Partners not liable for false tax return filed by firm - Court quashes proceedings

The case involved the prosecution of four partners of a firm under section 277 of the Income-tax Act, 1961, and related offenses under the Indian Penal Code for filing a return with false verification. The petitioners challenged the proceedings, arguing they were not responsible for the firm's conduct as only one partner signed and verified the return. The court quashed the proceedings against the petitioners, stating that only the individual who signs or verifies a return is liable for prosecution under section 277 if the statement is false to their knowledge, and the petitioners did not sign or verify the return.

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Issues: Prosecution under section 277 of the Income-tax Act, 1961 and related offences under the Indian Penal Code.

Analysis:
The judgment involves the prosecution of four partners of a firm under section 277 of the Income-tax Act, 1961, along with offenses under the Indian Penal Code for filing a return with false verification or knowledge of its falsity. The complaint alleged that the return filed by the firm showed an income different from what was indicated in the profit and loss account. The trial court summoned the petitioners along with others based on pre-charge evidence.

The petitioners challenge the proceedings, seeking quashing under section 278B of the Income-tax Act. Section 278B(1) holds individuals responsible if an offense is committed by a company, provided they were in charge of the company's business. The petitioners argue that the complaint does not allege their responsibility for the firm's conduct, as it was only one partner who signed and verified the return. The complainant did not assert that the petitioners were in charge of the firm's affairs or conducted its business.

The petitioners' counsel argued that only the person who signs or verifies a return is liable for prosecution under section 277 if the statement is false to their knowledge. It was acknowledged that the petitioners did not sign the verification or make any statements to the Income-tax Officer. The judgment refers to a previous case under a similar provision, where a similar view was taken. The judge allowed the petition and quashed the proceedings against the petitioners, clarifying that the prosecution of the partner who signed the return and the firm would not be affected by this decision.

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