I filed revised returns voluntarily after the officer raised a query, they were accepted, and the reassessments were completed on that basis. Does that end the s.277 prosecution for the original returns?
Not at the quashing stage. The Madras High Court held that the argument that the revised returns were filed after a discussion with the Income-tax Officer and were accepted, so no prosecution would arise, 'has to be necessarily negatived at this stage, for it will relate to the realm of appreciation of evidence to be brought on record'. It also held that s.277 is independent and not interlinked with s.276C, so the s.277 prosecution of the person who made the verification survives even where the s.276C charge falls away.
Decided by the High Court (Arunachalam J) on 1990-10-05, reported as [1991] 191 ITR 1 (Mad); Crl. M.P. Nos. 7309, 7311, 7313, 7315 and 7317 of 1985. It bears on section 277, section 276C(1), section 278B, section 2(31) of the Income Tax Act 1961, in Prosecution, Evidence & Burden of Proof and How Tax Law Is Read matters.
This is the case that shows how a prosecution comes apart in pieces rather than all at once, and it is the corrective to the assumption that a revised return wipes the slate. Three separate outcomes came out of one complaint. The s.276C(1) charge against the firm and the managing partner was quashed for the three earliest years because s.276C(1) and s.278B were only inserted with effect from 1 October 1975 and could not be applied to offences committed before that. The prosecution against the third petitioner, a lady partner, was quashed entirely because the complaint pleaded no specific act showing she was in charge of and responsible for the conduct of the business — only the presumption of the complainant. But the s.277 prosecution of the managing partner, who had made the verification, was allowed to proceed in every case, and the IPC charges went with it because they had their foundation in the Income-tax Act offences. The retrospectivity holding is now spent — every live year is long after 1 October 1975 — but the two propositions that survive are the ones a reader needs: s.277 stands on its own feet independently of s.276C, and the merits of a revised-return defence belong to the trial, not to a s.482 petition. The Court also held that a firm does not enjoy immunity from prosecution and, if found guilty, can be punished with fine alone even where the section prescribes mandatory imprisonment and fine.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The first petitioner was a transport company at Thanjavur, described in the complaints as a partnership firm and assessed on income from passenger bus transport from 11 October 1968; it stood dissolved with effect from 1 January 1977. The second petitioner was at the relevant time its managing partner and the third petitioner, his daughter, was a partner. The firm bought spare parts from and had repairs and bodies built by T.V. Sundaram Iyengar and Sons Ltd, Pudukottai, and maintained an account with them. The Income-tax Officer called for a copy of that account for the period 1 April 1973 to 2 January 1977, received it on 13 April 1979, and on comparison found wide variation in the closing balance for the years in question. He wrote to the firm on 26 May 1979 asking it to reconcile the difference. By reply dated 20 June 1979 the second petitioner, as managing partner, said the firm's records had not been carefully preserved since the firm had been dissolved and he could not then explain the difference, and that to purchase peace and because the accounts were not available he was voluntarily submitting revised returns treating the difference for every assessment year as profits of that year. The completed assessments were reopened under s.147(a) and the reopened assessments were completed accepting the revised returns. Private complaints were then instituted alleging offences under ss.193, 196 and 420 of the Indian Penal Code and under ss.276C(1) and 277 of the Income-tax Act for assessment years 1973-74, 1974-75, 1975-76, 1976-77 and 1977-78 (C.C. Nos. 140, 141, 142, 158 and 159 of 1985 before the Sub-Divisional Judicial Magistrate, Nagapattinam). The petitioners moved under s.482 Cr.P.C. to quash.
The petitions were partly allowed. The prosecution against the third petitioner was quashed in all five calendar cases. The prosecution of the first and second petitioners for the offence under s.276C(1) was quashed in C.C. Nos. 140, 141 and 142 of 1985 (assessment years 1973-74, 1974-75 and 1975-76). In respect of the other offences in those same cases, and in C.C. Nos. 158 and 159 of 1985 in their entirety, the prosecutions were maintained and the trials directed to proceed, including the trials for the Indian Penal Code offences, which had their foundation in the offences under the Income-tax Act (para 72).
On the retrospectivity point the Court held that s.276C(1) and s.278B were inserted with effect from 1 October 1975, that the law in force on the date of commission of the offence alone applies, and that with the aid of s.278B the partners could not be prosecuted for an offence under s.276C(1) for assessment years 1973-74, 1974-75 and 1975-76, following Mohan Lal Agarwalla v. State of Bihar [1987] 167 ITR 184 and Prem Lata v. ITO (paras 32 and 33). On s.277 it held that the complaints made it clear at paragraphs 5 and 14 that the second petitioner, as managing partner, had acted on behalf of the firm and had made a false verification in the returns; since s.277 punishes a person who makes a statement in any verification which is false and which he either knew or believed to be false or did not believe to be true, and since s.277 is independent and not interlinked with s.276C, the prosecution against him had to be proceeded with, and even if the firm were held not liable he could not prima facie escape liability under s.277 (para 34, following M.R. Pratap v. V.M. Muthukrishnan, ITO [1977] 110 ITR 655 (Mad) and Mohan Lal Agarwalla). The revised-return argument was negatived at that stage as belonging to the appreciation of evidence, so that ITO v. Mohd. Yousuf [1989] 175 ITR 263 did not avail the second petitioner (para 35). As to the third petitioner, all documents and returns had been signed only by the second petitioner, who was described as managing partner and as taking an active interest in the affairs of the business; against her nothing but the complainant's presumption was averred, no specific act showing she was in charge of and responsible for the day-to-day affairs, and Sham Sunder v. State of Haryana governed her case, so the consequent IPC offences against her could not stand either (paras 36 to 38). On whether the firm could be prosecuted at all where imprisonment was mandatory, the Court reviewed Jugmander Lal, the Full Bench decisions of the Allahabad High Court in Oswal Vanaspati and of the Delhi High Court in J.B. Bottling, and the Supreme Court's observation in Rajasthan Pharmaceutical Laboratory that 'in the nature of things a company or a firm could not be sent to jail but that does not apply to the other two appellants', and held that the first petitioner does not enjoy immunity from prosecution and if found guilty can be punished with fine alone (paras 40 to 70).
On the allegations made in the complaints, since section 277 is independent and not interlinked with section 276C, the prosecution against the second petitioner, in all these cases, will have to be proceeded with.
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Handle my notice → Ask a CA on WhatsAppNot at the quashing stage. The Madras High Court held that the argument that the revised returns were filed after a discussion with the Income-tax Officer and were accepted, so no prosecution would arise, 'has to be necessarily negatived at this stage, for it will relate to the realm of appreciation of evidence to be brought on record'. It also held that s.277 is independent and not interlinked with s.276C, so the s.277 prosecution of the person who made the verification survives even where the s.276C charge falls away. This was decided by the High Court (Arunachalam J) and bears on section 277, section 276C(1), section 278B, section 2(31) of the Income Tax Act 1961. It is reported as [1991] 191 ITR 1 (Mad); Crl. M.P. Nos. 7309, 7311, 7313, 7315 and 7317 of 1985. This is the case that shows how a prosecution comes apart in pieces rather than all at once, and it is the corrective to the assumption that a revised return wipes the slate. Three separate outcomes came out of one complaint. The s.276C(1) charge against the firm and the managing partner was quashed for the three earliest years because s.276C(1) and s.278B were only inserted with effect from 1 October 1975 and could not be applied to offences committed before that. The prosecution against the third petitioner, a lady partner, was quashed entirely because the complaint pleaded no specific act showing she was in charge of and responsible for the conduct of the business — only the presumption of the complainant. But the s.277 prosecution of the managing partner, who had made the verification, was allowed to proceed in every case, and the IPC charges went with it because they had their foundation in the Income-tax Act offences. The retrospectivity holding is now spent — every live year is long after 1 October 1975 — but the two propositions that survive are the ones a reader needs: s.277 stands on its own feet independently of s.276C, and the merits of a revised-return defence belong to the trial, not to a s.482 petition. The Court also held that a firm does not enjoy immunity from prosecution and, if found guilty, can be punished with fine alone even where the section prescribes mandatory imprisonment and fine. If it applies to you, the first step is this: Separate the charges before drafting: a defence that defeats s.276C may leave s.277 wholly untouched, because s.277 fastens on the person who made the verification.
The first petitioner was a transport company at Thanjavur, described in the complaints as a partnership firm and assessed on income from passenger bus transport from 11 October 1968; it stood dissolved with effect from 1 January 1977. The second petitioner was at the relevant time its managing partner and the third petitioner, his daughter, was a partner. The firm bought spare parts from and had repairs and bodies built by T.V. Sundaram Iyengar and Sons Ltd, Pudukottai, and maintained an account with them. The Income-tax Officer called for a copy of that account for the period 1 April 1973 to 2 January 1977, received it on 13 April 1979, and on comparison found wide variation in the closing balance for the years in question. He wrote to the firm on 26 May 1979 asking it to reconcile the difference. By reply dated 20 June 1979 the second petitioner, as managing partner, said the firm's records had not been carefully preserved since the firm had been dissolved and he could not then explain the difference, and that to purchase peace and because the accounts were not available he was voluntarily submitting revised returns treating the difference for every assessment year as profits of that year. The completed assessments were reopened under s.147(a) and the reopened assessments were completed accepting the revised returns. Private complaints were then instituted alleging offences under ss.193, 196 and 420 of the Indian Penal Code and under ss.276C(1) and 277 of the Income-tax Act for assessment years 1973-74, 1974-75, 1975-76, 1976-77 and 1977-78 (C.C. Nos. 140, 141, 142, 158 and 159 of 1985 before the Sub-Divisional Judicial Magistrate, Nagapattinam). The petitioners moved under s.482 Cr.P.C. to quash. The matter was decided on 1990-10-05 by the High Court (Arunachalam J). On those facts the High Court held as follows. The petitions were partly allowed. The prosecution against the third petitioner was quashed in all five calendar cases. The prosecution of the first and second petitioners for the offence under s.276C(1) was quashed in C.C. Nos. 140, 141 and 142 of 1985 (assessment years 1973-74, 1974-75 and 1975-76). In respect of the other offences in those same cases, and in C.C. Nos. 158 and 159 of 1985 in their entirety, the prosecutions were maintained and the trials directed to proceed, including the trials for the Indian Penal Code offences, which had their foundation in the offences under the Income-tax Act (para 72).
On the retrospectivity point the Court held that s.276C(1) and s.278B were inserted with effect from 1 October 1975, that the law in force on the date of commission of the offence alone applies, and that with the aid of s.278B the partners could not be prosecuted for an offence under s.276C(1) for assessment years 1973-74, 1974-75 and 1975-76, following Mohan Lal Agarwalla v. State of Bihar [1987] 167 ITR 184 and Prem Lata v. ITO (paras 32 and 33). On s.277 it held that the complaints made it clear at paragraphs 5 and 14 that the second petitioner, as managing partner, had acted on behalf of the firm and had made a false verification in the returns; since s.277 punishes a person who makes a statement in any verification which is false and which he either knew or believed to be false or did not believe to be true, and since s.277 is independent and not interlinked with s.276C, the prosecution against him had to be proceeded with, and even if the firm were held not liable he could not prima facie escape liability under s.277 (para 34, following M.R. Pratap v. V.M. Muthukrishnan, ITO [1977] 110 ITR 655 (Mad) and Mohan Lal Agarwalla). The revised-return argument was negatived at that stage as belonging to the appreciation of evidence, so that ITO v. Mohd. Yousuf [1989] 175 ITR 263 did not avail the second petitioner (para 35). As to the third petitioner, all documents and returns had been signed only by the second petitioner, who was described as managing partner and as taking an active interest in the affairs of the business; against her nothing but the complainant's presumption was averred, no specific act showing she was in charge of and responsible for the day-to-day affairs, and Sham Sunder v. State of Haryana governed her case, so the consequent IPC offences against her could not stand either (paras 36 to 38). On whether the firm could be prosecuted at all where imprisonment was mandatory, the Court reviewed Jugmander Lal, the Full Bench decisions of the Allahabad High Court in Oswal Vanaspati and of the Delhi High Court in J.B. Bottling, and the Supreme Court's observation in Rajasthan Pharmaceutical Laboratory that 'in the nature of things a company or a firm could not be sent to jail but that does not apply to the other two appellants', and held that the first petitioner does not enjoy immunity from prosecution and if found guilty can be punished with fine alone (paras 40 to 70). In the words reproduced by the source cited on this page: "On the allegations made in the complaints, since section 277 is independent and not interlinked with section 276C, the prosecution against the second petitioner, in all these cases, will have to be proceeded with." The decision followed or applied M.R. Pratap v. V.M. Muthukrishnan, ITO [1977] 110 ITR 655 (Mad) — followed on s.277; Mohan Lal Agarwalla v. State of Bihar [1987] 167 ITR 184 (Patna) — followed on both s.277 and the non-retrospectivity of s.276C(1); Sham Sunder v. State of Haryana — applied to the non-signing partner; Rajasthan Pharmaceutical Laboratory v. State of Karnataka (SC) — applied on sentencing a firm; Municipal Corporation of Delhi v. J.B. Bottling Co. (P) Ltd. [1975] Crl. L.J. 1148 (FB, Delhi) — approved; Oswal Vanaspati and Allied Industries v. State of U.P. [1985] 1 FAC 201 (FB, Allahabad) — approved; Modi Industries Ltd. v. B.C. Goel [1983] 144 ITR 496 (All) — not followed; ITO v. Mohd. Yousuf [1989] 175 ITR 263 (Delhi) — held not to avail the petitioner at the quashing stage.
It was decided by the High Court on 1990-10-05 and is reported as [1991] 191 ITR 1 (Mad); Crl. M.P. Nos. 7309, 7311, 7313, 7315 and 7317 of 1985. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 277, section 276C(1), section 278B, section 2(31), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The petitions were partly allowed. The prosecution against the third petitioner was quashed in all five calendar cases. The prosecution of the first and second petitioners for the offence under s.276C(1) was quashed in C.C. Nos. 140, 141 and 142 of 1985 (assessment years 1973-74, 1974-75 and 1975-76). In respect of the other offences in those same cases, and in C.C. Nos. 158 and 159 of 1985 in their entirety, the prosecutions were maintained and the trials directed to proceed, including the trials for the Indian Penal Code offences, which had their foundation in the offences under the Income-tax Act (para 72). It arises in Prosecution, Evidence & Burden of Proof and How Tax Law Is Read matters, on section 277, section 276C(1), section 278B, section 2(31) of the Income Tax Act 1961, and was decided by Arunachalam J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Identify who signed the verification. In this case only the managing partner had signed, and that was decisive both for keeping him in and for taking the other partner out. If you are defending a non-signing partner or director, attack the complaint for the absence of any specific averment that the person was in charge of and responsible for the conduct of the business — the presumption of the complainant is not enough (Sham Sunder v. State of Haryana applied). Do not expect a revised return, or the officer's acceptance of it, to secure a quashing; build that defence for trial with the correspondence and any record of the discussion with the officer. Do not argue that a firm or company cannot be prosecuted because imprisonment is mandatory — this Court held the firm can be prosecuted and punished with fine alone. Check the IPC charges: here they survived because they had their foundation in the Income-tax Act offences, so quashing the tax charge alone would not have ended the trial.
Validity check could not be completed. Validity check could not be completed — I did not search for any appeal from or later treatment of this 1990 decision. Two parts of it must be read as historical. The holding that s.276C(1) and s.278B cannot be applied to offences committed before 1 October 1975 is spent for every live assessment year. The extended discussion of whether a firm or company can be indicted where imprisonment is mandatory has since been overtaken by the general law on corporate criminal liability, which I did not check. The two propositions relied on here — that s.277 is independent of s.276C, and that a revised-return defence belongs to the trial rather than to a quashing petition — were not, so far as I could see, doubted within the judgment, but I have not verified their standing today. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The report as available is a plain-text transcription with numerous typographical corruptions ('cccthe', 'the offence of the judges', 'the other tow natural persons', 'criminals miscellaneous petitions', 'has to threw under the proviso'). None of them falls in the passages relied on here, and the sentence used as key_quote was read in full. The judgment contains no discussion of s.278E; the assessment years in issue (1973-74 to 1977-78) long predate the litigation on that section, so nothing in this decision should be read as bearing on the presumption of a culpable mental state. Paragraphs 39 to 71 are a long survey of whether a company or firm can be indicted where imprisonment is mandatory, resolved at para 70. The Delhi High Court decision in ITO v. Mohd. Yousuf [1989] 175 ITR 263, on which the revised-return argument rested, was held not to avail the petitioner 'at this stage' — the Court did not decide what it would be worth at trial. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The petitions were partly allowed. The prosecution against the third petitioner was quashed in all five calendar cases. The prosecution of the first and second petitioners for the offence under s.276C(1) was quashed in C.C. Nos. 140, 141 and 142 of 1985 (assessment years 1973-74, 1974-75 and 1975-76). In respect of the other offences in those same cases, and in C.C. Nos. 158 and 159 of 1985 in their entirety, the prosecutions were maintained and the trials directed to proceed, including the trials for the Indian Penal Code offences, which had their foundation in the offences under the Income-tax Act (para 72).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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