1988 (10) TMI 36 - HC - Income Tax

Court quashes complaint against minor partner in partnership firm supplying goods to army; upholds prosecution against other partners.

The court partially allowed the petition by quashing the complaint against the minor partner in a partnership firm involved in supplying goods to the ... Minor, Offences And Prosecution Issues:1. Assessment of undisclosed income by the Income-tax authorities.2. Prosecution under sections 276C and 277 of the Income-tax Act, 1961.3. Quashing of the complaint against the partners of the firm.4. Liability of minor partner in the partnership business.5. Responsibility of partners in conducting the business of the firm.Analysis:1. The judgment revolves around the assessment of undisclosed income by the Income-tax authorities concerning a partnership firm engaged in supplying goods to the army. The firm's income-tax return was assessed, resulting in a finding of undisclosed income through credits from self-cheques. The assessment was affirmed by higher authorities, leading to a complaint filed against the firm and its partners for prosecution under relevant sections of the Income-tax Act.2. The prosecution under sections 276C and 277 of the Income-tax Act was initiated against the firm and all its partners based on the assessment of undisclosed income. The partners challenged the complaint through a petition seeking its quashing. The petitioners argued that the self-cheques were encashed through a sister concern of the firm, reflecting the credits in the firm's books, while the Income-tax Department contended that the absence of corresponding entries in the sister concern's books rendered the explanation incredible.3. The court considered the arguments presented by both parties regarding the encashment of self-cheques and the absence of entries in the sister concern's books. The court analyzed legal precedents cited by the petitioners but ultimately upheld the Income-tax Department's view that the lack of entries in the sister concern's books undermined the credibility of the explanation provided by the firm. Consequently, the court quashed the complaint only in relation to one of the minor partners, while allowing it to proceed against the other partners.4. Regarding the liability of the minor partner in the partnership business, the court referred to relevant legal observations and held that the minor partner could enjoy the benefits of the business but could not be held liable for its wrongdoings. Citing legal precedents, the court ruled in favor of quashing the complaint against the minor partner.5. The judgment also addressed the responsibility of partners in conducting the business of the firm. It was argued that one partner was primarily transacting the business, while others should be discharged from the complaint. However, the court noted specific allegations against all partners for being in charge of the firm's affairs and conducting its business, leading to the decision that all partners were liable to be tried jointly for the alleged offenses, except for the minor partner.In conclusion, the court partially allowed the petition by quashing the complaint against the minor partner and directed the trial court to proceed with the case against the remaining partners in accordance with the law.