2003 (8) TMI 19 - HC - Income Tax

Law applicable Effect of amendments in Section 278 and insertion of Section 278B Offences by company - It was alleged that the accused had knowingly made wrong verification in the income-tax return, declaring the income at a lower figure and, as such, had committed the offence punishable u/s 277 - With regard to the prosecution of the firm-M/s. Vishkarma Motors as accused, in my opinion, the prosecution against the firm is also liable to be quashed on the short ground that at the relevant time, i.e., on July 18, 1973, when the offence was allegedly committed, the accused could only be punished with rigorous imprisonment for a term which may extend to two years. There was no provision for sentencing the accused to pay fine. In my opinion, the firm could not be prosecuted since the firm could not be sentenced to undergo rigorous imprisonment. - held that a juristic person like a company could not be awarded punishment of imprisonment. Criminal complaint under section 277 of the Income-tax Act read with section 34 of the Indian Penal Code are quashed

Summary

Issues:
Quashing of criminal complaint under section 277 of the Income-tax Act, 1961 and order dated January 19, 1990.

Detailed Analysis:

1. Background and Allegations:
The case involved a criminal complaint under section 277 of the Income-tax Act against the accused-petitioners and others. It was alleged that the accused had submitted a false income-tax return for the assessment year 1973-74, leading to a reassessment and penalty notice for concealment of income.

2. Initial Discharge and Revision Petition:
The Chief Judicial Magistrate initially discharged some accused, finding no case against them. However, the Additional Sessions Judge set aside this order, directing further inquiry based on section 278B of the Income-tax Act, which holds a firm guilty if an offence was committed by the firm.

3. Legal Arguments and Precedents:
The petitioners argued that the law applicable at the time of the alleged offence should be considered, citing precedents like CIT v. Jagdish Lal Behl and Smt. Prem Lata v. ITO. They contended that the accused could not be prosecuted under the amended Act.

4. Amendments to Income-tax Act:
The court examined the amendments to section 278 of the Income-tax Act, noting changes in the punishment for false returns and the introduction of section 278B regarding offences by companies.

5. Court's Decision:
The court held that the accused could not be prosecuted for an offence committed before the relevant amendment. It emphasized that there was no evidence of a subsequent income-tax return being filed. Additionally, it ruled that the firm could not be prosecuted as it could not be sentenced to imprisonment, citing the Modi Industries Ltd. v. B. C. Goel case.

6. Conclusion:
The court found the criminal complaint and subsequent proceedings against the accused-petitioners to be an abuse of the legal process. Consequently, it quashed the criminal complaint under section 277 of the Income-tax Act and set aside the Additional Sessions Judge's order, thereby ruling in favor of the accused-petitioners.