Chapter XXII - Offences and Prosecution
Section 487
Section 487: offences by companies
Section 487 explains who within a company can be held criminally liable when the company commits an offence under the Act - the person responsible for running the business, and separately, any director, manager, secretary or other officer whose consent, connivance or neglect contributed to the offence. It also defines "company" and "director" for this purpose, and clarifies how the company itself is punished where the prescribed punishment includes imprisonment.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) If 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.
(2) The provisions of sub-section (1) shall not apply if the person referred therein proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.
(3) Irrespective of anything contained in sub-sections (1) and (2), 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.
(4) If an offence under this Act has been committed by a company and the punishment for such offence is imprisonment and fine, then, without prejudice to the provisions contained in sub-section (1) or (3), 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 (3), shall be liable to be proceeded against and punished as per the provisions of this Act.
(5) 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.
Introduction
Section 487 assigns potential prosecution responsibility when an offence under the Act is committed by a company. It covers the company and people in charge of its business, contains a lack-of-knowledge or due-diligence defence, and separately addresses consent, connivance or neglect by officers.
Key takeaways
Company and responsible person
An offence by a company can deem both the company and a person in charge of its business liable.
Knowledge or diligence defence
The in-charge person can prove lack of knowledge or all due diligence to prevent the offence.
Consent or neglect
A director, manager, secretary or other officer can separately be liable for consent, connivance or neglect.
Who is deemed guilty when a company commits an offence
"If 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."
Due-diligence defence
This deeming provision does not apply if the person proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent its commission.
Liability of directors, managers, secretaries and other officers
Irrespective of the general rule and the due-diligence defence above, where an offence has been committed by a company and it is proved that it was 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, that person shall also be deemed guilty of the offence and shall be liable to be proceeded against and punished accordingly.
Where the prescribed punishment is imprisonment and fine
If an offence under the Act has been committed by a company and the punishment for it is imprisonment and fine, then - without prejudice to the provisions above - the company itself shall be punished with fine, while every person referred to above (the person in charge, or the director/manager/secretary/officer whose consent, connivance or neglect is proved) shall be liable to be proceeded against and punished as per the Act's provisions.
Definitions for this section
| Term | Meaning |
|---|---|
| "Company" | A body corporate, and includes (i) a firm, and (ii) an association of persons or a body of individuals, whether incorporated or not |
| "Director", in relation to a firm | A partner in the firm |
| "Director", in relation to an association of persons or body of individuals | Any member controlling the affairs of that association or body |
Step-by-step flow for applying Section 487
- 1
Was the offence committed by a "company"?
Under Section 487(5), a company is a body corporate and includes a firm and an AOP or BOI, incorporated or not.
- No: Section 487 does not apply; for an HUF see Section 488.
- Yes: Go to the next step.
- 2
Who was in charge of, and responsible to, the company for the conduct of its business when the offence was committed?
Under Section 487(1), each such person, as well as the company, is deemed guilty.
- 3
Can that person prove lack of knowledge or all due diligence?
Section 487(2). The burden is on the person.
- Yes, proved: That person is outside Section 487(1); go to the next step, as Section 487(3) may still apply to him.
- No: Liable under Section 487(1); go to the next step.
- 4
Was the offence committed with the consent or connivance of, or attributable to neglect by, a director, manager, secretary or other officer?
Section 487(3) applies irrespective of Section 487(1) and (2). For a firm, a director means a partner; for an AOP or BOI, a member controlling its affairs (Section 487(5)(b)).
- 5
Is the punishment imprisonment and fine?
Under Section 487(4), the company is punished with fine, and the persons under Section 487(1) or (3) are proceeded against and punished as per the Act.
Practical checklist
Do
- Identify the company and who was in charge of, and responsible for, conducting its business when the alleged offence occurred.
- Preserve contemporaneous supervision, escalation and compliance records relevant to the knowledge and due-diligence defence in sub-section (2).
- For an officer accused under sub-section (3), identify the alleged consent, connivance or neglect separately.
- Check the expanded meaning of “company” and “director” in sub-section (5) when the entity is a firm or association.
Avoid
- Do not treat a job title alone as proof that the sub-section (1) responsibility test is met.
- Do not overlook that the company itself may be fined when the offence carries imprisonment and fine.
Illustrative example
Worked example: a firm and its partners
Hypothetical facts (illustration only, not a real taxpayer): A partnership firm with three partners commits an offence under Section 483. Partner A runs the business day to day. Partner B is a sleeping partner who proves she had no knowledge of the false entries. Partner C does not run the business but signed off on the entries knowing they were false.
Company
Under Section 487(5)(a), the firm is a company for this section.
Partner A
As the person in charge of and responsible for the business, A is deemed guilty under Section 487(1) unless he proves lack of knowledge or due diligence.
Partner B
B proves the offence was committed without her knowledge, so Section 487(2) protects her from Section 487(1).
Partner C
A partner is a director for a firm (Section 487(5)(b)). C consented, so he is deemed guilty under Section 487(3).
Firm
Section 483 provides imprisonment and fine, so under Section 487(4) the firm is punished with fine, while A and C are proceeded against as per the Act.
Outcome
- The firm, Partner A and Partner C may be proceeded against; Partner B is protected by Section 487(2).
- Lack of knowledge under Section 487(2) does not help a person whose consent, connivance or neglect is proved under Section 487(3).
Glossary
- Due diligence
- Preventive care relevant to the express defence that an offence occurred without a responsible person’s knowledge or despite all due diligence.
- Connivance
- Knowing participation or acquiescence addressed in the separate officer-liability rule of section 487(3).
Frequently asked questions
Who can be held liable when a company commits a tax offence under Section 487?
The person who, at the time of the offence, was in charge of and responsible to the company for the conduct of its business, as well as the company itself; and separately, any director, manager, secretary or other officer whose consent, connivance or neglect contributed to the offence.
Is there a defence available to a person in charge of the company?
Yes - the person is not liable if he proves the offence was committed without his knowledge, or that he had exercised all due diligence to prevent it.
How is the company itself punished if the offence carries imprisonment and fine?
The company is punished with fine, while the individuals found liable (the person in charge, or a director/manager/secretary/officer whose consent, connivance or neglect is proved) are proceeded against and punished as per the Act.
Does "company" under Section 487 include a partnership firm?
Yes - for this section, "company" is defined to include a firm, and also an association of persons or body of individuals, whether incorporated or not.
Need help applying this provision to your situation?
Talk to our tax team about a company prosecution matterLast updated 9 October 2026