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PETITIONER:

M.R. PRATAP

Vs.

RESPONDENT:

V.M. MUTHUKRISHNAN, ITO CENTRAL CIRCLE-III

DATE OF JUDGMENT29/04/1992

BENCH:

YOGESHWAR DAYAL (J)

BENCH:

YOGESHWAR DAYAL (J)

KULDIP SINGH (J)

CITATION:

1994 AIR 674 1992 SCR (2) 947

1992 SCC (3) 384 JT 1992 (4) 22

1992 SCALE (1)992

ACT:

Income-tax Act, 1961: Sections 2(7)(20)(31)(35), 139,

140(c) (Asamended by Taxation Laws (Amendment) Act, 1975 and

276, 277, 278B and 278C).

Income-tax-Return-Prosecution for false verification-

Private Company-Managing Director filing Return of Company-

Return found false-Prosecution of Managing Director-Validity

of-`Managing Director' held covered by the word `persons'

under section 277 and held liable for prosecution-Effect of

amendment of Section 140(c) and introduction of Section 278B

explained.

HEADNOTE:

The appellant was the Managing Director of a Private

Limited Company. As a Principle Officer of the Company, he

filed a return of the Income of the company for the

assessment year 1965-66 which was verified and signed by

him. Subsequently it was discovered that the return was

false. He was charged for making wilfully and knowingly

false verification of the Company's return and was thus

prosecuted under section 277 of the Income-tax Act, 1961.

He filed a petition challenging the maintainability of

the complaint against him as the Managing Director which

was dismissed. The High Court also upheld his prosecution

and dismissed his Revision Petition and the petition filed

under section 482 of the Code of Criminal procedure for

quashing the complaint.

In appeal to this court it was contended on behalf of

the appellant that: (i) the word `person' in section 277

refers only to an assessee and does not include the person

who made the verification on behalf of the assessee; (ii)

the substitution of the word`Managing Director' for the term

`Principal Officer' in section 140(c) of the Act by the

Taxation Laws (Amendment) Act, 1975 shows that the

expression `Principal Officer' will

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not relate to Managing Director.

Dismissing the appeals, this Court,

HELD : 1. The appellant cannot escape on the plea that

the word `person' used in Section 277 of the Income-tax Act

refers only to an assessee but not the person who has made

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the verification on behalf of the said assessee. In view of

Section 139 read with Section 140(c) of the Act the return

has to be signed by the principal officer of the company. A

statutory obligation is cast on the principal officer to

sign the tax returns. The appellant admittedly was the

Managing Director of the Company and he was thus the

principal officer thereof. [955 B, G-H]

2. The substitution of the words `Managing Director'

for the term `Principal Officer' in section 140(c) by the

Taxation Laws (Amendment) Act, 1975 will not in any way

alter the position with regard to the operation of the

provisions of the Income-tax Act as against a managing

director of a company when he has signed the return of the

company in such capacity. The effect of the amended section

140(c) of the Act is that the company's return of income

should be signed only by the managing director or by any

director, when there is no managing director, and not by the

Secretary or the treasurer, who are however included within

the meaning of `Principal Officer' under section 2(35) of

the Act. The effect of introduction of Section 278B by the

Taxation Laws (Amendment) Act of 1975, with effect from 1st

October, 1975 is to make every person connected with the

affairs of the company, apart from the managing director

who has signed the return, liable to be proceeded against

and punished. [955 H, 956 A-D]

Kapurchand Shrimal v. Tax Recovery Officer, Hyderabad

and Ors., [1969] 72 ITR 623, relied on.

Inspecting Assistant Commissioner of Income-tax v.

Chotabhai Javerbhai, [1941] 8 ITR 604 (Mad.), approved.

JUDGMENT:

CRIMINAL APPELLATE JURISDICTION : Criminal Appeal Nos.

383-384 of 1979.

From the Judgment and Order dated 4.2.1977 of the

Madras High Court in Criminal Misc. Petition No. 4813/76 and

Criminal Revision Case No. 44 of 1974.

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A.T.M. Sampath for the Appellant.

Dr. V. Gauri Shankar, S. Rajappa for Ms. A. Subhashni

and Raju Rama Chandran for the Respondent.

The Judgment of the Court was delivered by

YOGESHWAR DAYAL, J. These appeals are directed against

the judgment of the learned Single Judge of the Madras High

Court dated 4th February, 1977 and arise in the following

circumstances.

The first accused, Sh. M.R. Pratap, who was the

Managing Director of the Company Rayala Corporation Private

Ltd., is the appellant in the present appeals. The

respondent/complainant is the Income-tax Officer, Central

Circle III, Madras. The appellant is the first accused along

with the second accused. A complaint was filed before the

Chief Presidency Magistrate purporting to be under Sections

277 and 273 of the Income-tax Act, 1961 (hereinafter

referred to as `the Act') and Sections 120-B and 193 of the

Indian Penal Code, relating to an offence said to have been

committed during the assessment year 1965-66.

According to the complaint the first accused was the

managing Director of the Rayala Corporation private Ltd.,

(hereinafter referred to as `the Company') and the second

accused was the Chief Accountant of the said Company. The

Company was as assessee under the Act. The return of the

income of the company for the assessment year 1965-66 dated

17th November, 1976 was delivered to the respondent on 18th

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November, 1965 showing a total income of Rs. 21,36,785 for

the accounting year ended 31st march, 1965. The return so

submitted was verified and signed by the first accused-the

appellant herein. The accompanying statements were signed by

the second accused. According to the complaint, as a result

of a search at the premises of the company and the residence

of both the accused and others, made under Section 132 of

the Act, it was discovered that the return of income and the

statements accompanying the said return were deliberately

false, being less than the true income by more than Rs. 6

lakhs and the expenditure show in the statements had been

obviously inflated by at least Rs. 2,69,765. The complaint

charged the appellant for making willfully and knowingly

false verification of the company's return of income and

thereby committed an offence punishable under Section 277 of

the Act. Besides this, the first and the second accused were

charged with other

952

offences also. However, for the purpose of the present

appeals we are not concerned with the rest of the charges

made in the complaint.

The appellant herein filed a miscellaneous petition

before the Magistrate as to the maintainability of the

complaint against him in his capacity as the Managing

Director. The Magistrate dismissed the miscellaneous

petition by order dated 28th November, 1973. Against the

said order the appellant filed a revision petition. The

appellant also field another petition being Crl. Misc.

Petition No. 4813 of 1976 under Section 482 of the Code of

Civil Procedure praying to quash the complaint and the

proceedings in pursuance thereof.

The Learned Single Judge dismissed both the revision

petition as well as the petition under Section 482 of the

Code of Criminal Procedure and upheld the prosecution of the

appellant.

Numerous contentions were urged before the learned

Single Judge but before this Court really one contention was

urged, namely-that the word "person" occurring in Section

277 of the Act would relate only to an assessee and not to

any person other than the assessee and, therefore, the

appellant who signed the return of income on behalf of the

company in the capacity of Managing Director, cannot be

included within the definition of the word "person" as used

in Section 277 and, consequently, if person other than the

assessee is prosecuted, it would be void, because Section

277 contemplates an offence by an assessee against whom

penalty is impossible and not by any person other than the

assessee, viz. the Company.

Before us Mr. Sampath, learned counsel for the

appellant, repeated the submissions which were urged before

the High Court. It was inter alia submitted by the learned

counsel that Section 2(31) of the Act defines the word

"person" and the word "assessee" is defined in Section 2(7)

as a person by whom any tax or any other sum of money is

payable under the Act and includes a person in respect of

whom proceedings under the Act have been taken for the

assessment of his income, etc.

However, according to learned counsel for the

respondent under Chapter XXII, in Section 276, 276A, 276B,

277, 278 and 279, the word "person" is used. He submitted

that the word "person" in Section 277 does not and cannot

mean the assessee. It was submitted on behalf of the

respondent that the word "person" occurring in Section 277

means the

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individual who makes a declaration on oath which he believes

to be false and he need not necessarily be only the assessee

on whom penalty is leviable under Section 271 (1)(c) for

concealment and that the word "person" occurring in Section

276 means the individual who fails to do the acts prescribed

by the statute and the word "person" occurring in Section

276A means the individual who acts in a manner contrary to

the statute and the expression "person" used in Section 277

is not used in the sense as is defined in Section 2(31) of

the Act. Support in this behalf was sought from the decision

of the Supreme Court in Kapurchand Shrimal v. Tax Recovery

Officer, Hyderabad, and other (1969) 72 ITR 623 SC. In this

case it was held thus:-

"We are unable to hold that the expression `person'

in sections 276, 276A and 277 is used in the sense

in which it is defined in section 2(31) of the Act.

For each specific act which is deemed to be an

offence under those provisions, and individual who,

without reasonable cause or excuse, fails to do the

acts prescribed by Statute or acts in a manner

contrary to the statute, or makes a declaration on

oath which he believed to be false or does not

believe to be true, is made liable to be punished.

Section 278 penalises the abetment or inducing any

person to make and deliver an account, statement or

declaration relating to any income chargeable to

tax which is false and which he either knows to be

false or does not believe to be true. In the

context in which the expression `person' occurs in

sections 276, 276A, 277 and 278, there can be no

doubt that it seeks to penalise only those

individual who fail to carry out the duty cast by

the specific provisions of the statute, or are

otherwise responsible for the acts done."

Another argument of learned counsel for the appellant

was that the term "principal officer" is defined in Section

2(35) as the secretary, treasurer, manager or agent of the

company, but would not include Managing Director as the said

term "managing director" is conspicuously omitted there and

that, therefore, whenever an assessee or any other person is

to by prosecuted or is intended to be subjected to certain

obligation, the statute intends the "company and the

principal officer" as mentioned in Sections 204, 206 and 236

of the Act. It was thus urged that the omission

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of the words "principal officer" or "managing director" in

Section 277 is very significant and the Managing Director

cannot at all be prosecuted in a case where the company

itself is an assessee. Therefore, according to the learned

counsel for the appellant the word "person" occurring in

Section 277 will include neither the managing director nor

the principal officer nor the representative assessee, and

as the definition of "person" includes only the company, the

verification has to be under Section 139 only by the company

and the person who signs that verification is only a

signatory whereas the company is the assessee, the person

who is obliged to file the verified return. He also

submitted that according to the newly introduced Sections

278B and 278C (Introduced on 1st october, 1975) a director

in the case of the company and a karta in the case of a

Hindu Undivided Family can be prosecuted, and, therefore, by

virtue of the said new amendments, the legislature in its

wisdom has thought it fit to bring the managing director

also along with the company as accused person only by this

amendment which takes effect from 1st October 1975, and this

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introduction of the amendment will go in support of the

appellant's contention that the legislature itself had not,

during the relevant period in this case intended the

managing director to be included and so the managing

director cannot be prosecuted at all in this case. It was

urged that if the contention of the prosecution that the

managing director can be prosecuted before 1st October, 1975

is correct, then there was no necessity for this amendment

to fill up the lacuna, and, therefore, before 1st October,

1975, in view of Section 279 (1A), the assessee alone can be

prosecuted.

Learned counsel for the respondent in reply to this

argument submitted that the main decision of the Supreme

Court in Kapurchand's case (supra) that the karta cannot be

detained in a civil jail, rests on Section 222 which

specifically uses the word " assessee" and therefore, the

conclusion arrived at in that case, while dealing with

Section 222, cannot be availed of by the appellant in this

case. Before the learned Single Judge reliance was also

placed on the decision of the madras High Court in

Inspecting Assistant Commissioner of Income-tax v. Chotabhai

Javerbhai, (1941) 9 ITR 604 (Madras) wherein Horwill, J.,

while dealing with Section 52 of the Indian Income-tax Act,

1922 (corresponding to Section 277 of the 1961 Act), has

held that the word "person" in that section does not

necessarily mean the assessee and that it must be given its

ordinary

955

dictionary meaning and that it includes a person duly

authorised.

It appears that in view of the dictum of this Court in

Kapurchand's case (supra) we are unable to accept the

arguments advanced by the learned counsel for the appellant.

On the other hand we are of the view that the appellant

cannot escape on the plea that the word "person" used in

Section 277 refers only to an assessee but not the person

who has made the verification on behalf of the said

assessee.

It has been found by the learned Single Judge that the

verification of the return which was signed by the appellant

was signed by him in his capacity as principal officer.

Learned counsel for the appellant submitted that the

parliament has now, be the Taxation Laws (Amendment) Act of

1975, which took effect from 1st April, 1976, removed the

expression "the principal officer" occurring in Section 140

(c), in so far as it related to a company, and instead has

substituted the words "the managing director........or,

where there is no managing director, any director thereof".

It was thus contended that the substitution of the word

"managing director" for the term "principal officer" is an

indication to show that the expression "principal officer"

will not relate to the managing director and that is why the

above sustitution has now taken place.

We are afraid we cannot also agree with this submission

of the learned counsel for the appellant. Section 2(35) of

the Act defines the term "principal officer" and Section

2(20) of the Act defines the term "director". Section 2 sub-

section (24) of the Companies Act defines the word

"manager". At the relevant time Section 197A of the

Companies Act provided that no company shall appoint or

employ at the same time more than one of the following

categories of managerial personnel, viz., the managing

director and the manager. In the present case the appellant

admittedly was the Managing Director of the Company and he

was thus the principal officer thereof. Rule 12(1) of the

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Income-tax Rules states that the return of income shall, in

the case of a company, be in Form No. 1 and be verified in

the manner indicated therein. In view of Section 139 read

with Section 140(c) of the Act the return has to be signed

by the principal officer of the company. A statutory

obligation is cast on the principal officer to sign the tax

returns. The substitution of the words made under the new

Amendment Act will not in any way alter the position with

regard

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to the operation of the provisions of the Income-tax Act as

against a managing director of a company when he has signed

the return of the company in such capacity. The effect of

the amended Section 140(c) of the Act is that the company's

return of income should be signed only by the managing

director or by any director, when there is no managing

director, and not by the secretary or the treasurer, who are

however included within the meaning of "principal officer"

under Section 2 (35) of the Act. By the Introduction of

Section 278B by the Taxation Laws (Amendment) Act of 1975,

with effect from 1st October, 1975, it is enacted that 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. The effect of the new section is to make every

person connected with the affairs of the company, apart

from the managing director who has signed the return, liable

to be proceeded against and punished

We are in complete agreement with the reasonings and

conclusion of the High Court. No other point was urged. The

result is that the appeals fail and are dismissed.

T.N.A. Appeals dismissed.

957