1986 (8) TMI 22 - HC - Income Tax

Summary

Issues Involved:
1. Quashing of the impugned order summoning the petitioners.
2. Allegations of fake donations and tax evasion.
3. Applicability of section 276C(1) of the Income-tax Act, 1961.
4. Compliance with principles of natural justice.
5. Mens rea and the company's liability under section 278B of the Act.

Detailed Analysis:

1. Quashing of the Impugned Order Summoning the Petitioners:
The petitioners sought to quash the impugned order dated May 2, 1986, summoning them in a criminal complaint. The court noted that it is a settled proposition of law that if the complaint did not show a prima facie case, the impugned order and proceedings could be quashed. However, the court found that the complaint did make out a prima facie case against the petitioners and thus, the order summoning them was upheld.

2. Allegations of Fake Donations and Tax Evasion:
The complaint alleged that the petitioners, who were directors of the company, indulged in malpractice by making fake donations of Rs. 25 lakhs to two trusts, Hastimal Sancheti Memorial Trust (HSMT) and Poona Medical Foundation (PMF), to claim deductions under section 35(2A) of the Income-tax Act. The modus operandi involved issuing cheques that were never intended to reach the donees but were instead maneuvered through dubious means to evade tax. The court found these allegations sufficient to constitute a prima facie case.

3. Applicability of Section 276C(1) of the Income-tax Act, 1961:
The court examined whether the circumstances alleged in the complaint fell within the scope of section 276C(1) of the Act, which deals with the wilful attempt to evade tax. The court noted that the alleged actions of the petitioners appeared to be a wilful attempt to evade tax, as contemplated under Explanation (iv) to section 276C(1). The court held that if the allegations were proved, the case would fall under the first category of section 276C(1), which prescribes rigorous imprisonment and fine.

4. Compliance with Principles of Natural Justice:
The petitioners contended that they were not given a reasonable opportunity to be heard before the prosecution was launched, violating principles of natural justice. The court referred to the case of S. Harnam Singh Suri v. Central Board of Direct Taxes, which emphasized the need for a preliminary inquiry before launching prosecution. However, the court also noted a Division Bench ruling that the Income-tax Officer was not required to comply with sections 476 and 479A of the Code of Criminal Procedure. The court concluded that the adequacy of the representation made by the petitioners to the authorities before the complaint was filed should be considered by the trial Magistrate.

5. Mens rea and the Company's Liability under Section 278B of the Act:
The petitioners argued that for want of mens rea and given the minimum imprisonment prescribed under section 276C(1), the company could not be held guilty under section 278B. The court referred to a Full Bench decision in Municipal Corporation of Delhi v. J. B. Bottling Co. Pvt. Ltd., which held that a company could be punished with a fine even if it could not be imprisoned. The court also noted differing views in subsequent judgments but concluded that these matters should be considered by the High Court in appropriate proceedings after the trial.

Conclusion:
The petition to quash the impugned order and the proceedings was dismissed. The court found that a prima facie case was made out against the petitioners, and issues related to natural justice and mens rea should be addressed during the trial.