratio Arraignment of the company is an imperative; for a prosecution under a vicarious-liability provision the company must be made an accused, and its non-impleadment is fatal to proceedings against the directors.
Significance Applied to section 278B, the deductor/offending company must itself be arraigned before its directors can be prosecuted.
Madhumilan Syntex Ltd. v. Union of India (2007) 290 ITR 199 (SC)
Citation (2007) 290 ITR 199 (SC).
Facts Company and directors (named as principal officers) prosecuted for belated deposit of TDS.
Held / ratio Directors validly arraigned as principal officers were rightly prosecuted with the company under section 276B/278B; the company's offence and the individuals' responsibility were both made out.
Significance Illustrates a valid corporate-plus-director prosecution.
Cluster 2 — Specific averment of 'in charge and responsible' is mandatory
Homi Phiroze Ranina v. State of Maharashtra (2003) 263 ITR 636 (Bom)
Citation (2003) 263 ITR 636 (Bombay).
Facts Directors sought to be prosecuted under section 278B on a complaint that did not specifically aver their responsibility for the day-to-day conduct of the company's business.
Held / ratio A section 278B complaint must prima facie disclose the accused's responsibility for the day-to-day conduct of the company's business; a bald averment is insufficient to issue process.
Significance The income-tax application of the specific-averment rule.
National Small Industries Corp. Ltd. v. Harmeet Singh Paintal (2010) 3 SCC 330 (SC)
Citation (2010) 3 SCC 330 (SC).
Facts NI Act section 141 prosecution; the complaint named directors without averring their specific role.
Held / ratio Vicarious liability must be specifically pleaded and cannot be inferred; a mere directorship does not attract liability — the complaint must aver that the person was in charge of and responsible for the conduct of the business.
Significance Applied by analogy to section 278B(1).
K.K. Ahuja v. V.K. Vora (2009) 10 SCC 48 (SC)
Citation (2009) 10 SCC 48 (SC).
Facts NI Act section 141 prosecution distinguishing classes of officers.
Held / ratio Persons 'in charge of and responsible' (sub-section (1)) are distinguished from officers liable only on consent/connivance/neglect (sub-section (2)); penal vicarious liability is strictly construed and the averments must fit the limb invoked.
Significance Maps precisely onto section 278B(1) and (2).
Gunmala Sales (P) Ltd. v. Anu Mehta (2015) 1 SCC 103 (SC)
Citation (2015) 1 SCC 103 (SC) (decided 17 October 2014).
Facts Whether a basic averment of responsibility suffices to issue process, and when quashing is warranted.
Held / ratio A basic averment that the director was in charge of and responsible for the company's business suffices to issue process; quashing is warranted only where unimpeachable material shows the person had no role.
Significance Calibrates the threshold for issuing process against directors.
CHAPTER XXII — OFFENCES AND PROSECUTIONS
Section 278B — Offences by companies
Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise
Status: Live and central to every corporate prosecution.
Finance Act, 2026: Not amended by the Finance Act, 2026.
Mechanism: Where an offence is committed by a company, the person in charge of and responsible to it for the conduct of its business, as well as the company, are deemed guilty; with a due-diligence/without-knowledge proviso and an officer-consent/connivance/neglect limb.
Litigation profile: High — governed by a rich vicarious-liability jurisprudence (including, by analogy, the Negotiable Instruments Act line).
A. COMMENTARY
The two limbs of corporate vicarious liability
Section 278B deems certain individuals guilty when a company commits an offence under the Act. Sub-section (1) reaches every person who, at the time of the offence, was 'in charge of, and was responsible to, the company for the conduct of [its] business', as well as the company itself — subject to a proviso exonerating one who proves the offence was committed without his knowledge or that he exercised all due diligence. Sub-section (2) independently reaches any director, manager, secretary or other officer with whose consent or connivance, or due to whose neglect, the offence was committed. Sub-section (3) preserves the company's own liability to fine where the offence carries imprisonment and fine. The Explanation extends 'company' to firms and associations, and 'director' to partners and controlling members.
Specific averment of responsibility is essential
The settled discipline — most fully worked out under the cognate section 141 of the Negotiable Instruments Act, 1881 and applied to section 278B — is that vicarious liability must be specifically pleaded: the complaint must contain a clear averment that the person was in charge of and responsible for the conduct of the company's business at the relevant time. A bald or omnibus averment naming all directors will not do (Homi Phiroze Ranina; National Small Industries Corp; K.K. Ahuja). Managing directors and signatories who, by virtue of their office, are necessarily in charge stand on a different footing (Gunmala Sales).
The company must itself be arraigned; company prosecutable despite mandatory imprisonment
Two structural rules govern. First, the company must itself be made an accused: arraignment of the company is a condition precedent to prosecuting its directors under a vicarious-liability provision (Aneeta Hada). Secondly, the Constitution Bench in Standard Chartered Bank settled that a company is not immune from prosecution merely because the offence prescribes a mandatory term of imprisonment together with fine; the court will impose the fine. This overruled Velliappa Textiles and is foundational to corporate prosecutions under sections 276B/276C/277/278 read with section 278B. In the TDS context, prosecution of directors as principal officers additionally requires a section 2(35)(b) notice (see section 276B).
B. STATUTORY TEXT (verbatim — pre-Finance Act, 2026 text)
Text reproduced verbatim from the bare Act; section 278B is not amended by the Finance Act, 2026.
Offences by companies.
278B. (1) Where an offence under this Act has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.
(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
(3) Where an offence under this Act has been committed by a person, being a company, and the punishment for such offence is imprisonment and fine, then, without prejudice to the provisions contained in sub-section
(1) or sub-section (2), such company shall be punished with fine and every person, referred to in sub-section
(1), or the director, manager, secretary or other officer of the company referred to in sub-section (2), shall be liable to be proceeded against and punished in accordance with the provisions of this Act.
Explanation.—For the purposes of this section,—
(a) "company" means a body corporate, and includes—
(i) a firm; and
(ii) an association of persons or a body of individuals whether incorporated or not; and
(b) "director", in relation to—
(i) a firm, means a partner in the firm;
(ii) any association of persons or a body of individuals, means any member controlling the affairs thereof.
C. AUTHORITIES
The authorities are grouped by corporate prosecutability, the necessity of arraigning the company, and the discipline of specific averment (drawing on the closely-analogous NI Act section 141 jurisprudence).
Cluster 1 — A company is prosecutable; the company must be arraigned
Standard Chartered Bank v. Directorate of Enforcement (2005) 4 SCC 530 (SC, CB)
Citation (2005) 4 SCC 530 / AIR 2005 SC 2622 (Constitution Bench).
Facts Whether a company could be prosecuted for an offence carrying a mandatory term of imprisonment together with fine.
Held / ratio A company can be prosecuted and convicted even for offences carrying mandatory imprisonment and fine; the court imposes the fine, the imprisonment being incapable of execution against an artificial person. Velliappa Textiles overruled.
Significance The cornerstone of corporate criminal liability under the Act.
Aneeta Hada v. Godfather Travels & Tours (P) Ltd. (2012) 5 SCC 661 (SC)
Citation (2012) 5 SCC 661 (SC).
Facts A vicarious-liability prosecution (NI Act section 141, the analogue of section 278B) was maintained against a director though the company itself had not been arraigned as an accused.
Held / ratio Arraignment of the company is an imperative; for a prosecution under a vicarious-liability provision the company must be made an accused, and its non-impleadment is fatal to proceedings against the directors.
Significance Applied to section 278B, the deductor/offending company must itself be arraigned before its directors can be prosecuted.
Madhumilan Syntex Ltd. v. Union of India (2007) 290 ITR 199 (SC)
Citation (2007) 290 ITR 199 (SC).
Facts Company and directors (named as principal officers) prosecuted for belated deposit of TDS.
Held / ratio Directors validly arraigned as principal officers were rightly prosecuted with the company under section 276B/278B; the company's offence and the individuals' responsibility were both made out.
Significance Illustrates a valid corporate-plus-director prosecution.
Cluster 2 — Specific averment of 'in charge and responsible' is mandatory
Homi Phiroze Ranina v. State of Maharashtra (2003) 263 ITR 636 (Bom)
Citation (2003) 263 ITR 636 (Bombay).
Facts Directors sought to be prosecuted under section 278B on a complaint that did not specifically aver their responsibility for the day-to-day conduct of the company's business.
Held / ratio A section 278B complaint must prima facie disclose the accused's responsibility for the day-to-day conduct of the company's business; a bald averment is insufficient to issue process.
Significance The income-tax application of the specific-averment rule.
National Small Industries Corp. Ltd. v. Harmeet Singh Paintal (2010) 3 SCC 330 (SC)
Citation (2010) 3 SCC 330 (SC).
Facts NI Act section 141 prosecution; the complaint named directors without averring their specific role.
Held / ratio Vicarious liability must be specifically pleaded and cannot be inferred; a mere directorship does not attract liability — the complaint must aver that the person was in charge of and responsible for the conduct of the business.
Significance Applied by analogy to section 278B(1).
K.K. Ahuja v. V.K. Vora (2009) 10 SCC 48 (SC)
Citation (2009) 10 SCC 48 (SC).
Facts NI Act section 141 prosecution distinguishing classes of officers.
Held / ratio Persons 'in charge of and responsible' (sub-section (1)) are distinguished from officers liable only on consent/connivance/neglect (sub-section (2)); penal vicarious liability is strictly construed and the averments must fit the limb invoked.
Significance Maps precisely onto section 278B(1) and (2).
Gunmala Sales (P) Ltd. v. Anu Mehta (2015) 1 SCC 103 (SC)
Citation (2015) 1 SCC 103 (SC) (decided 17 October 2014).
Facts Whether a basic averment of responsibility suffices to issue process, and when quashing is warranted.
Held / ratio A basic averment that the director was in charge of and responsible for the company's business suffices to issue process; quashing is warranted only where unimpeachable material shows the person had no role.
Significance Calibrates the threshold for issuing process against directors.