1994 (12) TMI 19 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of the expression "shall also be liable to fine equal to the amount of such loan or deposit" in section 276DD of the Income-tax Act, 1961.
2. Legality and appropriateness of the sentences imposed by the magistrates.
3. Discretion of the magistrate in imposing fines under section 276DD.
4. Applicability of fines to partners in a partnership firm.

Detailed Analysis:

1. Interpretation of the Expression in Section 276DD:
The primary issue in these criminal revision applications is the interpretation of the phrase "shall also be liable to fine equal to the amount of such loan or deposit" in section 276DD of the Income-tax Act, 1961. The court emphasized that the expression "equal to" is unambiguous and does not allow for any alternative interpretation. The court rejected the Andhra Pradesh High Court's interpretation in ITO v. Lakshmi Enterprises, which suggested that the fine could be up to the amount of the loan or deposit, as it contradicted the clear language of the statute.

2. Legality and Appropriateness of Sentences:
The court found that the magistrates had committed a patent and obvious error by not properly interpreting section 276DD and by relying on the Andhra Pradesh High Court's decision. The sentences imposed-imprisonment till the rising of the court and a fine of Rs. 250-were deemed unduly lenient and a mockery of the penal provisions of the Income-tax Act. The court held that the fine should be equal to the amount of the loan or deposit as mandated by section 276DD.

3. Discretion of the Magistrate:
The court noted that while the term "liable" generally implies discretion, in the context of section 276DD, the phrase "equal to" removes any such discretion regarding the amount of the fine. The court rejected the argument that the magistrate had unfettered discretion to impose any amount of fine, emphasizing that the legislature's use of "equal to" was deliberate and clear.

4. Applicability of Fines to Partners:
The court addressed the issue of whether fines could be imposed on individual partners of a partnership firm. It concluded that the responsibility for paying the fine under section 276DD lies with the firm, not the individual partners. The court held that the firm is liable to pay the fine equal to the amount of the loan or deposit, and in cases where the firm is defunct, the partners are jointly and severally liable. The imposition of fines on individual partners by the magistrates was found to be illegal and was quashed.

Conclusion:
The court allowed the criminal revision applications in part, quashing the fines imposed on the partners and directing the accused firms to pay fines equal to the amount of the loans or deposits by March 31, 1995. The court's interpretation ensures strict enforcement of the penal provisions under the Income-tax Act, maintaining the legislative intent and clarity of the statute.