Vs. V.M. Muthukrishnan, ITO
 INSC 139 (29
Dayal (J) Yogeshwar Dayal (J) Kuldip Singh (J)
1994 AIR 674 1992 SCR (2) 947 1992 SCC (3) 384 JT 1992 (4) 22 1992 SCALE (1)992
Act, 1961: Sections 2(7)(20)(31)(35), 139, 140(c) (Asamended by Taxation Laws
(Amendment) Act, 1975 and 276, 277, 278B and 278C).
for false verification- Private Company-Managing Director filing Return of
Company- Return found false-Prosecution of Managing Director-Validity
of-`Managing Director' held covered by the word `persons' under section 277 and
held liable for prosecution-Effect of amendment of Section 140(c) and
introduction of Section 278B explained.
appellant was the Managing Director of a Private Limited Company. As a
Principle Officer of the Company, he filed a return of the Income of the
company for the assessment year 1965-66 which was verified and signed by him.
Subsequently it was discovered that the return was false. He was charged for
making wilfully and knowingly false verification of the Company's return and
was thus prosecuted under section 277 of the Income-tax Act, 1961.
filed a petition challenging the maintainability of the complaint against him
as the Managing Director which was dismissed. The High Court also upheld his
prosecution and dismissed his Revision Petition and the petition filed under
section 482 of the Code of Criminal procedure for quashing the complaint.
appeal to this court it was contended on behalf of the appellant that: (i) the
word `person' in section 277 refers only to an assessee and does not include
the person who made the verification on behalf of the assessee; (ii) the
substitution of the word`Managing Director' for the term `Principal Officer' in
section 140(c) of the Act by the Taxation Laws (Amendment) Act, 1975 shows that
the expression `Principal Officer' will 950 not relate to Managing Director.
the appeals, this Court,
appellant cannot escape on the plea that the word `person' used in Section 277
of the Income-tax Act refers only to an assessee but not the person who has
made the verification on behalf of the said assessee. In view of Section 139
read with Section 140(c) of the Act the return has to be signed by the
principal officer of the company. A statutory obligation is cast on the
principal officer to sign the tax returns. The appellant admittedly was the
Managing Director of the Company and he was thus the principal officer thereof.
[955 B, G-H]
substitution of the words `Managing Director' for the term `Principal Officer'
in section 140(c) by the Taxation Laws (Amendment) Act, 1975 will not in any
way alter the position with regard to the operation of the provisions of the
Income-tax Act as against a managing director of a company when he has signed
the return of the company in such capacity. The effect of the amended section
140(c) of the Act is that the company's return of income should be signed only
by the managing director or by any director, when there is no managing
director, and not by the Secretary or the treasurer, who are however included
within the meaning of `Principal Officer' under section 2(35) of the Act. The
effect of introduction of Section 278B by the Taxation Laws (Amendment) Act of
1975, with effect from 1st
October, 1975 is to
make every person connected with the affairs of the company, apart from the
managing director who has signed the return, liable to be proceeded against and
punished. [955 H, 956 A-D] Kapurchand Shrimal v. Tax Recovery Officer, Hyderabad and Ors.,  72 ITR 623, relied
Assistant Commissioner of Income-tax v. Chotabhai Javerbhai,  8 ITR 604 (Mad.), approved.
APPELLATE JURISDICTION : Criminal Appeal Nos. 383-384 of 1979.
the Judgment and Order dated 4.2.1977 of the Madras High Court in Criminal
Misc. Petition No. 4813/76 and Criminal Revision Case No. 44 of 1974.
A.T.M. Sampath for the Appellant.
Gauri Shankar, S. Rajappa for Ms. A. Subhashni and Raju Rama Chandran for the
Judgment of the Court was delivered by YOGESHWAR DAYAL, J. These appeals are
directed against the judgment of the learned Single Judge of the Madras High
Court dated 4th
February, 1977 and
arise in the following circumstances.
first accused, Sh. M.R. Pratap, who was the Managing Director of the Company Rayala
Corporation Private Ltd., is the appellant in the present appeals. The
respondent/complainant is the Income-tax Officer, Central Circle III, Madras. The appellant is the first accused
along with the second accused. A complaint was filed before the Chief
Presidency Magistrate purporting to be under Sections 277 and 273 of the
Income-tax Act, 1961 (hereinafter referred to as `the Act') and Sections 120-B
and 193 of the Indian Penal Code, relating to an offence said to have been
committed during the assessment year 1965-66.
to the complaint the first accused was the managing Director of the Rayala
Corporation private Ltd., (hereinafter referred to as `the Company') and the
second accused was the Chief Accountant of the said Company. The Company was as
assessee under the Act. The return of the income of the company for the
assessment year 1965-66 dated 17th November, 1976 was delivered to the respondent on 18th November, 1965 showing a total income of Rs. 21,36,785
for the accounting year ended 31st march, 1965. The return so submitted was
verified and signed by the first accused-the appellant herein. The accompanying
statements were signed by the second accused. According to the complaint, as a
result of a search at the premises of the company and the residence of both the
accused and others, made under Section 132 of the Act, it was discovered that
the return of income and the statements accompanying the said return were
deliberately false, being less than the true income by more than Rs. 6 lakhs
and the expenditure show in the statements had been obviously inflated by at
least Rs. 2,69,765. The complaint charged the appellant for making willfully
and knowingly false verification of the company's return of income and thereby
committed an offence punishable under Section 277 of the Act. Besides this, the
first and the second accused were charged with other 952 offences also.
However, for the purpose of the present appeals we are not concerned with the
rest of the charges made in the complaint.
appellant herein filed a miscellaneous petition before the Magistrate as to the
maintainability of the complaint against him in his capacity as the Managing
Director. The Magistrate dismissed the miscellaneous petition by order dated 28th November, 1973. Against the said order the
appellant filed a revision petition. The appellant also field another petition
being Crl. Misc. Petition No. 4813 of 1976 under Section 482 of the Code of
Civil Procedure praying to quash the complaint and the proceedings in pursuance
Learned Single Judge dismissed both the revision petition as well as the
petition under Section 482 of the Code of Criminal Procedure and upheld the
prosecution of the appellant.
contentions were urged before the learned Single Judge but before this Court
really one contention was urged, namely-that the word "person"
occurring in Section 277 of the Act would relate only to an assessee and not to
any person other than the assessee and, therefore, the appellant who signed the
return of income on behalf of the company in the capacity of Managing Director,
cannot be included within the definition of the word "person" as used
in Section 277 and, consequently, if person other than the assessee is
prosecuted, it would be void, because Section 277 contemplates an offence by an
assessee against whom penalty is impossible and not by any person other than
the assessee, viz. the Company.
us Mr. Sampath, learned counsel for the appellant, repeated the submissions
which were urged before the High Court. It was inter alia submitted by the
learned counsel that Section 2(31) of the Act defines the word
"person" and the word "assessee" is defined in Section 2(7)
as a person by whom any tax or any other sum of money is payable under the Act
and includes a person in respect of whom proceedings under the Act have been
taken for the assessment of his income, etc.
according to learned counsel for the respondent under Chapter XXII, in Section
276, 276A, 276B, 277, 278 and 279, the word "person" is used. He
submitted that the word "person" in Section 277 does not and cannot
mean the assessee. It was submitted on behalf of the respondent that the word
"person" occurring in Section 277 means the 953 individual who makes
a declaration on oath which he believes to be false and he need not necessarily
be only the assessee on whom penalty is leviable under Section 271 (1)(c) for
concealment and that the word "person" occurring in Section 276 means
the individual who fails to do the acts prescribed by the statute and the word
"person" occurring in Section 276A means the individual who acts in a
manner contrary to the statute and the expression "person" used in
Section 277 is not used in the sense as is defined in Section 2(31) of the Act.
Support in this behalf was sought from the decision of the Supreme Court in Kapurchand
Shrimal v. Tax Recovery Officer, Hyderabad, and other (1969) 72 ITR 623 SC. In
this case it was held thus:- "We are unable to hold that the expression
`person' in sections 276, 276A and 277 is used in the sense in which it is
defined in section 2(31) of the Act.
each specific act which is deemed to be an offence under those provisions, and
individual who, without reasonable cause or excuse, fails to do the acts
prescribed by Statute or acts in a manner contrary to the statute, or makes a
declaration on oath which he believed to be false or does not believe to be
true, is made liable to be punished.
278 penalises the abetment or inducing any person to make and deliver an
account, statement or declaration relating to any income chargeable to tax
which is false and which he either knows to be false or does not believe to be
true. In the context in which the expression `person' occurs in sections 276,
276A, 277 and 278, there can be no doubt that it seeks to penalise only those
individual who fail to carry out the duty cast by the specific provisions of
the statute, or are otherwise responsible for the acts done." Another
argument of learned counsel for the appellant was that the term "principal
officer" is defined in Section 2(35) as the secretary, treasurer, manager
or agent of the company, but would not include Managing Director as the said
term "managing director" is conspicuously omitted there and that,
therefore, whenever an assessee or any other person is to by prosecuted or is
intended to be subjected to certain obligation, the statute intends the
"company and the principal officer" as mentioned in Sections 204, 206
and 236 of the Act. It was thus urged that the omission 954 of the words
"principal officer" or "managing director" in Section 277
is very significant and the Managing Director cannot at all be prosecuted in a
case where the company itself is an assessee. Therefore, according to the
learned counsel for the appellant the word "person" occurring in
Section 277 will include neither the managing director nor the principal
officer nor the representative assessee, and as the definition of
"person" includes only the company, the verification has to be under
Section 139 only by the company and the person who signs that verification is
only a signatory whereas the company is the assessee, the person who is obliged
to file the verified return. He also submitted that according to the newly
introduced Sections 278B and 278C (Introduced on 1st october, 1975) a director
in the case of the company and a karta in the case of a Hindu Undivided Family can
be prosecuted, and, therefore, by virtue of the said new amendments, the
legislature in its wisdom has thought it fit to bring the managing director
also along with the company as accused person only by this amendment which
takes effect from 1st October 1975, and this introduction of the amendment will
go in support of the appellant's contention that the legislature itself had
not, during the relevant period in this case intended the managing director to
be included and so the managing director cannot be prosecuted at all in this
case. It was urged that if the contention of the prosecution that the managing
director can be prosecuted before 1st October, 1975 is correct, then there was no
necessity for this amendment to fill up the lacuna, and, therefore, before 1st October, 1975, in view of Section 279 (1A), the assessee
alone can be prosecuted.
counsel for the respondent in reply to this argument submitted that the main
decision of the Supreme Court in Kapurchand's case (supra) that the karta cannot
be detained in a civil jail, rests on Section 222 which specifically uses the
word " assessee" and therefore, the conclusion arrived at in that
case, while dealing with Section 222, cannot be availed of by the appellant in
this case. Before the learned Single Judge reliance was also placed on the
decision of the madras High Court in Inspecting Assistant Commissioner of
Income-tax v. Chotabhai Javerbhai, (1941) 9 ITR 604 (Madras) wherein Horwill,
J., while dealing with Section 52 of the Indian Income-tax Act, 1922
(corresponding to Section 277 of the 1961 Act), has held that the word
"person" in that section does not necessarily mean the assessee and
that it must be given its ordinary 955 dictionary meaning and that it includes
a person duly authorised.
appears that in view of the dictum of this Court in Kapurchand's case (supra)
we are unable to accept the arguments advanced by the learned counsel for the
other hand we are of the view that the appellant cannot escape on the plea that
the word "person" used in Section 277 refers only to an assessee but
not the person who has made the verification on behalf of the said assessee.
been found by the learned Single Judge that the verification of the return
which was signed by the appellant was signed by him in his capacity as
counsel for the appellant submitted that the parliament has now, be the
Taxation Laws (Amendment) Act of 1975, which took effect from 1st April, 1976,
removed the expression "the principal officer" occurring in Section
140 (c), in so far as it related to a company, and instead has substituted the
words "the managing director........or, where there is no managing
director, any director thereof".
thus contended that the substitution of the word "managing director"
for the term "principal officer" is an indication to show that the
expression "principal officer" will not relate to the managing
director and that is why the above sustitution has now taken place.
afraid we cannot also agree with this submission of the learned counsel for the
appellant. Section 2(35) of the Act defines the term "principal
officer" and Section 2(20) of the Act defines the term
"director". Section 2 sub- section (24) of the Companies Act defines the
word "manager". At the relevant time Section 197A of the Companies
Act provided that no company shall appoint or employ at the same time more than
one of the following categories of managerial personnel, viz., the managing
director and the manager. In the present case the appellant admittedly was the
Managing Director of the Company and he was thus the principal officer thereof.
Rule 12(1) of the Income-tax Rules states that the return of income shall, in
the case of a company, be in Form No. 1 and be verified in the manner indicated
therein. In view of Section 139 read with Section 140(c) of the Act the return
has to be signed by the principal officer of the company. A statutory
obligation is cast on the principal officer to sign the tax returns. The substitution
of the words made under the new Amendment Act will not in any way alter the
position with regard 956 to the operation of the provisions of the Income-tax
Act as against a managing director of a company when he has signed the return
of the company in such capacity. The effect of the amended Section 140(c) of
the Act is that the company's return of income should be signed only by the
managing director or by any director, when there is no managing director, and
not by the secretary or the treasurer, who are however included within the
meaning of "principal officer" under Section 2 (35) of the Act. By
the Introduction of Section 278B by the Taxation Laws (Amendment) Act of 1975,
with effect from 1st October, 1975, it is enacted that where an offence under
this Act has been committed by a company, every person who, at the time the
offence was committed, was in charge of, and was responsible to, the company
for the conduct of the business of the company, as well as the company shall be
deemed to be guilty of the offence and shall be liable to be proceeded against
and punished accordingly. The effect of the new section is to make every person
connected with the affairs of the company, apart from the managing director who
has signed the return, liable to be proceeded against and punished We are in
complete agreement with the reasonings and conclusion of the High Court. No
other point was urged. The result is that the appeals fail and are dismissed.