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Judgment
Satish Chandra, C.J.—On November 28, 1979 the Income Tax Officer Central Circle III, Meerut filed two complaints under Sections 277 and 278 of the Income Tax Act, 1961 against nine persons, the ninth of which was Messrs Modi Industries Ltd., Modinagar through its Chairman Sri K. N. Modi. One complaint related to the assessment year 1965-66 while the other related to the year 1966-67. It was alleged that Messrs Modi Industries Ltd. accused No. 9 filed returns of its income for the aforesaid assessment years wherein deliberately excessive expenditure was claimed in the form of payment of agency commission to several firms. The assessments were completed on March 24, 1970 for the assessment year 1965-66 and on March 26, 1971 for the year 1966-67. For both the years the excessive claim was disallowed on the finding that the firms to whom the agency commission was alleged to have been paid were bogus and non-existing firms to the knowledge of the concerned persons. In paragraph 30 of the complaint, it was stated that accused No. 1 in collusion with other accused at serial numbers 2, 3, 4, 5 and 8 had fabricated false evidence in supporting the false accounts to avoid payment of rightful taxes. In paragraph 41 of the complaint it was alleged that accused No. 1 in collusion with accused No. 7 had fabricated false evidence in supporting these false accounts. In paragraph 42 of the complaint, it was stated that the accused persons mentioned above have committed offences punishable u/s 277/278 of the Income Tax Act. It was prayed that the accused be punished according to law.
In due course, the Chief Judicial Magistrate, Meerut, summoned the accused. Thereupon Messrs Modi Industries Ltd. Modinagar, through its Chairman Sri K. N. Modi came to this Court u/s 482 Code of Criminal Procedure for quashing the proceedings pending against the Petitioner company.
The grounds urged in support of the petition was that according to law, as it stood at the relevant time, offences under Sections 277 and 278 of the Income Tax Act were punishable with minimum imprisonment of six months only. A company which is a juristic person can not be punished with imprisonment and hence cannot be prosecuted for breach of Sections 277 and 278 of the Income Tax Act.
When these cases came up for hearing, reliance was placed upon a single Judge decision in Criminal Miscellaneous Case No. 2529 of 1979 Messrs J. K. Synthetics v. Commissioner of Income Tax, decided on March 27, 1980. In that case, it was held that a company being a juristic person cannot be given corporal. punishment and consequently prosecution under Sections 277 and 278 of the Income Tax Act was not maintainable against the company. Hon''ble Bakshi, J. before whom these petitions came up for hearing felt unable to agree with this opinion. He was inclined to agree with the decision of the Madras High Court in A.D. Jayaveerapandia Nadar and Co. and Others Vs. Income Tax Officer, . He accordingly referred the matter to a larger Bench. That is how the matter has come before this Bench.
We may at the threshold clear up a preliminary matter. Sections 277 and 278 of the Income Tax Act have been subjected to amendment more than once. The present Section states:
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 three years and with fine.
The present Section was substituted for the following with effect from October 1, 1975.
False statement in declaration---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 belives 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.
In the above Section the italicised words have been substituted for "punishable with simple imprisoment which may extend to six months, or with fine which may extend to one thousand rupees, or with both" by the Finance Act 1964 with effect from April 1, 1964.
Thus the position is that prior to April 1, 1964, this provision provided for punishment with simple imprisonment or with fine or with both. Between April J, 1964 and October 1, 1975 the offence was punishable only with rigorous imprisonment which shall not be less than six months under Clause (i) or shall not be less than three months under Clause (ii). After October 1, 1975 the offence u/s 277 became punishable with imprisonment and with fine.
Section 278 of the Act deals with abetment of false return etc. An offence under it was punishable prior to April 1,1964 with simple imprisonment or with fine or with both. With effect from April 1, 1964 and till September 30, 1975 the offence of abetment u/s 278 was punishable with rigorous imprisonment which shall not be less than six months but which may extend to two years. With effect from October 1, 1975 an offence u/s 278 became punishable, with a term of rigorous imprisonment and with fine.
The position thus is that both under Sections 277 as well as 278 the offender was on conviction bound to be punished with a term of rigorous imprisonment between April 1, 1964 and October 1, 1975. In the present case, Messrs Modi Industries Ltd. the Petitioner filed its return of income for the assessment year 1965-66 on October 15, 1966 and for the year 1966-67 on November 1, 1966. The returns were verified and signed by the late Sri G. M. Modi, who was at that time the chairman and principal officer of the company. The complaint filed by the Income Tax Officer alleges that false statements were made knowing them to be false in the aforesaid returns of income. Thus the date of the commission of the offences was October 15, 1966 and November 1, 1966 respectively. It has been held in this Court that the punishment for an offence for violating Section 277 Income Tax Act shall be such as is prescribed by it on the date when the offence is committed, i. e. when the untrue returns were filed involving the false statements of account (See A.D. Jayaveerapandia Nadar and Co. and Others Vs. Income Tax Officer, . Sections 277 and 278 of the Income Tax Act do not make any provision to the contrary. We did not hear the counsel for the complaint to submit to the contrary. Hence the punishment imposable under Sections 277 or 278 was such as was prescribed by those provisions on the date of the commission of the offence. u/s 277 as well as Section 278 the punishment prescribed in 1966 was rigorous imprisonment for the prescribed term, the -minimum and maximum of which were laid down in the Sections. It is thus evident that if the Petitioner, Messrs Modi Industries Ltd. is found guilty of the offence, the only punishment which could be awarded was a term of rigorous imprisonment.
The question which squarely arises for our consideration is whether a sentence of imprisonment for a term could, in law, be awarded against a juristic person like a company registered under the Indian Companies Act and if the answer is in the negative can the prosecution be validly continued.
Sections 277 and 278 both apply to a-''person''. Section 2(31) defines a ''person'' to include ?--
(1) an individual, (2) a Hindu Undivided Family, (3) a company, (4) a firm, (5) an association of persons or body of individuals whether incorporated or not, (6) a local authority, (7) every artificial juridical person not falling in any of the preceding sub-clauses.
Accordingly, the word ''person'' occurring under Sections 277 and 278 will, in view of the definition clause, include a company. A company is hence prima facie liable to be prosecuted for commission of an offence under Sections 277 and 278.
The law is well settled that a corporation cannot be subjected to bodily punishment. In Director of Public Prosecutions v. Kent and Sussex Contractors Ltd. (1944) 1 KB 146 it was held that though a company cannot be found guilty of several criminal offences such as treason or other offences for which it is provided that death or imprisonment is the only punishment, yet a company can be convicted of certain other offences.
In Rex v. I.CR. Haulage Ltd. 1944 (1) All ER 691 the Court of Appeal held:
Offences for which a limited company cannot be indicted are exceptions to the general Rule arising from the limitations which must inevitably attach to an artificial entity, such as a company. Included in these exceptions are the cases in which, from its very nature, the offence cannot be committed by a corporation, for example perjury, an offence which cannot be vicariously committed or bigamy, an offence which a limited company, not being a natural person, cannot commit vicariously or -otherwise." It was then held:
A further exception, but for a different reason, comprises offences of which murder is an example where the only punishment the Court can impose is corporal, the basis on which this exception rests being that the Court will not stultify itself by embarking on a trial in which, if a verdict of guilt is returned, no effective order by way of sentences can be made.
Coming nearer home, the Bombay High Court, in State of Maharashtra v. Messrs Syndicate Transport Co. (P) Ltd. AIR 1964 Bom 195 it was held:
A company cannot be indictable for offences, like bigamy, perjury, rape etc. which can only be committed by a human individual or for offences punishable with imprisonment or corporal punishment.
learned Counsel for the Petitioner relied upon Kapurchand Shrimal Vs. Tax Recovery Officer, Hyderabad and Others, . In that case, it was held that a Karta of Hindu undivided family cannot be arrested and detained in prison for default of the Hindu undivided family for payment of taxes. Shah, J. opined that the expression ''person'' occurring under Sections 277 and 278 of the Income Tax Act penalises only those individuals who fail to carry out the duty cast by the specific provisions of the statute or are otherwise responsible for the acts done. In that case, in the course of recovery proceedings of the tax demand for the assessment year 1955-56 to 1959-60, the Tax Recovery Officer directed that Kapur Chand Shrimal, the manager of the firm be detained in civil prison for fifteen days. Under the rules, the Tax Recovery Officer could proceed only against the defaulter. The point taken there was whether the manager of a Hindu undivided family could be a defaulter in case where the assessee was a Hindu undivided family. Here in the present case the position ''and the question raised for our consideration is somewhat different. The question is whether an assessee like a company which commits violation of Sections 277 or 278 can be prosecuted and convicted where the only imposible punishment is imprisonment.
The view that a juristic personality cannot be sentenced to imprisoment has consistently been taken in the country--See Kusum Products Ltd. v. S. K. Sinha Income Tax Officer, Central Circle X Calcutta ITR 804 Cal., D. G. Goel v. B. L. Verma ITR 63 and A. D. Jayaveerapandia Nadar and Co. v. Income Tax Officer, Central Circle V Madras (supra).
learned Counsel for the Respondents, however, relied upon the decision of the Madras High Court in A. D. Jayaveerapandia Nadar (supra). In that case, the complaint was lodged u/s 277 against a firm and its partners for having knowingly filed a false return of income on January 5, 1963 for the accounting period April 1, 1930 to March 31, 1962. As mentioned above, in the year 1963 an offence u/s 277 was punishable with imprisonment or with fine or with both. At that time such an offence was not punishable only with imprisonment. In that case the firm which was treated a juristic personality could be and in fact was sentenced to fine. There was hence difficulty in its being prosecuted.
learned Counsel for the Respondents invited our attention to the decision of a Full Bench of Delhi High Court in Municipal Corporation of Delhi Vs. J.B. Bottling Company Private Limited, . In that case, under the relevant provisions of the Prevention of Food Adulteration Act, a punishment of imprisonment and with fine could be imposed. By a process of interpretation and reading down, the Full Bench held that if a punishment of imprisonment could not possibly be imposed upon a juristic person it was permissible to award the punishment of fine only. Such a situation does not arise in our case. In our case, only imprisonment was awardable. This decision seems to run counter to the view of the Supreme Court in State of Maharashtra v. Jugmandeer Lal AIR 1966 SC 490. There it was held that the expression ''shall be punishable with imprisonment and also with fine" means that the Court is bound to sentence consisting both of imprisonment and fine.
The position appears to be that a juristic person like a registered company cannot be awarded the punishment of imprisonment. In such situation the observation of Stable, J. in Rex v. /. C. Rule Haulage Ltd, cited above, is appropriate and apposite. There, it was held that:
Where the only punishment the Court can impose is corporal, the basis on which this exception rests being that the Court will not stultify itself by embarking on a trial in which, if a verdict of guilt is returned, no effective order by way of sentence can be made.
Hence no useful purpose or public interest will be sub-served by continuing this prosecution against the company which is a registered company.
It was faintly suggested that a Court may after holding the company guilty of the offence, not award any punishment because it cannot send it to prison. Sections 277 as well as 278 use the phrase ''shall be punishable''. Referring to a similar phrase ''shall be punishable'' in Section 3(1) of the Suppression of Immoral Traffic in Women and Girls Act 1956 the Supreme Court in State of Maharashtra v. Jugmander Lal (supra) held that the word ''punishable'' does not postulate any discretion in the Court to impose the sentence. Upon the conviction of a person under a particular Section the Court is bound to award punishment. The phrase ''shall be punishable'' means nothing different from ''shall be punished''. Punishment is obligatory. The same view was taken by this Court in Nanak Chand v. State of Uttar Pradesh 1971 AWR 739.
In the premises, continuing the proceedings against the Petitioner company would not subserve any public purpose.
learned Counsel for the Petitioner also submitted that a registered company is a juristic person liable to be sued in its own name and not through any human being. Section 305 Code of Criminal Procedure enjoins upon a juristic-company to nominate a representative in any enquiry or proceeding against it. Further the income tax returns in question were filed under the signatures of Sri G. M. Modi who has died long back. The present Chairman Sri K. N. Modi has had no concern with the alleged offence. There is no averment that the present Chairman had any hand in the commission of the offence. Hence the impleadment of the company through its Chairman Sri K. N. Modi was illegal. Since we are of the opinion that prosecution against the applicant company cannot be validly proceeded, it is unnecessary to say anything further on this aspect.
In the result, the application succeeds and is allowed. The proceedings pending against the Petitioner Company in virtue of the complaint lodged by the Income Tax Officer are quashed.