1988 (6) TMI 41 - HC - Income Tax

Summary

Issues Involved:
1. Quashing of criminal proceedings under Section 482 of the Criminal Procedure Code.
2. Validity of the criminal complaint based on reassessment orders.
3. Relevance of mens rea for a legal entity like a society.
4. Exemption from personal appearance for petitioners during the trial.

Detailed Analysis:

1. Quashing of Criminal Proceedings under Section 482 of the Criminal Procedure Code:

The petitioners sought to quash the criminal proceedings pending against them, arguing that the reassessment order, which formed the basis of the criminal complaint, had become redundant due to an appellate order being set aside by the Tribunal. The court found this contention to be fallacious, stating that the criminal complaint was not based on the assessment orders but on evidence collected during the assessment proceedings. The court emphasized that the criminal complaint was based on prima facie evidence of false entries and statements in the books of account and other documents filed with the income-tax return, intended to evade income tax.

2. Validity of the Criminal Complaint Based on Reassessment Orders:

The court clarified that the ingredients of the offenses under Sections 276C(1), 277, and 278B of the Income-tax Act are independent of the assessment orders. The criminal complaint was based on evidence showing that the petitioner-society had inflated expenses to evade tax. The court referenced the Supreme Court's judgment in P. Jayappan v. S. K. Perumal, which established that criminal prosecution for offenses under the Income-tax Act can proceed independently of reassessment proceedings. The court held that the criminal complaint could not be quashed merely because the reassessment order had become invalid, as the original assessment order still stood, and the appeal against it was pending.

3. Relevance of Mens Rea for a Legal Entity Like a Society:

The petitioners argued that a society could not be guilty of offenses requiring mens rea. The court rejected this argument, citing precedents that the state of mind of the managers or controlling officers of a company or society is deemed to be the state of mind of the entity itself. The court referenced H. L. Bolton Engineering Co. Ltd. v. T. J. Graham & Sons Ltd. and other cases to establish that a company or society can have a guilty mind through its controlling persons. Thus, the society could be held guilty of the offenses if its controlling officers acted fraudulently on its behalf.

4. Exemption from Personal Appearance for Petitioners During the Trial:

The petitioners requested that the court direct the Magistrate to grant them exemption from personal appearance during the trial. The court declined to issue such directions, stating that it was for the Magistrate to exercise discretion in accordance with the law. The court mentioned that the Magistrate should consider any request for personal exemption in light of applicable laws and relevant judicial observations, such as those in Chandu Lal Chandraker v. Puran Mal, which allowed for exemption from personal appearance under certain conditions.

Conclusion:

The court dismissed the petition, finding no merit in the arguments for quashing the criminal proceedings. The court held that the criminal complaint was based on evidence of false entries and statements intended to evade tax, and not merely on the reassessment order. The court also affirmed that a society could be held guilty of offenses requiring mens rea through the actions of its controlling officers. The petitioners' request for exemption from personal appearance was left to the discretion of the Magistrate.