2008 (2) TMI 277 - HC - Income Tax

Partners acquitted in tax case due to lack of active involvement, bail bonds discharged

The High Court upheld the trial judge's decision to acquit two individual partners of a firm under sections 276C and 277 of the Income-tax Act, 1961. The ... Offences and prosecution - Partner’s liability is restricted only to civil liability, not to criminal liability – burden is upon prosecution to prove that accused persons had an active role in business of firm – on basis of evidence led by prosecution, trial court acquitted the partners, on ground that burden was not discharged by prosecution to prove activeness of partners – no illegality with the order of trial court of acquittal of the accused members of the firm Issues:Acquittal of individual partners of a firm under sections 276C and 277 of the Income-tax Act, 1961.Analysis:The judgment in question pertains to an appeal against the acquittal of two individual partners of a firm, M/s. Micro Chemical, Mandsaur, for an offence under section 276C read with section 277 of the Income-tax Act, 1961. The accused persons, housewives, denied their involvement in the firm's business. The trial judge found the firm guilty but acquitted the individual partners due to lack of evidence showing their active role in the firm's operations. The appellant argued that the trial judge erred in acquitting the partners and failed to consider the deeming section. Conversely, the respondents' counsel contended that the prosecution did not prove the partners' active control over the firm, citing relevant case law.The High Court, after considering the arguments and evidence, upheld the trial judge's decision. It emphasized that for criminal liability, the prosecution must establish the accused's active involvement in the firm's operations. While partners are agents and vicariously liable civilly, criminal liability requires proof of active participation. Since the prosecution failed to demonstrate the partners' direct role in the firm's affairs, the trial court rightly acquitted them. The court referred to precedents supporting this interpretation, concluding that the acquittal was lawful. Therefore, the appeal was dismissed, and the respondents' bail bonds were discharged.