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TMI Blog1977 (2) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... ismissed the petition by overruling all the objections raised and holding that the complaint should be proceeded in accordance with law. However, by the said order, the learned Magistrate has left the doors open for the grounds of objection being agitated once again at the appropriate stage of the case, i.e., after evidence has been recorded. Hence, this revision. Crl. M.P. No. 4813 of 1976 was filed during the hearing of the revision petition. The facts which led to these petitions, in brief, are as follows: The respondent-complainant is the Income-tax Officer, Central Circle III, Madras-34. The petitioner is the first accused and one Sri R. S. Yagneswaran is the second accused. The complaint was filed before the Chief Presidency Magistrate under sections 277 and 278 of the Income-tax Act, 1961, and sections 120-B and 193 of the Indian Penal Code, relating to an offence said to have been committed during the assessment year 1965-66. According to the complaint, the first accused is the managing director of the Rayala Corporation Private Ltd., which is a company carrying on the business of manufacture and sale of Halda typewriters under Swedish collaboration. The second accused was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... features of the grounds are as follows: (1) The managing director of an incorporated company cannot be prosecuted under section 277 of the Act in respect of the return filed by the company, as a combined reading of sections 271(4A), 277 and 279(1A) shows that only the person against whom the penalty is imposable in respect of the return can be prosecuted, but not the managing director in the case of a company, and, therefore, the complaint for an offence under section 277 of the Act against the managing director when the return is filed by the company, is not at all maintainable. (2) The managing director of a company is not included in the category of a representative assessee (vide section 160) and as such the managing director will not be a "person" under section 277 of the Act, whereas a representative-assessee will be a "person" under section 277. For this proposition, the learned counsel for the petitioner would try to make a distinction between the word "person" occurring in sections 276, 276A, 276C, 276D and 277 on the one hand and the word "person" occurring in sections 276B and 278 of the Act. According to him, the former sections relate to an assessee and the latter se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion case and deal with the arguments raised by the learned counsel. The main allegation against the petitioner (accused No. 1) is that he has committed the offence punishable under section 277 of the Act, which is the main charge in this case. Section 277 of the Act, as it stood at the period relevant to this case, reads as follows: "If a person makes a statement in any verification under this Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable with rigorous imprisonment for a term which may extend to two years: Provided that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for less than six months." As per the section, if the assessee conceals a part of his income when submitting a duly verified return, whether under section 139(1) or in response to an individual notice under section 139(2), it would constitute an offence under this section. In other words, when the assessee verifies and submits a return which he knows or believes to be false, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the instance of the Commissioner. Therefore, the machinery of the prosecution under sections 275A to 278 under Chapter XXII of the Act can be set in motion only at the instance of the Commissioner. It is apparent that though section 279(1) covers almost all the penal provisions of the said chapter, sub-section (1A) of the said section provides that no prosecution shall be instituted for an offence under section 277 alone if the penalty imposable is reduced or waived. Therefore, it was contended that only the person against whom the penalty is imposable can be prosecuted under this section, but not any other person than the accused. Mr. N. C. Raghavachari would vehemently contend that there was a lacuna in the statute on the date of the impugned prosecution, that the managing director cannot be prosecuted for the submission of a return on behalf of a company and, therefore, Parliament in its wisdom has thought it fit to give a go-by by introducing a new provision under section 278B, which is to the effect that now a director can be prosecuted along with the company after October 1, 1975, from which date the amendment came into force. This sub-section (1A) was inserted by the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the lower court. The said, authorization read as follows: "Whereas, after perusing and examining the income-tax records and other papers connected with the company, the Rayala Corporation (P.) Ltd., I am satisfied that a false verification has been wilfully made by the managing director, Shri M. R. Pratap, in the return of income of the said company dated November 17, 1965, for the assessment year 1965-66 and that the said false return of income and other false statements have been knowingly delivered by the said Shri M. R. Pratap to the Income-tax Officer with the knowledge that therein, among others, the expenditure had been inflated and the net income bad been understated, I hereby authorize the filing of complaint against Shri M. R. Pratap under section 277 of the Income-tax Act of 1961. (2) Whereas I am satisfied that Shri R. S. Yagneswaran, chief accountant, has abetted Shri M. R. Pratap in committing the aforesaid offences, I hereby authorize the filing of complaint against Shri R. S. Yagneswaran under section 278 of the Income-tax Act, 1961." By the above authorization, it is unequivocally made clear that the Commissioner of Income-tax has been satisfied that a f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bengal Immunity Company v. State of Bihar [1955] 6 STC 446, 589; AIR 1955 SC 661 at 736 (para. 168), which runs as follows: "It is a cardinal rule of construction that when there are in a statute two provisions which are in conflict with each other such that both of them cannot stand, they should, if possible, be so interpreted that effect can be given to both, and that a construction which renders either of them inoperative and useless should not be adopted except in the last resort. This is what is known as the rule of harmonious construction." In the light of the above observation, Mr. C. K. Venkatanarasimhan submits that there is no conflict between sections 277 and 279(1A) and, even if there is any, it must be so interpreted that effect can be given to both. His further submission is that in order to attract section 279(1A), certain conditions as laid down under section 271(4A) have to be satisfied, viz., the voluntary disclosure before detection by the department, and as these are not satisfied in the present case, the immunity cannot be pleaded. Further, he would say that this is a matter ultimately only for evidence. Countering the above argument, it was contended on beh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation of persons or a body of individuals, whether incorporated or not, (6) a local authority, and (7) every artificial juridical person not falling within any of the preceding sub-clauses. The word "assessee" is defined in section 2(7) as a person by whom any tax or any other sum of money is payable under the Act, and includes a person in respect of whom proceedings under this Act has been taken, for the assessment of his income, etc. Under Chapter XXII, in sections 276, 276A, 276B, 277, 278 and 279, the word "person" is used. Mr. C. K. Venkatanarasimhan would resist the above submission very vehemently and say that the word "person" in section 277 does not and cannot mean the assessee. Relying on an obiter dictum of the Supreme Court in Kapurchand Shrimal v. Tax Recovery Officer [1969] 72 ITR 623 (SC), Mr. C. K. Venkatanarasimhan would submit that the expression "person" occurring in the penal sections is not used in the sense in which it is defined in section 2(31) of the Act, but would include any person who makes a declaration on oath which he believes to be false. According to the respondent, a verification of the return of income in this case is only one of several verific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresentative assessee". Therefore, according to him, the word "person" occurring in section 277 will include neither the managing director nor the principal officer nor the representative assessee, and as the definition of "person" includes only the company, the verification has to be done under section 139 only by the company and the person who signs that verification is only a signatory whereas the company is the assessee, the person who is obliged to file the verified return. He would also place reliance on Kapurchand's case [1969] 72 ITR 623 (SC) and say that it is in his favour, since, according to him, the Supreme Court had held that a "karta" would not come under the definition of "person" because "karta" is not included in the definition of a "Hindu undivided family" and thus the observations of the Supreme Court in the said decision would not help the revenue in this case. He would bring to my notice the newly introduced sections 278B and 278C (introduced on October 1, 1975), according to which sections a director in the case of a company and a karta in the case of a Hindu undivided family can be prosecuted, and, therefore, by virtue of the said new amendments, the legisl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) no prosecution can be instituted in respect of the same facts on which a penalty has been imposed. In the old Act, a larger protection was given. In the present, under section 279(1A), a partial protection is given, which itself will constitute a sufficient safeguard, fettering the absolute discretion of the Commissioner in instituting prosecution." Relying on the above passage, Mr. N. C. Raghavachari would submit that only the assessee against whom the penalty is imposable can be prosecuted under section 277 and not a person other than the assessee. He would further contend that the prosecution is not justified in going to the definition of the word "person" in the General Clauses Act since there is a specific definition in the Income-tax Act itself. Resisting the above contention, Mr. C. K. Venkatanarasimhan would submit that the person liable to prosecution under section 277 need not necessarily be only the assessee on whom penalty is leviable under section 271(1)(c) for concealment and that the word "person" occurring in section 276 means the individual who fails to do the acts prescribed by the statute and the word "person" occurring in section 276A means the individual wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "If the statement is false and if it is made knowing it to be false or believing it to be false, then the delinquent is punishable, on conviction before a Magistrate..." Mr. Venkatanarasimhan has vehemently urged, on the basis of the above rulings, that accused No. 1, being the managing director of the company, is liable for prosecution under section 277 of the Income-tax Act and the word "person" occurring in section 277 must be given its ordinary dictionary meaning which would include the individual persons who fail to carry out the duty cast upon them by the specific provisions of the statute and, therefore, in the instant case, the managing director, who has wilfully made the verification knowing that it was false, is certainly liable to be prosecuted under section 277 of the Act. In view of the dictum of the Supreme Court in Kapur Chand's case [1969] 72 ITR 623 (SC), I am unable to accept the argument advanced by Mr. Raghavachari. On the other hand, I am of the view that the petitioner cannot escape on the plea that the word "person" used in section 277 refers only to an assessee but not the person who has made the verification on behalf of the said assessee. Section 140(c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i in open court. On looking at that statement, the learned counsel would fairly state that it is true that the accused has signed in his capacity as the principal officer and that, therefore, he could not at this stage assert that the petitioner has not signed as the principal officer. But Mr. N. C. Raghavachari would try to get over this position by stating that Parliament has now, by the Taxation Laws (Amendment) Act of 1975, which took effect from April 1, 1976, removed the expression "the principal officer" occurring in section 140(c), in so far as it related to a company, and instead has substituted the words "the managing director......or, where there is no managing director, any director thereof ". He would thus contend that the substitution of the word "managing director" for the term "principal officer" is an indicia to show that the expression "principal officer" will not relate to the managing director and that is why the above substitution has now taken place. But I am unable to agree with the learned counsel for the petitioner since a conjoint reading of sections 2(35) and 2(20) of the Income-tax Act and sections 2(24) and 197A of the Companies Act, as they stood in 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o make an assessment on the representative assessee or a direct assessment on the person beneficially entitled to the income. These sections 160 and 161 appear only in Chapter XV which deals with liabilities in special cases like the responsibilities of legal representatives, representative assessees, etc. The contention of the learned counsel is not relevant to this case at all since the assessee in this case is a limited company and the petitioner is prosecuted in his capacity as its managing director who has signed the verification as a principal officer. Then, on behalf of the petitioner, another argument was advanced by the learned counsel that the Income-tax Officer cannot invoke section 120B read with section 193 of the Indian Penal Code, when the said officer deals with less serious offences like the one under sections 277 and 278 of the Income-tax Act, unless he obtains sanction under section 279(1) of the Income-tax Act. The reason given by the counsel for this contention is that, normally, the Commissioner has got the power to compound the prosecutions for offences under the Income-tax Act and that the accused would be deprived of this benefit in case the prosecution is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more serious without affording a corresponding safeguard provided by section 195(1)(b), Criminal Procedure Code, in respect of the complaint which can be made in that behalf and that section 37(4) of the 1922 Act makes the proceedings before the Income-tax Officer judicial proceedings under section 193, Indian Penal Code, and these judicial proceedings must be treated as proceedings in any court for the purpose of section 195(1)(b), Criminal Procedure Code, and that that would really carry out the intention of the legislature in enacting section 37(4) of the Act and that where, therefore, an offence under section 193, Indian Penal Code, is committed in respect of the proceedings before the Income-tax Officer, complaint by that officer is a condition precedent prescribed under section 195(1)(b), Criminal Procedure Code, before a Magistrate can take its cognizance. It may be noted that section 136 of the 1961 Act corresponds to section 37(4) of the 1922 Act. As per section 136, proceedings under this Act before the income-tax authority is a judicial proceeding within the meaning of section 193, Indian Penal Code. In the present case, the Income-tax Officer, before whom the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X
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