Case Note & Summary
The applicants, Unique Trading Company (a partnership firm) and its partners Munnidevi P. Purohit, Rakesh P. Purohit, and Mukesh P. Purohit, filed an application under Section 482 of the Code of Criminal Procedure, 1973 seeking quashing of a complaint lodged by the Income Tax Authorities for an offence punishable under Section 276C(2) read with Section 278B of the Income Tax Act, 1961. The firm had filed its original return of income for Assessment Year 2010-2011 declaring income of Rs.21,79,850/- and showing tax payable of Rs.5,09,061/-. The firm was a family-run concern managed by Mr. P. G. Purohit, husband of applicant No.2 and father of applicant Nos.3 and 4, who passed away in May 2014. The applicants claimed they were unaware of the non-payment of tax. The Principal Commissioner of Income Tax issued a show cause notice for prosecution under Section 276C(2) for wilful attempt to evade tax. On 12th March 2018, the applicants paid the entire due tax including interest aggregating to Rs.5,32,410/- and filed a reply on 13th March 2018 explaining the reason for non-payment. Despite this, respondent No.2 granted sanction to prosecute. The court considered whether the prosecution could be sustained when the tax was paid before sanction and there was no wilful attempt. The court held that the essential ingredient of 'wilful attempt' under Section 276C(2) was absent, as the non-payment was due to the death of the managing partner and the partners' ignorance. The payment of tax before sanction indicated no intention to evade. The court quashed the complaint, finding that continuation of prosecution would be an abuse of process of law.
Headnote
A) Criminal Law - Quashing of Complaint - Section 482 CrPC - Inherent Powers - Complaint under Section 276C(2) read with Section 278B of Income Tax Act, 1961 - Applicants paid entire tax due before sanction was granted - Held that continuation of prosecution would be an abuse of process of law (Paras 1-24). B) Income Tax - Offence under Section 276C(2) - Wilful Attempt to Evade Tax - Mens Rea - Section 276C(2) of Income Tax Act, 1961 - Non-payment of tax due to death of managing partner and ignorance of partners - Held that absence of wilful default and payment before sanction negates criminal liability (Paras 10-20). C) Criminal Law - Vicarious Liability of Partners - Section 278B of Income Tax Act, 1961 - Partners not involved in day-to-day affairs - Held that prosecution cannot be sustained against partners who were unaware of non-payment (Paras 15-22).
Issue of Consideration
Whether prosecution under Section 276C(2) of the Income Tax Act, 1961 can be sustained when the tax due was paid before the grant of sanction and there was no wilful attempt to evade tax
Final Decision
The court allowed the application and quashed the complaint under Section 276C(2) read with Section 278B of the Income Tax Act, 1961 against all applicants.
Law Points
- Section 276C(2) of Income Tax Act
- 1961 requires wilful attempt to evade tax
- Section 278B of Income Tax Act
- 1961 for vicarious liability of partners
- Section 482 of Code of Criminal Procedure
- 1973 for inherent powers to quash
- Mens rea essential for criminal liability under tax laws
