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S. Vaidyanathan, Income-Tax Officer v. Dr. B. Mathuram And Sons And Others.
Factual and Procedural Background
The revision petition was filed by the Income-tax Officer, City Circle I(1), Tiruchirapalli, challenging an order of discharge passed by the Chief Judicial Magistrate, Tiruchirapalli on November 19, 1984. A complaint under sections 120B, 193 and 196 of the Indian Penal Code and sections 276C(1) and 277 of the Income-tax Act, 1961 was filed on January 19, 1984 against six respondents: a partnership firm (first respondent) and its five partners (respondents 2 to 6). The firm, carrying on manufacture and sale of indigenous medicinal preparations since April 1, 1973, completed assessments for 1975-76 and 1976-77. It was discovered that the firm maintained a current account and a fixed deposit of Rs. 90,000 with a bank which were not disclosed in the firm's balance-sheet or returns for the relevant years, and interest on those deposits was not disclosed.
The bank account opening form indicated the account was in the name of the firm and signed by all five partners, to be operated jointly and severally. The current account, fixed deposits and interest were omitted from the firm's books kept for income-tax purposes. When respondent No. 2 was examined on oath on February 15, 1983, he initially stated the money did not belong to the firm but later made admissions contrary to that position. A complaint was accordingly filed under the cited offences.
The Magistrate examined the complainant and Department witnesses. The respondents sought discharge and the Magistrate accepted their plea, discharging some or all accused; this decision was challenged by the Income-tax Officer by way of revision. The Court identifies three principal points raised in the respondents' plea, which were considered by the Court in the revision.
Legal Issues Presented
- Whether a valid complaint was filed before the Magistrate (in light of section 195 Criminal Procedure Code and whether the Income-tax Officer is a "court" for that purpose).
- Whether statements and returns made only by accused No. 2 can sustain charges against the other partners (accused Nos. 3 to 6).
- Whether the complaint lacks basis because the reassessment order on which it was premised had been set aside by the Commissioner of Income-tax (Appeals).
Arguments of the Parties
Respondents' Arguments
- There was no valid complaint before the Magistrate (pointing to bar under section 195 CrPC as interpreted in Associated Industries v. First ITO).
- Only accused No. 2 submitted the return and made statements; the other respondents did not file or sign returns nor make statements, so charges cannot lie against them.
- The reassessment order, relied upon by the Income-tax Officer as disclosing ingredients of the offence, was set aside by the Commissioner of Income-tax (Appeals), rendering the complaint baseless.
Income-tax Department / Revision Petitioner Arguments
- Reliance on a later decision (Union of India v. Gopal Engineering Works, [1988] 173 ITR 206 (Mad)) suggesting that under section 136 of the Income-tax Act a proceeding before the income-tax authority is a judicial proceeding for purposes of sections 193 and 228 IPC and, for the purpose of section 195 CrPC, the Income-tax Officer should be treated as a court.
- Argument that amendment by Finance Act, 1985 to section 136 of the Income-tax Act (declaring income-tax authorities to be civil courts for the purpose of section 195 CrPC with retrospective effect from 1 April 1974) supports the validity of the complaint.
- Implicitly, that the complaints and charges under sections 193 and 196 IPC are appropriate and maintainable in this factual matrix.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Associated Industries v. First ITO, [1982] 134 ITR 565 (Mad) | Held that under section 195(3) CrPC the Income-tax Officer was not a "court" (since not declared to be so in the Income-tax Act), and thus a complaint could not be filed for offences under sections 193–196 IPC in light of the bar in section 195 CrPC. | The Magistrate had relied on this decision to discharge the accused. The High Court explained that if the Income-tax Officer is not a "court" under section 195(3) CrPC then section 195 does not apply and the Income-tax Officer may still file a complaint as an ordinary citizen; thus the strict ratio of Associated Industries does not prevent the Income-tax Officer from filing a complaint in that capacity. |
| Union of India v. Gopal Engineering Works, [1988] 173 ITR 206 (Mad) | Observed that under section 136 of the Income-tax Act a proceeding before the income-tax authority is a "judicial proceeding" within the meaning of sections 193 and 228 IPC, and for the purposes of section 195 CrPC the Income-tax Officer should be deemed to be a court. | Represented by the Department in support of the proposition that income-tax authorities may be regarded as courts for purposes of section 195 CrPC. The High Court addressed the effect of subsequent statutory amendment (Finance Act, 1985 amending section 136) and concluded the amendment is valid retrospectively; however, on the facts of this case the complainant did not act as a court and simply filed a complaint in the ordinary form. |
Court's Reasoning and Analysis
The Court analyzed the scope and purpose of section 195 CrPC, observing that the provision creates an exception to the general law by restricting the taking of cognizance of certain offences committed in relation to proceedings in a "court" to complaints made by that court or its superior. The definition of "court" in section 195(3) must be applied to the entire section and not only to the exception clause. Thus, when the bar in the opening portion reads "no court shall take cognizance", the term "court" in that bar must be understood as defined in section 195(3).
The Court set out a dichotomy: either an authority is a "court" (in which case both privilege and restriction under section 195 apply) or it is not (in which case section 195 is inapplicable and there is no statutory restriction preventing a private person from filing a complaint). If the Income-tax Officer is not a "court" under section 195(3), then section 195 would not limit the Income-tax Officer's ability to file complaints under sections 193 and 196 IPC; he could file as an ordinary citizen.
The Court addressed the effect of the Finance Act, 1985, which amended section 136 of the Income-tax Act to declare every income-tax authority a civil court for the purposes of section 195 CrPC, with retrospective effect from April 1, 1974. The Court examined the retrospective operation and held that retrospective effect is permissible for a provision that is procedural in nature and does not worsen the accused's position by creating a new offence, permitting prosecution where none was permitted before, or changing evidentiary rules to the accused's detriment. The Court concluded that the amendment, insofar as it causes an income-tax officer to be treated as a court for section 195 purposes, does not aggravate the accused's situation and is legally susceptible of retrospective effect; therefore the amendment is proper and valid.
Applying the legal analysis to the facts, the Court noted the complaint, as drafted, did not show the Income-tax Officer acting as a court or purporting to act as one: the complainant was named in conventional terms and the prayer asked the Magistrate to take the complaint on file and issue processes. Consequently, even without the amendment the complaint was in order, and with the amendment it remained so.
On the second point, the Court examined the evidence and found that only accused No. 2 filed returns and made statements to the Income-tax Officer. The others (accused Nos. 3–6) had only signed the bank account opening form. There was no evidence that each partner knew the contents of the returns filed by accused No. 2 or that they were responsible for those returns. Therefore the Court held that the discharge of accused Nos. 3–6 was justified and did not require interference.
On the third point, although the reassessment order was set aside by the Commissioner (and the matter remanded), the Court observed that the matter remained unresolved before the Department and had been taken up to the Income-tax Appellate Tribunal, so it was not finally settled for either side. The Court concluded the complaint was not rendered objectless by the setting aside of the reassessment order. Nevertheless, because the departmental proceedings on assessment were still pending, it would be inappropriate for the criminal trial to proceed at that time. The Court allowed the Department the option to withdraw the complaint with liberty to file afresh if appropriate; if the Department did not withdraw, the trial court should stay proceedings and resume them only after a fresh assessment and an application to proceed.
Holding and Implications
Holding: The revision petition was allowed only in respect of accused Nos. 1 and 2 and dismissed in respect of accused Nos. 3 to 6. The discharge of accused No. 1 (the firm) and accused No. 2 (the managing partner) is set aside.
Implications:
- Direct effect on the parties: accused Nos. 1 and 2 are no longer discharged and may be proceeded against; the discharge of accused Nos. 3–6 is maintained.
- Procedural consequence: because departmental proceedings (relating to reassessment) remain pending and the matter is not finally settled, the trial court is directed not to proceed immediately; the Department may withdraw the complaint with liberty to refile, or the court shall stay proceedings until a fresh assessment order is passed and an application to proceed is made.
- No broader new legal precedent is expressly proclaimed by the Court beyond the analysis of the effect of section 195 CrPC and the 1985 amendment to section 136 of the Income-tax Act; the Court primarily applied existing principles to the facts and addressed the retrospective validity of the statutory amendment.
David Annoussamy, J.:— The revision petition is by the complainant, namely, the Income-tax Officer, City Circle I(1), Tiruchirapalli, against an order of discharge passed by the Chief Judicial Magistrate, Tiruchirapalli, on November 19, 1984.
2. A complaint under sections 120B, 193 and 196, Indian Penal Code, and sections 276C(1) and 277 of the Income-tax Act, 1961, was filed by the Income-tax Officer, City Circle I(1), Tiruchirapalli, on January 19, 1984, under the following circumstances against the six respondents, the first respondent being a partnership firm and the other respondents being the partners thereof. The firm came into existence on April 1, 1973, and has been carrying on the business of manufacture and sale of indigenous medicinal preparations. After the income-tax assessments of the first accused firm for the assessment years 1975-76 and 1976-77 were completed on September 29, 1976, and February 3, 1977, respectively, it came to light that the first accused firm had a current account and a fixed deposit account for Rs. 90,000 with the State Bank of Mysore, Abhiramapuram Branch, Madras. Neither the fixed deposit account of Rs. 90,000 nor the current account balance of Rs. 352.52 was disclosed by the first accused firm in the balance-sheet filed by the accused along with its return of income for the year ended March 31, 1975, nor was the interest received from the abovesaid deposits disclosed in the return of income for the year ended March 31, 1976.
3. The original current account opening form obtained from the bank clearly shows that the application was for opening an account in the name of the first accused firm and that it was signed by all the five partners, namely, respondents No. 2 to 6 and they were to operate the account jointly and severally. The current account and the fixed deposits and the interest received in respect of the fixed deposits have been completely kept out of the books of account of the first accused firm maintained for income-tax purposes. When respondent No. 2 was examined on oath by the Income-tax Officer on February 15, 1983, about the aforesaid current account and fixed deposit account, he deposed that the money did not belong to the first accused firm. When he was questioned further, he made admissions to the contrary regarding the current and fixed deposit accounts and the fact of those accounts having not been recorded in the books of the firm. Accordingly, a complaint was filed against all the respondents under the sections aforementioned.
4. The Magistrate examined the complainant as well as the other members of the Department. Thereafter, the respondents raised a plea that, in the circumstances of the case, they deserved to be discharged. Their plea was accepted by the Magistrate and it is that decision arrived at by the Magistrate which is challenged in the present revision. Three main points are raised before me by counsel for the respondents and they will be considered seriatim. Those points are:
1. There is no valid complaint filed before the Magistrate.
2. From the records, it is shown that only the second accused has submitted the return; and all statements alleged to be false have been made solely by him and, therefore, no charge can lie against the other respondents.
3. When the reassessment order made by the Income-tax Officer on the basis that the return was false has itself been set aside by the Commissioner of Income-tax (Appeals), the complaint is lacking legal basis.
5. Point No. 1: The Magistrate has discharged the accused placing full reliance on the decision of this court in Associated Industries v. First ITO, [1982] 134 ITR 565 (Mad), in which it was held that as per section 195(3), Criminal Procedure Code, the Income-tax Officer was not a court since he was not declared to be so in the Income-tax Act and that, therefore, a complaint could not be filed for offences under sections 193 to 196, Indian Penal Code, in the teeth of the provisions of section 195, Criminal Procedure Code. It is represented by learned counsel appearing on behalf of the Income-tax Department that in a recent judgment of this court in Union of India v. Gopal Engineering Works, [1988] 173 ITR 206 (Mad), this court has observed that, inasmuch as under section 136 of the Income-tax Act, a proceeding before the income-tax authority was a judicial proceeding within the meaning of sections 193 and 228, Indian Penal Code, for the purpose of section 195, Criminal Procedure Code, also, the Income-tax Officer should be deemed to be a court.
6. I shall now consider the provisions of section 195, Criminal Procedure Code. They have the purpose of making an exception to the general law. The essence of the provision is that no court shall take cognizance of any offence alleged to have been committed in, or in relation to, any proceeding in any court except on the complaint in writing of that court or of some other court to which that court is subordinate. The purpose of the provision is that when any offence mentioned in this section has been committed in a court, a third party is not entitled to bring the matter before any court by way of a complaint. The right and privilege of bringing those offences for trial belong exclusively to the court before which the offences have been committed. It is clearly to be borne in mind that the definition of the term “court” in section 195(3), Criminal Procedure Code, is to be applied to all the provisions of the section and not only to the portion of the section which reads as “except from the complaint in writing from the court”. In the bar embodied in the opening portion, i.e, that “no court shall take cognizance”, the term “court” has also to be understood as defined in section 195(3).
7. Consequently, either an authority is a court, when both the privilege and the restriction apply or, if it is not, then section 195 does not come into play at all. If the Income-tax Officer is not a court within the meaning of section 195(3), none of the provisions of section 195 would apply and there will be no restriction whatsoever as contemplated under section 195. The Income-tax Officer can, therefore, freely bring offences under sections 193, 196, Indian Penal Code, for trial without section 195 coming into operation at all. He would have only to show that the offences are such as are to be taken on file and are punishable under law. Therefore, the ratio in Associated Industries v. First ITO, [1982] 134 ITR 565 (Mad), to the effect that if the Income-tax Act has not declared any officer to be a court, he will not be a court under section 195(3), will not stand in the way of the Income-tax Officer filing a complaint, not as a court, but as an ordinary citizen.
8. The second part of the argument of learned counsel for the revision petitioner (sic) is that as per the Finance Act, 1985, the Income-tax Officer, among others, has been declared to be a court. section 136 of the Income-tax Act, 1961, has been amended and every income-tax authority has been declared to be a civil court for the purpose of section 195 of the Criminal Procedure Code, 1973, with retrospective effect from April 1, 1974. No doubt, if the provision is only procedural in nature, it could have retrospective effect. If, on the contrary, the provision is to brand as an offence an act which was not an offence before, or to permit prosecution which was not permitted before, or to change the rule of evidence to the detriment of the accused, such a provision, having the effect of aggravating the situation of the accused, could not have retrospective effect. If, as per the existing laws, the Income-tax Officer did not have the power to file a complaint, such power cannot be given after eleven years but, as has been seen earlier, the power of the Income-tax Officer has been always present to file a complaint for offences under sections 193 and 196, Indian Penal Code, but, he could not act as a court in filing the complaint. The fact of the Income-tax Officer acting as a court under section 195, Criminal Procedure Code, does not, in any manner, aggravate the situation of the accused. Therefore, the amendment of section 136 of the Income-tax Act, 1961, by the Finance Act, 1985, with retrospective effect is proper and valid. On the facts, in this case, the reading of the complaint would show that the Income-tax Officer did not act as a court, nor did he purport to act as a court. The complainant's name reads as follows: “Thiru S. Vaidyanathan, Income-tax Officer, City Circle I(1), Tiruchirapalli”. The concluding sentence reads as follows: “The complainant, therefore, prays that this honourable court may graciously be pleased to take this complaint on file, issue processes to the accused and deal with them according to law” Therefore, even without the amendment, the complaint is perfectly in order and after the amendment also, it will be in order since the amendment was found to be legally susceptible of having retrospective effect. In conclusion, the plea of the revision-petitioner (sic) is rejected.
9. Point No. 2: The accused who were arrayed, as stated earlier, are: the first accused No. 1, the managing partner (accused No. 2) and the other partners (accused Nos. 3 to 6). It is clear from the evidence on record that the person who filed the returns and made statements before the Income-tax Officer is only accused No. 2. The other accused have not filed or signed in the returns nor made any statements before the Income-tax Officer. The only allegation is that they have signed in the opening form of the current account. The fact that they have signed in the opening form of the current account would not in any manner render them liable for statements contained in the returns of income and for the oral and personal statements made by accused No. 2 before the Income-tax Officer. It has not been shown at any place that each one of them knew the contents of the returns of income filed by accused No. 2. It has not been the case of the Income-tax Officer that all the partners of the firm have been responsible therefor. Therefore, the plea for the discharge of accused Nos. 3 to 6 is perfectly justified and the order of the Magistrate concerning them does not warrant any interference on that point.
10. Point No. 3: The third ground of attack is that the reassessment order based on the discovery of new facts which, according to the Income-tax Officer, would constitute the ingredients of the offence having been itself set aside by the Commissioner of Income-tax (Appeals), the complaint also should be held to be objectless and unjustified. It is factually correct that the reassessment order was set aside and the matter remanded to the income-tax authority and that the Department has taken up the matter before the Income-tax Appellate Tribunal which has confirmed the order. Therefore, the matter is settled neither in favour of the Department nor in favour of the accused. It cannot be, therefore, said that the complaint has become objectless and without any basis. However, since the matter is still at large before the Department itself to make up its mind in respect of the acts alleged to have been committed by the accused, it will not be proper for the trial court to proceed with the trial at this juncture. It would be open to the Department to withdraw the complaint with permission to file it again, if circumstances so warrant. If such a course is not resorted to, the court shall stay the proceedings and start them again, once a fresh assessment order is passed and an application is made before the court to take up the trial.
11. The revision petition is allowed only in respect of accused Nos. 1 and 2 and dismissed in respect of others. The discharge of accused No. 1 and accused No. 2 is set aside.
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