M/s. M.P. Udyog Limited vs Union of India (UOI)

Palok Basu, J.—The Union of India through its Income Tax officer has filed a Criminal Complaint for offences under Sections 276C(1) and Section 278B of the Income Tax Act, 1961 against four accused namely a Company i.e. M/s. M.P. Udyog Limited and its three Directors R.K. Jhunjhunwala, Dr Gaur Hari Singhania and D.P. Kanodia. Those four accused have preferred aforesaid four petitions respectively, praying that the complaint be quashed by this Court by exercising inherent powers u/s 482 Code of Criminal Procedure. At the time of admission a counter affidavit was called which has been filed by the Union of India. Rejoinder affidavit has also been filed by the Petitioners As jointly requested the applications were being taken up for final disposal at the admission stage. The relevant operative part of the order was dictated in open Court on 20-11-90 when judgment was reserved. It was ordered that the complaint against the three Directors u/s 278B of the Act stands quashed but prosecution of the Company u/s 276C(1) of the Income Tax Act has to proceed and the migistrate may add any other Section alongwith Section 276C(1) appropriately.

The complaint relates to the alleged evasion of Income Tax by M/s. M.P. Udyog limited said to have been committed during assessment year 1975-1976 in having concealed an item of ''On Money'' income. It is admitted case of the parties that the accounting year M/s. M.P. Udyog Limited for the said assessment year 1975-76 had ended on 3-7-1984 (See paragraph 6 of the affidavit and paragraph 14 of the counter affidavit.)

Sri Sodhir Chandra, Senior Advocate and Sri R.S. Agrawal, Advocate have argued the matter on behalf of the applicants that the prosecution of the applicants is misconceived and the complaint be quashed- Sri S.P Malviya, Advocate, appearing on behalf of the Union of India has argued that all the applications should be dismissed and the complaint case should proceed against all the accused nominated therein. The learned Counsel for the applicants has ultimately argued only one point for seeking relief with regard to the three Directors on the ground that the prosecution against them is not maintainable.

As regards the prosecution of Company, its application u/s 482 Code of Criminal Procedure must fail. Section 276C(1) would be attracted to the company because the allegations are that some on money was received by the Company during the said assessment year but was not accounted for and, therefore, there was an attempt to evade payment of Tax by concealing it. The learned Counsel have failed to make out any case for interference so far as the company''s prosecution is concerned.

Since the offence u/s 276C(1) Income Tax Act was primarily committed by the company, the complainant has added Section 278B I.T. Act also in the complaint as to enable it to prosecute their three directions also. It may be remembered that Section 278B may be attracted regarding any person who was responsible to the company for the conduct of the business of the Company. Section 278B was added by the Taxation law Amendment Act 1975 which came into effect on 1-10-1975. As stated above, the admitted case is that the accounting period of the Company for the relevant assessment year had already closed on 31-7-1974. Therefore, the Directors could be prosecuted if the assessment year or period of accounting fell after 1-10-1975. It is well settled principle of interpretation of statute that a law which creates an offence will not normally have retrospective operation. Therefore, Section 278B having come into force on 1-10-1973. Its provisions would not be attracted to a transaction prior to the said date and therefore, no Director of the Company, on the allegation that he was in-charge of and was responsible to the Company for the conduct of the business of the Company, can be prosecuted in the instant case The learned Counsel have rightly relied upon the case of Mohan Lal Agarwal ITR (Vol. 167) 1987, 184.

In view of the aforesaid discussions, the complaint must fail vis-a-vis the Directors namely the applicants R.K. Jhunjhunwala, Dr. Gaur Hari Singhania and D.P. Kanodia but it must go on as against the Company M/s. M.P. Udyog Limited.

The net result is that Crl. Misc Application No. 3944 of 1990 is dismissed It will be open to the Magistrate while proceeding with the prosecution of the Company to add any other Section alongwith Section 276C(1) of the Income Tax Act The interim order dated 4-4-1990 is vacated. Criminal Misc Application No. 3945/1990, No. 3946/90 and No. 3947/90 are hereby allowed and the complaint against the three Directors/Applicants is quashed.