Vishwanath Pd. v. State of Bihar — 1995 DIGILAW 235 (PAT)

JUDGMENT A.N. Chaturvedi, J. This is a petition under Section 482 of the Code of Criminal procedure for quashing the entire proceeding of Complaint Case No. 189 of 1987, pending in the Court of the Presiding Officer, Special Court (Economic Offences), Muzaffarpur including the order dated 30.10.1987 where by the learned Special Judge took cognizance of an offence under Section 276 CC of the Income Tax Act for prosecution of the petitioners. 2. Sri Anil Kumar Singh, Income Tax Officer, Special Circle, 'Aikar Bhawan', Dhanbad filed a complaint (Annexure - 1) in the Court of special Judicial Magistrate, Economic Officers, Muzaffarpur, alleging that the petitioner carried on business under the name and style of M/S Bishwanath Prasad and Sons of which they are partners and derived income from the sale of country made liquor but they did not file income tax returns for the Assessment for 1978 - 79 on the due date rather the same was filed 3.1.1980 and thereby they committed an, offence under Section 276 CC of the Income Tax Act. The learned Special Judicial Magistrate took cognizance of the offence and ordered for issuance of summons to the accused petitioners. Under the circumstances the petitioners have filed this petition for quashing the prosecution. 3. The learned counsel for the petitioners referred to Section 278B of the Income Tax Act which provides for offences by companies and contended that where an offence under the Income Tax Act has been committed by a company, only the person who, at the time the offence was committed was Incharge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly, Referring to the complaint petition (Annexure. - 1) it was pointed out that in the complaint petition it has no where been stated that petitioners 2 to 7 (Petitioner No 1 being the film) were Incharge of and were responsible to the firm, for the conduct of the business of the firm and in absence of such averments in the complaint petition, their prosecution for the said offence is fit to be quashed. In support of the above contention, the learned counsel for the petitioners referred to a decision of the Supreme Court in the case of Shyam Sunder Vs. In support of the above contention, the learned counsel for the petitioners referred to a decision of the Supreme Court in the case of Shyam Sunder Vs. The State of Haryana, reported in AIR 1989 SC 1982 . The said case was with regard to contravention of the provisions of the Haryana Rice Procurement (Levy) Order, 1979 read with Section 7 of the Essential Commodities Act. Section 19 of the Essential Commodities Act is similar to Section 278B of the Income Tax Act. In the said case the Supreme Court held as follows: "From explanation to Section 10(of Essential Commodities Act) it will be seen that the Company includes a firm and other association of persons. Section 10 provides that the person shall be deemed to be guilty contravention of an order made under Section 3 if he was Incharge of and was responsible to the firm for the conduct of the business of the firm. What is of importance to note is, that the person who was entrusted with the business of the firm and was responsible to the firm for the conduct of the business, could alone be prosecuted for the offence complained of." 4. It was further held by the Supreme Court in the said case: "It is, therefore, necessary to add an emphatic note of caution in this regard. More often it is common that some of the partners of a firm may not even be knowing of what is going on day to day in the firm. There may be partners, better known as sleeping partners who are not required to take part in the business of the firm. These may be ladies and minors who were admitted for the benefit of the partnership. They may not know anything about the business of the firm. It would be travesty of justice to prosecute all partners and ask them to prove under the proviso to sub - Section (1) that the offence was committed without their knowledge. It is significant to note that the obligation for the accused to prove under the proviso that the offence took place without his knowledge or that he exercised all due diligence to prevent such offence arise only when the prosecution establishes that the requisites condition mentioned in sub Section (1) is established. It is significant to note that the obligation for the accused to prove under the proviso that the offence took place without his knowledge or that he exercised all due diligence to prevent such offence arise only when the prosecution establishes that the requisites condition mentioned in sub Section (1) is established. The requisites condition is that the partner was responsible for carrying on the business and was during the relevant time Incharge of the business. In the absence of any such proof, no partner could be convicted." 5. The learned counsel for the petitioners further referred to a decision of the Supreme Court in the case of State of Karnataka versus Pratap Chund, reported in 128. ITR 573 in support of his above contention. It was a case under Sections 18(a)(i) and 18 A of the Drugs and Cosmetics Act, 1940 read with Section 27(a)(ii) and 28 of the Drugs Control Act. Section 34 of the said Act contains similar provision as contained in Section 278B of the Income Tax Act. In the said case it was held by the Apex Court that a partner is liable to be convicted for offence committed by the firm if he was In charge of and responsible to the firm for the conduct of the business of the firm or if it is proved that the offence was committed with the consent or connivance, or was attributable to any neglect on the part of the partner concerned. A person 'Incharge (must mean that the person should be in overall control of the day to day business of the firm). 6. The decision of Punjab and Haryana High court in the case of Parmeet Singh Sawney versus Dinesh Verma and another, reported in 169 I.T.R. page 5 was also referred to by the learned counsel for the petitioners. It was a case under Section 276 of the Income Tax Act. It was held by a Bench of Punjab and Haryana High Court that: "Mere reproduction of the expression in Section 278B of the Income Tax in the complaint does not meet the requirement of law. The complaint is bound to provide indication, though not evident, as to in what manner a particular partner of the firm is supposed to be Incharge of and responsible for the conduct of the business." 7. The complaint is bound to provide indication, though not evident, as to in what manner a particular partner of the firm is supposed to be Incharge of and responsible for the conduct of the business." 7. A decision of Punjab and Haryana High Court in the case of Smt. Sudersh Ahluwalia and others versus Income Tax Officer, reported in 169 I.T.R. 610 was also referred to by the learned counsel for the petitioners. It was a case concerning prosecution under Section 276C of Income Tax Act. In the complaint petition it had not been alleged that any of the other partners year was Incharge of or responsible to the firm for the conduct of its business at the time of commission of the offence and hence it was held that the impugned complaint could not be sustained except against the firm. Another decision of Punjab and Haryana High Court in the case of Murari Lal and others versus Income Tax officer 'A' Ward, Hisar, reported in 154 I.T.R. 217 was also referred to. That case was concerning prosecution under Section 276C of the Income Tax Act. The complaint and all proceedings taken in consequences of the complaint against the three partners against whom there was no allegation in complaint petition that they were Incharge of and responsible to the firm for the conduct of business of the firm at the time of alleged offence was quashed. According to the allegation contained in the complaint petition of that case, was the person who was Incharge of and responsible to the firm for the conduct of the business of the firm and he was actually the person who signed and verified the particulars in the return and submitted the same to the department and under the circumstances the complaint and all the proceedings taken in consequence of the complaint against there other partners apart from M were quashed. 8. The learned counsel further referred to the decision of the Supreme Court in the case of Municipal Corporation of Delhi Versus Ram Kishan Rehatgi and others, reported in A.I.R 1983, 67. That was case under Food Adulteration Act in which complaint was against company, directors and managers. There was no whisper in the complaint petition that any act had been committed by the directors and so their prosecution was quashed by the High Court which was upheld by the Supreme Court. That was case under Food Adulteration Act in which complaint was against company, directors and managers. There was no whisper in the complaint petition that any act had been committed by the directors and so their prosecution was quashed by the High Court which was upheld by the Supreme Court. Supreme Court held as follows: "There was not even a whisper nor a shred of evidence nor anything to show, apart from the presumption down by the complaint, that there is any act committed by the directors from which a reasonable inference can be drawn that they could also be vicariously liable. In these circumstances, therefore, it can be said that no case against the directors has been made ex facie on the allegations made in the complaint and the proceedings against theme were lightly quashed by the High Court." 9. The learned counsel for the petitioners also referred to a decision of Madras High Court in the case of T.M.T. Thaugalaksmi Versus Income Tax Officer, reported in 205 I.T.R. 176. In the said case, it was held by a Bench of Madras High Court that under the provisions of Section 2788, it is clear that the partners of a firm who, at the tome of commission of the offence, were responsible for the conduct of the business of the firm could alone be prosecuted and there must be specific avernments in the complaint to the effect that the partner of the firm at the time the offence was committed was Incharge of and was responsible for the conduct of the business of the firm and particulars regarding the conduct of business and responsibility should be stated in complaint in making him liable for the offence. In the said case it was further held as follows: "There is a market difference between the avernments in the complaint and the proof of the same. The object of the specific averments in the complaint is to make the accused aware of the prosecution case and to give him adequate opportunity to defend the case and it is confirmity with the principles of natural justice and fair play. If there are no specific averments in complaint regarding the part played by a particular partner, it would be a travesty of justice to prosecute all the partners and ask them to prove that the offence was committed without their knowledge. If there are no specific averments in complaint regarding the part played by a particular partner, it would be a travesty of justice to prosecute all the partners and ask them to prove that the offence was committed without their knowledge. The requisite condition is that the partner was responsible for carrying on the business and was during the relevant time. Incharge of the business. In the absence of any such proof no partner could be convicted, It is, therefore, imperative that the concerned authority must properly apply its mind to the facts of the case and provide indication in the complaint, though not evidence, of the manner in which a partner Incharge of or is responsible for, the conduct of the business." 10. The learned counsel for the petitioners lastly referred to a decision of Calcutta High Court in the case of Ajit Kumar Sarkar Versus Assistant Registrar of Companies, West Bengal, reported in 1979 Taxation Law Reports 2001. It was a case concerning prosecution under Section 159 and 162(1) of the Companies Act for non-tiling a annual return within time. It was held in it by Calcutta High Court that it is incumbent on the prosecution to fix the liability with particular officers in default "and there should be specific averments to that effect in the complaint. 11. Against this it was .contended on behalf of Union of India (opp. Party No.2) that the petitioners in their petition have not taken the plea to the aforesaid effect and hence the contention to the aforesaid effect cannot be entertained. In this connection it was rightly pointed out by the learned counsel for the petitioners that law point can be raised even if not pleaded in the petition. It was further contended on behalf of opposite Party No.2 that it will be found during the trial as to which of the partners was Incharge of or responsible to the firm for the conduct of its business at the time of commission of the offence and the same cannot be gone into at this stage. In support of this contention, the learned counsel for the opposite Party No.2 referred to a Full Bench decision of this court in the case of Mohammed All Versus The State of Bihar reported in A.I.R. 1986 Patna 133. In support of this contention, the learned counsel for the opposite Party No.2 referred to a Full Bench decision of this court in the case of Mohammed All Versus The State of Bihar reported in A.I.R. 1986 Patna 133. That case was against M/S Paper and Card Board Factory (Private) Ltd., Sassmu for commission of offence under Section 41 and 44 of the water Prevention and Control of Pollution)Act, 1974. Petitioner M All was not named as accused in the complaint petition rather he was summoned to face arial under Section 319 of Code of Criminal Procedure on the basis of evidence of P.W.2 Anirudh Narayan Jamuar during trial to the effect that the petitioner was Managing Director Inchage and responsible to the company for the conduct of the business at the time of commission of the offence. Issuance of summons to him to face trial was challenged on the primal ground that the complaint had not expressly incorporated within it the words that the petitioner was Incharge and/or responsible to the company for the conduct of business of the company and that the offence had been committed with the connivance or content of the petitioner and/or was attributable in any neglect on his part. After pointing out that Section 47 of the water (Prevention and Control of Pollution) Act, 1974 and Section 10 of the Essential Commodities Act barring marginal verbal variations are Virtually in parimateria, it was held by a Full Bench of this Court as follows: "Now it is manifest from the above that the categoric allegation in the evidence was that the petitioner was Managing Director of the Company and this is a fact which is undisputed on the record and even in the argument at the bar. The Managing Director of a company from his very designation implies both the control, and command of the affairs of such a company and equally a statutory liability to the company for responsible conduct of its business It is a compendious term which signifies both control of and responsibility to the company both in ordinary parlance and by virtue of the provision of the Indian Companies Act. Consequently to insist that in spite of the description of a person as a Managing Director of the company, there must be a further pleading that he is the person incharge there of and is responsible to it for the conduct of its business would, to my mind, suffer from the vice of literality. Of course, as the proviso to Section 47(1) shows, it is permitted even for, Managing Director, to show that he did not have any knowledge of the commission of the offence or that he acted with the greatest diligence to prevent the same. But the burden to prove is laid upon him. The factum of being the Managing Director of the Company is by itself sufficient to attract the provisions of Section 47(1) and the vicarious liability specified therein." 12. It may be pointed out that in the instant case, none of the petitioners has been described as Chairman, Managing Director or General Manager, Secretary or Officer of the firm in the complaint petition. Petitioner No.1 is the firm and petitioner nos.2 to 7 have simply been described as partners but there is no allegation to the effect that the offence was committed with their consent, connivance or neglect on their part and that being so the decision in the case of Mohammed Ali Versus The State of Bihar (supra) appears to be distinguishable. Apart from that, the decisions of the Supreme Court in the cases mentioned above support the contention of the learned counsel for the petitioners to the aforesaid effect. 13. It was further contended on behalf of the petitioners that the matter was concerning assessment year 1978-79 but the prosecution was launched in the year 1987. It was further contended that the petitioners have not only paid tax as assessed but also paid the penalty which had been imposed due to delay submitting the return and under the circumstances the prosecution practically amounts to double punishment. In this connection the learned counsel for the Opposite Party No.2 pointed out that as per provisions of Income Tax Act an Assessee who takes the risk of making delay in submitted return it liable to pay penalty and is also liable to prosecution and that being so there is no question of double punishment to the petitioners. 14. In this connection the learned counsel for the Opposite Party No.2 pointed out that as per provisions of Income Tax Act an Assessee who takes the risk of making delay in submitted return it liable to pay penalty and is also liable to prosecution and that being so there is no question of double punishment to the petitioners. 14. Referring to Annexure 2, it was contended on behalf of the petitioners that as per sanction order, the Income Tax Officer of Tax Circle, Dhanbad had to launch prosecution under Section 276 CC of the Income Tax Act against the petitioners but the complaint was filed by Sri A. K. Singh, Income Tax Officer Aikar Bhawan, Dhanbad who as well appear from the last page of the complaint petition, has described himself as Income Tax Officer of Special Circle, Aikar Bhawan, Dhanbad. In this connection, attention was invited to Annexure 3 for the purpose of showing that the assacasee firm had been assessed by the Income Tax Officer of Special Circle, Dhanbad and the assessment order Annexure 4 has also been passed by him Referring to Annexure 5 it was further pointed out that even penalty for undue delay in submitting the return had been imposed by the Income Tax Officer, Special Circle, Dhanbad and that being so, the complainant was quite competent to launch prosecution against the petitioners There appears much substance in this contention of the learned counsel for the opposite Party No.2. 15. The learned counsel for the Opposite Party No.2 referred to Section 278 E of Income Tax Act which provides for presumption as to culpable mental state and contended that the court should presume that the accused petitioners had culpable mental state on their part In this connection it may be pointed out that unless it is alleged in the complaint petition or it is shown that petitioner nos. 2 to 7 were Incharge of or responsible to the firm for the conduct of its business at the time of commission of the offence the question of presumption in accordance with Section 278 E would hardly arise. 16. 2 to 7 were Incharge of or responsible to the firm for the conduct of its business at the time of commission of the offence the question of presumption in accordance with Section 278 E would hardly arise. 16. The learned counsel for the Opposite Party No.2 referred to a decision of Madras High Court in the case of K Jagdishan Versus The Income Tax Officer, reported in 199 ITR 307 and contended that the complaint and prosecution cannot be quashed In the said case, the writ petition was dismissed on the ground that the complaint as well as the evidence prima facie, showed that in spite of several opportunities furnished to the petitioner, he did not file his return in due time for the assessment year 1985-86 and hence the complaint against him under Section 176 Could not be quashed. In the said case, the petitioner was the sole accused and it was not his case that as per allegation in the complaint petition there was no case against him rather the question involved in the said case was regarding amendment of Section 139 with effect from 1.4.71 and the affect of charging interest for delay in filling return on the question of prosecution. So the decision does not appear to be of any help to Opposite Party No.2 17. The learned counsel for the Opposite Party No 2 also referred to a decision of the Supreme Court in the case of M.R. Pratap Versus Income Tax Officer, Central Circle iii Madras, reported in 196 ITR page 1 in which it was held by the Supreme Court that person connected with the affairs of company is liable to the prosecution in view of Section 278B of Income Tax Act It was further held that, "By the introduction of Section 278B by the Taxation Laws (amendment)Act of 1975, with effect from October 1.1975, it is enacted that where an offence under this Act has been committed by a company, every person who, at the time the offence was committed, was Incharge of and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. The effect of the new Section to make every person connected with the affairs of the company apart from the Managing Director, who has signed the return, liable to be proceeded against and punished. In may be pointed out that in the said case the Apex Court was concerned with the appellant who was admittedly the Managing Director of the company and not with partners of a partnership firm and that being so the said case appears to be distinguishable. 18. In view of the decisions referred to above. I am of the view that there must be specific averment in the complaint petition to the effect that the partner of the firm, at the time the offence was committed, was Incharge of and was responsible for the conduct of the business of the firm and particulars regarding the conduct of business and responsibility should be stated in the complaint petition in order to make him liable for the offence. I am further of the view that the concerned authority must indicate in the complaint petition the manner in which the partner is incharge of or is responsible for the conduct of the business Since there is no specific averments in the complaint petition of the instant case that the partners (petitioner 2 to 7) of the firm (petitioner no.1) at the time the offence was committed were Incharge of, and were responsible for the conduct of the business of the firm and since the particulars regarding the conduct of business and responsibility have not been stated in the complaint petition the prosecution of the partners (petitioner nos. 2 to7) is liable to be quashed. 19. In the result this Criminal Miscellaneous petition is allowed and the entire proceeding against the petitioner nos. 2 to 7 in complaint no, 189 of 1987, pending in the court of presiding officer. Special Court, (Economic Offences) Muzaffarpur, including the order dated 30.10.1987 so far as the same concerns petitioner nos. 2 to 7, is hereby quashed. The proceeding against the firm (petitioner no. 1) will continue. 20. Before parting with the case, I may point out that it is always open to the trial court to invoke the provision of Section 319 of the Code of Criminal Procedure, if in course of enquiry of trial it appears to it from the evidence that any person not being the accused had committed any offence. 1) will continue. 20. Before parting with the case, I may point out that it is always open to the trial court to invoke the provision of Section 319 of the Code of Criminal Procedure, if in course of enquiry of trial it appears to it from the evidence that any person not being the accused had committed any offence. Application allowed.