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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                                                        950 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.                                                        951      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                                                        953

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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                                                        954 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                                                        956 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