Sat Pal and Another vs State of Punjab and Another

Harmohinder Kaur Sandhu, J.—Messrs. Parmeshwari Dass Sat Pal, Barnala, a registered firm, came into existence with effect from April 1, 1977, under a partnership deed and it was constituted by Sat Pal, Bharat Bhushan and Dharam Pal, partners. The firm carried on the business of commission agent and also dealt in the purchase and sale of food grains and other commodities. It was assessed to Income Tax. In the return of income filed by the assessee-firm for the assessment year 1979-80, the total income of the firm was declared at Rs. 13,050. The return was duly signed and verified by one of the partners, namely, Bharat Bhushan, on August 10, 1979, at Barnala. On scrutiny of the books of account of the firm, it was found that the firm earned profits in the dealing in cotton at Rs. 1,02,111 and a profit of Rs. 27,910 on the purchase and sale of rice and it failed to show that the profits did not belong to it. The Income Tax Officer, Barnala, thus filed a complaint under Sections 276C and 277 read with Section 278 of the Income Tax Act, 1961 ("the Act" for short), against Messrs. Parmeshwari Dass Sat Pal, Barnala, and the present petitioners, namely, Sat Pal and Dharam Pal. The Chief Judicial Magistrate, Sangrur, after recording preliminary evidence, found that a prima facie case was made out against the accused and thus a charge-sheet was drawn up against them. The present petition has been filed for quashing the complaint, annexure P-1, the order dated October 22, 1990, annexure P-2, and charge-sheet dated April 4, 1991, annexure P-3.

The petitioners made averments in the petition to the effect that the return for the year 1979-80 was signed and verified by Bharat Bhushan and, in response to the notice u/s 143(2) of the Act, Bharat Bhushan appeared before the Department and they were never called there. They had no knowledge of the return and they were wrongly made as accused. In the complaint, no allegation was made against them to the effect that they were in charge of and were responsible to the firm for the conduct of the business of the firm. Even in the statement made by Shri R. R. Aggarwal, Income tax Officer, Barnala, in the court, no allegations were made against them and he simply deposed that the return was signed and verified by Bharat Bhushan and Bharat Bhushan admitted his signatures thereon.

I have heard counsel for the parties.

It was argued on behalf of the petitioners that the return in which the profits of the firm were alleged to have been not correctly shown, was submitted by Bharat Bhushan, one of the partners of the firm after he signed and verified it. Bharat Bhushan had expired. The petitioners, though were the partners of the firm, had no knowledge about the contents of the return and they could not be prosecuted for any criminal act. Learned counsel referred to the provisions of Section 278B(1) of the Income Tax Act, 1961, which read as under :

"Where an offence under this 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 : . . . .

Explanation, -- For the purposes of this section, --

(a) ''company'' means a body corporate, and includes --(i) a firm ; and

(ii) an association of persons or a body of individuals whether incorporated or not."

There is no dispute regarding the proposition that the prosecution under the various provisions of the Act is regulated by the provisions of Section 278B referred to above and, according to these provisions, when an offence has been committed by a firm, only then the person or the partner of the same who, at the time of the commission of the offence, was in charge of and was responsible to the firm for the conduct of its business, besides the firm, will be liable for the offence committed. A perusal of the complaint, annexure P-1, will show that there were no allegations to the effect that the petitioners were in charge of and were responsible to the firm for the conduct of its business at the time of the commission of the offence. The only allegation against the petitioners was that Bharat Bhushan, a partner of the firm, made a false verification in the return of income and the verification made by him was within the knowledge of the other partners and they were aware that Bharat Bhushan had intentionally and knowingly made a false verification to evade payment of tax. By alleging knowledge regarding the false verification, the complainant could not sue the petitioners for any criminal act unless the petitioners were shown to be running the affairs of the firm or were responsible to the firm for the conduct of its business. They could not be arraigned as accused and the complaint was liable to be quashed on this ground. In the case of Puran Devi v. Z.S. Klar, ITO [1988] 169 ITR 608 , a false return of income was filed by a partner of a firm to evade income tax. There was no allegation that the partner who signed the return was in any way running the affairs of the firm or was responsible to the firm for the conduct of the business and the impugned complaint and the resultant proceedings were quashed against the partner. Similarly, in the authority reported as Murari Lal and Others Vs. Income Tax Officer "A" Ward, , prosecution was launched u/s 278B of the Income Tax Act, 1961, against four partners of the firm and the firm itself. It was found that only one of the partners was in charge of and responsible for the conduct of the business of the firm. It was held that proceedings against the remaining three partners amounted to an abuse of the process of the court and the same were quashed.

In the present case, there are no allegations that the petitioners were in charge of or were responsible for the conduct of the business at the time of the commission of the offence so they cannot be held liable for any culpable act.

As a result, I allow this petition and quash the complaint, annexure P-1, order annexure P-2 and charge-sheet annexure P-3 as against the petitioners only. The trial court be informed.