JUDGMENT
Harbans Singh Rai, J.
1. In this petition under Section 482 of the Criminal Procedure Code, and under article 227 of the Constitution of India, the petitioners have sought the quashing of complaint dated March 27, 1986, filed against them under Sections 276(1), 277 and 278 of the Income-tax Act, 1961 (hereinafter called “the Act”), and under Sections 193 and 196 of the Indian Penal Code, and subsequent proceedings initiated in pursuance of the complaint which is pending in the court of the Chief Judicial Magistrate, Ludhiana, inter alia, alleging that petitioner
No. 3 is a private limited company duly registered under the Companies Act, 1956, and petitioners Nos. 1 and 2 are its directors. Petitioner No. 4 is a person through whom the alleged amount of Rs. 16.5 lakhs was received by petitioner No. 3.
2. Income-tax return was filed on behalf of petitioner No. 3 for the assessment year 1982-83 on December 14, 1981, before respondent No. 2 (hereinafter referred to as “assessing authority”) which was duly verified by petitioner No 1. The balance-sheet of the petitioner-company was also placed before the assessing authority and the said balance-sheet showed that the assessee received Rs. 16,50,000 as preference share application money and out of that amount, preference shares worth Rs. 13,50,000 were allotted and Rs. 3,00,000 was shown as balance in share application money account.
3. The assessing authority started investigation into the matter of receiving Rs. 16,50,000 as share money and arrived at the conclusion that the said money was the undisclosed income of petitioner No. 3 and the assessing authority ordered that the same amount be added to the income of the assessee. In this regard, the explanation given on behalf of petitioner No. 3 that the sum of Rs. 16,50,000 was received through Shri Vimal Nanda and Kapil Dev was not believed by the assessing authority. Therefore, the assessing authority passed the assessment order on March 29, 1985, holding that the said amount of Rs. 16,50,000 was the undisclosed income of the assessee under the provisions of Section 68 of the Act.
4. Notices under Sections 271(1)(c), 271(1)(a) and 273(1)(b) of the Act were also issued and a penalty of Rs. 11,1.4,075 was imposed upon petitioner No. 3 under Section 271(1)(c) of the Act, vide order dated December 20, 1985.
5. The assessee felt aggrieved by the order dated March 29, 1985, and the order imposing penalty under Section 271(1)(c) of the Act passed by the assessing authority and filed appeals before the Commissioner of Income-tax (Appeals), Ludhiana.
6. After the passing of the orders by the assessing authority, the Commissioner of Income-tax (Central), Ludhiana, respondent No. 1, passed an authorisation/order under Section 279(1) of the Act for launching prosecution under Sections 276C/277 and 278 of the Act, vide letter dated March 24, 1986, and, on the basis of that authorisation/order, respondent No, 2 filed a complaint in the Court of the Chief Judicial Magistrate, Ludhiana, against the petitioners under Sections 276C/277 and 278 of the Act on March 27, 1986. Copy of the complaint is appended as annexure P-1 to the petition.
7. During the pendency of the criminal complaint, the Commissioner of Income-tax (Appeals), Ludhiana, allowed the appeal, vide order dated July 30, 1986, and held as under ;
“I have also perused the order of the Hon’ble Settlement Commission, referred to above, and hold the view that the Settlement Commission has dealt with all the relevant facts of the case of the appellant before treating the amount of Rs. 16,50,000 as investment belonging to Ralson Cycles Ltd. The facts mentioned in the settlement order clearly establish that the only source of investment available with the directors for making investment in shares by the appellant-company can be from the existing and an old concern and, in view thereof, the amount has been accepted to be the income of the said company. Since the ownership of this amount has been settled, the source of investment in the shares thus stands explained and, in view thereof, the addition of Rs. 16,50,000 is not sustain-able in the eyes of law in the hands of the appellant. The amount of Rs. 16,50,000 is deleted.”
8. Similarly, the assessee’s appeal against levy of penalty for alleged concealment of income was also partly allowed by the Commissioner of Income-tax (Appeals), Ludhiana, vide his order dated July 30, 1986. The appeals filed against the orders of the Commissioner of Income-tax (Appeals) dated July 30, 1986, were also dismissed by the Income-tax Appellate Tribunal, Chandigarh, vide orders dated October 27, 1988.
9. The petitioners, therefore, alleged that, from the order of the Commissioner of Income-tax (Appeals), Ludhiana, as well as the Appellate Tribunal, it is quite clear that the petitioners did not make any attempt, much less a wilful attempt, to evade tax or furnished any wrong return and as such no offence under Sections 276C(1), 277 and 278 can be said to have been committed by them. As per the order of the appellate authorities, the verification made by petitioner No. 1 on page No. 3 of the return of income for the assessment year 1982-83 filed on December 14, 1981, is a correct statement. Therefore, no offence under Section 277 of the Act or under Sections 193 and 196, Indian Penal Code, is made out against the petitioners.
10. The petitioners also alleged that before filing the complaint, no notice/ opportunity was given to them to enable them to meet out the case filed against them. Respondents Nos. 1 and 2 were duty bound under law to give a hearing to them before launching the present criminal complaint against
them.
11. The petitioners further pleaded that the respondents have filed the present complaint against the company. The provisions of Chapter XXII of the Act do not contemplate conviction by itself of a company because there is no question of a company which is an artificial person being punished with imprisonment and fine. It is also pleaded that once an application has
been admitted by the Settlement Commission in the case of any assessee, proceedings under Sections 276C, 277 and 278 do not survive. In the present case, proceedings before the Settlement Commission were in the case of a third party but the Settlement Commission has given a clear finding that the very impugned additions to the income of petitioner No. 3 which form the basis of the complaint were not the income of petitioner No. 3 but was the income of that third party. This finding, according to the petitioners, has become final and unchallengeable in view of the provisions of Section 245I of the Act.
12. The next contention of the petitioners is that the charges levelled against petitioners Nos. 1 and 2 cannot stand trial once it is accepted that petitioner No. 3 did not conceal any income and, therefore, no false verification was made by them in the return of the documents accompanying the same. When the other petitioners are found to have committed no offence the question of petitioner No. 4 having abetted the commission of an offence does not arise.
13. In the end, the petitioners have prayed that continuation of criminal proceedings in the Court of the Chief Judicial Magistrate at Ludhiana will serve no purpose. Rather it will amount to an abuse of the process of law and will create unnecessary harassment to them. They have, therefore, prayed that this petition be accepted and the complaint under Sections 276C/277 and 278 of the Act and Sections 193 and 196, Indian Penal Code, dated March 27, 1986, pending in the Court of the Chief Judicial Magistrate, Ludhiana, may be quashed.
I have heard learned counsel for the parties and gone through the record with their help.
14. The contention of learned counsel for the petitioners is that the order of the Commissioner of Income-tax (Appeals), Ludhiana, as well as the order of the Appellate Tribunal clearly show that the petitioners did not make any attempt, much less a wilful attempt, to evade the tax or furnish any wrong return and as such the complaint is an abuse of the process of the court and may be quashed.
15. The facts are not disputed in this case. After the filing of the complaint, an order was passed by the Commissioner of Income-tax (Appeals) and the Settlement Commission. The contention of learned counsel for the petitioners is that, in the light of these orders, no cause of action survives.
16. The material parts of Sections 276C and 277 of the Act and Sections 193 and 196 of the Indian Penal Code read as follows :
“276C. Wilful attempt to evade tax, etc.–(1) If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest
chargeable or imposable under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable ;–
(i) in a case where the amount sought to be evaded exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine ;
(ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine.
(2) If a person wilfully attempts in any manner whatsoever to evade the payment of any tax, penalty or interest under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and shall, in the discretion of the court, also be liable to fine,
Explanation :–
277. False statement in verification, etc.,–If a person makes a statement in any verification under this Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable,–
(i) in a case where the amount of tax, which would have been evaded if the statement or account had been accepted as true, exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine ;
(ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine.”
“193. Punishment for false evidence.–Whoever intentionally gives false evidence in any stage of a judicial proceeding, or fabricates false evidence for the purpose of being used in any stage of a judicial proceeding, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine ; and whoever intentionally gives or fabricates false evidence in any other case, shall be punished with imprisonment of either description for a term which may extend to three years, and shall also be liable to fine.
Explanation :–”
“196. Using evidence known to be false.–Whoever corruptly uses
or attempts to use as true or genuine evidence any evidence which he
knows to be false or fabricated, shall be punished in the same manner as if
he gave or fabricated false evidence.” ;
17. In the complaint, it is alleged that the petitioners had wilfully attempted to evade tax by fraudulently introducing undisclosed income. It is further stated in the complaint that Shri Sant Parkash, director of the assessee-company, had made false verification at page 3 of the return of income for the assessment year 1982-83 filed on December 14, 1981, and by this false verification an offence under Section 277 of the Act is committed. The declaration on verification as given in the complaint is as follows :
“I, Sant Parkash, s/o. Shri Ram Lubhaya being the ……. of …..
solemnly declare that to the best of my knowledge and belief the information given in this return and the annexures and statements accompanying it is correct and complete and that the amount of total income and other particulars shown therein are truly stated and relate to the previous year (s) relevant to the assessment year 1982 …
I further solemnly declare that during the said previous year(s) :–
(a) no other income accrued or arose to or was received by the company from any asset held in the name of the company or in the name of any other person.
(b) there is no other income, including income of any other person in respect of which the company is chargeable to tax under the Income-tax Act, 1961.
I further solemnly declare that during the said previous year (s) :–
(a) no other income accrued or arose to or was received by the person in respect of whose total income the company is assessable from any asset held in the name of the person in respect of whose total income the company is assessable or in the name of any other person.
(b) there is no other income, including income of any other person in respect of which the person in respect of whose total income the company is assessable is chargeable to tax under the Income-tax Act, 1961.
I futher declare that in my capacity as director, I am competent to make this return and verify it on behalf of the company.
Sd.
(Sant Parkash)
(Signature).
18. The petitioner, Om Parkash, who is the director, had signed the documents accompanying the return of income.
19. The Income-tax Appellate Tribunal, vide its order dated October 27, 1988, had observed in its order :–
“It is correct that the assessee gave some false explanation about the source of this amount, but now ultimately the real explanation has come before the authorities. It is the amount of Ralson Cycles Pvt. Ltd. which has not only been owned by them but has been taxed in their hands…
The fact appears to be that the cycle company wanted to bring into its books its income from undisclosed sources and to whiten the same, through the assessee. It miserably failed in that attempt and, therefore, had to go to the Settlement Commission and suffered interest, penalty, etc. The assessee had certainly been guilty of name-lending in its effort to save the cycle company. But that by itself does not mean that the money itself has become the income of the company. It is a well established principle of law that it is the real income that has to be taxed and, if the real owner of an income is found out, a name-lender should not be taxed only for that reason.”
20. The Settlement Commission, in its order dated June 13, 1986, had observed as follows :–
“The Income-tax Officer collected sufficient evidence to show that the story regarding raising of loans by Shri Vimal Nanda and Shri Kapil Dev was false. He, therefore, inferred that the chit fund company had introduced its own unaccounted money in its books in the garb of investment made in its shares in diverse names.”
It is further observed by the Settlement Commission as follows :
“We have carefully considered the arguments of both the sides. It is manifest that the assessee had not made a full and true disclosure of its income in the first statement of facts. It is also borne out by the record that it owned up the amount of Rs. 16.5 lakhs only after the amount had been added in the income of the sister concern, M/s. Ralson Chit Fund and Financiers (P.) Ltd. Having regard to all these facts and circumstances, we are of the view that this is not a case where complete immunity from imposition of penalty under Section 271(1)(c) should be granted. In our view, a penalty of Rs. 3 lakhs will meet the ends of justice.”
21. In a similar situation, the apex court in P. Jayappan v. S. K. Perumal, First ITO [1984] 149 ITR 696 had examined the desirability of continuance of criminal proceedings and observed as under (at p. 700) :
“In the criminal case, all the ingredients of the offence in question have to be established in order to secure the conviction of the accused. The criminal court no doubt has to give due regard to the result of any
proceeding under the Act having a bearing on the question in issue and in an appropriate case it may drop the proceedings in the light of an order passed under the Act. It does not, however, mean that the result of a proceeding under the Act would be binding on the criminal court. The criminal court has to judge the case independently on the evidence placed before it. Otherwise, there is a danger of a contention being advanced that whenever an assessee or any other person liable under the Act had failed to convince the authorities in the proceedings under the Act that he has not deliberately made any false statement or that he has not fabricated any material evidence, the conviction of such person should invariably follow in the criminal court.”
22. In this case, the allegations in the complaint are that Sant Parkash, the petitioner, had made a false verification and Om Parkash, the petitioner had signed the documents accompanying the return of income. It was also false and the petitioners had wilfully attempted to evade the tax imposed under the Act. The judgment and the order passed by the Commissioner of Income-tax (Appeals), Ludhiana, the Income-tax Appellate Tribunal and the Settlement Commission are to be considered by the criminal court but the criminal court is to give an independent finding as to whether, from the facts and evidence brought before it, an offence under Sections 276C(1), 277 and 278 of the Act and under Sections 193 and 196 of the Indian Penal Code is made out or not. The complaint was filed earlier to the decision of the Income-tax Department and the learned Magistrate has summoned the petitioners, vide his order dated October 13, 1986. From the facts alleged in the complaint and the documents produced before the trial court, the Chief Judicial Magistrate was justified in summoning the petitioners and it cannot be said that as subsequently, the income-tax authorities have given some relief to the petitioners, the pendency of the complaint and summoning of the petitioners is an abuse of the process of court. The Department, in support of its case to prove the ingredients of the offence, shall lead its evidence and the petitioners shall be at liberty to produce anything in their defence and the criminal court shall, after considering all the aspects and the evidence produced before it, come to a conclusion as to whether any offence is made out or not. It cannot be said that the pendency of criminal complaint is an abuse of the process of court.
23. As a result of the discussion above, I am of the view that this petition has no legal force and must fail. The parties, through their counsel, are directed to appear before the trial court on June 11, 1990.