Commissioner-authorised tax prosecution survives later assessment changes, but a firm cannot face imprisonment-only offences as a juristic person.

Prosecution for offences under the Income-tax Act remains valid once the Commissioner has authorised the complaint, even if the assessment is later modified in appeal. Appellate Tribunal observations about the partners' knowledge or innocence do not automatically bind the criminal court unless they are integral to the assessment findings. A firm, as a juristic person, cannot be prosecuted for offences punishable only with imprisonment where no provision then allowed such prosecution, and it also cannot be arraigned for Penal Code offences that can be committed only by natural persons. The complaint was therefore sustained against the remaining accused but quashed against the firm.

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Issues: (i) Whether authorisation by the Commissioner to institute prosecution under the Income-tax Act ceased to be effective after the assessment was modified in appeal; (ii) whether observations made by the Appellate Tribunal regarding the partners' knowledge or innocence barred prosecution of the partners; and (iii) whether the firm, as a juristic person, could be prosecuted for offences under the Income-tax Act and the Indian Penal Code.

Issue (i): Whether authorisation by the Commissioner to institute prosecution under the Income-tax Act ceased to be effective after the assessment was modified in appeal.

Analysis: The statutory requirement is only that prosecution for offences under sections 277 and 278 be instituted at the instance of the Commissioner. Once the Commissioner authorises filing of the complaint, the prosecution is not rendered invalid merely because the assessment order is later modified in appeal. Criminal prosecution has an independent existence and need not await finality of the assessment proceedings.

Conclusion: The authorisation remained valid and the complaint was not bad on that ground.

Issue (ii): Whether observations made by the Appellate Tribunal regarding the partners' knowledge or innocence barred prosecution of the partners.

Analysis: Finality under section 254(4) attaches to the appellate order on assessment, not to every incidental observation. Only findings inextricably connected with the assessment attain binding effect. The Tribunal's remarks that the partners were innocent were expressly treated as irrelevant to the assessment and did not control the criminal case. The criminal court was therefore not bound to terminate prosecution at the threshold on that basis.

Conclusion: The observations of the Appellate Tribunal did not bar prosecution of the partners.

Issue (iii): Whether the firm, as a juristic person, could be prosecuted for offences under the Income-tax Act and the Indian Penal Code.

Analysis: For the relevant period, the offences under sections 277 and 278 carried imprisonment as the punishment, and section 278B had not yet come into force. A juristic person cannot undergo bodily punishment or imprisonment. The same principle applied to the Penal Code offences alleged in the complaint, which are offences that can be committed only by natural persons. The firm could not therefore be retained as an accused.

Conclusion: The firm could not be prosecuted for the alleged offences and the complaint was liable to be quashed against it.

Final Conclusion: The complaint was sustained against the remaining accused, but it was quashed in relation to the firm because the prosecution could not proceed against the juristic person on the facts and statutory regime applicable to the returns in question.

Ratio Decidendi: Prosecution under the Income-tax Act may proceed on the Commissioner's authorisation notwithstanding later modification of assessment, but a juristic person cannot be prosecuted where the relevant offences are punishable only with imprisonment and the alleged non-tax offences are capable of commission only by natural persons.

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