1998 (11) TMI 84 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 276C of the Income-tax Act for offences committed before its amendment.
2. Prosecution of a partnership firm under Sections 276C and 277 of the Income-tax Act.
3. Specific averments required for prosecuting partners under Section 278B of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Applicability of Section 276C of the Income-tax Act for offences committed before its amendment:
The petitioners were accused of attempting to evade income tax based on returns filed showing false and low income. However, the alleged offence in Case No. 332(M) of 1984 occurred on July 30, 1974, before the amendment of Section 276C by the Taxation Laws (Amendment) Act, 1975, effective from October 1, 1975. The original Section 276C pertained to the failure to furnish returns, while the amended section addressed wilful attempts to evade tax. The court held that a person could not be convicted under the amended Section 276C for an act committed before its effective date. Therefore, the petitioners could not be prosecuted under the amended Section 276C for the offence committed in 1974.

2. Prosecution of a partnership firm under Sections 276C and 277 of the Income-tax Act:
The petitioners argued that the firm (petitioner No. 1) could not be punished with imprisonment as mandated under Sections 276C and 277 of the Income-tax Act. The court agreed, noting that a partnership firm cannot be sentenced to imprisonment. Liability, if any, would be on its partners. The court referenced Section 278B, which holds individuals in charge of the company's business responsible for offences committed by the company, provided they cannot prove the offence was committed without their knowledge or despite due diligence. The court concluded that prosecuting the firm would be futile since it could not be imprisoned.

3. Specific averments required for prosecuting partners under Section 278B of the Income-tax Act:
The complaint against the partners (petitioners Nos. 2 and 3) lacked specific averments detailing their responsibility and conduct in the firm's business. The court emphasized that mere bald statements in the complaint were insufficient. It cited precedents, including the apex court's decision in Sham Sunder v. State of Haryana and the Madras High Court's ruling in Tmt. Thangalakshmi v. ITO, which required specific allegations of how each partner was responsible for the firm's business. The court found that the complaint and evidence failed to specify the roles of the partners or who signed the false verification. Consequently, the court held that petitioners Nos. 2 and 3 could not be prosecuted without specific allegations of their involvement in the offence.

Conclusion:
The court quashed the entire criminal proceedings against the petitioners, including the orders taking cognizance and rejecting the discharge petitions. It deemed the proceedings an abuse of the court's process, as no useful purpose would be served by continuing the prosecution. The criminal proceedings in Cases Nos. 332(M) of 1984, 331(M) of 1984, and 330(M) of 1984, pending in the Special Judge (Economic Offences) court, Patna, were quashed.