1997 (9) TMI 4 - SC - Income Tax

Allegation of commission of an offence under section 276B, read with section 278B - Firm - on revision petition HC was not justified in holding that no substantive sentence could be imposed on the firm and in upholding the discharge of the other respondents - set aside the impugned order of the High Court upholding the discharge of the respondents and direct it to hear the revision petition filed by the appellant afresh in accordance with law

Summary

Issues:
1. Validity of prosecution under section 276B of the Income-tax Act, 1961 against a company.
2. Interpretation of section 278B regarding the liability of individuals in a company for offences committed.
3. Analysis of the Law Commission's recommendations on punishment for corporations.
4. Principles of interpretation of statutes in resolving legal ambiguities.

Analysis:

The case involved an appeal against the discharge of respondents in a prosecution under section 276B of the Income-tax Act, 1961. The Special Court allowed the discharge application due to lack of personal hearing before granting sanction for prosecution under section 279(1) of the Act. The High Court upheld the discharge, relying on a previous judgment, stating that prosecution of the company was not maintainable due to the mandatory imprisonment clause in section 276B. However, the High Court did find the prosecution against other respondents maintainable but still upheld their discharge.

The Supreme Court analyzed section 276B and 278B of the Act to determine the liability of companies and individuals for offences committed. Section 278B imposes liability on the company, persons in charge of the business, and directors or officers if the offence is committed with their consent, connivance, or neglect. The Court emphasized that a company can be prosecuted and punished for offences under the Act, even though the sentence of imprisonment cannot be imposed on a juristic person like a company.

The Court referred to the Law Commission's recommendations, highlighting the need to punish corporations for economic offences to maintain respectability and deter future violations. The Commission suggested imposing fines on corporations in place of imprisonment, aligning with the provisions of section 278B of the Act.

In interpreting statutes, the Court emphasized the need to reconcile provisions to advance the intended remedy, even if it requires a liberal construction to give meaning to all parts of the law. The Court cited previous judgments to support the interpretation of statutes in a manner that aligns with legislative intent and removes anomalies or inconsistencies.

Ultimately, the Supreme Court overturned the High Court's order, stating that the prosecution of the company was legally permissible under section 276B. The Court directed the High Court to reconsider the revision petition in light of the observations made, emphasizing the harmonious construction of the Act to ensure effective enforcement of penalties for economic offences committed by corporations and individuals within the company.