1990 (10) TMI 22 - HC - Income Tax

Court rules firm can be fined without imprisonment, deems partnership valid with minor partner, quashes retrospective prosecutions.

The court ruled that a firm could be prosecuted for certain offences mandating both imprisonment and fine. It held that a firm, as a juristic person, ... Offences And Prosecution Issues Involved:1. Prosecution of a firm for offences mandatorily requiring imprisonment and fine.2. Legality of the partnership firm due to the minor partner.3. Applicability of Section 278B of the Income-tax Act for offences committed before its introduction.Issue-wise Detailed Analysis:Issue 1: Prosecution of a Firm for Offences Mandatorily Requiring Imprisonment and FineThe court addressed whether a firm could be prosecuted for offences under sections 193, 196, and 420 of the Indian Penal Code and sections 276C(1) and 277 of the Income-tax Act, which mandate both imprisonment and fine. The petitioners argued that a firm, being a juristic person, cannot be imprisoned and hence cannot be prosecuted. The court referred to various judgments, including the Full Bench decisions of the Delhi and Allahabad High Courts, which held that a company could be fined even if imprisonment was mandatory. The court concluded that the firm does not enjoy immunity from prosecution and, if found guilty, can be punished with a fine alone. The court emphasized the need for legislative clarity on this issue to avoid such legal complexities.Issue 2: Legality of the Partnership Firm Due to the Minor PartnerThe petitioners contended that the partnership firm was illegal and invalid because the third petitioner was a minor when the partnership deed was executed. The court noted that the minor partner had signed the application for registration, which led to the cancellation of the firm's registration for certain assessment years. The court cited the Supreme Court's decision in CIT v. Dwarkadas Khetan and Co., which held that a minor could not be a full partner in a firm. However, the court stated that the firm could still be assessed as an unregistered firm, and there was no estoppel against the prosecution. The court deferred the detailed scrutiny of the partnership deed to the trial court, as the document was not on record.Issue 3: Applicability of Section 278B of the Income-tax Act for Offences Committed Before Its IntroductionThe petitioners argued that Section 278B, inserted with effect from October 1, 1975, could not be applied retrospectively to prosecute them for offences committed before that date. The court agreed, citing multiple judgments, including the Delhi High Court's decision in Parmeet Singh Sawney v. Dinesh Varma, which held that Section 278B could not be applied retrospectively. The court concluded that petitioners Nos. 2 and 3 could not be prosecuted under Section 276C(1) for the assessment years 1973-74, 1974-75, and 1975-76. However, the prosecution under Section 277, which is independent of Section 276C, would survive against the second petitioner.Conclusion:The court quashed the prosecution against the third petitioner in all calendar cases. It also quashed the prosecution against petitioners Nos. 1 and 2 under Section 276C(1) for the assessment years 1973-74, 1974-75, and 1975-76. The prosecutions for other offences in the same cases and for all offences in the other calendar cases would proceed. The court emphasized the need for legislative clarity to avoid such legal complexities in future cases.