The main legal point established in the judgment is that a company cannot be prosecuted under ss. 276C and 277 of the IT Act, and the principles of natural justice must be followed in according sanction for prosecution.

D.P. HIREMATH, J.

1. The petitioners herein have challenged the legality of the complaint filed by the respondent, Dy. CIT (Asst.), against them for various offences under the IT Act, 1961, before the Special Court for Economic Offences at Bangalore. A-1 is a private limited company, A-2 and A-3 are its directors and A-4, a chartered accountant, auditing their accounts. They are alleged to have committed offences under ss. 276C and 277 r/w ss. 278B and 278 of the IT Act, 1961. During verification of the accounts submitted by them for the asst. yr. 1985-86 for the period ending on 31st March, 1985, it was revealed that a false claim regarding depreciation on buildings in a sum of Rs. 1,35,480 was made by the company and investment allowance amounting to Rs. 5,30,506 was also claimed which A-1 could not have done. Similarly, there was fabrication of false evidence regarding commissioning of the intermix before 31st March, 1985, to entitle the company to claim depreciation and investment allowance. The machinery was not commissioned till 24th Sept., 1985. The complainant-respondent further alleged that the accused persons had wilfully attempted to evade payment of taxes to the Revenue. A-3 is in charge of and responsible for conduct of the business of the company, whereas A-4 has given audited reports to the shareholders as required under s. 227(2) of the Companies Act, 1956. In fact, A-4 has abetted the commission of these offences by A-1 to A-3. These are the allegations in brief in the complaint filed by the respondent.

2. In challenging the legality of the trial Court taking cognizance of the offence against them in these petitions, the petitioners-accused have raised and urged the following contentions :

(a) There can be no prosecution of a company which is a juristic person and it cannot be imprisoned under ss. 276C and 277 of the Act. (b) The sanction accorded by the sanctioning authority to prosecute them, namely, the CIT is bad since the order of the Commissioner records his satisfaction about the commission of the offences but does not record granting of sanction specifically. (c) There is no allegation in the complaint that A-1 company contravented any of the provisions of law to make other accused persons guilty. (d) The principles of natural justice ought to have been followed while according sanction by giving opportunity to the petitioners of being heard.

Even though a few other contentions have been raised in the petitions, learned senior counsel, Sri K. Srinivasan, has confined himself to these points referring us to the scope of the various provisions of law under which the prosecution is launched and decisions rendered by the Supreme Court and various High Courts.

Sec. 276C refers to evasion of tax by any person, and s. 277 makes penal delivering an account or statement which is false. Under s. 278B, where an offence under the Act has been committed by a company, every person who, at the time the offence was committed, was in charge 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. Sec. 277 which is penal and which is very material for our purpose 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,-- (i) in a case where the amount of tax, which would have been evaded if the statement or account had been accepted as true, exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; (ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to t