TMI Blog1990 (10) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessment year 1973-74. The prayers in the other criminal miscellaneous petitions are the same, but they relate to C. C. Nos. 141, 142, 158 and 159 of 1985 pending on the file of the same court, the assessment years being 1975-76, 1974-75, 1976-77 and 1977-78, respectively. Certain brief facts will have to be narrated for the disposal of these petitions. The first petitioner is a transport company at Thanjavur, now dissolved, which has been described in the complaints as a partnership firm constituted under the Indian Partnership Act, 1932, and assessed to income-tax on the income from passenger bus transport from October 11, 1968. The firm stood dissolved with effect from January 1, 1977. The second petitioner, at the relevant time, was the managing partner of the first accused firm, while the third petitioner, daughter of the second petitioner, was one of the partners of the said firm. The assessee-firm was making purchase of spare parts as well as getting its vehicles repaired and bodies built for its fleet of vehicles by T. V. Sundaram Iyengar and Sons Ltd., Pudukottai. The assessee was having an account with T. V. Sundaram Iyengar and Sons Ltd., Pudukottai, for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces made to T. V. Sundaram Iyengar and Sons Ltd. It was under those circumstances that these five complaints were instituted on the ground that the petitioners, with a view to evade income-tax and defraud the exchequer of their legitimate revenue and to mislead and deceive the Income-tax Officer, acting in concert and in furtherance of their common intention, had committed the offences alleged. A further specific allegation has been made in the complaints, that the second petitioner who was the managing partner of the first accused firm had made a false verification in the return of income of the firm for each one of the assessment years and had thus committed an offence punishable under section 277 of the Act. Mr. S. V. Subramaniam, learned senior counsel appearing on behalf of the petitioners, in each one of these cases formulated three contentions for scrutiny by this court. Before formulating the three contentions, learned counsel argued that the case against each of the petitioners for each assessment year has to be dealt with separately, since there was change in law, in between the assessment years, for which the petitioners are sought to be prosecuted. As a corollary, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, in the absence of allegations in the complaints that she took active interest and was in charge of and responsible to the company for the conduct of the business of the company, she cannot be made liable for the offences alleged. All the documents and returns have been signed by the second petitioner alone and that was one other ground to exclude this petitioner from these prosecutions. As far as the second petitioner is concerned, if a firm did not exist in law, he cannot be considered as a partner especially when the Department has chosen to christen A-1 as a firm. The respondent was estopped from prosecuting the second petitioner, as the managing director of the firm, after having pleaded before the Tribunal that the firm was not valid in the eye of law. In any event, the revised returns were filed by the second petitioner on the basis of the discussion he had with the officer concerned, when the amounts shown were accepted. Therefore, the question of prosecution would not arise. Mr. K. Ramaswami, appearing on behalf of the respondent, conceded that in respect of the assessment years 1973-74, 1974-75 and 1975-76, section 276C of the Act which was inserted with effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed on the basis of the original return. As far as the third petitioner was concerned, he submitted that the allegations in the complaints would be sufficient to put her on trial. In reply, Mr. Subramaniam, learned senior counsel for the petitioners referred to the opening words in section 2, "unless the context otherwise requires" and urged that the context under section 276C of the Act did not require the firm to be prosecuted, since it cannot be sent to prison. He also pointed out that with effect from April 1, 1989, section 276DD, which provided imprisonment as punishment for contravention of section 269SS, had been deleted and the newly inserted section 271D provided only for imposition of a penalty. Similarly, sections 269D (sic) and 276E which provided for imprisonment as punishment for contravention of section 269T were deleted with effect from April 1, 1989, and section 271E inserted, excluding prosecution. Therefore, it must be deemed that the Legislature was aware of the need to exclude prosecution of the firm when imprisonment was mandatory. Both learned counsel have placed certain authorities before me in support of the propositions canvassed by them and they will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership Act clearly laid down that a minor cannot become a partner though, with the consent of the adult partners, he may be admitted to the benefits of partnership. Any document which went beyond this section cannot be regarded as valid for the purpose of registration under section 26A of the Indian Income-tax Act. In C. A. Abraham v. ITO [1961] 41 ITR 425, the Supreme Court, while considering imposition of penalty on a firm after dissolution of partnership, held.(at page 430) "that in effect, the Legislature had enacted by section 44 (present section 189) that the assessment proceedings may be commenced and continued against a firm whose business is discontinued as if discontinuance had not taken place. It is enacted manifestly with view to ensure continuity in the application of the machinery provided for assessment and imposition of tax liability notwithstanding discontinuance of the business of the firms." In Choudry Brothers v. CIT [1986] 158 ITR 224, a Division Bench of the Andhra Pradesh High Court held that a partnership cannot be brought into existence contrary to the provisions of the Partnership Act. In that case, in the registration of the firm, a minor had been mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the partnership deed are not known. Under the Partnership Act, though a minor cannot become a partner he can, with the consent of the adult partners, be admitted to the benefits of the partnership. Unless the contents of the partnership deed are noticed, it will be difficult at this stage to hold that the partnership itself was void. It may, of course, be open to the petitioners to contend before the trial court, after the document is marked in evidence, on circumstances flowing out of the deed, which, according to them, may enure in their favour. On the allegations made in the complaint, which is the only evidence available at present, there is no material whatsoever, about the nature of the partnership, its registration by the Department and subsequent cancellation, etc. Therefore, facts will have to be brought on record during evidence and relevant documents marked, before detailed scrutiny could be undertaken. This consideration will have to be relegated to the trial court, after evidence is brought on record. On the argument that a firm has to necessarily act through one of its partners and, therefore, the firm cannot be said to have any guilty mind, as only a human being co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further significance. If the answer to question No. 1 is that the firm cannot be prosecuted, this contention will require no further scrutiny. On the other hand, if the decision were to be that a firm can be prosecuted, the firm will certainly be liable for the offence under section 277 of the Act, in view of the law laid down by Krishnaswamy Reddy J., with which I respectfully agree. Contention No. 3. -The petitioners are alleged to have committed an offence punishable under section 276C(1) of the Act. This section seeks to punish a person who wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable under this Act, without prejudice to any penalty that may be imposable on such person under any other provision of this Act. This section and section 276CC were substituted for section 276C, as it originally existed, by the Taxation Laws (Amendment) Act, 1975, with effect from October 1, 1975. Section 276C, as it existed prior to October 1, 1975, sought to punish a person who wilfully fails to, furnish in due time the return of income which he was required to furnish under sub-section (1) of section 139 or by notice given under sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41 of 1985 and 142 of 1985 cannot be maintained. (Assessment years 1973-74, 1975-76 and 1974-75). As stated earlier, this position has been conceded by learned counsel appearing for the respondent. The assessment year 1975-76 referable to C. C. No. 141 of 1985 is included in this list, since the assessment relates to the year ending March 31, 1975, six months prior to the introduction of section 276C with effect from October 1, 1975. However, the prosecution for the offence under section 277 of the Act in these calendar cases, will survive, subject to the individual liability of the petitioners, which will be discussed hereafter. Even at this stage, the argument based on section 278B of the Act has to be disposed of. This section was also inserted with effect from October 1, 1975 by the Taxation Laws (Amendment) Act, 1975. This section takes in its fold offences committed by a company. In such cases, it states that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the liability of directors of a company stated that section 278B had been brought into the statute book only with effect from October 1, 1975, and for offences in 1965-69, the principle enshrined in the said section cannot be applied to create ex post facto offences, because, to do so, would amount to acting contrary to the clear mandate contained in article 20 of the Constitution. The directors of the company could not be prosecuted, but the company can be found guilty. Similarly, Punchhi J., as he then was, in Prem Lata v. ITO [1985] 151 ITR 723 (P H) observed that section 278B was not applicable, as the return pertained to the assessment year 1965-66. The prosecution was of a firm and its partners for false statement and verification submitted by one of the partners. Another partner did not sign the return or make any statement or verification. The learned judge observed that the other partner cannot be prosecuted with the aid of section 278B inserted with effect from October 1, 1975, since it cannot have ex post facto application. I have already referred to the decision of the Patna High Court in Mohan Lal Agarwalla v. State of Bihar [1987] 167 ITR 184 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this stage, for it will relate to the realm of appreciation of evidence to be brought on record. In that view, the decision of the Delhi High Court in ITO v. Mohd. Yousuf [1989] 175 ITR 263 will not avail the second petitioner, at this stage. As far as the third petitioner is concerned, on the definite case of the prosecution that all the documents and returns were only signed by the second petitioner, who had not only been described as the managing partner, but also had been shown as the person taking an active interest in the affairs of the business of the company, on the material available at this stage, the prosecution as against this petitioner (third petitioner) cannot be maintained, even for the assessment years 1976-77 and 1977-78 since, except the presumption of the respondent, no specific act has been averred against this petitioner to show that she was, in fact, in charge of and responsible for the conduct of the day-to-day affairs of the firm. The Supreme Court had the following observations to make in Sham Sunder v. State of Haryana [1990] 67 Comp Cas 1 ; AIR 1989 SC 1982 (headnote of AIR 1989 SC) : "More often it is common that some of the partners of a firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to consider the question of prosecution of a company for offences where imprisonment was compulsory. The apex court, was deciding the interpretation of the word "punishable" used in section 3(1) of the Suppression of Immoral Traffic in Women and Girls Act, 1956, contra distinguished from the word " punished" used by the Legislature in certain penal provisions. The High Court of Bombay took the view that the word "punishable" used in section 3(1) of the Act, instead of "punished", necessarily postulated a certain discretion on the court to impose a sentence of imprisonment or a sentence of fine or both. The Supreme Court stated (at page 942) : "If the view of the High Court that the word 'punishable' imports discretion in the court were to be accepted an astonishing result would ensue : it would follow that there is discretion in the court whether to punish a convicted person at all or not . Once the position is reached that the expression 'punishable' does not confer a discretion on the court whether to award a punishment or not, no difficulty arises in construing the section and so the conjunction 'and' is not required to be construed to mean the opposite, that is, to mean 'or' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . A company registered under the Companies Act, 1956, is a juristic person and cannot be awarded the punishment of imprisonment and hence cannot be prosecuted for breach of sections 277 and 278 of the Act (during the relevant period)". The Division Bench distinguished the Full Bench decision of the Delhi High Court, holding a contra view, in Municipal Corporation of Delhi v. J. B. Bottling Co. (P.) Ltd. [1975] Crl. L. J. 1148. The decision of N. Krishnaswamy Reddy J., in A. D. Jayaveerapandia Nadar and Co. v. ITO [1975] 101 ITR 390 (Mad), was also referred to. The Division Bench further observed that the decision of the Full Bench of the Delhi High Court, seemed to run counter to the view of the Supreme Court in State of Maharashtra v. Jugmander Lal, AIR 1966 SC 940, referred to earlier in this judgment. After extracting the observations of Stable J. in Rex v. I. C. R. Haulage Ltd. [1944] 1 All ER 691 that (at p. 502), "where the only punishment the court can impose is corporal, the basis on which this exception rests being that the court will not stultify itself by embarking on a trail in which, if a verdict of guilty is returned, no effective order by way of sentence can be made, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be permissible. The Full Bench took note of the decision of the Supreme Court in State of Maharashtra v. Jugmander Lal, AIR 1966 SC 940 as well as the Full Bench judgment of the Delhi High Court in Municipal Corporation of Delhi v. J. B. Bottling Co. Pvt. Ltd. [1975] Crl. LJ 1148. In answer to the questions posed, the view expressed was as follows : "It appears from a plain reading of section 17(1) of the Act that, when an offence under the Act has been committed by a company, the persons mentioned therein and also the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished. The word 'person' in section 16 of the Act includes a company in view of the definition of person given in section 3(42) of the General Clauses Act. Section 16 of the Act thus applies to companies as well as to natural persons. The punishment for offences provided under section 16 of the Act is both of imprisonment and fine. Both those sentences are mandatory. A company being a juristic person cannot obviously be sentenced to imprisonment as it cannot suffer imprisonment. The question that requires determination is whether a sentence of fine alone ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were provided. It was not considering the case of a juristic person. It was, therefore, held in that case, that the court was bound to award the sentence of imprisonment and fine provided under section 3(1) of the said Act, to the accused. Therefore, that case was not an authority for the proposition that if a mandatory sentence of imprisonment and fine was prescribed jointly for a natural person and a juristic person, then the sentence of fine only cannot be awarded to a company. The said case, therefore, did not run counter to the Full Bench decision of the Delhi High Court in Municipal Corporation of Delhi v. J. B. Bottling Co. P. Ltd. [1975] Crl. LJ 1148. Agreeing with the Full Bench decision of the Delhi High Court, the Allahabad Full Bench concluded that a sentence of fine alone can be awarded to a company under section 16 of the Act. A Division Bench of the Delhi High Court in the case of Rameshwar Chotte Lal v. Union of India, ILR 1969 Delhi 1196, observed "that the definition of 'company' has been enlarged by the explanation to include firm or other association of individuals and of 'director' to include in relation to a firm a partner in the firm. It, therefore, clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, so far as imprisonment is concerned, cannot be executed, but that does not mean that the company was granted exemption from indictment. It was true that the sentence of both imprisonment and fine was mandatory in the sense that it has to be imposed where it can be imposed, but it will be limited to fine, where it cannot be imposed as a corporal punishment in the case of companies becomes impossible of execution. Thus, a company does not enjoy immunity from prosecution and in case company is found guilty of such an offence which provides a sentence of imprisonment and fine, it can be punished with fine. The Division Bench judgment in Rameshwar Chotte Lai v. Union of India, ILR 1969 Delhi 1196 was overruled. The Full Bench also observed that, in prosecution for offences for which only corporal punishment was prescribed, a company cannot be prosecuted since it cannot be punished. Punishment must follow conviction, but this was subject to the condition of exceptional provision of law. While considering the decision of the Supreme Court in State of Maharashtra v. Jugmander Lai, AIR 1966 SC 940, the Full Bench stated as hereunder : "This decision was given by the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 is the offence of cheating. The definition of the offence involves fraudulent or dishonest inducement to be made by the offender. All those offences could only be committed by natural persons. firm cannot be proceeded against for offences under sections 193, 196 and 420 of the Indian Penal Code." In conclusion, the learned judge stated that the prosecution proceedings against the firm were not valid and were liable to be quashed though the proceedings could, however, continue against the other accused. The decisions of S. Natarajan J. and K. T. Thomas J. did not take note of the Full Bench decisions of the Allahabad and Delhi High Courts as well as the decision of the apex court in State of Maharashtra v. Jugmander Lal, AIR 1966 SC 940. The Punjab and Haryana High Court in CIT v. Jagdish Lal Behl [1983] 139 ITR 622, while excluding the directors of the company from prosecution, since section 278B had been brought into the statute book with effect from October 1, 1975, and the offences had been committed before that date, in the years 1965 to 69, held that the principle enshrined in the section could not be applied to create ex post facto offences because, to do so, would am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Act provided for its prosecution and sentence of both imprisonment and fine. The Bombay High Court in State of Maharashtra V. Joseph Anthony Pereira [1971] 73 Bom LR 613, while considering the provisions of sections 27 and 34 of the Drugs and Cosmetics Act, stated that the words "punished accordingly" in clause (2) of section 34 of the Drugs and Cosmetics Act, 1940, meant that the guilty person referred to therein can be punished in the same way as a company would be punishable under clause (1) of section 34 of the Act, i.e., only with fine and not imprisonment. It was observed, after quoting section 34 of the Act, as hereunder : "It is clear from the section that clause (1) makes the company liable to be punished accordingly. The word 'punish' with reference to a company would only mean to be punished under section 27, not with imprisonment as a company can in no case be punished with imprisonment.". However, this view of the Bombay High Court, on the meaning of the words "punished accordingly", was overruled by the Supreme Court in Rajasthan Pharmaceutical Laboratory v. State of Karnataka, AIR 1981 SC 809 ; [1981] Crl. LJ 348. Similar view of the Karnataka High Court as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atory [1975] MU (Crl.) 331. Chunder J., of the Calcutta High Court, while considering the provisions of the Calcutta Municipal Act and liability of limited company being proceeded against, observed as follows (at page 760) : "The contention of Mr. Chakravarthy that, under the Indian Criminal law a limited company cannot be proceeded against does not appear to me to state the correct position in law. It is said in Ratanlal's edition of the Indian Penal Code in connection with the comments on the word 'person' used in section 11, Indian Penal Code, that it will not include a limited company and the authority is given of an English case. I have not been able to find out any Indian decision on the point. It is quite clear that if there is anything in the definition or context of a particular section in the statute which will prevent the application of the section to a limited company, certainly a limited company cannot be proceeded against. For example, rape cannot be committed by a limited company. There are heaps of other sections in which it will be physically impossible by a limited company to commit the offences. Then again it is quite clear that a limited company cannot general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready decided in these courts that in such case there can be no imprisonment in default of fine." The observations of Chunder J., that the question of sentence also need not stand in the way when there was nothing to prevent a court from inflicting a suitable fine and the sentence of fine need not carry with it any direction of imprisonment in default was before the Supreme Court when it considered the judgment of the Karnataka High Court in State of Karnataka v. Rajasthan Pharmaceutical Laboratory [1975] M. L. J. (Cr.) 331, and reversed it, on a limited issue. The observations of the Supreme Court that, in the nature of things, a company or a firm could not be sent to jail, but that does not apply to the other two natural persons, must be taken to have affixed the seal of approval, on the position of law enunciated by Chunder J. Though in the case considered by Chunder J., only a sentence of fine was provided for, that cannot erase the principle of law enunciated. Krishnaswamy Reddy J., in A. D. Jayaveerapandia Nadar and Co. v. ITO [1975] 101 ITR 390 (Mad), had summarised the law on the subject as follows (p. 420) : "A corporation could not be subjected to bodily punishment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be impossible to execute but pass only such sentence which can be executed, namely, fine. The proviso to section 16 applies only to the three classes of offences mentioned therein and as compared to the rest of the offences contemplated by the Act are of less serious nature and if indictment of the company is confined to only those offences which are covered by the proviso then not only the intention of the Legislature is defeated but the provisions of section 16(1D) and section 18 are also to that extent rendered nugatory, in so far as the offences are committed by the companies. Section 16(1D) contemplates that if any person is convicted of an offence under the Act and commits a like offence afterwards, then, without prejudice to the provisions of sub-section (2), the court before which the 'second or subsequent conviction takes place, may order the cancellation of the licence, if any, granted to him under this Act and thereupon such licence shall stand cancelled. It was not intended that the court should take recourse to section 16(1D) if the offences were only of the nature mentioned in the proviso to section 16(1), so far as the companies are concerned. Nor was it intended t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while using the words "and" or "or" in the penal provisions referable to sentence of imprisonment and fine, it had thought it fit to draw a distinction between offences which will entail imprisonment or fine or imprisonment as well as fine. That the Legislature is aware of such a distinction is clear from the provisions of section 58A(5) and (6) of the Companies Act, 1956. Under sub-section (5), where a company omitted or failed to make repayment of a deposit in accordance with the provisions of clause (c) of sub-section (3), or in the case of a deposit referred to in sub-section (4), within the time specified in that sub-section the company was liable to be punished with fine alone, the quantum of such fine being linked with the amount to be repaid, while every officer of the company, who was in default, shall be punishable with imprisonment for a term, which may extend to five years and shall also be liable to fine. Similar distinction is noticeable in sub-section (6), as well. If only the Legislature had made this commendable approach, the need for going into intricate nuances of law, based on interpretation of statutes, would not have arisen. The net result is, the prosecuti ..... 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