The Judgment of the Court was delivered by
Venkatesh, J.:— The first petitioner is a partnership firm and petitioners Nos. 2 to 5 are partners thereof. The firm is an assessee to income-tax.
2. The firm deals in oil seeds, oil cakes and also acts as commission agents. Alleging that in the return of income-tax filed by the assessee for the period ending December 21, 1975, it had suppressed some relevant and important information, had not disclosed proper income earned by it and one of the accused had also made a false verification in the return of income, the ITO, Central Circle-V, Bangalore, filed a complaint on March 31, 1981 (in C.C No. 309 of 1982), in the Court of the Second Additional Chief Metropolitan Magistrate, Bangalore City. The learned magistrate taking cognizance of the complaint under s. 200 of the Code of Criminal Procedure, 1973, issued process to the accused. Proceeding with the matter as provided under s. 244 of the Code, he has recorded the evidence of one witness for the prosecution.
3. At that stage the accused filed an application requesting the court to discharge them, contending, inter alia, that the complaint of the ITO is based on his assessment order, ex. P-37, that they, the accused, have challenged that order in appeal before the statutory authority and the same was pending; that they have also preferred a petition under art. 226 of the Constitution of India in the High Court of Karnataka and that Court has granted a stay staying the recovery proceedings of the ITO and that, in these circumstances, the prosecutions were premature and, therefore, they may be discharged.
4. The complainant opposing the application of the accused contended that the pendency of the appeal or the writ petition was no bar to the prosecution; that the charges or accusations levelled against the accused in the matter are required to be gone into by the court independently of the findings, if any, of the income-tax statutory authorities, under the Act or of the superior courts on the writ side; that there was also no bar in law for the continuation of this prosecution; and that, in these circumstances, the objections raised are without any basis and deserve to be overruled.
5. The learned Magistrate by his order dated February 1, 1983, has overruled the objections raised by the accused and refused to discharge them
6. This petition is directed against that order.
7. The learned counsel have raised the same rival contentions before me. In addition, it was argued for the complainant that the order being an interlocutory one, the revision itself was not maintainable. Regarding this aspect of the case, it was submitted by the other side that, if the revision is barred, the petition may be treated as one under s. 482 of the Code and their claim be considered.
8. Any wilful attempt on the part of an assessee to evade any tax, penalty or interest chargeable or imposable under the Act is made punishable under s. 276C. Making a false statement in any verification under the Act or the Rules or delivering an account or a statement which is false and which he either knows or believes to be false or does not believe to be true, is made punishable under s. 277 of the Act. Likewise, Chapter XXII of the I.T Act, 1961 (the Act), contains other provisions providing for punishment of the assessees contravening the other provisions of the Act or Rules.
9. Offences under s. 276C or s. 277 of the Act are not cognizable (see s. 219k). Section 279 makes it clear that prosecutions under these provisions can only be at the instance of the Commissioner.
10. The Act provides for a heirarchy of income-tax authorities, like the ITO, the IACs, the AACs and the Commissioners, etc. Their powers and functions in the matter of making assessment of tax are well denned (Chapter XIII of the Act). The procedure for assessment is provided in the provisions contained in Chapter XIV. Chapter XX of the Act provides for appeals to the AAC in certain matters. Section 252, which also falls in Chapter XX of the Act, provides for the establishment of an Appellate Tribunal and appeals to that Tribunal against certain types of orders are provided for under s. 253 of the Act. In addition, Chapter XX also contains provisions providing for references in certain cases to the High Court, appeals to the Supreme Court and also revision by the Commissioner.
11. Now, as stated above, the offences under ss. 276C and 277 of the Act are non-cognizable and a complaint as to these offences can only be at the instance of the Commissioner. We have also to remember the acts (or omissions) of the assessee that would constitute an offence. Offences under ss. 276C and 277 of the Act arise only when he does or omits to do something in the discharge of his statutory obligation. The acts or omissions are integrally connected with what he, assessee, may do or may not do in the matter of his assessment under the Act. Whether he has evaded payment of tax, interest or penalty chargeable or imposable under the Act as provided under s. 276C or made a false statement on verification, etc., as provided under s. 277 of the Act, are required to be first ascertained on an examination of all the facts and circumstances of the case by the concerned ITO who is saddled with this responsibility under the Act. The Commissioner, only on being satisfied that the person concerned has done the acts complained of, can take steps to prosecute the persons concerned.
12. Normally, and perhaps invariably, the facts that may lead to an offence under the aforesaid two provisions are collected by the concerned income-tax authority while examining the liability of the person concerned to pay tax for the year in question. In the process of assessing the taxpayer if the authority comes to the conclusion that no such, violations under the aforesaid provisions have been committed by the person, the question of initiating or instituting a prosecution against that person does hot arise at all. If, on the other hand, that authority while completing the assessment proceeding comes to the conclusion that there have taken place omissions or violations constituting offences under the aforesaid provisions, then only steps will be taken to prosecute the person concerned in accordance with these provisions.
13. It is true that in a particular case whether the accused are guilty or not will depend on the findings of the court and the findings based on an independent assessment of the facts placed by the complainant before it. In a given case, the court may find the accused not guilty in spite of a contrary finding of the income-tax authority that the act or omission was wilful or intentional, etc.
14. But would the converse be true is the question. If the appellate or the revisional authority modifies the order of the subordinate authority holding that the acts or omissions complained of either had not taken place or were not wilful or intentional, etc., can the complainant pursue his complaint on the strength of the facts earlier placed, which in the altered situation do not at all exist. If we closely examine these various provisions keeping in mind the scheme of the Act, it cannot but be said that unless they, the income-tax authorities, in the process of assessing an assessee for a particular year come to the conclusion that he, the assessee, in the matter of his returns, had committed the aforesaid violations, they cannot initiate any prosecution in the matter under these provisions—ss. 276C and 277 of the Act.
15. As is well known, the order of a subordinate authority merges with that of the appellate or revisional authority. If the assessee is exonerated of the acts complained of, how can the complaint be still pursued? If the final order is that the assessee is innocent of the acts complained of; would it still lie with the complainant who is bound by the final order to say or swear in a court contrary to those findings?
16. This question need not now pose any problem to us. Because, in its recent decision in Uttam Chand v. ITO, [1982] 133 ITR 909, the Supreme Court has held that the prosecution launched for an offence under s. 277 of the Act, on the allegation that the assessee had filed false returns, ought to be quashed in view of the findings of the Income-tax Appellate Tribunal that the returns filed were not false. To understand the implication of this judgment, a few more facts, in brief, have to be noted. In Uttam Chand, [1982] 133 ITR 909 (SC) the assessee claimed to be a firm validly constituted. The ITO had granted registration to that firm. At the instance of one of the alleged partners, the ITO proceeded to examine the genuineness of the firm and by his order dated February 8, 1972, having come to the conclusion that the firm was not a genuine one, cancelled the registration and passed consequential orders for several years of assessment. The assessee having failed before the AAC, had applied to the Income-tax Appellate Tribunal. In the meanwhile, the Revenue had filed a complaint against the assessee for offences under s. 277 of the Act and ss. 193, 196, 467 and 471 read with 109, 114, 34 and 37 of the Indian Penal Code and the offences alleged pertained to the assesment year 1963–64. The assessee succeeded before the Income-tax Appellate Tribunal in the appeals it had preferred. Thereafter, in the pending prosecution, the accused sought for an order to discharge them. Having failed therein, they applied under s. 482 of the Code to the Punjab and Haryana High Court. The observations of the Punjab and Haryana High Court while dismissing the petitions filed by the accused may usefully be extracted:
“It is contended on behalf of the petitioners that the proceedings pending before the Magistrate amount to an abuse of process in view of the findings of the Income-tax Appellate Tribunal and hence the same may not be allowed to continue. I do not find any merit in this contention. The proceedings before the Magistrate are entirely independent of the findings of the Income-tax Appellate Tribunal. The findings of the Income-tax Appellate Tribunal are not binding on the criminal court. The criminal court is to independently go into the matter and if on evidence adduced by the Revenue it comes to a conclusion that any offence is made out against the petitioners, then it will convict them and if it comes to a conclusion that no offence is made out, then it will acquit them. So far, the petitioners have not even been charged. As soon as the complaint was filed, the petitioners moved an application before the Magistrate raising the objection that the proceedings in the complaint cannot continue in view of the findings of the Income-tax Appellate Tribunal. After their objection was rejected by the Magistrate, they came to this court by way of this application under s. 482, Cr. P.C, and proceedings before the Magistrate were stayed by this court. No evidence is led before the Magistrate,”
17. Setting aside the judgment of the High Court of Punjab and Haryana, the Supreme Court observed in Uttam Chand's case, [1982] 133 ITR 909 (SC) as under at 910:
“Heard counsel, special leave granted. In view of the finding recorded by the Income-tax Appellate Tribunal that it was clear on the appraisal of the entire material on the record that Shrimati Janak Rani was a partner of the assessee-firm and that the firm was a genuine firm, we do not see how the assessee can be prosecuted for filing false returns. We, accordingly, allow this appeal and quash the prosecution.
There will be no order as to costs.”
18. It is thus clear from Uttam Chand that in a case like this, the finding arrived at by the Appellate authority will make all the difference regarding the complaint filed by the Revenue against the assessee. The very basis of foundation on which the prosecution rests disappears. In the case on hand, if these accused-assessees succeed before the Appellate Tribunal, the result would be as in Uttam Chand. Is it fair or proper to proceed with the prosecution in the meanwhile or to allow it in the court below to be pending till the findings in the assessment order, on the basis of which this prosecution has been launched, reaches a finality? To pursue the prosecution in the criminal court during the pendency of such proceedings on the Revenue side would amount to prosecuting on uncertain facts which cannot even be countenanced under our system of administration of justice. Even to allow that complaint pending in the court below awaiting the decision in the appeals, revision, etc., if any, filed and pending, would, according to me, amount to an abuse of the process of the court.
19. Revenue is not helpless in the matter. There is no bar of limitation in the case of such prosecutions. The legislature has wisely exempted these prosecutions from the purview of s. 468 of the Code. [See the Economic Offences (Inapplicability of Limitation) Act, 1974], It may be argued that the appeals, revisions or references, etc., taken by the assessee concerned before the appropriate authority may take a long number of years to reach finality and that initiation of prosecution thereafter may not have the necessary impact on the wrongdoers. But would that be the reason to prosecute in this fashion inviting startling results in the process? It is for the authorities concerned to streamline their administration so as to see that these matters are expeditiously dealt with and disposed of at all levels. That lies not with the assessee but with those who administer the law. They cannot plead their helplessness in the matter. It is not for this court to advise as to how they should achieve that object.
20. The learned counsel for the Revenue, drawing my attention to Telu Ram Raunqi Ram v. ITO, [1984] 145 ITR 111 (P&H), submitted that on a mere expectation of succeeding in the appeal, the accused cannot ask the court to drop the criminal proceeding. It is true that in Telu Ram, the Punjab and Haryana High Court, even after considering Uttam Chand, [1982] 133 ITR 909 (SC), has observed (headnote of 145 ITR 111):
“That mere expectancies should not stand in the way of the criminal court from proceeding in the matter. The High Court could not stop any proceedings against an assessee in a criminal court on mere expectancy. In case the expectations of the assessee fructify and an order was passed in its favour by the time the trial was pending, even at the appellate and revisional stages, all those courts, in dealing with that matter, would be required to give due regard to those findings in case they were favourable to the assessee. Therefore, the proceedings against the assessee at the instant stage were not an abuse of the process of the court and the grant of stay of the proceedings would not be in the interest of justice.”.
21. The court has not merely refused to quash the proceeding pending in the subordinate court, but has also not agreed to stay the same. With great respect I am unable to agree with the above-said observation in Telu Ram, [1984] 145 ITR 111 (P&H). I have stated above the circumstances that give raise to prosecutions of this type. If the accused-assessee succeeds ultimately in the appeal and gets his pending proceeding quashed relying on Uttam Chand, [1982] 133 ITR 909 (SC), why should he suffer in the meanwhile with a prosecution hanging on his head? If the case proceeds and ends in conviction, what would happen in the event of his succeeding in the appeal on the Revenue side? The result would indeed be very unfortunate. And apart from this, even to keep the proceeding pending, as already stated by me based on uncertain facts, would not be fair or just. The reason is that that amounts to interfering with the “life” of the person concerned. Under article 21 of our Constitution, “life” in its broader perspective, as observed in Board of Trustees v. Dileep Kumar, Raghavendranalh Nadkami, AIR 1983 SC 109 : (1983) 1 SCC 124, “does not merely connote animal existence or a continued drudgery through life, but has much wider meaning.” It includes, as observed therein, the reputation of the person concerned. Why squeeze that “life” and finish it when the complainant himself is not so sure of the very authenticity of the facts, facts that had prompted him to pursue this course against the assessee?
22. I am, therefore, in the circumstances, of the view that the continuation of the prosecution against these persons in the court below will amount to an abuse of the process of the court. Therefore, reserving to the Revenue its right to take, if it so chooses, appropriate action in the matter at a later stage, exercising my powers under s. 482 of the Code, I quash the proceeding pending in the court below and dismiss the complaint.