Madras High Court
M.S.M. Company (Paints) And Others vs T. Govindarajan, Income-Tax Officer on 18 August, 1994
Equivalent citations: [1995]213ITR596(MAD)
JUDGMENT
Rengaswamy J.
1. This revision is directed against the order of the learned Chief Judicial Magistrate, Coimbatore, in Criminal Miscellaneous Petition No. 1094 of 1990 in C.C. No. 66 of 1990 refusing to discharge the petitioners under section 245, Criminal Procedure Code.
2. These petitioners stand charged before the learned Chief Judicial magistrate, coimbatore, under sections 193 and 196, Indian Penal Code, and under sections 276C, 277, 278B of the Income-tax Act, 1961, for fabrication of the accounts suppressing the real income to the tune of Rs. 2,79,965. The leaned Magistrate recorded the evidence under section 244, Criminal Procedure Code, to find out the prima facie case and after the evidence, these petitioners filed a petition to discharge them under section 245, Criminal Procedure Code, as no prima facie case has been made out by the complainant. The learned magistrate disagreeing with the petitioners' version had dismissed the petition. In this revision, challenging that order, learned counsel appearing for the revision petitioners would contend that the evidence adduced before the court below for framing charges is not adequate to hold that there is prima facie evidence of the offences alleged and even P.W. - 1 has admitted that he did not know who was in actual control of the business of the first petitioner and in view of this evidence, the petitioners ought to have been discharged by the learned Magistrate. Learned counsel further argues that only when the initial burden of proof is discharged against the petitioners, the onus shifts to the petitioners to prove that thy are not in actual control of the business and in this case even the initial burden of proof is not discharged and so the petitioners are entitled to discharge.
3. Learned counsel has relied upon certain decisions to support his argument and they are : Arumugha Perumal (M.N.A.) v. State represented by Raghuraman, Drugs Inspector [1984] LW (Crl.) 271); Sham Sunder v. State of Haryana [1990] 67 Comp Cas 1; [1990] LW (Crl.) 4 (SC) and also K. Subramanyam v. ITO [1993] 199 ITR 723 (Mad) and argue that when no prima facie case made out, the accused are entitled to discharge. In the first case [1984] LW (Crl.) 271, this court has observed that even in the complaint, it was not alleged that the accused were in charge of or were responsible for the conduct of the business as contemplated under section 34 of the Drugs and Cosmetics Act, 1940, and, therefore, this court has observed that when there was not even an allegation in the complaint that the accused were in charge of or were responsible for the conduct of the business, there was no question of subsisting proof and hence, the initial burden itself was not discharged by the complainant. In the next case [1990] 67 Comp Cas 1, the documents produced in that case did not show the participation of the partners in the business of the firm and it was observed in that case as follows (at page 4) : "It was, therefore, necessary to add an emphatic note of caution in this regard. More often it is common that some of the partners of a firm may not even be knowing what is going on day-to-day in the firm. There may be partners, better known as sleeping partners, who are not required to take part in the business of the firm. There may be ladies and minors who were admitted to the benefits of partnership. They may not know anything about the business of the firm. It would be a travesty of justice to prosecute all partners and ask them to prove under the proviso to sub-section (1) that the offence was committed without their knowledge". Therefore, this is a case in which even the participation in the business affairs of the partners was not proved and, therefore, the Supreme Court took the view that they were sleeping partners, not even knowing anything about the business of firm, who can be prosecuted. The third decision relied upon by learned Counsel for the revision petitioners (see [1993] 199 ITR 723) also was a case where not even allegations were made against the accused in the complaint. The learned judge observed that (at page 725) : "there are not even allegations regarding the part played by these petitioners in the business except that they are mere directors. None of them is managing director and the managing director, if any, has not been impleaded as an accused. In these circumstances, the prosecution against the petitioners, who are mere directors, is not sustainable." Therefore, the ratio of these decisions is that, if there is no allegation in the complaint that the accused are in actual management or control of the business, they cannot be prosecuted. In this case, in paragraph 11 of the complaint, it is specifically alleged that accused Nos. 2 to 4 are the partners of the first accused firm and they were in charge of and responsible for the conduct of the business of the firm and they are liable to be punished. Therefore, there is a specific allegation against the partners that thy were in charge of the business of the firm. In support of this allegation in the complaint, evidence also has been let in to the effect through P.W. 1 who has stated that the returns of the first petitioner were submitted by petitioners Nos. 2 to 4. In the cross-examination it is elicited that the return was signed by the second accused. Learned counsel would contend that there is no evidence to show that all the three partners had signed the return and further in the cross-examination P.W. -1 would admit that he did not know personally who are all in the management of the first accused firm and in the light of this evidence, it cannot be taken that accused Nos. 2 to 4 are in management and control of the first accused. The evidence of P.W. -1 is not that he was not aware as to who are all in the management of the first accused. On the other hand, he has stated that he was not personally aware of these particulars. P.W. -1 might not have known personally these particulars. Therefore, it cannot be said that there is no evidence with regard to the affairs of the first accused. Exhibit P-7 is the statement of the third accused who would admit that he as a partner of the first accused is looking after the sales of the firm, and the fourth accused is looking after the accounts of the firm - first accused. P.W. - 1 has already spoken that the second accused has signed the returns. It is stated that the second accused is now dead. it is a matter to be ascertained after the production of the death extract and if it is found to be true, the charge against the second accused will automatically abate. For the purpose of this enquiry, now there is evidence before the court to show that these partners are not sleeping partners or partners without knowing anything about the affairs of the first-accused and the decisions cited by learned counsel for the petitioners will be applicable only to the partners of that type whereas it is not so in this case. Therefore, it cannot be stated that there is no prima facie case to frame charges against these accused Nos. 2 to 4. Another contention raised by learned counsel for the petitioners is with regard to the maintainability of the prosecution against the first accused which is a firm. It is the contention of learned counsel relying upon P. V. Pai v. R. L. Rinawma, Dy. CIT [1993]. 200 ITR 717 (Kar) and Geethanjali Mills Ltd. v. V. Thiruvengadathan [1989] 179 ITR 558 (Mad) that the prosecution against the firm is not sustainable in view of the fact that the company cannot be convicted to undergo imprisonment. In the first case, the view of the Karnataka High Court is that the company being a juristic person cannot have means rea, that it cannot be imprisoned and the prosecution cannot be launched against company under sections 276C and 277 of the Income-tax Act. In the next decision referred to by learned counsel, Janarthanam J. has observed that in the case of companies as the requisite means rea for the offence will not be available, the prosecution of such companies may not be proper. In this decision, no point was raised with regard to the maintainability of the prosecution of the company, but while other points were considered, the leaned judge felt that the prosecution of the juristic person, against whom there cannot be means rea, may not be permissible in law. However, he has observed that this point is left open to be agitated at the proper forum. Therefore, there is no finding in that decision on the point in controversy raised by learned counsel for the revision petitioners. Even though in the first decision, the Karnataka High Court has taken the view that a juristic person cannot be prosecuted for an offence for which the punishment of imprisonment is to be imposed, this court has taken a different view in A. D. Jayaveerapandia Nadar and Co. v. ITO [1975] 101 ITR 390, holding that, even though a corporation cannot be subjected to bodily punishment, it could, however, be fined and the fine remains the only mode of punishment applicable to a corporation. This view has been followed in Manian Transports v. Krishna Moorthy, ITO [1991] 191 ITR 1 (Mad), in which Arunachalam J., has observed that even though the provisions under which complaints has been made provided for a mandatory award of imprisonment and fine as sentence, the firm, though an impersonal body, if convicted, could be awarded the sentence of fine alone and it was not necessary to award any imprisonment on the firm." Learned counsel for the respondent, Mr. Ramaswamy, refers to an observation of the Supreme Court in U.P. Pollution Control Board v. Modi Distillery , wherein it is observed that unless the company is prosecuted, the members of the board of directors cannot be prosecuted. In other words, it is expressed therein that, when the members of the board of directors were prosecuted, the company also should be an accused, Otherwise, the prosecution against the members of the board of directors alone is not sustainable. In view of this observation, the prosecution against the company or firm also is maintainable. In Rayala Corporation Pvt. Ltd. v. V. M. Muthuramalingam, ITO [1981] 129 ITR 675, this court has held that the prosecution can be launched against a company and the managing director can be proceeded against for the offence committed under the Income-tax Act. In view of the series of decisions of this court, the contention of learned counsel for the revision petitioners that the prosecution against the company is not maintainable, is not tenable. Even though the company is a juristic person, the affairs of which are being managed by the partners or other responsible persons, the company or firm cannot escape from the punishment when the offence has been committed in the name of the firm or company itself. I agree with the consistent view of this court and, therefore, the second contention of learned counsel for the revisions petitioners with regard to the maintainability of the prosecution against the first accused firm also falls to the ground. As both points urged by learned counsel for the revision petitioners have been rejected, this revision deserves dismissal and, accordingly, the same is dismissed, confirming the order of the leaned Chief Judicial Magistrate, Coimbatore.