Vicarious criminal liability of partners requires proof they were in charge of the firm's business; sleeping partners cannot be prosecuted.

Section 278B of the Income-tax Act imposes vicarious criminal liability on a firm's partners only where the prosecution first alleges and proves that a particular partner was in charge of and responsible for the conduct of the business at the relevant time. Sleeping partners, or partners not shown to have managed the business, cannot be prosecuted merely by reason of partnership, and proceedings against them are unsustainable. By contrast, where the return and related documents were signed on behalf of the firm by a partner, that signatory could be treated as responsible for business conduct, and the firm remained liable under the deeming provision.

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Issues: (i) Whether, under section 278B of the Income-tax Act, 1961, all partners of a firm, including sleeping partners, can be prosecuted without averment and proof that they were in charge of and responsible for the conduct of the business. (ii) Whether the prosecution and framing of charges could continue against the firm and the partner who had signed the return and related documents.

Issue (i): Whether, under section 278B of the Income-tax Act, 1961, all partners of a firm, including sleeping partners, can be prosecuted without averment and proof that they were in charge of and responsible for the conduct of the business.

Analysis: Section 278B deems the company, which includes a firm, and every person who at the relevant time was in charge of and responsible to the company for the conduct of its business, to be guilty. Penal liability is not to be enlarged by implication, and vicarious criminal liability arises only when the statute clearly so provides. The prosecution must first establish by averment and proof that a particular partner was in charge of and responsible for the business; only then does the burden shift under the proviso. Sleeping partners, or those not shown to be managing the business, cannot be prosecuted merely because they are partners.

Conclusion: The prosecution of partners not shown to be in charge of and responsible for the business is unsustainable and is quashed.

Issue (ii): Whether the prosecution and framing of charges could continue against the firm and the partner who had signed the return and related documents.

Analysis: The record showed that the return, notices, and related documents were signed on behalf of the firm by one partner, indicating that he was in fact in charge of and responsible for the conduct of business. The firm itself remained liable under the deeming provision. The analogy drawn from section 10 of the Essential Commodities Act, 1955, supported the same construction of the expression requiring responsibility for conduct of business.

Conclusion: The prosecution against the firm and the signatory partner was upheld.

Final Conclusion: The proceedings were quashed as against the partners not shown to be responsible for the business, while the prosecution of the firm and the managing partner was permitted to proceed.

Ratio Decidendi: Under section 278B of the Income-tax Act, 1961, criminal liability of a partner of a firm arises only if the prosecution first shows that the partner was in charge of and responsible for the conduct of the business at the relevant time; sleeping partners cannot be subjected to vicarious criminal liability without such proof.

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