TMI Blog1994 (7) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... issued and an interim order was passed restraining the respondent authorities from applying the provisions of section 43B of the Act with regard to the assessment of the petitioner-company. The petitioner-company was also restrained from submitting any estimate of advance tax or return for the assessment year 1984-85 and onwards on the basis of or in accordance with section 43B of the Act. During the pendency of the writ application and the operation of the interim order, on June 28, 1984, the petitioner-company filed its return for the assessment year 1984-85. The audited accounts were enclosed along with the return. On September 22, 1986, a notice was issued under section 142(1) of the Act in respect of the assessment year 1984-85 calling upon the petitioner-company to furnish certain particulars. The particulars were furnished on January 15, 1987, by a letter. On March 17, 1988, the interim order in the first writ application was modified by giving liberty to the respondent authorities to commence and conclude the assessment proceedings after taking into consideration the provisions of section 43B of the Act and to pass a final order. The respondent authorities were, howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed was the petitioner-company. The punishment provided under section 276C(1)(i) and section 277 was rigorous imprisonment and fine. The company could not be imprisoned and as such no prosecution could lie against petitioner No. 1. Reliance has been placed on the decisions in Kusum Products Ltd. v. S. K. Sinha, ITO [1980] 126 ITR 804 (Cal) and P. V. Pai v. R. L. Rinawma, Deputy CIT [1993] 200 ITR 717 (Kar). (3) Apart from petitioner No. 1, the complaint had been filed against twelve persons, seven of whom were the directors, one of whom was the treasurer, one of whom was the secretary, one of whom was the assistant manager and the last was the taxation controller who attended income-tax hearings. It is said that the complaint makes no specific allegations in respect of these 12 persons. In the absence of such specific allegation such a wholesale complaint could not be sustained. Reliance has been placed on the decisions in Municipal Corporation of Delhi v. Ram Kishan Rohtagi, AIR 1983 SC 67, and Sham Sundar v. State of Haryana [1990] 67 Comp Cas 1 ; AIR 1989 SC 1982, in this connection. It is submitted that no useful purpose would be served in keeping the criminal prosecution ali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prosecuted under section 276C. The claim of the respondents was on the basis of the applicability of section 43B. The return which was filed was on the basis that section 43B was not applicable. This was because of the interim order passed on the first writ application which was then subsisting. Furthermore, the respondents were proceeding on the basis that the petitioner-company had sought to evade tax by wrongfully claiming a deduction. The petitioner had, in fact, not claimed the deduction and as such the question of evasion of payment of tax did not arise. The respondents have submitted : 1. That the petitioner-company had deliberately not disclosed an amount of Rs. 6,25 crores as its income on account of excise duty liability written back. This non-disclosure had nothing to do with the applicability of section 43B of the Act. 2. Under section 278A of the Income-tax Act it has been specifically provided that an offence can be committed by a company and under section 278E, there is a presumption of mental state which is mens rea. 3. Whether there was any criminal intention in fact is a question which can only be asserted or appreciated upon evidence and not in a writ cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure and not under article 226. There is no authority to support either of the propositions. The decision in J. P. Sharma v. Vinod Kumar Jain, AIR 1986 SC 833, is not an authority for the proposition for which it has been cited by the respondents. I do not read this decision as holding that whenever a Magistrate has taken cognizance, the power under section 482 cannot be exercised. The case only defines the limits of the court's powers under section 482 of the Criminal Procedure Code to quash the proceedings. The court held that if all the allegations contained in the complaint were accepted as correct without adding or subtracting anything and if an offence is made out, the court will not interfere under section 482 of the Criminal Procedure Code. This is a recognition of the fact that when the allegations do not disclose a cognizable offence, the court can interfere under section 482 of the Criminal Procedure Code. The decision cited in support of the second aspect, namely, the Division Bench judgment of the Allahabad High Court in Shiv Shanker Sitaram v. ITAT [1987] 168 ITR 275 is also not an authority for the proposition that the court under article 226 of the Constitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative instances in which the court will interfere to quash criminal proceedings. It was made clear that the list was not exhaustive. Therefore, it must be held that the submission of the respondents in so far as it related to the power of the court under article 226 to grant relief with regard to criminal proceedings is untenable. Whether the court will exercise the power is dependent on the facts of the case. On the merits also, I am of the view that the writ application must be allowed and the proceedings quashed on the second, third and fourth of the petitioners' arguments as noted above. The prosecution has been initiated in respect of an offence alleged to have been committed under section 276C and section 277 of the Act. Section 276C deals with wilful attempt to evade tax and reads as follows : " 276C. Wilful attempt to evade tax, etc.--(1) If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable,-- (i) in a case where the amount sought to be evaded exceeds one hundred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds "and fine" cannot be construed to be equivalent to the words "or fine". It was said that the punishment was in fact made more rigorous by making imposition of fine also compulsory. The Division Bench of this court in Kusum Products Ltd.'s case [1980] 126 ITR 804, cited by the petitioners, held that proceedings under section 277 of the Act could not be initiated against a company because imprisonment was a compulsory punishment for an offence under that section and a company cannot be sent to prison nor was it open to a court to impose a sentence of fine or not to award any imprisonment if the court finds the company guilty under that section. This view has also been adopted by the Karnataka High Court in P. V. Pai's case [1993] 200 ITR 717. The Karnataka High Court also held that the principle as enunciated in Kusum Products Ltd.'s case [1980] 126 ITR 804 (Cal) was still applicable and that proceedings against the company under section 277 of the Act are liable to be quashed. As against these decisions the respondents have relied upon section 278B and section 278E of the Act. Section 278B relates to offences by companies. The section provides that where an offence is commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of the company. There was no clear averment of the fact that the directors were really in charge, but the complainant presumed that the directors of the company must be guilty because they were holding a particular office. The High Court quashed the proceedings against the directors as also against the manager of the company. The Supreme Court said that the nature of the duties performed by the manager would lead to the inference that the manager was vicariously liable. But as far as the directors are concerned, the Supreme Court said : " There is not even a whisper nor a shred of evidence nor anything to show, apart from the presumption drawn by the complainant, that there is any act committed by the directors from which a reasonable inference can be drawn that they could also be vicariously liable. In these circumstances, therefore, we find ourselves in complete agreement with the argument of the High Court that no case against the directors (accused Nos. 4 to 7) has been made out ex facie on the allegations made in the complaint and the proceedings against them were rightly quashed." It is true that this is a decision in which the jurisdiction under section 482 of the Cri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he complaint reads-- " That the accused persons Nos. 2 to 7 were the directors of the company at the relevant time and accused Nos. 8 and 9 were treasurer and secretary, respectively, and serial No. 10 is the director who has verified the return of income and serial No. 11 is a responsible assistant manager, taxation, who had submitted replies in response to notice under section 142(1) of the Income-tax Act, 1961, and accused at serial No. 12 was a taxation controller being the head of the taxation department of the accused company, who attended the income-tax hearings for this year before the Assessing Officer and also submitted various details of documents and explanations and it is important to note that letter No. TKR/949/INB dated January 15, 1987, filed by Shri I. N. Basu, accused No. 11 and also bears his reference initials as 'TKR' (marked as annexure 'D') and accused at Serial No. 13 is also a taxation controller of the company who submitted the note before the Commissioner of Income-tax (Appeals), C-II, Calcutta, on August 20, 1990, which is marked as annexure 'E' and they were responsible not only for the purpose of policy-making but also for discharging day-to-day dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, 289 and 276C was that an opportunity must be given to the assessee or the person charged before the institution of proceedings. This view has also been held by a learned single judge of the Rajasthan High Court in Shree Singhvi Bros. v. Union of India [1991] 187 ITR 219. In holding that the principles of natural justice were applicable the learned single judge noted that when an offence under sections 276C and 277 was committed an authority had several options open including the option to initiate prosecution. The learned judge said that : "....four alternative remedies were available to the Department and specially, this remedy of launching of the prosecution is at the option of the Department and, in such a situation, it is all the more essential that the petitioners should be afforded an opportunity of hearing before the launching of the prosecution." Against the views of the Rajasthan and Karnataka High Courts, a learned single judge of the Madras High Court in the case of Dr. (Mrs.) M. S. Dhowani v. J. Ranganathan, Second ITO [1992] 194 ITR 690 held that sections 276C and 277 do not contemplate any show cause notice being issued before the initiation of the prosecutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ural justice is inherent in the provisions of section 279(2) which reads as follows : " (2) Any offence under this Chapter may, either before or after the institution of proceedings, be compounded by-- (a) the Board or a Chief Commissioner or a Director-General authorised by the Board in this behalf, in a case where the prosecution would lie at the instance of the Commissioner (Appeals) or the appropriate authority ; (b) the Chief Commissioner or Director-General or Commissioner, in any other case." The person accused would be deprived of the benefit or right of compounding the offence before the initiation of proceedings, if the prosecution were launched without any prior notice. In addition, I respectfully adopt the reasoning of the Karnataka High Court in P. V. Pai's case [1993] 200 ITR 717, as well as that of the Rajasthan High Court in Shree Singhvi Bros.' case [1991] 187 ITR 219 to hold that the person accused is entitled to notice before the initiation of proceedings in respect of which a right of compounding has been given under section 279(2) of the Act. Admittedly, in this case no such notice has been given. The prosecution, therefore, cannot be proceeded with. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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