High Court Of Delhi
Dharama Pratisthan & Ors. vs. Miss B. Mandal, Inspecting Assistant Commissioner & Anr.
Sections 276C(1), 277, 278B
P.K. Bahri, J.
Crl. Misc. (Main) No. 1699 of 1987
26th May, 1988
Venugopal with S.K. Verma, for the Petitioners : D.K. Jain, for the Respondents
K. BAHRI, J.:
Only a short legal question is involved in this petition and I have heard arguments to finally dispose of this petition. This petition has been brought under s. 482 of the Code of Criminal Procedure (for short “CrPC”) praying that the criminal proceedings pending against the petitioners before the Court of Smt. Manju Goel, Additional Chief Metropolitan Magistrate, Delhi, be quashed.
2. The facts leading to the present petition, in brief, are that petitioner No. 1, which is a duly registered society (stated to be a charitable society), had filed its income-tax return for the asst. yr. 1981-82 showing a loss of Rs. 2,92,73,820. The IAC, vide order dt. 30th March, 1984, however, found the return to be wrong and she determined the income of the society to the tune of Rs. 90,00,000 The society preferred an appeal before the CIT(A) who, vide order dt. 27th Feb., 1985, had set aside the assessment order and remanded the case for a de novo assessment. The petitioner-society filed an appeal before the Tribunal and, before the Tribunal could decide the appeal, the IAC, on the basis of the remand order, made an assessment order on 24th March, 1987, determining the income of the petitioner-society to the tune of Rs. 1,34,65,810. A criminal complaint was instituted in March, 1987, after obtaining the necessary authorisation under s. 279 (1) of the IT Act. I would refer to the contents of the complaint a bit later. In order to complete the happenings, I may mention that the Tribunal, vide its order dt. 18th June, 1987, held that the CIT (A) was not right in remanding the case and it directed the CIT(A) to decide the appeal against the first assessment order afresh. A finding was given that the CIT(A) had not cared to examine the reasons on the basis of which the appeal was filed against the assessment order and had raised certain suspicions regarding the sources of income of the petitioner-society which were not the basis of the original assessment order and no show- cause having been given to the petitioner-society as to why the assessment be not enhanced and thus it had acted with an error in jurisdiction in not deciding the appeal on merits and in remanding the case to the IAC for reassessment. It is now evident that the original assessment order is still intact and an appeal filed against that order is yet to be decided by the CIT(A).
The short question which has been raised by the petitioners in seeking quashing of the criminal proceedings is that, as soon as the reassessment order had become redundant due to the appellate order being set aside by the Tribunal which has resulted in the reviving of the appeal against the first assessment order, the criminal complaint which has been filed on the basis of the reassessment order is no longer tenable as that reassessment order stands automatically set aside. There is a fallacy in this contention of the petitioners, because the criminal complaint is not based on the assessment orders.
It has been mentioned in the criminal complaint that in the income-tax return filed by the petitioner-society showing a deficit of a huge amount, the petitioner-society had claimed Rs. 75,00,000 as hotel expenses, Rs. 10,00,000 as mess expenses and Rs. 5,00,000 as payments made for tents. During the course of the assessment proceedings, documents filed by the petitioners were examined and evidence was collected which revealed that the alleged payments of Rs. 5,18,845.15 and another amount of Rs. 15,210.35 were not made to the Ashoka Hotel as claimed in expenditure account and the said amounts had been included just to inflate the expenses. Similarly, certain amounts claimed as expenditure as payments made to the Lodi Hotel were also found to be false and then certain amounts allegedly paid to M/s Karachi Taxi Company were also found to be not made. Similarly, expenditure allegedly incurred in the shape of payments made to some Vedic pandits were found to be not actually made and then certain amount shown as spent on conveyance charges was found to be false. So, huge amounts claimed as expenditure by the petitioner-society in evidence were found to be false and were stated to have been intentionally included in the return to inflate the figures in order to escape the taxation of income. The complaint was filed against the society and its president, vice-president, secretary and the two accountants. The petition has been moved for quashing of the criminal proceedings by the society and Anand Srivastava and Ajay Prakash, i.e., the vice-president and the secretary of petitioner No. 1. In the complaint, it has been mentioned that petitioner No.1 and the other accused had themselves made or caused to be made false entries and the statements in its books of account, other documents filed along with the return of income in order to cause circumstances to exist which would have the effect of enabling petitioner No. 1 to evade income-tax, etc., and that all the accused have been in possession and control of the books of account and other documents containing the false entries and false statements relating to the aforesaid expenses and thus all the accused had committed an offence punishable under s. 276C(1) of the IT Act and moreover the accused No. 1, the society, through accused No. 2, the president, had made a statement in verification in the form of return of income-tax, while accused Nos. 2 to 6 delivered the accounts and statements signed by them on behalf of the society which were false which they knew or believed to be false or did not believe to be true and thus committed an offence punishable under s. 277 of the IT Act. It is further alleged that accused Nos. 2 to 4 were managing and controlling the society and were looking after the day to day business of the society and they were also signing the documents on behalf of the society and thus they are all liable to be proceeded against under s. 278B of the IT Act and, similarly, accused Nos. 5 and 6, who are the officers of the society, had been signing and filing the documents and statements on behalf of the society and thus they have committed the offences in connivance with the others or, at any rate, they have been extremely negligent in the discharge of their obligations in this behalf and thus they are liable to be punished under s. 278B(2) of the IT Act. Now, the ingredients of the offences covered by the aforesaid provisions of the IT Act have nothing to do with the actual assessment orders. It is only where, from the evidence collected, the IAC finds that prima facie the accused have committed offences mentioned in those sections, that after taking necessary authorisation, he can file a criminal complaint. The assessment by itself is not the basis of the complaint. In the present case, even if the reassessment order had become invalid, the fact remains that the original assessment order still remains in force and an appeal filed against that order is yet to be decided on merits.
Counsel for the petitioners has cited Uttam Chand vs. ITO TC48R.304. The facts, in brief, in this case were that a criminal prosecution had been instituted alleging that a false return had been filed showing that there existed a genuine partnership firm. However, the Tribunal had given a finding in the appeal that the partnership firm was genuine. The Supreme Court, by this short judgment, held that in view of the finding recorded by the Tribunal, it was clear that there was a genuine partnership firm and thus no criminal prosecution could survive and the prosecution was quashed. This judgment, on facts, is distinguishable because in the present case as yet, no finding has been given in the first appeal or in the second appeal that the allegations forming the basis of this criminal complaint are false. Hence, the observations made in the aforesaid judgment are not apposite to the facts of the present case.
Counsel for the respondents, on the other hand, has referred to P. Jayappan vs. S. K. Perumal, First ITO (1984) 42 CTR (SC) 180 : (1984) 149 ITR 696 (SC) : TC48R.501. In this case, the search was conducted in the premises of the petitioner and certain documents and account books were seized which revealed suppression of certain material income. There were several other wrong statements made in the assessment proceedings as also in the account books. A criminal complaint was filed for taking action for offences punishable under ss. 276 and 277 of the IT Act and ss. 193 and 196 of the IPC. A petition under s. 482 of the CrPC was filed in the High Court to have the proceedings quashed contending that the launching of the prosecution was premature because the reassessment proceedings started against the accused had not been completed. The High Court dismissed the petition and an appeal was preferred before the Supreme Court under Art. 136 of the Constitution. It was authoritatively laid down that the pendency of the reassessment proceedings could not act as a bar to the institution of criminal prosecution
for the offences punishable under s. 276C or s. 277 of the IT Act and nor could the institution of the criminal proceedings amount to an abuse of the process of the Court. It was held that there is no provision in law which provides that a prosecution for the offences under the aforesaid sections cannot be launched until reassessment proceedings initiated against the assessee are completed and a mere expectation of success in some proceeding in an appeal or a reference under the IT Act cannot come in the way of the institution of criminal proceedings under the IT Act. It has been also observed in this judgment that the criminal Court, no doubt, has to give due regard to the result of any proceedings under the IT Act having a bearing on the question in issue and in an appropriate case, it may drop the proceedings in the light of an order passed under the Act, but it does not, however, mean that the result of a proceeding under the Act would be binding on the criminal Court as the criminal Court has to judge the case independently on the evidence placed before it. So, in the present case, however, there is no order made by the appellate authority in disbelieving the allegations which are the subject-matter of the criminal complaint. If, at any stage, later on, in an appeal under the IT Act, any decision is given disbelieving the allegations which are the subject-matter of the criminal complaint, then the criminal Court obviously would give due regard to the said findings but the criminal Court would not be legally bound by those findings as the criminal Court shall have to appraise the evidence which might be led in support of the complaint. It is laid down in this judgment by the Supreme Court that in appropriate cases, the criminal Court may adjourn or postpone the hearing of a criminal case in exercise of its discretionary power under s. 309 of the CrPC if the disposal of any proceeding under the IT Act which has a bearing on the proceedings before it is imminent so that it may take into consideration also the order to be passed therein. However, a note of caution was sounded by the Supreme Court that while exercising such discretion, the criminal Court has to keep in view that the object of the criminal proceedings is not frustrated and there is no rigid rule which makes it necessary for a criminal Court to adjourn or postpone the hearing of a case before it indefinitely or for an unduly long period, only because some proceeding which may have some bearing on it is pending elsewhere. This judgment is a complete answer to the contention raised on behalf of the petitioners in seeking the quashing of the criminal complaint pending against the petitioners.
Counsel for the respondents also drew my attention to Ashoka Biscuit Works vs. ITO (1988) 169 ITR (St) 13 : TC48R.813, wherein also a complaint under ss. 276C and 277 of the IT Act had been launched and in the proceedings under the IT Act in an appeal filed before the Tribunal, the penalty which was imposed on the same facts was quashed, but still it was held by the Hon’ble Supreme Court that a criminal complaint cannot be quashed only on the ground that in the income-tax appeal before the Tribunal, which was based on the same facts as are alleged in the criminal complaint, the penalty imposed had been quashed. So, I hold that the criminal complaint in question cannot be quashed only on the ground that the reassessment order in which evidence was collected has become invalid. I may also refer to Pooran Mal vs. Director of Inspection (Investigation) (1974) 93 ITR 505 (SC), wherein it has been held that even though search and seizure have not been effected in accordance with the provisions of law, still the evidence so collected, if it is relevant, can be relied upon in support of a case.
Counsel for the petitioners then referred to Nemi Chand Garg vs. ITO (1986) 161 ITR 500 (Raj) : TC48R.926, wherein the Rajasthan High Court had directed the stay of criminal case till the decision of the appeal pending before the Tribunal. In the present petition, no prayer has been made by the petitioners seeking stay of the criminal complaint. No such prayer has been made before the Magistrate concerned. It is for the Magistrate to exercise his discretion in accordance with law whether to stay the proceedings or not, if so, for what period, keeping in view the observations made by the Supreme Court in P. Jayappan’s case (supra). Hence, I need not express any view whether the proceedings pending before the criminal Court should be stayed or not. The only question to be decided by this Court is whether the proceedings are liable to be quashed. On this particular question, counsel for the petitioners has nothing more to add because it is quite clear that the complaint in the present case is based on the material and evidence collected and not merely on the basis of the assessment order. Hence, the mere fact that the complaint has been made after reassessment order was made and the reassessment order has become invalid does not mean that the criminal complaint also falls to the ground, because, as already mentioned above, the criminal complaint is based on the material and evidence which show prima facie the commission of the alleged offences by the petitioners and so the criminal complaint cannot be quashed on the ground that the reassessment order has become invalid. The fact remains that the first assessment order still survives and the appeal filed against that order is still pending. If, at any stage of the proceedings, any appeal is decided under the IT Act which has some bearing on the merits of the allegations made in the criminal complaint, the petitioners would be well advised to apprise the Court concerned regarding any such order and it would be for the Court concerned to evaluate the worth of the said order keeping in view the evidence which may be led before the Court in support of the complaint.
Mr. Venugopal, Senior Advocate, has raised a new point in his arguments which does not find mention in the petition. He has argued that the petitioner-society could not be guilty of any offences where the element of mens rea is a prerequisite. According to counsel for the petitioners, a legal person like a company or a society cannot have a guilty mind. I am afraid that this particular contention is devoid of all force. In H. L. Bolton Engineering Co. Ltd. vs. T. J. Graham & Sons Ltd. (1957) 1 QB 159, the question which was posed was whether a company can have a guilty mind or not. It was clearly observed that the state of mind of the managers of the company is to be deemed to be the state of mind of the company. It was further observed that the intention of the company could properly be inferred from the intention of its officers and agents having regard to the nature of the matter under consideration. It was held that the state of mind of the directors and managers, who represent the directing mind and will of the company and control what it does, is the state of mind of the company and is treated by law as such. In Municipal Corporation of Delhi vs. J. B. Bottling Co. (P) Ltd. (1975) Cri LJ 1148 (FB), one of the points raised in the case was whether the offences where corporal punishment and fine are provided as mandatory provisions, whether a legal person like a company could be found guilty of such an offence. After considering the case law in detail, it was held by the Full Bench that in such a case the legal person could be held to be guilty of the offences and can be punished with fine, even though the sentence of imprisonment cannot be awarded. While considering the case Rex vs. I.C.R. Haulage Ltd. (1944) 1 KB 551, it was held that if any offence involving mens rea is there, the company can be found guilty of such an offence as the guilty mind of the persons controlling the said company would be the guilty mind of the company itself. The observations pertaining to the said case, which are pertinent, are as follows (1945) 15 Comp Cases 47 : “The counsel for the Crown contended that a limited company, like any other entity recognised by the law, can as a general rule be indicted for its criminal acts which from the very necessity of the case must be performed by human agency and which, in given circumstances, become the acts of the company.”
The Court of Appeal accepted the submission of the Crown and dismissed the appeal. In Delhi Development Authority vs. Punjab National Bank (1981) 19 DLT 353 (Del), a Division Bench of this Court had also occasion to deal with such a matter and it was held that those who control or manage the affairs of the company are regarded in a sense as the company itself because they are identified with the company and their acts and the state of mind are imputed to it whenever they are acting in their capacity as its controlling officers. It was further laid down that applying this principle, the higher directorate is acting as the banking company in this case and its mind is the mind of the company; if it is a guilty mind, then the guilt is the guilt of the company and that is how we find the real culprit in a notional entity, a ghostly personâwhat lawyers call a “legal person”. So, it cannot be argued with any rationality that a company cannot have a guilty mind. The company’s mind is the mind of the persons controlling, the company. If the persons controlling the company have acted fraudulently on behalf of the company, it is the company which would be indicted for the said fraud committed by its controlling persons. Hence, it has to be held that even though mens rea is one of the elements of the offence which are the subject-matter of the criminal complaint, yet the company can be held guilty of the said offences, if the persons controlling the said company had acted on behalf of the company in committing the aforesaid offences. A perusal of the complaint, a copy of which was supplied to me by counsel for the petitioner and which is placed on the record, clearly shows that accused Nos. 2 to 6 had acted for and on behalf of the company in submitting false returns of income-tax with inflated expenditure in order to escape the liability of tax.
Counsel for the petitioners, lastly, prayed that as the identity of petitioners Nos. 2 and 3 is not being disputed or challenged, it may be mentioned in the order that the Magistrate concerned shall grant exemption from personal appearance to these petitioners during the trial. It is not necessary for this Court to give any such directions. However, I may mention that the Magistrate, if approached by any of the accused seeking personal exemption, shall consider the said request obviously in the light of the law applicable and particularly to the observations made by the Supreme Court in Chandu Lal Chandraker vs. Puran Mal (1988) JT (1) SC 14. In that judgment, even the personal presence of the accused was not considered to be necessary for recording a statement under s. 313 of the CrPC, where the accused is not interested in answering questions under s. 313 of the CrPC and gives an undertertaking that he would not raise the question of prejudice later on.
In view of the above discussion, I find no merit in this petition which I hereby dismiss with no order as to costs.
[Citation : 173 ITR 487]