1994 Supreme(Cal) 212

High Court Of Calcutta
Ruma Pal
DUNLOP INDIA LTD. - Appellant
Versus
ARUN CHANDRA SINHA, ASSISTANT COMMISSIONER OF INCOME-TAX - Respondent
Matter 1054  Of  1993
Decided On : 07/11/1994

The principles of natural justice are applicable to the initiation of prosecution under Sections 276c and 277 of the Income-tax Act, 1961.

Headnote:

INCOME TAX - Prosecution - Section 276c and 277 - Validity - Whether prosecution can be initiated only by the Commissioner of Income-tax (Appeals) and not by the Commissioner of Income-tax (Administration) - Whether the criminal prosecution should be stayed because a reference was pending in respect of the very same question which formed the basis of the complaint before this court - Whether the complaint should be quashed because it is vague - Whether the principles of natural justice were applicable.

Fact of the Case:

The petitioner-company filed a writ application challenging the constitutional validity of Section 43b of the Income-tax Act, 1961. An interim order was passed restraining the respondent authorities from applying the provisions of Section 43b of the Act with regard to the assessment of the petitioner-company. During the pendency of the writ application, the petitioner-company filed its return for the assessment year 1984-85. A notice was issued under Section 142 (1) of the Act in respect of the assessment year 1984-85 calling upon the petitioner-company to furnish certain particulars. The interim order in the first writ application was modified by giving liberty to the respondent authorities to commence and conclude the assessment proceedings after taking into consideration the provisions of Section 43b of the Act and to pass a final order. The assessment order was passed in respect of the assessment year 1984-85 and the first writ application was dismissed. The petitioners preferred an appeal from such dismissal. The assessment order for the assessment year in question was communicated to the petitioner-company. The petitioner-company preferred an appeal from the assessment order before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) enhanced the assessment of the petitioner by Rs. 10. 35 crores. This enhanced income included a sum of Rs. 6. 25 crores which is the subject-matter of the criminal complaint. The Commissioner of Income-tax (Appeals) also imposed penalty on the company under Section 271 (1) (c) of the Act. The company preferred an appeal from the imposition of penalty before the Tribunal. This appeal is still pending. The petitioner-company filed an application under Section 256 (1) of the Act in respect of the assessment year 1984-85 calling upon the Tribunal to refer the matters arising out of the order of the Tribunal to this court. The impugned complaint was filed by respondent No. 1 in respect of the assessment year in question.

Finding of the Court:

1. The prosecution could not have been launched only by the Commissioner of Income-tax (Appeals) and not by the Commissioner of Income-tax (Administration) as had been done in this case. 2. The main accused was the petitioner-company. The punishment provided under Section 276c (1) (i) and Section 277 was rigorous imprisonment and fine. The company could not be imprisoned and as such no prosecution could lie against petitioner No. 1. 3. The complaint made no specific allegations in respect of 12 of the accused persons. In the absence of such specific allegation such a wholesale complaint could not be sustained. 4. Before the sanction for prosecution was granted and the complaint lodged, the petitioners should have been given an opportunity of being heard. 5. The criminal prosecution should be stayed because a reference was pending in respect of the very same question which formed the basis of the complaint before this court. 6. Even if the facts stated in the complaint were taken to be correct, no offence was disclosed which could be prosecuted under Section 276c. 7. The principles of natural justice were applicable to the case.

Issues: 1. Whether the prosecution could have been launched only by the Commissioner of Income-tax (Appeals) and not by the Commissioner of Income-tax (Administration)? 2. Whether the main accused, being a company, could be prosecuted under Section 276c (1) (i) and Section 277? 3. Whether the complaint made no specific allegations in respect of 12 of the accused persons and in the absence of such specific allegation such a wholesale complaint could be sustained? 4. Whether before the sanction for prosecution was granted and the complaint lodged, the petitioners should have been given an opportunity of being heard? 5. Whether the criminal prosecution should be stayed because a reference was pending in respect of the very same question which formed the basis of the complaint before this court? 6. Whether even if the facts stated in the complaint were taken to be correct, no offence was disclosed which could be prosecuted under Section 276c? 7. Whether the principles of natural justice were applicable to the case?

Ratio Decidendi: 1. Section 278b of the Income-tax Act, 1961, makes those persons liable to prosecution who were in charge of and were responsible to the company for the conduct of the business of the company at the time when the offence was committed. There is a necessity of these three prerequisites being present before prosecution can be initiated. Otherwise, initiation of the prosecution on the basis of a complaint in the absence of any of these three elements would not only be without jurisdiction but also indicate a total non-application of mind justifying the quashing of the proceedings. 2. The complaint against the accused Nos. 2 to 9 could not be sustained as their only "crime" according to the complaint was that they held offices as directors, treasurer and secretary. This by itself is not sufficient to initiate prosecution against them under Section 277 or 276c of the Act. 3. The complaint did not show that petitioners Nos. 7 and 8 were in charge of and responsible to the company for the conduct of the business of the company under Section 278b (1) or whether they were acting at the behest of superior officers. In view of the lacuna in the framing of the complaint, no valid prosecution could have been initiated or taken cognizance of. 4. The requirement of natural justice is inherent in the provisions of Section 279 (2) of the Act which provides for compounding of offences. The person accused would be deprived of the benefit or right of compounding the offence before the initiation of proceedings, if the prosecution were launched without any prior notice.

Final Decision: The writ application was allowed. The impugned complaint dated September 25, 1993, as well as Case No. C/ 1286 of 1992 and comments on the basis thereof were quashed.