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Issues Involved:
1. Legality of framing charges under Sections 277 and 278B of the Income-tax Act, 1961, against all petitioners. 2. Applicability and interpretation of Section 278B of the Income-tax Act regarding the liability of partners in a firm. 3. Evaluation of evidence and material placed on record to determine responsibility and chargeability of individual partners. Detailed Analysis: Issue 1: Legality of Framing Charges under Sections 277 and 278B of the Income-tax Act, 1961 The revision was preferred to set aside the order dated October 30, 1989, by the Additional Chief Judicial Magistrate, framing charges against the petitioners under Sections 277 and 278B of the Income-tax Act, 1961. The firm, Messrs. Sushila Industries, and its partners were accused of filing a return with false particulars and false verification for the assessment year 1976-77. The complaint was filed by the Deputy Commissioner of Income-tax, alleging liability under Section 277 read with Section 278B of the Act. The Magistrate framed charges against all the accused based on the evidence and arguments presented. Issue 2: Applicability and Interpretation of Section 278B of the Income-tax Act Section 278B deals with "Offences by companies" and stipulates that every person in charge of and responsible for the conduct of the business of the company at the time of the offence shall be deemed guilty. The section includes firms within its definition of a company. The section was applicable as the return was filed in August 1976, after the section came into force on October 1, 1975. The key provision states: - Every person in charge of and responsible for the conduct of the business of the company shall be deemed guilty unless they prove the offence was committed without their knowledge or they exercised due diligence to prevent it. The court emphasized that merely being a partner does not automatically make one liable under Section 278B. The prosecution must prove that the partner was in charge of and responsible for the conduct of the business. Issue 3: Evaluation of Evidence and Material Placed on Record The return for the assessment year 1976-77 was signed and verified by the managing partner, Jagabandhu Behura (petitioner No. 2). The statement of the deceased partner, M. P. Agarwala, indicated he and the accountant managed the accounting work. The complaint and evidence did not show that petitioners Nos. 3 to 7 were in charge of and responsible for the firm's business at the time of the alleged offence. The Magistrate's decision to frame charges against all partners was based on their status as partners, not on specific evidence of their involvement in the conduct of the business. The court referenced several cases, including: - Jasbir Singh v. ITO [1987] 168 ITR 770 (P & H): Partners not in charge of the firm's business were not liable under Section 277. - Girdhari Lal Gupta v. D. N. Mehta, AIR 1971 SC 2162: Emphasized the need for a person to be in overall control of the day-to-day business to be liable. - Sham Sunder v. State of Haryana (1990) 67 Comp Cas 1; AIR 1989 SC 1982: Highlighted that only those responsible for the business could be prosecuted, not all partners. - Smt. Manibai v. State of Maharashtra, AIR 1974 SC 434: A partner is liable only if shown to be in charge of and responsible for the business. The court concluded that continuing prosecution against petitioners Nos. 3 to 7 would be an abuse of the court process as no material indicated their responsibility for the firm's business at the relevant time. Therefore, the charges against them were quashed, but the prosecution against petitioner No. 1 (the firm) and petitioner No. 2 (Jagabandhu Behura) was to continue. Conclusion: The revision petition for petitioners Nos. 3 to 7 was allowed, quashing the charges against them under Sections 277 and 278B of the Income-tax Act. The revision petition for petitioners Nos. 1 and 2 was dismissed, allowing the prosecution to continue against them.
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