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Issues: (i) Whether the prosecution of the firm for alleged offences under the Income-tax Act was sustainable. (ii) Whether the prosecution of the partner could continue in the absence of a specific averment that he was in charge of and responsible for the conduct of the business of the firm.
Issue (i): Whether the prosecution of the firm for alleged offences under the Income-tax Act was sustainable.
Analysis: The complaint alleged offences under sections 276C and 277 of the Income-tax Act, 1961 against the firm and its partners. The complaint disclosed accusations of concealment of income, failure to comply with notice and furnishing of inaccurate particulars. In relation to the firm, no legal bar to prosecution was shown on the basis of the pleadings.
Conclusion: The prosecution of the firm was held to be sustainable and was not quashed.
Issue (ii): Whether the prosecution of the partner could continue in the absence of a specific averment that he was in charge of and responsible for the conduct of the business of the firm.
Analysis: For prosecution of a firm or company and its partners or directors, the complaint must contain a specific averment that the concerned person was in charge of and responsible for the conduct of the business at the time of the alleged offence. The complaint did not contain such an averment against the partner petitioner, and he was admittedly only a partner.
Conclusion: The prosecution of the partner was held to be unsustainable and was quashed.
Final Conclusion: The application succeeded only in part: the proceedings continued against the firm, while the partner was discharged from prosecution.
Ratio Decidendi: Vicarious criminal liability under section 278B of the Income-tax Act, 1961 cannot be sustained against a partner or director unless the complaint specifically averts that he was in charge of and responsible for the conduct of the business at the relevant time.
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