Khukhrain Brothers and Others vs Inspecting Assistant Commissioner and Others

S.D. Bajaj, J.—Khukhrain Brothers, A. S. C. Contractors, is a partnership concern. Petitioners Nos. 2 and 4 to 7 are partners therein while petitioner No. 3 is a minor admitted to the benefits of the partnership business. It deals in supply of vegetables and other goods to the army. There is another sister concern of it, also working under the name and style of Khukhrain Brothers, commission agents, in the ground floor of the same premises in shop No. 1, Sector 26 (Vegetable Market), Chandigarh.

The firm, through Vasdev Sahni, petitioner No. 2, filed its Income Tax return on July 30, 1979, for the year 1979-80 declaring an income of Rs. 1,35,040. The Inspecting Assistant Commissioner (Asst.), Chandigarh, on February 26, 1982, framed the assessment in terms of Section 143(3) of the Income tax Act on an income of Rs. 1,50,000 giving a finding that credits of Rs. 10,000 on November 11, 1978, Rs. 8,000 on January 20, 1979, and Rs. 10,000 on March 15, 1979, through encashment of self-cheques were, in fact, undisclosed income. The decision aforesaid was affirmed by the Commissioner of Income Tax (Appeals) on July 19, 1983, and by the Income Tax Appellate Tribunal (Chandigarh Bench) on May 14, 1985.

In this view of the matter, the Income Tax Officer, District 1(2), Chandigarh, filed against the firm and all its seven partners a complaint, annexure P-4, before the learned Chief Judicial Magistrate, Chandigarh, on January 16, 1987, for their prosecution under Sections 276C and 277 of the Income Tax Act, 1961. In pursuance thereof, the learned Chief Judicial Magistrate, Chandigarh, summoned the petitioners before him through non-bailable warrants of arrest, initially on January 19, 1988, and thereafter on February 29, 1988. The firm as also its seven partners have moved this court through Cr. M. No. 787 M of 1988 for quashing the complaint.

The reason assigned by the petitioners for describing the charge against them as groundless is that petitioner No. 1 had got these self-cheques encashed through their sister concern, Khukhrain Brothers, commission agents, on the respective dates of their issue and thereby shown credits for realisation in its own books of account on the same date even though these cheques were got encashed from the bank by the sister concern on November 13, 1978, January 22, 1979, and March 16, 1979, respectively. The stand of the Income Tax Department is that there were no debit entries in the books of account of the sister concern on November 11, 1978, January 20, 1979, and March 15, 1979, corresponding to the credit entries in the books of account of petitioner No. 1, on these dates through encashment of self-cheques and, therefore, the explanation offered was incredible. The Department has consistently taken the view that since the cheques were got encashed from the bank on November 13, 1978, January 22, 1979, and March 16, 1979, the credit entries through encashment of self-cheques made on November 11, 1978, January 20, 1979, and March 15, 1979, in the account books of petitioner No. 1 disclosed unaccounted income.

I have heard Shri R.K. Chhibbar, advocate for the petitioner, Shri Ashok Bhan, senior advocate, with Mr. A.K. Mittal, advocate, for the respondent, and have carefully gone through the relevant record.

Much capital has been made by learned counsel for the petitioners of the finding by the Income Tax authorities that the sister concern of the petitioners working under the name and style of Khukhrain Brothers, commission agent, was possessed of cash on the relevant dates. It has also been asserted that the self-cheques issued by petitioner No. 1 were as good as cash in the hands of the sister concern and as such there was no need for the sister concern to make any debit entry in their own books of account by petitioner No. 1. Kulathooraiyan Chidambara Iyer v. Ananthakrishna Iyer Janardhana Iyer, AIR 1954 TC 231 and Mohideen Bi v. Khatoon Bi, AIR 1966 Mad 436 have been cited as authorities in support of the contention for the view that promissory notes amount in law to payment and that in commercial practice, a cheque is looked upon as payment if the contractor accepts it in place of the country''s currency.

There is no quarrel with the legal proposition propounded by learned counsel for the petitioners. Had the sister concern reflected the receipt of self-cheques in its own books of account, it would have certainly amounted to receipt of cash by them to discharge the liability of petitioner No. 1 towards it. It is the absence of entries in this regard which has weighed with the Income Tax authorities. Encashment of self-cheques from the bank admittedly occurred on November 13, 1978, January 22, 1979, and March 16, 1979, and, therefore, the credit entries shown in the books of petitioner No. 1 on November 11, 1978, January 20, 1979, and March 15, 1979, through realisation of self-cheques were obviously wrong. There is no merit in the contention raised by learned counsel for the petitioners in this regard and the authorities cited do not support it.

It was next argued that Vijay Kumar Sahni, petitioner No. 3, was a minor during the relevant period on July 30, 1979, and, therefore, could enjoy only the benefits of partnership business but could not be held liable for its wrong doings. Observations made in Parameet Singh Sawney Vs. Dinesh Verma and Another, support this contention. Complaint, annexure P-4, cannot, therefore, proceed against Vyay Kumar Sahni. The complaint as also the summoning order have, both, therefore, to be quashed qua him.

Lastly, it was argued with reference to the observations made in BASAL TOOL CO. AND OTHERS Vs. Income Tax OFFICER, DISTRICT-II(I), PATIALA, and Jasbir Singh and Others Vs. Income Tax Officer, that the business of petitioner No. 1 was, in fact, being transacted by petitioner No. 2 and that, therefore, the complaint, annexure P-4, should be allowed to be proceeded against them too and the remaining petitioners Nos. 3 to 7 may be discharged. Regarding petitioner No. 3, observation has already been made in the foregoing paragraph that the complaint against him could neither be launched nor could it proceed. Regarding the other petitioners Nos. 4 to 7, it has specifically alleged in paragraph 9 of the complaint, that accused No. 1 is a partnership concern and accused Nos. 2 to 7 are all partners and persons in charge of and responsible to it for the conduct of its business and as such, all the accused are liable to be tried and punished jointly for the aforesaid offences. In the authority cited, there was no corresponding allegation to the effect that the petitioners were in charge of the affairs of the firm or that they were conducting its business in any manner while in the present case as already stated, a positive allegation to this effect is available on record. There is thus no merit in this contention as well.

Petitioners Nos. 6 and 7 are, however, ladies. Out of respect for them, it is ordered that the learned trial court would exempt them from personal appearance in the course of the trial when approached with a request for the purpose.

Criminal Miscellaneous No. 787-M of 1988 thus succeeds to a very limited extent of quashing of the complaint as also the summoning order qua petitioner No. 3, Vijay Kumar Sahni. Learned trial court would now proceed with it in accordance with law.