1997 (2) TMI 66 - HC - Income Tax

Summary

Issues:
1. Prosecution under section 276DD of the Income-tax Act prior to April 1, 1989.
2. Validity of prosecution under section 269SS post omission of section 276DD.
3. Interpretation of Defence of India Rules in relation to prosecution.
4. Accountability of officials in filing frivolous complaints.

Analysis:

1. The judgment deals with the appeal filed by the Assistant Commissioner of Income-tax against the orders of the Special Judge for Economic Offences. The issue revolves around the prosecution under section 276DD of the Income-tax Act before April 1, 1989, which provided for penalties for receiving deposits or loans not through account payee cheques or drafts.

2. Post the omission of section 276DD by the Direct Tax Laws (Amendment) Act, 1987, the Department initiated prosecution under section 269SS, contending that any violation of this provision should lead to criminal prosecution. However, the Court highlighted that the Defence of India Rules ceased to be in existence after a notification in 1965, rendering the prosecution invalid for offences committed after the omission of section 276DD.

3. Referring to a previous Supreme Court judgment, the Court emphasized that once a rule or provision is omitted or ceases to be in force, new proceedings cannot be initiated for offences committed during the period when the rule was in force. The Court rejected the argument that actions taken under the rule while it was in force could justify new proceedings after its omission, deeming the complaint invalid.

4. The judgment also criticized the officials for filing frivolous complaints and wasting public money. The Court expressed concern over the lack of accountability among officials and highlighted the need to introduce measures to ensure responsible handling of public funds. Ultimately, the Court dismissed the appeal, affirming the Magistrate's decision to reject the complaint as frivolous.