Andhra HC (Pre-Telangana)
Income-Tax Officer vs Jyothi Coconut Merchants And Ors. on 21 August, 1990
Equivalent citations: [1991]187ITR246(AP)
JUDGMENT Y. Bhaskar Rao, J.
1. These two appeals give rise to the twin questions of law, namely :
"(i) Whether a company, being a juridical person, is liable for prosecution for an offence under the provisions of the Income-tax Act ? and
(ii) Whether a company, being a juridical person and incapable of being put to bodily punishment like sentence of imprisonment, can be sentenced to fine only though the punitive provision in the tax law contemplates imposition of a minimum sentence of imprisonment and also fine ?"
2. The brief facts involved in these appeals are :
A firm called Messrs. Jyothi Coconut Merchants and its two partners were prosecuted under section 277 of the Income-tax Act for falsification of accounts for the assessment years 1980-81 and 1981-82. The trial court, on a consideration of the entire material on record, convicted the partners alone and sentenced them while acquitting the firm on the ground that the firm cannot be sentenced to imprisonment. It is against this acquittal of the firm that the Revenue has filed these appeals.
3. Learned counsel for the Revenue contends that the firm could be sentenced to a fine, though not to imprisonment, since section 277 of the Act contemplates imposition of fine also besides sentencing to imprisonment. He submits that a combined reading of sections 277 and 278B (incorporated in 1975) of the act makes it clear that a company can be proceeded against and punished for any offence committed under the Act.
4. Mr. Dasaratharama Reddy, learned counsel appearing for the firm/company, submitted that the very prosecution of the firm is illegal inasmuch as it cannot be sentenced to the minimum period of imprisonment contemplated by the provisions of the Income-tax Act even if it is found that the firm is guilty of the offence. His submission is that since imposition of sentence of imprisonment, which is mandatory, is impossible against a firm/company, the very trial of the firm/company amounts to an idle exercise and, therefore, the prosecution itself is bad in law. He further contended that imposition of a simple sentence of fine, while the law requires sentence of imprisonment besides fine, is against the intent of the legislature and, therefore, such a compromising outlook amounts to usurping the legislative function.
5. Now, it is relevant to notice the definition of "person" as per section 2(31) of the Income-tax Act.
6. It is as under :
"(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;
Thus, a company, firm or any juridical person is included within the definition of "person".
7. Section 277 of the Act under which the firm/company was prosecuted has undergone amendments in the matter of sentence only while keeping intact the ingredients of the offence. Between April 1, 1962, and March 31, 1964, the sentence prescribed was simple imprisonment which may extend to six months, or with fine which may extend to one thousand rupees, or both. Between April 1, 1964, and September 30, 1975, the sentence prescribed was rigorous imprisonment for a term which may extend to two years and, ordinarily, not less than six months. On and from October 1, 1976, the section reads thus :
"277. False statement in verification, etc. - If a person makes a statement in any verification under this Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable, -
(i) in a case where the amount of tax, which would have been evaded if the statement or account had been accepted as true, exceed one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;
(ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extand to three yars and with fine."
8. AHF The amended section has, thus, linked punishment to the quantum of the tax sought to be evaded. Where the amount of tax which would have been evaded if the statement or account had been accepted as true exceeds Rs. 1 lakh, the punishment will be rigorous imprisonment for a minimum term of six months and maximum term of seven years and fine. In any other case, the punishment will be rigorous imprisonment for a minimum term of three months and a maxinum term of three years and fine.
9. It is also worthy of note that section 278B was incorporated in the Income-tax Act through the Taxation Laws (Amendment) Act, 1975, with effect from October 1, 1975, so as to place the matter beyond all controversy in cases where the offence is committed by a company, firm, etc., Section 278B runs as under :
"278B. Offences by companies - (1) Where an 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 the business of the company as will as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly :
Explanation. - For the purpose of this section, -
(a) 'company' means a body corporate, and includes -
(i) a firm; and
(ii) an association of persons or a body of individuals whether incorporated or not; and...."
10. Section 278B has, thus, specifically rendered the company which includes a firm liable to prosecution for offences committed under the Income-tax Act.
11. The liability of a company in a prosecution for the offence committed by its agents had come into question in a number of cases, both English and Indian. In the decision in Director of Public Prosecutions v. Kent and Sussex Contractors Ltd. [1944] 1 KB 146, the question was whether a limited company, being a body corporate, can in law be guilty of the offences charged against the respondents therein or whether a company is incapable of any act of will or state of mind such as that laid in the charge. The charge there was that the company, with intent to deceive, made use of a document which was false in material particulars. Viscount Caldecote L.C.J., after having referred to the case law, observed that though a company cannot be found guilty of certain criminal offences, such as treason or other offences for which it is provided that death or imprisonment is the only punishment, yet a company can be convicted for certain offences. Adverting to an argument that a company cannot have mens rea and that mens rea cannot be imputed to a company even if and when its agents have been shown to have one, it was observed by the learned judge that the mens rea in that case was not relevant, but, however, stated that the offence created by the regulation are those of doing something with intent to deceive or of making a statement known to be false in a material particular and, therefore, the company will be liable for the acts done by its agents. Macnaghten J., in the same decision, states that if the responsible agent of a company puts forward on its behalf a document which he knows to be false and by which he intends to deceive, his knowledge and intention must be imputed to the company.
12. In Rex v. I.C.R. Haulage Ltd. [1944] 1 All ER 691 (CCA), the controversy was where and on what principle the line must be drawn and on which side of the line an indictment such as the company's liability to a common law conspiracy to defraud falls. The argument on behalf of the company was that an indictment against a limited company for any offence involving mens rea must be bad for the reason that a company, not being a natural person, cannot have a mind honest or otherwise and, therefore it is immune from criminal process. Stable J. referring to the contention of counsel for the Crown that a limited company, like any other entity recognised by the law, can as a general rule be indicted for its criminal acts which from the very necessity of the case must be performed by human agency and for this purpose there was no distinction between an intention or other function of the mind and any other form of activity, endorsed agreement with the same. The learned judge also agreed that a limited company cannot be indicted for offences like perjury, bigamy, murder, etc., that they are exceptions to the general rule.
13. In Moore v. Bresler Ltd. [1944] 2 All ER 515 (KB), Viscount Caldecote L.C.J., following the principle laid down in Director of Public Prosecutions' case [1944] 1 KB 146, held that the sales of the goods, though alleged to be with intent to defraud the company, were effected by the officers of the company, that those goods were the property of the company and intended for sale, that, therefore, the officers were acting within the scope of their authority and as agents of the company, and, therefore, by their act, they made the company also liable for the offence and, accordingly, the conviction of the company was upheld by setting aside the discharge order.
14. In H.L. Bolton (Engineering) Co. Ltd. V.T.J. Graham and Sons Ltd. [1957] 1 QB 159 (CA). Denning L.J. while approving the principle laid down in the above decisions, stated clearly and succinctly that a company can be indicted for the criminal act of its agents, the liability depending upon the nature of the charge, the relative position of the agents and other relevant facts.
15. In Harish Chandra v. State of Madhya Pradesh, , the Supreme Court held that an association can be held liable for contravention of the provisions of the Madhya Bharat Iron, Steel and Scrap Control Order, 1949. There, the accused was the President of the Scrap Dealers association. The employees of the association effected sales of scrap in excess of the price fixed by the Government. For contravention of the Control Order, 1949, a prosecution was launched. While affirming the conviction of the President on the ground that he had abetted the offence, the Supreme Court held that the association could be held liable for the contravention through the acts done by its agents.
16. The Madras High Court, in A. D. Jayaveerapandia Nadar and Co. v. ITO , having referred to the decisions noted supra, held that, besides the partner of the firm who submitted the false return knowing or believing the same to be false, the firm will also be liable for the offence as such knowledge or belief can be imputed to the firm also.
17. In view of the abundant case law and the specific provision. Viz, section 278B of the Income-tax Act rendering the company which includes a firm, liable for prosecution for the offences under the Income-tax Act, the first question framed is answered in the affirmative.
18. Adverting to the second question, it is to be noticed that a Full Bench of the Delhi High Court in Delhi Municipality v. J.B. Bottling Co. [1975] Crl. LJ 1148, had occasion to consider exactly the same issue, Viz, whether the sentence of imprisonment and fine contemplated by the provisions of the statute could be limited to a fine in the case of companies. There, J.B. Bottling Co. Pvt. Ltd., was prosecuted for an offence under the provisions of the prevention of food Adulteration Act, viz., section 16(1), for which the minimum punishment contemplated was a sentence of imprisonment for a term of not less than six months and fine of not less than Rs. 1,000. Section 17 of the Prevention of Food Adulteration Act, just as section 278B of the Income-tax Act, refers to offences committed by a company. Section 17 of the Prevention of the Food Adulteration Act and section 278B of the Income-tax Act are substantially the same in effect. Yogeshwar Dayal J.(as he then was), speaking for the Full bench, observed that, by a simple rule of interpretation, a company, as contemplated by section 17, is covered for the purpose of prosecution under section 16(1) of the Act, that the history of section 16 also shows the legislative stringent that the idea of the Legislature was to make punishment more stringent and not to create an exemption in favour of companies. Addressing himself to the question as to in what way section 16(1), in view of its compulsory imprisonment which is not possible in the case of a company, could be interpreted, the learned judge referred besides other principles, to the observation of Gajendragadkar J. in Siraj-ul-Haq-Khan v. Sunni Central Board of Waqf, . Viz., (headnote) :
"It is well settled that in construing the provisions of a statute, courts should be slow to adopt a construction which tends to make any part of the statute meaningless or ineffective; an attempt must always be made so to reconcile the relevant provisions as to advance the remedy intended by the statute. In such a case, it is legitimate and even necessary to adopt the rule of liberal construction so as to give meaning to all parts of the provision and to make the whole of it effective and operative."
and finally held that a company as defined in section 17 of the Prevention of Food Adulteration Act does not enjoy immunity from prosecution when, under the said Act, it is alleged to have committed an offence and, in the event of the company being found guilty, it can be punished with fine only though the section contemplates sentence of compulsory imprisonment and fine since the corporal punishment of imprisonment becomes impossible of execution in the case of a company. As noted supra, section 278B of the Income-tax Act is substantially in effect the same as section 17 of the Prevention of Food Adulteration Act and equally so is section 277 of the Income-tax contemplating a minimum sentence of imprisonment and fine. In paragraph 41, the Full Bench observed that there is no difficulty in the court passing the sentence of imprisonment and fine in the case of a company, but ex facie such an order which is contemplated by the section will not be passed as the sentence, so far as the imprisonment is concerned, cannot be executed; but that does not mean that the company is granted exemption from indictment. While ultimately holding that though the sentence of both imprisonment and fine is mandatory, it will be limited to fine in the case of companies; the Full Bench reversed the decision of a Division Bench of that court in Rameshwar Dass Chottey Lal v. Union of India, , wherein the view taken was to the contrary. This decision of the Full Bench was followed by a Division Bench of the same High court arising under the provisions of the Income-tax Act in Rishikesh Balkishandas v. I. D. Manchanda, ITO (1987) 167 ITR 49. This Full Bench decision applies to the provisions involved in the instant appeals on all fours and, accordingly, it is to be held that a company can be sentenced to fine only, though the provisions in the Income-tax Act contemplate a sentence of imprisonment and fine.
19. Mr. Dasaratharama Reddy, learned counsel appearing for the firm/company, in support of his contention that since the mandatory sentence of imprisonment cannot be implemented against a company, the company cannot be prosecuted, has sought to place reliance upon a decision of the Supreme Court in State of Maharashtra v. Jugmander, . There, the Supreme Court, while interpreting a similar provision under section 3(1) of the Suppression of Immoral Traffic in Women and Girls Act, 1956, held that the expression "shall be punishable with imprisonment and also with fine" means that the court is bound to award a sentence consisting both of imprisonment and fine. This decision was given by the Supreme Court in view of the submission made by the respondent therein who desired the court to exercise its choice as to the nature of the punishment. The accused involved in that case, viz., a brothel, could suffer both the corporal punishment and the fine. The Supreme Court held that the accused was liable to suffer both types of punishment. There, the Supreme Court was not considering the question; where the minimum sentence prescribed is both corporal and fine, whether it can be awarded to an artificial person, and if they could not be awarded cumulatively, whether the sentence, in so far as it was possible, could be awarded at all. The decision of the Supreme Court, thus, has no application to the present issue.
20. The other decision referred to by Mr. Dasaratharama Reddy is that of the Delhi High Court in PNB Finance and Industries Ltd. v. Gita Kripalani, ITO . Though the decision of the Full Bench of the Delhi High Court is referred to in this decision of a single judge, the case was not decided in the background of the present issue and, therefore, that decision is of no help.
21. Another decision of the Delhi High Court relied upon is the one in General Sales P. Ltd. v. Gopal Mukherjee, ITO . There, a petition under section 482, Criminal Procedure Code, was filed for quashing the order whereby the petitioners in that case were summoned in a criminal complaint. The argument there was that, for want of mens rea and also in view of the minimum imprisonment prescribed by section 276C(1) of the Income-tax Act, the company cannot be held guilty. The learned judge having referred to the decision of the Full Bench of that High Court and also to the later decision in PNB Finance and Industries Ltd. , wherein the view taken was that the Full Bench decision needed reconsideration, disposed of the petition. No decision, as such, independently is rendered on the question involved in the present appeals.
22. The other decision relied upon is that of the Rajasthan High Court in Shree Singhvi Bros. v. Union of India . Referring to the decision of the Full Bench of the Delhi High Court, the Rajasthan High Court observed that it is a decision rendered in relation to the provisions of the Prevention of Food Adulteration Act whereunder the punishment contemplated was a sentence of fine alone and, therefore, was not applicable. With great respect to the learned judge, I must point out that the punishment contemplated by section 16(1) of the Prevention of Food Adulteration Act, involved in the Full Bench decision, is a sentence of imprisonment and fine and not at all a simple fine only. In view of this, I am not able to persuade myself with the principle laid down by the Rajasthan High Court.
23. Mr. Dasaratharama Reddy took me through a number of other decisions such as Kusum Products Ltd. v. S. K. Sinha, ITO , Modi Industries Ltd. v. B. C. Goel , S. M. Badsha v. ITO (1987) 168 ITR 332 (Ker) and Vijaya Commercial Credit Ltd. v. Sixth ITO . These are all decisions relating to offences that took place earlier to October 1, 1975, i.e., before the amendment of section 277 and incorporation 278B. At that point of time, the sentence prescribed was only imprisonment and imposition of fine was not contemplated by section 277 of the Income-tax Act. The judgment of this court in Crl. Appeal No. 1013/82 dated December 11, 1984, ITO v. K. R. Yellagowd (Appex.) (infra), also is one in relation to an offence that took place earlier to October 1, 1975. Therefore, these decisions have no application to the present provisions as amended and incorporated.
24. It is apposite here to note that, while interpreting the provisions in the statues, such as section 277 in the instant case, the paramount object is to discover what the Legislature intended. As Mr. Justice Holmes warned, "Words are certainly not crystals, transparent and unchanged" (vide Towne v. Eisner (1918) 245 US 418 at 425). So much so, as put by Learned Hand J. "Statutes should be construed, not as theorems of Euclid, but with some imagination of the purposes which lie behind them (Lenigh Valley Coal Co. v. Yensavage (218 FR 547 at 553)). The Supreme Court having followed the above principles of Mr. Justice Holmes and Learned Hand J. in Union of India v. Filip Tiago De Gama, AIR 1990 SC 981, also observed that legislators do not always deal with specific controversies which the courts decide and that if a given case is well within the general purpose of the Legislature but not within the literal meaning of the statute, the courts must strike a balance. Keeping these principles in mind and advancing the purpose behind incorporating section 278B and rendering section 277, by way of amendments from time to time, more and more severe and following the decision of the Full Bench of the Delhi High Court, it is to be held that a company can be sentenced to fine only though the section contemplates imposition of minimum sentence of imprisonment and fine. Question No. 2 is, accordingly, answered in the affirmative.
25. Coming to the question of sentence to be imposed against the firm, it is to be noted that the finding of guilt arrived at against the firm by the court below is not challenged before me. Therefore, the firm is convicted under section 277(1) of the Income-tax Act and sentenced to pay a fine of Rs. 1,000 in each appeal. The appeals are, accordingly, allowed.