Disputed loan-or-deposit issue bars quashing of Income-tax Act prosecutions; factual controversies must go to trial.

In quashing proceedings under the Income-tax Act, disputed questions of fact, including whether the amount repaid was a loan or a deposit, could not be decided at the threshold. The High Court held that such controversy required evidence and should be left to trial rather than terminated through inherent jurisdiction. The plea of reasonable cause was also insufficient for interference, as the record showed a show-cause notice and reply, but no basis to short-circuit the prosecution. The criminal miscellaneous petitions were therefore not fit for quashing, and the factual issues were left for determination by the trial court.

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Issues: Whether the criminal miscellaneous petitions seeking quashing of the complaints were liable to be allowed when the nature of the transaction as loan or deposit was disputed and the plea of reasonable cause was raised.

Analysis: The complaint alleged offences under sections 276C, 276E and 278B of the Income-tax Act, 1961, arising from repayment otherwise than in the prescribed manner. The decisive factual controversy was whether the amount repaid was a loan or a deposit. That question depended on evidence and could not be conclusively determined at the threshold in proceedings for quashing. The plea of reasonable cause was also not accepted as a ground for interference, since the record referred to a show-cause notice and the petitioners' reply, and the matter did not justify invocation of inherent jurisdiction to terminate the prosecution.

Conclusion: The petitions were not fit for quashing and the disputed issues were left to be decided by the trial court.

Ratio Decidendi: In proceedings for quashing criminal complaints under the Income-tax Act, disputed questions of fact, such as whether a payment was a loan or a deposit, should ordinarily be left to trial, and the court should not short-circuit the prosecution on a threshold plea of reasonable cause.

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