V. Gopalaswamy, J.:— This revision is preferred for setting aside the order dated 30-10-1989 of the learned Additional Chief Judicial Magistrate, Cuttack, Camp at Rourkela, in II(c)C.C No. 17 of 1989 framing charges against the petitioners under sections 277 and 278-B of the Income-Tax Act, 1961 (hereinafter referred to as ‘the Act’).

2. The firm M/s. Sushila Industries (petitioner No. 1) is a registered firm of which petitioners 2 to 7 and deceased Mahabir Prasad Agarwala (who died on 12-11-1987) are the partners. The registered firm was situated at Rajgangpur within the revenue district of Sundargarh, Orissa, and it is an income-tax assessee. The Deputy Commissioner of Income-Tax (Assessment), Special Range, Sambalpur (the present opposite party) filed the complaint case II (c) C.C No. 17 of 1989 against all the petitioners alleging that the assessee firm (petitioner No. 1) for the assessment year 1976-77 has filed a return with false particulars and with false verification by one of its partners on behalf of the firm before the Income Tax Officer, Ward-A, Rourkela, in August, 1976 and thereby all the petitioners rendered themselves liable under section 277 read with Section 278-B of the Act. The complainant has examined some witnesses in support of the allegations in the complaint petition. On a consideration of the evidence and after hearing the counsel for both the parties, the learned A.C J.M, by his impugned order dated 30-10-1989 framed charges under sections 277 and 278-B of the Act against all the accused persons (the present petitioners). Hence this revision.

3. The learned counsel for the petitioners Mr. A Patnaik contended that even if all the allegations in the complaint petition were to be accepted as true, they do not disclose a case under sections 277 and 278-B of the Act against all the petitioners and therefore the learned A.C J.M acted illegally in framing charges under sections 277 and 278-B of the Act against all the petitioners.

4. Section 278-B of the Act deals with the topic of Offences by companies”. It contains provisions answering the question as to the person/persons who shall be deemed to be guilty of the offence when an offence under the Act is committed by a company or a firm. Section 278-B was inserted by Taxation Laws (Amendment) Act, 1975 and came into force on 1-10-1975. The present case is filed in relation to the return of the assessment year 1976-77 filed in August, 1976. So in the facts of the present case Section 278-B is applicable. For convenience of ready reference Section 278-B of the Act is quoted below.

“278B. Offences by companies.

(1) 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:—

Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.

(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of any director, manager, secretary or other officer of the company, such director, manager secretary or other officer shall also be deemed to be guilty of that 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; and

(b) ‘director’, in relation to—

(i) a firm, means a partner in the firm;

(iii) any association of persons or a body of individuals, means any member controlling the affairs thereof.”

5. So by virtue of the Explanation to Section 278-B of the Act, where an offence under the Act has been committed by a firm, every person who, at the time the offence was committed, was in charge of and was responsible to the firm for the conduct of the business of the firm as well as the firm shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

6. Admittedly the return of the firm in question for the assessment year 1976-77 was duly signed and verified by the Managing Partner Jagabandhu Behura (petitioner No. 2) on behalf of the firm. The statement on oath of M.P Agarwala (since deceased) before the Income-Tax Officer, marked as Ext. 15 in the case, discloses that he and the Accountant were looking after the accounting work of the firm. The learned counsel for the petitioners submitted that as there is nothing in the complaint petition or the evidence placed on record to show that any of the petitioners Nos. 3 to 7 were in charge of and responsible to the firm for the conduct of the business of the firm at the time of commission of the alleged offence, the trial Court ought to have discharged them. On a careful reading of the complaint petition it is seen that the complainant wants the Court to hold the petitioners 3 to 7 liable under section 277 of the Act only on the ground that all of them are also the partners of the firm. The impugned order discloses that the fact that petitioners 3 to 7 were also the partners of the firm by the relevant date weighed with the learned A.C J.M in framing the charges against petitioners Nos. 3 to 7 as well. From the impugned order it is seen that no material was placed before the learned A.C J. M. indicating that any of the petitioners 3 to 7 were in charge of, and responsible to, the firm in the conduct of the business of the firm at the relevant time. The learned counsel for the petitioners contended that the impugned order was not passed on the basis that there was some material placed before the Court suggesting that petitioners 3 to 7 were also in charge of the firm for conducting its business in any manner and the same is, therefore, not sustainable in law.

7. In this context in support of his contention the learned counsel for the petitioners relied on the decision Jasbir Singh v. I.T.O, (1987) 168 I.T.R 770 (Punjab & Haryana).

8. In this case, four petitioners who happened to be partners of the firm were sought to be prosecuted under section 277 of the Income Tax Act for false verification of the return of the firm. They filed a petition impugning these proceedings and praying for the quashing of the same qua then because it had nowhere been alleged in the complaint that any of the petitioners was either in charge of or was responsible to the firm for the conduct of its business. On the contrary the precise case of the complainant was that it was another partner of the firm who had signed and verified the return and had also filed the requisite supporting material along with the return. On these facts the Punjab and Haryana High Court held that as there was no allegation to the effect that the petitioners were in charge of the affairs of the firm or they were conducting any business in any manner and that the returns or the verification therein had not been signed by the petitioners, they were not liable to be prosecuted under section 277 of the Act.

9. Giridhari Lal Gupta v. D.N Meheta, A.I.R 1971 Supreme Court 2161, deals with the scope of section 23-C of the Foreign Exchange Regulation Act, 1947 (since repealed by the Foreign Exchange Regulation Act, 1973). Section 23-C (1) and section 23-C (2) read as follows:

“23-C.(1) If the person committing a contravention is a company, every person who at the time the contravention 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 contravention and shall be liable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention.

23-C (2). Notwithstanding anything contained in sub-section (1), where a contravention under this Act has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the Company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

10. Explanation-For the purposes of this section—

(a) ‘company’ means any body corporate and includes a firm or other association of individuals; and

(b) ‘director’, in relation to a firm, means a partner in the firm.”

11. Hence it is seen that the above provisions are similar to the provisions contained in Section 278-B of the Income-Tax Act.

12. While dealing with the scope of sections 23C(1) and 23-C(2) of the Foreign Exchange Regulation Act, the Supreme Court in Giridhari Lal Guptas case (supra) observed thus:

“It seems to us quite clear that S. 23-C(1) is a highly penal section as it makes a person who was in charge and responsible to the company for the conduct of its business vicariously liable for an offence committed by the company. Therefore in accordance with well-settled principles this section should be construed strictly.

What then does the expression ‘a person in charge and responsible for the conduct of the affairs of a company means ?’ It will be noticed that the word ‘company’ includes a firm or other association, and the sametest must apply to a director-in-charge and a partner of a firm in-charge of a business. It seems to us that in the context a person ‘in-charge’ must mean that the person should be in overall control of the day to day business of the company or firm. This inference follows from the wording of S. 23-C(2).”

13. Section 10 of the Essential Commodities Act, 1955 also contains provisions similar to Section 278-B of the Income Tax Act. While construing these provisions, the Supreme Court in the case of Sham Sundar v. State of Haryana, (1989) 4 SCC 630 : A.I.R 1989 Supreme Court 1982, observed thus:—

“From explanation to section 10 it will be seen that the company includes a firm and other association of persons. Section 10 provides that the person shall be deemed to be guilty of contravention of an order made under section 3 if he was in-charge of and was responsible to the firm for the conduct of the business of the firm. 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 prosecuted for the offence complained of.

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But we are concerned with a criminal liability under penal provision and not a civil liability. The penal provision must be strictly construed in the first place. 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.”

14. The wording in the proviso to section 10(1) of the E.C Act is similar to the wording in the proviso to Section 278-B(1) of the Income Tax Act. Mr. M.R Patnaik, the learned counsel for the opposite party, contended that because of the proviso to Section 278-B(1) of the Act the learned A.C J.M was justified in framing the charges against all the petitioners as it was open to the petitioners 3 to 7 to show that the offence was committed without their knowledge so that they will be ultimately acquitted. That such a contention is without substance is evident from the following observations of the Supreme Court in Sham Sundars case, (supra) while dealing with the proviso to sub-section (1) of section 10 of the E.C Act:

“…It is, therefore, necessary to add an emphatic note of caution in this regard. More often it is common that some of the partners of a firm may not even be knowing of what is going on day to day in the firm. There may be partners, better known as sleeping partners who are not required to take part in the business of the firm. There may be ladies and minors who were admitted for the benefit of partnership. They may not know anything about the business of the firm. It would be travesty of justice to prosecute all partners and ask them to prove under the proviso to sub-section (1) that the offence was committed without their knowledge. It is significant to note that the obligation for the accused to prove under the proviso that the offence took place without his knowledge or that he exercised all due diligence to prevent such offence arises only when the prosecution establishes that the requisite condition mentioned in sub-section (1) is established. 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. We, therefore, reject the contention urged by counsel for the State.”

15. Section 17 of the Prevention of Food Adulteration Act contains provisions similar to Section 278-B of the Income Tax Act. In Smt. Manibai v. State of Maharashtra, (1974) 3 SCC 760 : A.I.R 1974 Supreme Court 434, it was held by the Supreme Court that if the business is owned by a firm and the accused is a partner, he would be liable under section 17(1) of the Prevention of Food Adulteration Act for the sale which was made by another partner of the firm, only if he is shown to be in charge of and was responsible for the conduct of business which was carried on at the shop and simply because he is a licensee of the shop, his conviction cannot be justified.

16. In the present case the learned counsel for the opposite party relied on Exts. 14 and 15 and urged that in view of the recitals therein the trial Court was justified in framing charges against petitioners 3 to 7 as well. Ext. 14 is a declaration under section 184(7) of the Act. It merely discloses that petitioners 3 to 7 are also partners of the firm. Ext. 15 is the statement on oath of deceased M.P Agarwal and it shows that the said M.P Agarwal and the Accountant were looking after the accounts works. So it does not support the case of the prosecution that the petitioners 3 to 7 were also in-charge of the affairs of the firm.

17. While dealing with the question as to when proceedings can be quashed against an accused, their Lordships of the Supreme Court in Municipal Corporation of Delhi v. Ram Krishna, (1983) 1 SCC 1 : A.I.R 1983 Supreme Court 67, observed thus:

“…It is, therefore, manifestly clear that proceedings against an accused in the initial stages can be quashed only if on the face of the complaint or the papers accompanying the same, no offence is constituted. In other words, the test is that taking the allegations and the complaint as they are, without adding or subtracting anything, if no offence is made out then the High Court will be justified in quashing the proceedings in exercise of its powers under Section 482 of the present Code.”

18. As pointed out earlier, Section 278-B of the Income-Tax Act section 68 of the Foreign Exchange Regulation Act, 1973 (which corresponds to section 23-C of the Foreign Exchange Regulation Act, 1947), section 10 of the Essential Commodities Act, 1955 and section 17 of the Prevention of Food Adulteration Act, 1954 contain provisions indicating the circumstances under which natural persons can be made vicariously liable for an offence committed under these Acts by a firm or company. While construing such provisions, the Supreme Court held that for making a partner liable for the offence committed by a firm, the requisite condition is that the partner was responsible for carrying on the business of the firm and was during the relevant time in-charge of the business.

19. In the present case, neither the complaint petition nor the material placed on record shows that apart from petitioner No. 2 and the deceased M.P Agarwal, any of the petitioners 3 to 7 were in charge of and responsible to the firm in the conduct of business of the firm at the time of the commission of the alleged offence. Hence in view of the above referred decisions of the Supreme Court in Giridhari Lal Guptas case, Sham Sundar's case and Smt. Manibai's case, and the decision of the Punjab and Haryana High Court in Jasbir Singh's case, no criminal liability can be fixed on them. Hence continuing the prosecution against petitioners 3 to 7, namely, Sarbasri Khageswar Behura, Babooram Sahoo, Sanjib Kumar Behura, Ramavatar Agarwala and Sanwarmal Agarwala under sections 277 and 278-B of the Act would amount to an abuse of the process of the Court and therefore, the charges framed against them under sections 277 and 278-B of the Act by the trial Court are hereby quashed. However, the prosecution should continue against petitioner No. 1 firm and petitioner No. 2 Sri Jagabandhu Behura. In the result, while the revision petition preferred on behalf of petitioners Nos. 3 to 7 is allowed, the revision petition filed on behalf of petitioners Nos. 1 and 2 is dismissed.

20. Revision partly allowed.