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Issues: (i) whether section 278B of the Income-tax Act, 1961 could be applied retrospectively to prosecute partners for alleged defaults committed before its commencement; (ii) whether the complaint disclosed a valid basis for prosecution where it falsely stated that a minor partner was in charge of and responsible for the conduct of the firm's business.
Issue (i): whether section 278B of the Income-tax Act, 1961 could be applied retrospectively to prosecute partners for alleged defaults committed before its commencement.
Analysis: Section 278B was introduced only on 1 October 1975 and created liability for persons in charge of and responsible for the conduct of the business of the firm. The alleged offences related to earlier accounting years, when that provision was not in force. The Court held that, before the introduction of section 278B, the firm alone could be proceeded against for such defaults and that the partners could not be prosecuted under a provision which did not then exist.
Conclusion: The prosecution of the partners for the earlier accounting years was not legally maintainable and was vitiated on the ground of absence of authority of law.
Issue (ii): whether the complaint disclosed a valid basis for prosecution where it falsely stated that a minor partner was in charge of and responsible for the conduct of the firm's business.
Analysis: The complaint mechanically reproduced the language of section 278B without showing how the petitioner concerned was in charge of the business. The record indicated that he was a minor during the relevant years and could not, on those facts, be responsible for the firm's conduct. The Court treated this as a material misstatement and an indication of complete non-application of mind by the prosecuting authority.
Conclusion: The complaint was unsustainable and furnished an independent ground for quashing the prosecution.
Final Conclusion: The petitions succeeded and the criminal complaints were quashed, as the prosecutions were found to be legally unsustainable and an abuse of process.
Ratio Decidendi: A penal provision creating vicarious liability cannot be applied to acts committed before its commencement, and a prosecution based on a mechanically drafted complaint that misstates a material foundational fact is liable to be quashed for abuse of process.
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