1977 (2) TMI 17 - HC - Income Tax

Summary

Issues Involved
1. Prosecution of the managing director under section 277 of the Income-tax Act.
2. Definition and applicability of the term "person" under section 277.
3. Prematurity of the prosecution.
4. Requirement of penalty imposition before prosecution.
5. Authorization from the Commissioner of Income-tax.
6. Invocation of sections 120B and 193 of the Indian Penal Code.
7. Applicability of section 279(1A) of the Income-tax Act.
8. Representative assessee and liability.

Detailed Analysis

1. Prosecution of the Managing Director under Section 277 of the Income-tax Act:
The petitioner contended that the managing director of a company cannot be prosecuted under section 277 of the Act for a return filed by the company. The court held that the managing director, who signed the return as the principal officer, can be prosecuted under section 277. The court emphasized that the statutory obligation to sign and verify the tax return is cast on the principal officer, which includes the managing director.

2. Definition and Applicability of the Term "Person" under Section 277:
The petitioner argued that the term "person" in section 277 refers only to the assessee and not to any other person, such as the managing director. The court rejected this argument, referring to section 2(31) of the Act, which defines "person" broadly to include individuals connected with the management of the company. The court cited the Supreme Court's observation that the term "person" in penal sections includes any individual responsible for the acts done.

3. Prematurity of the Prosecution:
The petitioner claimed that the prosecution was premature as no penalty had been imposed against the company. The court dismissed this contention, stating that the protection under section 279(1A) applies only if the Commissioner exercises discretion under section 271(4A) to reduce or waive the penalty. Since no such order was passed, the prosecution was deemed valid.

4. Requirement of Penalty Imposition Before Prosecution:
The petitioner argued that prosecution under section 277 can only be initiated after the imposition of a penalty. The court clarified that section 279(1A) provides immunity from prosecution only if the penalty is reduced or waived by the Commissioner. In this case, the Commissioner authorized the prosecution without reducing or waiving the penalty, making the prosecution valid.

5. Authorization from the Commissioner of Income-tax:
The court noted that the Commissioner had authorized the prosecution, satisfying the requirement under section 279(1) that prosecution for offences under the Income-tax Act can only be initiated at the instance of the Commissioner.

6. Invocation of Sections 120B and 193 of the Indian Penal Code:
The petitioner contended that the Income-tax Officer could not invoke sections 120B and 193 of the Indian Penal Code for offences under the Income-tax Act without the Commissioner's order. The court held that there was no repugnancy between the Income-tax Act and the Penal Code, and both could be applied cumulatively. The court cited Supreme Court decisions supporting the simultaneous application of the Income-tax Act and the Penal Code.

7. Applicability of Section 279(1A) of the Income-tax Act:
The petitioner argued that section 279(1A) provided immunity from prosecution if the penalty was reduced or waived. The court clarified that this immunity applies only if the Commissioner exercises discretion under section 271(4A). Since no such discretion was exercised in this case, the prosecution was valid.

8. Representative Assessee and Liability:
The petitioner argued that the managing director is not included in the definition of a representative assessee under section 160 of the Act and thus cannot be prosecuted. The court dismissed this argument, stating that sections 160 and 161 are enabling provisions allowing the department to choose between assessing the representative assessee or the person entitled to the income. The managing director, as the principal officer who signed the return, is liable under section 277.

Conclusion
The court dismissed the revision petition and the application to quash the proceedings, directing the Magistrate to proceed with the case expeditiously. The court held that the managing director, as the principal officer, can be prosecuted under section 277 of the Income-tax Act, and the prosecution was neither premature nor invalid.