Delhi District Court
Common Judgment Ito vs . Saudagarmal Shermal And Anr. Cc Nos. ... on 2 January, 2010
IN THE COURT OF DIG VINAY SINGH, ADDITIONAL CHIEF METROPOLITAN
MAGISTRATE(SPL. ACTS): CENTRAL: TIS HAZARI COURTS, DELHI
In re:
INCOME TAX OFFICER
MR. Y.K. BATRA,
DISTRICTIII(A2)
NEW DELHI .....COMPLAINANT
VS.
M/S. SAUDAGARMAL SHER MAL ........ACCUSED
CASE NOS. 35/4 & 36/4
U/s.276CC & 276D of the Income Act, 1961.
DATE OF RESERVATION OF JUDGMENT: 16.12.2009
DATE OF PRONOUNCEMENT OF JUDGMENT: 02.1.2010
COMMON JUDGEMENT
(a) The serial no. of the case : 02401R0001091987 & 02401R000341987.
(b) The date of commission of offence : 31.3.1976.
(c)The name of complainant : INCOME TAX OFFICER,
MR. Y.K. BATRA,
DISTRICTIII(A2)
NEW DELHI.
(d) The name, parentage, residence: 1. M/s. Saudagar Mal Sher Mal
of accused. C/o. Kundan Lal C/o. M/s. Sunil Traders,
482, Khari Baoli, Delhi.
2. Kundan Lal M/s. Saudagar Mal Sher Mal
C/o. M/s. Sunil Traders,
482, Khari Baoli, Delhi.
3. Ashok Kumar M/s.Saudagar Mal Sher Mal
C/o. M/s. Sunil Traders,
COMMON JUDGMENT ITO VS. SAUDAGARMAL SHERMAL AND ANR. CC NOS. 35/4 & 36/4 OF 1987 January 2nd , 2010, Page 1 of 17
482, Khari Baoli, Delhi. (Deceased)
4. Sher Mal M/s. Saudagar Mal Sher Mal
C/o. M/s. Sunil Traders,
482, Khari Baoli, Delhi. (Deceased)
(e) The offence complained of/ proved : U/s.276CC & 276D of the Income Act,
1961.
(f) The plea of accused : Pleaded not guilty.
(g) The final order : Convicted.
(h) The date of such order : 02.1.2010.
(i) Brief statement of the reasons for the decision:
1.The present judgment is being passed in common in the above mentioned two complaint cases, as, both the complaint cases are on the same facts and same evidence and also between same parties.
2. Before proceeding further, let it be mentioned that two complaints were filed against the abovenamed four accused, that is, the partnership firm (accused No 1) and, its three partners (accused No 2 to accused No 4). During the pendency of proceedings, the accused No 3 expired and proceedings against him were declared abated and, the accused No 4 had expired even before filing of the complaint, therefore, the present judgment is directed against the accused No 1, the partnership firm and, accused no. 2 Kundan Lal only.
3. The complaint bearing the C.C. No 1276 of 1987 has been filed against the accused for offence under section 276CC of The Income Tax Act 1961 . It is alleged in the complaint, that the accused No 1 partnership COMMON JUDGMENT ITO VS. SAUDAGARMAL SHERMAL AND ANR. CC NOS. 35/4 & 36/4 OF 1987 January 2nd , 2010, Page 2 of 17 firm, was assessed to the income tax and, for the assessment year 1976 - 1977, for the period ending 31st of March 1976, the accused No 1 failed to file its return of income by the last date of 31st of July 1976. Since accused No 2 to 4 were its partners and responsible for its business therefore they were also liable. The complaint has been filed after obtaining necessary authority in terms of section 279 (1) of The Income Tax Act 1961. It is claimed in the complaint that the accused willfully failed to furnish the return of income for the relevant year and, therefore, they were liable to be proceeded against for the offence under section 276CC of the said Act read with section 278B the said Act .
4. The complaint bearing C.C. No 1275 of 1987 has been filed against the same accused for the same assessment year and for offence under section 276D of The Income Tax Act 1961 . In the said complaint, in addition to the above averments it is alleged that notice under section 139 , dated 28th of August 1976 was sent to the accused, but still no return was filed in response to the said notice. It is also alleged that thereafter notices under section 142 (1) of the said Act, dated 23rd January 1978, 14 February 1978 and, 13 February 1979 were also issued to the accused with a direction to furnish the details and information specified therein, but despite service of those notices the requisite documents and information was not furnished and thus the accused are claimed to be guilty for offence under section 276D of the said Act also.
COMMON JUDGMENT ITO VS. SAUDAGARMAL SHERMAL AND ANR. CC NOS. 35/4 & 36/4 OF 1987 January 2nd , 2010, Page 3 of 17
5. Section 276CC of the Income Tax act 1961 provides that a person found guilty shall be punishable with a mandatory term of imprisonment and fine. So can a partnership firm alone be tried, and if found guilty can it be convicted and punished?
6. Section 278B of The Income Tax Act, clearly provides that where any 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 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. The Explanation appended to section 278B, clearly provides that for the purposes of this section the company shall mean and include a firm. It also provides that the Director in relation to a firm means partners in the firm.
278B (3)provides, " 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 subsection (1) or subsection(2), such company shall be punished with fine and every person, referred to in subsection (1), or the director, manager, secretary or other officer of the company referred to in subsection (2), shall be liable to be proceeded against and punished in accordance with the provisions of this Act."
From section 278B of the Act it is clear that the proceedings COMMON JUDGMENT ITO VS. SAUDAGARMAL SHERMAL AND ANR. CC NOS. 35/4 & 36/4 OF 1987 January 2nd , 2010, Page 4 of 17 can be continued against a company/partnership firm.
7. It is now well settled by the judgment of honourable constitution bench of Supreme Court (Majority View), in the case of Standard Chartered Bank v. Directorate of Enforcement AIR 2005 SUPREME COURT 2622 = 2005 AIR SCW 2829 that ;
" There is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which the punishment prescribed is mandatory imprisonment. As the company cannot be sentenced to imprisonment, the Court cannot impose that punishment, but when imprisonment and fine is the prescribed punishment the Court can impose the punishment of fine which could be enforced against the company. Such a discretion is to be read into the Section viz., S. 56 of Foreign Exchange Regulation Act (1973) (FERA) and Ss. 276C and 278B of Incometax Act (1961) so far as the juristic person is concerned. Of course, the Court cannot exercise the same discretion as regards a natural person. As regards company, the Court can always impose a sentence of fine and the sentence of imprisonment can be ignored as it is impossible to be carried out in respect of a company. This appears to be the intention of the Legislature. It cannot be said that, there is blanket immunity for any company from any prosecution for serious offences merely because the prosecution would ultimately entail a sentence of mandatory imprisonment. The corporate bodies, such as a firm or company undertake series of Activities that affect the life, liberty and property of the citizens. Large scale financial irregularities are done by various corporations. The corporate vehicle now occupies such a large portion of the industrial, commercial and sociological sectors that amenability of the corporation to a criminal law is essential to have a peaceful society with stable economy." (Paras 63, 64) it was also held that ;
COMMON JUDGMENT ITO VS. SAUDAGARMAL SHERMAL AND ANR. CC NOS. 35/4 & 36/4 OF 1987 January 2nd , 2010, Page 5 of 17 " Thus, because the company cannot be sentenced to imprisonment, the Court has to resort to punishment of imposition of fine which is also a prescribed punishment. As per the scheme of various enactments and also the Indian Penal Code, mandatory custodial sentence is prescribed for graver offences. If the contrary view is accepted, no company or corporate bodies could be prosecuted for the graver offences whereas they could be prosecuted for minor offences as the sentence prescribed therein is custodial sentence or fine. The intention of the Legislature is not to give complete immunity from prosecution to the corporate bodies for these grave offences. Consequently, even for offences under S. 56(1) (i), FERA Act , the company could be prosecuted. It is sheer violence to commonsense that the Legislature intended to punish the corporate bodies for minor and silly offences and extended immunity of prosecution to major and grave economic crimes".
8. Both these complaints were filed on 31st of March 1987 and the accused were summoned vide order dated 22nd May 1997. Thereafter pre charge evidence was recorded against the accused and charges were framed against the accused for the abovementioned offences on 13th of March 2001 and 12th of January 2005, respectively, in both the cases.
9. In support of its case the prosecution examined four witnesses namely PW1 Y. K. Batra (the complainant); PW2 K. B. Madan; PW3 M. R. Jhatta and, PW4 J. S. Mann.
10. PW1 was the complainant who deposed that during the relevant year the accused firm was one of his assessee and the accused No 2 to 4 were its partners. The witness proved his complaint exhibit PW 1/2 & the authority to file the complaint, from the commissioner of income tax, as COMMON JUDGMENT ITO VS. SAUDAGARMAL SHERMAL AND ANR. CC NOS. 35/4 & 36/4 OF 1987 January 2nd , 2010, Page 6 of 17 exhibit PW 1/1. This witness deposed that the accused failed to file its income tax return for the relevant period and he also proved the partnership deed and form No 11 as exhibit PW 1/3 & exhibit PW1/4 respectively. The witness specifically deposed that there is no letter on the record of the income tax authorities, sent by the accused, mentioning that any of the partners were sleeping partner. The witness was subjected to cross examination by the accused at length on different dates but despite cross examination of this witness nothing material could be elucidated to impeach the creditworthiness or trustworthiness of this witness. The witness proved the notices under section 142 (1), dated 14 February 1978; 23rd January 1978; 16th January 1979 and, also the notice under section 139(2), dated 20 August 1976, which was served upon the accused on 28 August 1976 . The witness specifically deposed that these notices were served upon the accused Kundan Lal. In the crossexamination the witness deposed that after the recovery proceedings were initiated against the accused, vide letter dated 26th of December 1980, one dissolution deed of partnership was furnished which was dated 1st April 1976. The witness specifically deposed that none of the partners, in response to the notices issued by the income tax department, stated that the records of the firm were lying with the deceased accused no. 4 or that, therefore, the records could not be furnished. The witness in the crossexamination specifically stated that there was no evidence, on record of the department, to show that, in the COMMON JUDGMENT ITO VS. SAUDAGARMAL SHERMAL AND ANR. CC NOS. 35/4 & 36/4 OF 1987 January 2nd , 2010, Page 7 of 17 proceedings before the commissioner of income tax, under section 264 of the Act , any such plea was raised, that the documents were in possession of the deceased accused no.4. The witness also categorically denied that the commissioner of income tax did not apply his mind before grant of sanction, or that entire record was not placed before the commissioner of income tax, while seeking sanction or, that the commissioner of income tax signed on an already typed sanction, without application of mind. The witness stated that he was not aware of the death of accused No 4, therefore, his name was mentioned in the complaint. When this witness was confronted with the partnership dissolution deed dated 1st April 1976, during his crossexamination, the witness specifically stated that in the dissolution deed it is mentioned that the other partners shall have the right to receive the copies of the documents desired by them. When the witness was confronted as to why the fact of dissolution of firm is not mentioned in the complaint, the witness specifically deposed that it was not required since the relevant period of return was prior to the dissolution of the firm.
11. PW 2 deposed that he issued notices under section 139 and under section 142 (1) of the Act which were proved as exhibit PW 2/1 & exhibit PW 1/7. The witness also deposed that he passed ex parte orders exhibit PW 2/2 and also initiated penalty proceedings, when, despite issuance of notices none appeared for the accused. He proved his assessment order exhibit PW 2/2. Nothing material could be brought out on record from the crossexamination of this witness also in order to impeach COMMON JUDGMENT ITO VS. SAUDAGARMAL SHERMAL AND ANR. CC NOS. 35/4 & 36/4 OF 1987 January 2nd , 2010, Page 8 of 17 his testimony and this witness also categorically stated that there was nothing on record of the department to show that the firm was dissolved or that any such dissolution deed was filed on record.
12. The complainant also examined PW 3, who also proved the notices dated 28th of August 1976 and 23rd of January 1979 bearing his signatures as exhibit PW 3/1 & exhibit PW 3/2. The witness proved form No 6 filed by the accused for extension of time to file the return as exhibit PW 3/3 but which request was not allowed. Nothing material could be brought out on record from the crossexamination of this witness also in order to impeach his creditworthiness or trustworthiness. The witness categorically deposed that although dissolution deed dated 1st April 1976 is on record but since there was no forwarding letter, therefore, he cannot say as to when this document was filed by the accused or if it was filed prior to issuance of notices under section 139(2) of the Act.
13. Complainant also examined PW4 in its favour who deposed that he passed the penalty order under section 271 (1) (a) of the Act and order under section 271 (1) (c) of the Act which were proved by the witness as exhibit PW 4/1 & exhibit PW4/2. The witness also proved the reply filed by the accused, against the notice under section 271(1) (a) of the Act, as exhibit PW 4/3. Nothing material could be brought out on record from the crossexamination of this witness also in order to impeach the creditworthiness or trustworthiness of this witness.
14. After examination of the prosecution evidence, all the COMMON JUDGMENT ITO VS. SAUDAGARMAL SHERMAL AND ANR. CC NOS. 35/4 & 36/4 OF 1987 January 2nd , 2010, Page 9 of 17 incriminating evidence against the accused were put to the accused in his examination under section 313 read with section 281 of Criminal Procedure Code.
15. The accused Kundan Lal admitted that accused No 1 was a partnership firm which was assessed to the income tax for the assessment year 1976 1977 and he also admitted that he was one of the partners of the firm. The accused also specifically admitted that the notices were issued in the name of the firm. The accused also admitted that the return of income for the assessment year 1976 1977 which was due to be filed by the 31st of July 1976 in terms of section 139(1) of the income tax Act was not filed. When the original authorisation letter exhibit PW 1/1 was put to the accused in his examination he expressed his ignorance about the same. The accused took up a defence that the partnership firm was dissolved in April 1976 which was intimated to the income tax department, therefore, he was not liable. The accused also did not deny receiving of the notices by him for the firm. The accused did not opt to lead any defence evidence in his favour.
16. I have heard learned counsel for the complainant and the accused and I've also produced the written submissions filed by both the sides.
17. The accused has challenged the case of the complainant on two grounds. First is that the commissioner of income tax did not apply COMMON JUDGMENT ITO VS. SAUDAGARMAL SHERMAL AND ANR. CC NOS. 35/4 & 36/4 OF 1987 January 2nd , 2010, Page 10 of 17 his mind while issuing the authorisation exhibit PW 1/1 & since the sanction was without application of mind, the present complaint could not have continued. It is argued that since in the sanction the fact of death of one of the accused and the dissolution of firm is not mentioned, therefore, it shows clear non application of mind. The second limb of argument of the accused is that he cannot be held liable for the offence in question since the partnership firm was already dissolved and the documents were in possession of the deceased accused no. 4 only, therefore, the other two partners were prevented from producing the documents or filing of returns and, therefore, they cannot be held liable. In support of its contention that the sanction was granted by the commissioner of income tax without application of mind, the accused has relied upon the following cases:
a. Tirath Parkash vs. State 2001( 3) C.C.Cases (HC) 269;
b. Mohd. Ehsan & Anr. Vs. Delhi administration 2001( 2) C.C.Cases (HC) 138;
c. state of Himachal Pradesh vs. Subhash Chand 1994( 3) C.C.Cases (HC) 90;
d. Ashok Kumar vs. Mukand Bihari Kaushal and anr. 1993 (2) C.C.Cases (HC) 206;
e. state vs. Shiv Shakti rice mills and another 1992(2) C.C.Cases (HC) 319;
f. Kamlwati @ Kamla vs. union of India 1992(1) C.C.Cases (HC) 136; g. state of Punjab vs. Gurdev Singh 1992(1) C.C.Cases (HC)510; COMMON JUDGMENT ITO VS. SAUDAGARMAL SHERMAL AND ANR. CC NOS. 35/4 & 36/4 OF 1987 January 2nd , 2010, Page 11 of 17 h. Prithi Pal Singh vs. State of Punjab 1991( 2) C.C.Cases (HC) 115; i. Paramjit Singh alias pamma vs. State of Punjab 198891 C.C.Cases 636 (SUPP)
18. All these judgments relied upon by the accused have been perused by this court but none of these judgments are of any help to the accused being absolutely distinguishable on the facts of the case.
19. In the present case before us, there is nothing on the record, either to even remotely suggest that there was any non application of mind by the Commissioner of Income tax, while granting sanction under section 279 (1) of the Income Tax Act 1961, or to show that entire material was not placed on record before the Commissioner of Income Tax while granting sanction. Merely because the dissolution deed does not find mention in the sanction or in the complainant does not show that there was non application of mind, for the simple reason that it was not required, as the assessment period was prior to the alleged dissolution of partnership. So far as non mentioning of the death of one of the accused is concerned it can be nothing but inadvertent error or slip in non mentioning of the same.
20. The defence of the accused, that after the dissolution dated 1st April 1976 the documents were in possession of the deceased accused gets belied from the document exhibit PW 3/3, which is an application filed by the present accused Kundan lal for grant of extension for furnishing the return of income. This exhibit PW 3/3 COMMON JUDGMENT ITO VS. SAUDAGARMAL SHERMAL AND ANR. CC NOS. 35/4 & 36/4 OF 1987 January 2nd , 2010, Page 12 of 17 bears signatures of the present accused Kundan and the present accused Kundan nowhere denies this document nor he has denied his signatures on this document. Vide this document, which is dated 1st of September 1976, that is, much after the alleged dissolution deed dated 1st April 1976, the accused Kundan requested the income tax authorities to grant extension of the date for furnishing return of income under section 139 of the income tax Act 1961. The reason which is mentioned on the backside of this document for not being able to furnish income tax in time is, that because of difference in the trial balance and the final accounts and the balance sheets not been prepared. Had the defence taken by the present accused in the present proceedings, that the documents were in possession of the deceased accused no. 4, been true, the same reason would have found mentioned on this document exhibit PW 3/3, but no such defence is mentioned on this document which is under the signatures of the present accused. This document alone belies the stand of the accused. Similarly the document exhibit DB which is a reply given by one of the accused before Income tax authorities, also does not find mention of any such reason.
21. Under section 189 of the Income Tax Act, it is provided that where any business or profession carried on by a firm has been COMMON JUDGMENT ITO VS. SAUDAGARMAL SHERMAL AND ANR. CC NOS. 35/4 & 36/4 OF 1987 January 2nd , 2010, Page 13 of 17 discontinued or where a firm is dissolved, the assessing officers shall make an assessment of the total income of the firm as if no such discontinuance or dissolution had taken place and all the provisions of the Act , including the provisions relating to the levy of a penalty or any other sum chargeable under any provision of this Act , shall apply to such assessment. Sub section 3 of section 189 also provides that every person who was at the time of such discontinuance or dissolution a partner of the firm, he shall be jointly and severally liable for the amount of tax, penalty or other sum payable, and all the provisions of this Act , so far as maybe, shall apply, to any such assessment of imposition of penalty or other sum.
22. Therefore from section 189 of the Income Tax Act it is very clear that where a partnership firm is dissolved, it can be assessed to the income tax for the relevant period prior to its dissolution as if no dissolution had taken place and every partner of the firm shall be responsible and liable.
23. In the present case before us the relevant year of assessment of income pertains to the assessment year 1976 1977 for the period ending 31st of March 1976 that is prior to the dissolution of the firm dated 1st April 1976. In such circumstances, the present case, even otherwise is squarely covered under section 189 (3) of the Income Tax Act against the surviving partner and the surviving partner accused cannot claim a defence that prior to the assessment proceedings or penalty COMMON JUDGMENT ITO VS. SAUDAGARMAL SHERMAL AND ANR. CC NOS. 35/4 & 36/4 OF 1987 January 2nd , 2010, Page 14 of 17 proceedings the firm had dissolved or that after dissolution the proceedings were initiated.
24. The notices under section 139 and under section 142 of the Income Tax Act has been duly proved by the complainant on record which shows that those notices were served upon the present surviving accused Kundan lal, but despite services of those notices, the relevant information/documents were not furnished. Those notices bears signatures of the present accused which show that it was received by him and the receipt of those notices are nowhere challenged or denied by the present accused, nor its signatures denied by the accused, rather the accused has admitted those notices having been received by him.
25. It may be mentioned here that section 278B of the Income Tax Act clearly provides that where any 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 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. The explanation appended to section 278B clearly provides that for the purposes of this section the company shall mean and include a firm. It also provides that the Director in relation to a firm means partners in the firm.
COMMON JUDGMENT ITO VS. SAUDAGARMAL SHERMAL AND ANR. CC NOS. 35/4 & 36/4 OF 1987 January 2nd , 2010, Page 15 of 17
26. Section 278E of the Income Tax Act also provides that in any prosecution for any offence under this Act which requires a culpable mental state on the part of the accused, the court shall presume the existence of such mental state, but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as offence in that prosecution. The explanation appended to this section clearly provides that the culpable mental state includes intention, motive or knowledge of a fact, or belief in, or reason to believe, a fact.
27. Sub section (2) of this section further provides that for the purposes of this section a fact can be said to be proved only when the court believes it to exist beyond reasonable doubt and not merely when it's existence is established by preponderance of probability.
28. So far as the present case is concerned the accused has not lead any evidence to prove his defence and therefore the culpable mental state is to be presumed against the accused and in favour of the complainant under section 278E of the Income Tax Act .
29. In such circumstances the accused partnership firm as well as the surviving partner Kundan lal are found guilty for failure to furnish the return of income for the assessment year 1976 1977 for the period ending 31st March 1976. The accused are also found guilty for failure to produce accounts and documents despite receipt of notices under COMMON JUDGMENT ITO VS. SAUDAGARMAL SHERMAL AND ANR. CC NOS. 35/4 & 36/4 OF 1987 January 2nd , 2010, Page 16 of 17 section 142 (1) of the Income Tax Act .
30. In such circumstances both the accused, that is, the accused no. 1 partnership firm and, the accused No 2 Kundan Lal are found guilty and convicted for the offences under section 276CC and section 276D of the Income Tax Act 1961. Copy of this judgment be placed in both the files.
ANNOUNCED IN OPEN COURT ON
02nd January, 2010 (DIGVINAY SINGH)
ADDITIONAL CHIEF METROPOLITAN MAGISTRATE
SPECIAL ACTS, CENTRAL,
TIS HAZARI COURTS
DELHI
COMMON JUDGMENT ITO VS. SAUDAGARMAL SHERMAL AND ANR. CC NOS. 35/4 & 36/4 OF 1987 January 2nd , 2010, Page 17 of 17