Padmalaya and Others vs A.V. Krishna Rao

Eswara Prasad, J.—The petitioners are accused of offences under Sections 120B and 420 IPC and Sections 276(C), 277, 278B of the Income Tax Act, 1961. The first petitioner is a firm and the 2nd and 3rd petitioners are its partners.

For the assessment year 1981-82, the return of income of the first petitioner firm was delivered to the Income Tax Officer, Vijayawada on or before 31-3-82. The return was signed and verified by the third petitioner. During the course of assessment proceedings, it was found that certain inadmissible expenditures were shown. The assessment was completed by the Income Tax Officer, ''B'' Ward, Vijayawada, after adding back some inadmissible expenses. Subsequently the file was transferred to the Income Tax Officer, Central Circle Madras, who was re-designated as Asst. Commissioner, Central Circle II(4) Madras. Later, searches were conducted u/s 132 of the Income tax Act, 1961 (''the Act'' for short) at the business premises of the firm''s petitioner, residences of the partners and other connected places. Certain letters signed by the third petitioner were recovered. The assessment for the assessment year 1981 -82 was reopened and a revised return was filed by the first petitioner, signed and verified by the third petitioner. After re-assessment was completed, the respondent lodged a complaint before the Special Judge for Economic Offences, at Hyderabad in CC No. 21/90.

Sri Dasaradharama Reddi, learned counsel for the petitioners firstly submitted that the complaint lodged by the respondent is not maintainable in so far as the offences under Sections 120B and 420 IPC are concerned, inasmuch as no Court can take cognizance of a case until a complaint in writing is filed either by the Court by itself or some other court to which the said Court is subordinate, for offences punishable under the Indian Penal Code, as laid down u/s 195 Cr.P.C. It was nextly submitted by the learned counsel that proceedings against the 2nd petitioner who is a mere partner of the first petitioner-firm, cannot be proceeded with as he was neither in charge of, nor was responsible to the first petitioner firm for the conduct of the business of the firm, as required u/s 278B of the Act.

Dealing with the first submission of the learned Counsel, it is noticed from the complaint lodged, that the alleged offence was committed before the Income Tax Officer, Vijayawada. The complaint is lodged by the respondent-Asst. Commissioner of Income Tax, Circle II(4), Madras. A decision of this Court in Veerakistiah and Others Vs. Income Tax Officer and Another, is directedly applicable to the case. It was held by this Court that the proceedings before the Income Tax authorities is a judicial proceeding, within the meaning of Section 196 Cr.P.C. The learned Judge held that so far as offences punishable u/s 120B IPC etc., are concerned, no Court can take cognizance, of a case until a complaint in writing is lodged by the Income Tax Officer or some other authority to which that ITO is subordinate. It has therefore to be held that the complaint for alleged offences under Sections 120B and 420 IPC, has to be quashed, since the complaint has not been filed either by the concerned ITO or by the Asst. Commissioner of Income Tax, Madras, as envisaged under the provisions of 195 Cr.P.C.

Adverting to the second submission of the learned counsel for the petitioners, the complaint has to be perused in order to find out the part attributed to the second petitioner by the complainant. Apart from merely stating that the 2nd petitioner is a partner of the first petitioner-firm, there is no other role attributed to the 2nd petitioner in respect of the alleged offences. According to the complaint, it was the third petitioner who was incharge of, and was responsible to the first petitioner-firm for the conduct of the business of the firm as he was filing the returns after verifying the same and was corresponding on behalf of the first petitioner.

Section 278B of the Act, deals with offence by companies. Under this Section, where an offence 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. It is therefore necessary that there should be allegations in the complaint to the effect that the person accused was incharge of, and was responsible to the company for the conduct of the business of the firm. Such an allegation is found only against the third petitioner and there is not even a whisper of any such allegation against the 2nd petitioner. Unless such an allegation is made in the complaint, there is no question of the Proviso to Section 278B becoming applicable and the burden shifting to the accused person, to prove that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such an offence. In the absence of allegations against the 2nd petitioner, as required by Section 278B of the Act, the proceedings so far as he is concerned, cannot be permitted to go on and have to be quashed.

Dealing with the provisions of Section 10 of the Essential Commodities Act, 1955 relating to offences by firms and the responsibility of the partners, which are in para materia with Section 278B of the Act, the Supreme Court in Sham Sunder and Others Vs. State of Haryana, held as follows:

"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 prosecued for the offence complained of... Secondly, there is no vicarious liability in criminal law unless the statute takes that also within its fold. Section 10 does not provide for such liability. It does not make all the partners liable for the offence whether they do business or not. The requisite condition is that the partner was responsible for carrying on the business and was during the relevant time in charge of the business. In the absence of any such proof, no partner could be convicted..."

Accordingly, this petition is partly allowed, and the proceedings for alleged offences under Sections 120B and 420 IPC against all the petitioners pending before the Special Judge for Economic Offences in CC No. 21/90 are quashed. The proceedings against the 2nd petitioner for alleged offences u/s 276C(1), 277 and 278B of the Act, are quashed. The proceedings, so far as petitioners 1 and 3 are concerned in respect of alleged offences under the Income Tax Act, 1961, may go on.