Madras High Court
Income-Tax Officer vs R.M. Sevugaperumal And Bros. on 29 September, 1997
Equivalent citations: [1999]240ITR111(MAD)
JUDGMENT
1. This appeal is directed against a judgment of the Additional Chief Judicial Magistrate, Madurai, dated 5-6-1991 in Civil Case No. 20 of 1990.
2. Accused 1 to 3 stood charged under sections 276C and 277 read with section 278B of the Income-tax Act, 1961 ('the Act') and under sections 120B, 193, 196 and 420 read with section 511 of the Indian Penal Code, with reference to the income-tax assessment year 1983-84.
3. The first accused is a partnership firm of which second and third accused are partners. The charge framed against the accused was that the return of income of the first accused firm for the year 1983-84 was filed on 30-12-1983, that the return was signed and verified by the second accused as part of the return, a statement of accounts was also delivered to the ITO, that the loss disclosed in the return was Rs. 57,153, that the ITO found the second accused and his wife visited Singapore and returned to Madras at 3.00 a.m. on 22-6-1982, that a sum of Rs. 54,480 was paid at that time as customs duty in respect of goods brought from Singapore, and this was relevant for the assessment year 1983-84. It is further alleged that this amount was paid out of a sum of Rs. 55,000 which was brought by the third accused being the son of the second accused. This sum was allegedly brought from the cash balance available with the first accused firm at Singampunery. When the ITO examined the rough cash book of the first accused's head office at Singampunery, he found that the cash balance on 21-6-1982 was only Rs. 29,506.16, that there was an entry for the receipt of Rs. 35,000 from the accused's Madurai Sales Depot on 23-6-1982, but this entry was reversed by making a contra-debit entry as on 23-6-1982. It is further stated that an entry made in the Chitta showing the cash of Rs. 35,000 as received on 22-6-1982 and the ITO also found that the entries on 22-6-1982 and 23-6-1982 contained erasure and overwriting and that the entries for the alleged transfer of Rs. 35,000 in the book of the first accused were interpolated. The ITO also found that the debit entry for Rs. 55,000 which was carried by the third accused appeared in the Chitta on 22-6-1982, whereas the third accused had actually left Singampunery with the said amount at 7.00 p.m. on 21-6-1982 at which point of time the cash balance as per the books was only Rs. 29,506.16. Therefore, according to the ITO, the sum of Rs. 55,000 carried by the third accused which was paid as customs duty was unaccounted income of the first accused for the assessment year 1983-84 which was completed on 31-1-1985. The assessee had taken the matter in appeal to the Commissioner, Madras, who confirmed the order by his order dated 15-3-1985. The first accused filed a second appeal to the Tribunal, Madras Bench 'A' and the Tribunal also by its order dated 30-10-1987 found that the accounts maintained by the first accused contained interlineation and cuttings in respect of relevant dates and that it was quite possible that certain entries were made in the account books subsequently in order to provide explanation that the amount had been withdrawn from the Madurai Branch, though in fact there was no such withdrawal. It is further alleged that the entire unaccounted transactions came to be known only after the investigation made by the ITO and that the first accused had given a false explanation and, therefore, it was alleged that the accused had conspired together, suppressed and concealed the assessable income for the assessment year 1983-84 which was unearthed by the ITO. According to the prosecution, the accused having wilfully attempted to evade tax chargeable or imposable under the Act were guilty of offences punishable under section 276C(I) of the Act, and that the second accused having made verification in the return of the income for the assessment year 1983-84 which was false to his knowledge, had committed an offence under section 277 of the act and that the accused having acted wilfully to defraud the exchequer of the legitimate revenue of the Government and to deceive the ITO have committed an offence under sections 193, 196 and 420, read with section 511.
4. Even though the complaint given by the appellant/department discloses the offences under various sections of the Indian Penal Code, a perusal of the charges discloses that the charges were restricted to the offences punishable under the Act, namely, under sections 276C and 277 and there is no mention of the offences under the Indian Penal Code.
Therefore, we are concerned only with the offences arising out of the provisions of the Income-tax Act, 1961.
5. Even before the trial the third accused expired and, therefore, the trial was directed only as against the first and the second accused. The learned Chief Judicial Magistrate, on an analysis of the facts held that the second accused was not guilty of the offence on the ground that he had no mens rea to commit the offence as he was not in India at that time. According to the learned Chief Judicial Magistrate, he cannot be held guilty of an offence for which he was not a party and, therefore, there being no mens rea he cannot be found guilty of the offence. It is brought to my notice that the second accused has also expired during the pendency of this appeal and, therefore, it is not necessary for this Court to consider the correctness or otherwise of the findings of the learned Chief Judicial Magistrate. The only issue which arises for consideration is with regard to the finding of the learned Chief Judicial Magistrate with reference to the firm/first accused.
6. With reference to the first accused the learned Chief Judicial Magistrate found that a company not being a person cannot be stated to have any mens rea and, therefore, a company or a partnership firm cannot be prosecuted under the provisions of the Act.
7. A perusal of section 276C would show that it deals with wilful attempt to evade tax, etc. That section begins with an expression 'If a person wilfully attempts in any manner whatsoever...' Similarly, section 277 which deals with false statement in verification, etc., reads; 'If a person makes a statement in any verification under this Act...' Section 2(31) of the Act defines 'person' as follows :
Section 2(31) 'person' includes -
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-clauses;"
Therefore, the expression 'person' as occurring under section 276C or section 277 of the Act would include a company as well as a firm in terms of the definition contained under section 2(31). Section 278B also makes it clear that where an offence under the Act has been committed by a company, every person who, at the time of offence was committed, was in charge of, and was responsible to 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. "Therefore, on a reference to section 2(31) and section 278B, the liability of the company or a partnership firm is very clearly and statutorily established and there can be no doubts whatsoever over the liability of the partnership firm, the first accused herein.
8. The learned Chief Judicial Magistrate has relied on two decisions in the said context which were reiterated by the learned counsel for the respondents. Reference is made to a judgment of the Rajasthan High Court in Shree Singhvi Bros. v. Union of India. The learned Judge has held that a partnership being a juristic personality cannot be prosecuted for the offence under sections 276C(I), 277 and 278. With due respect, the learned Judge has not made any reference to the definition of 'person' as occurring in section 2(31) or the statutory liability as arising under section 278B.
9. The next ruling which is referred to by the learned counsel for the respondent is Geethanjali Mills Ltd. v. V. Thiruvenkadathan 1989 L.W. (Crl.) Part I, 29. Even though the said judgment deals with the provisions of sections 276C(I), 277 and 278 etc., of the Act, the observation of the learned Judge was specifically restricted only to the offence under the Indian Penal Code. In paragraph No. 12 of the judgment, the learned Judge has dealt with only the offence arising out of the Indian Penal Code and as regards the feasibility of fastening criminal liability in the shape of sentence of imprisonment on a juristic personality like the company. It is only in the said context the learned Judge has expressed that a juristic personality cannot be subjected to bodily punishment or imprisonment. The learned Judge has also taken note of the definition of a person as occurring in section 11 and had concluded that the array of the company as an accused was not permissible under law. Paragraph 12 of the said judgment is extracted below :
"One point of some signal importance touching upon the feasibility of fastening criminal liability in the shape of sentence of imprisonment on juristic personality like the company as well as the impossibility of the commission of offence by it requiring a particular mens rea had neither been adverted to as a ground in the petition; nor was it argued before me. I rather feel that it is rather unfortunate that such a tenable contention was not at all taken by the learned counsel for the petitioners. The first petitioner, no doubt, is a private limited company, a juristic person. It is very well settled that a corporation or a juristic personality cannot be subjected to bodily punishment or imprisonment. This apart, under section 11, I.P.C., the word 'person' is defined as including a company or association or body of persons, whether incorporated or not. All the offences under the Indian Penal Code in respect of which the petitioners are prosecuted before the Criminal Court require the proof of a requisite mens rea as found incorporated in the respective section, which is necessary for the commission of such an offence. All these offences could conceivably be committed by natural persons alone and not a juristic person like the first petitioner, a private limited company. Therefore, I am afraid that the array of the first petitioner as an accused in the Criminal Court is not permissible under law. Such a point, not being taken by the learned counsel for the petitioners, is left open to be agitated, if so advised, at the proper forum."
Therefore, both the judgments do not help the case of the respondents in any manner. As stated earlier, the statutory implications as embodied in sections 2(31) and 278B are very clear and the liability of the company or the firm is statutorily imposed. There are at least two judgments of this Court to sharing the same view.
10. Krishnaswamy Reddy, J. in his judgment A. D. Jayaveerapandia Nadar & Co. v. ITO has held that though a corporation cannot be subjected to bodily punishment, it could, however, be fined and wherever a duty is imposed by a statute in such a way that a breach of the duty amounts to disobedience of the law, then the corporation will also be liable to be punished. On the facts of the particular case, the learned Judge has held that since the second accused had submitted a false return and that the first accused firm of which second accused was a partner was also liable for the offence as such, knowledge or belief can be imputed to the first accused firm.
11. Following the said judgment as well as after making elaborate reference to various other judgments of the Supreme Court and other High Courts on the subject, T. S. Arunachalam, J. has held in Manian Transports v. S. Krishnamoorthy, ITO that though the firm was an impersonal body, can be punished with sentence of fine.
12. Therefore, having regard to the clear statutory provisions as mentioned above and the judgments of this Court referred to above, it is clear that the first accused can be proceeded against for offence under the Act and therejection of the complaint by the learned Chief Judicial Magistrate on the only ground that a company cannot be procceded under the Act has to be set aside and, accordingly, the same is set aside. On the facts of the case, the narration of the facts as stated above would reveal that there is absolutely no defence that could be visualised in favour of the accused. The learned counsel for the respondents contended that the firm was running in loss during the relevant financial year and, therefore, not being liable to pay any tax, there was no evasion of tax and, thus, the question of having done anything legally to evade tax would not arise. The contention of the counsel cannot be sustained having regard to the fact that as per the final assessment order, for the particular accounting year, the net taxable income was Rs. 2,36,605.
This is apart from the fact that the question whether the company was incurring any loss or not, would be irrelevant in considering a charge as to whether there was wilful suppression of account or not. The finding of the Tribunal was also positive to the effect that there were interlineations and cuttings in respect of the relevant dates in the account books. Therefore, the essence of the charge is more as regards the deliberate misstatement and fabrication of the accounts.
13. The learned counsel for the respondents further contended that the officer who had deposed as P.W.2, had himself stated that he was not aware of as to who was really in charge of the administration of the firm. I fail to understand how this issue can be relevant in considering the liability of the firm. In view of the fact that both the second and third accused had died and they are no more, the issue to be considered in this appeal is only regarding the liability of the firm. The learned Judge himself has recorded a specific finding in paragraph 19 of his judgment that as regards the entries for relevant three crucial dates, it is seen that the accounts have not been properly maintained and they are contradictory to each other. Therefore, the liability of the first accused automatically follows on the basis of the said finding.
14. This appeal has, therefore, to be allowed. As regards the penalty to be imposed on the first accused, since the relevant assessment year is 1983-84 which is more than 14 years earlier to this date and also having regard to the fact that both the partners who were in charge of the affairs of the firm are no more, imposition of nominal fine would meet the ends of justice and a penalty of Rs. 500 would be sufficient.
15. In the result, the above appeal is allowed and the first accused is found guilty under section 276C and sentence to pay a fine of Rs. 500. The charge under section 277(ii) is set aside as the said provisions cannot be involved against the firm.