ORDER
S.C. Vyas, J.
1. This revision petition is preferred against the judgment dt. 2nd Jan., 2002 passed by XlVth Additional Sessions Judge, Indore in Criminal Appeal No. 4/96, confirming the conviction and sentence recorded by the ACJM (Economic Offence), Indore in Criminal Case No. 21/1986 vide judgment dt. 22nd Dec, 1995 convicting applicant No. 2 for the offences punishable under Section 276C read with Sections 278 and 277 and sentencing him to undergo six months R.I. and to pay a fine of Rs. 3,000 on each count. Applicant No. 1 was found guilty for the offence punishable under Section 276C and Section 277 read with Section 278B of IT Act and was sentenced to pay a fine of Rs. 3,000 on each count.
2. The facts of the case which are necessary for the disposal of this revision are that applicant No. 1 was a partnership firm during the relevant period, namely asst. yr. 1975-76 and the relevant accounting period from Diwali 1973 to Diwali 1974. After this period the firm was dissolved. It was constituted by the partners namely, (1) Goverdhanlal, (2) Sobhagchand and (3) Kusumchand, applicant No. 2. Return of income of the firm in the asst. yr. 1975-76 was filed on 30th July, 1975 which was verified to be correct by applicant No. 2 which is Ex. P-1 in Part III of return. An income of Rs. 50,760 was shown as goodwill and it has been stated that reasons for this income not being taxable is that this income has been found as a result of difference in balance sheet credited to the accounts of the partners. Real income of the firm was shown as Rs. 13,908 only. When inquiry was made by the concerning ITO from the applicant, then, it was informed that balance sheet difference was coming from last few years which could only be detected at the time of dissolution of the firm because no balance sheet was prepared earlier. It has been stated that this difference was coming from the asst. yrs. 1971-72 to 1974-75 which was detected in the year 1975-76. Ultimately ITO held that this amount of Rs. 50,760 was in fact the income of the firm which has wrongly been shown as goodwill for the purpose of tax evasion and, therefore, the amount was included in the income of the firm. Penalty was imposed on the firm and assessment order Ex. P-4 was passed on 28th March, 1978. Applicant preferred an appeal before the AAC which was dismissed vide order Ex. P-9. A penalty of an equal amount of Rs. 50,760 was levied on the firm under Section 271(1)(c) of the IT Act, 1961 (hereinafter referred as the Act for convenience). The penalty so imposed was deleted in appeal being barred by limitation, by the CIT vide Ex. P-11 and P-12.
3. Thereafter, a private complainant under Sections 276C and 277 of the Act and Section 420 read with Section 511 of the IPC was filed against the firm, the applicant No. 1 and its three partners including appellant No. 2 by ITO before the learned Addl. Chief Judicial Magistrate on 31st March, 1986, the prosecution against other partners namely Goverdhanlal and Sobhagchand was quashed by order dt. 8th July, 1994 passed by this Court in Crl. Revn. No. 716/1992. The Trial Court after framing charges against both the applicants conducted trial against them and convicted them and passed sentence as stated hereinabove. Applicants preferred an appeal against judgment of conviction and sentence in the appeal finally the impugned judgment was passed against which the present revision petition has been filed.
4. Learned senior advocate Shri S.C. Bagadiya appearing for the applicants assisted by Shri D.K. Chhabra advocate contended that the provisions of Sections 278B and 276C were not in existence on the statutory book on the date when the return of the asst. yr, 1975-76 for accounting year Diwali 1973 to Diwali 1974 was filed on behalf of applicant No. 1 by applicant No. 2. The date of the return was 30th July, 1975 whereas the provisions of Section 278B of the IT Act were inserted by the Taxation Laws (Amendment) Act, 1975 w.e.f. 1st Oct., 1975. By this provision a deeming provision has been inserted to the effect that 'where an offence under this Act has been committed by a company then every person who, at the time the offence was committed, was in charge and was responsible to the company for the conduct 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.' From 1st Oct., 1975 every person who was in charge of or was responsible to the company was made responsible for the offence committed by the company under the provisions of IT Act. Learned senior advocate further argued that prior to 1st Oct., 1975 only company was responsible for the criminal acts committed by it as per the existing provisions of the Act. He has drawn attention of this Court towards the definition of the word 'person' in Section 2(31) of the Act. As per definition given this section reads as under :
Section 2(31)-'person' includes-
(i) an individual,
(ii) an HUF,
(iii) a company,
(iv) a firm,,
(v) an AOP or a BOI, whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-clauses;
5. Learned senior advocate further contended that as there was no provision in the Act; at the time of filing of return of income-tax by the firm to make partners of a partnership firm liable for the punishment, therefore, the prosecution which was lodged against applicant No. 2 was bad in law and is not sustainable, because the subsequent law cannot be made retrospective for the purpose of punishing a person regarding whom there was no penal provision at the time of filing of the return for this purpose. Shri Bagadiya, senior advocate, placed reliance upon a judgment of the Delhi High Court in the matter of Parmeet Singh Sawney v. Dinesh Verma, ITO and Anr. (1987) 66 CTR (DelHI) 130. He also relied on a judgment of the Madras High Court passed in Manian Transports and Ors. v. S. Krishna Moorthy, ITO : [1991]191ITR1(Mad) . He has also cited a judgment of Kolkata High Court in the case of Vinar & Co. and Anr. v. ITO and Ors. : [1992]193ITR300(Cal) .
6. Shri S.L. Jain, learned senior counsel appearing for the IT Department supported the judgment passed by learned Addl. Sessions Judge and submitted that the return which was filed by the applicant was for the asst. yr. 1975-76 and before assessment could be completed Section 278B was brought in existence by amendment of the Act and, therefore, the Trial Court and Appellate Court have committed no mistake in convicting the applicant No. 2 also.
7. Section 278B of the Act came into existence for the first time on 1st Oct., 1975. Prior to that there was no provision for making other persons responsible regarding the offence committed by the company by the acts of the firm in contravention with the provisions of the Act. After insertion of Section 278 in the Act every person who, at the time of the commission of the offence, was in charge and was responsible to the company for the conduct of its business has been made liable to be proceeded against for the offences committed by a company. The definition in Section 2(31) as reproduced hereinabove makes it very clear that prior to 1st Oct., 1975, as per this definition the firm alone was responsible and was alone to be prosecuted for the criminal acts. As per the provisions of Section 278B also, out of the partners of the firm, only those persons can be deemed guilty of the offence committed by firm who, at the time the offence was committed, were in charge and were responsible to the company for the conduct of the business of the company meaning thereby that sleeping partners and those persons who were not taking any part in the day-to-day business of the firm were excluded from the liability of being prosecuted and only active partners as well as the company can be prosecuted.
8. As the provisions of Section 278B were introduced in the Act for the first time by insertion by amending Act, therefore, these provisions being penal provisions cannot be construed to be applicable retrospectively. Such penal provisions can always have prospective effect and does not have any retrospective effect and, therefore, the provisions of Section 278B of the Act can be said to be operative only from the date on which they came into force.
9. Therefore the view taken by the Delhi High Court in the case of Parmeet Singh Sawney (supra) and Madras High Court in the case of Manian Transports and Ors. (supra) appears to be correct interpretation of law and are being followed in the present case also.
10. Accordingly, it is held that the provisions of Section 278B of the Act were not applicable prior to 1st Oct., 1975 and as admittedly the return in the present case was filed on 30th July, 1975 so applicant No. 2 cannot be made liable for any offence committed by the firm under the provisions of Sections 276C and 277 of the Act.
11. Second contention of learned senior advocate Shri Bagadiya, is that no income of the firm was concealed by the applicants, and, it is neither a case of any wilful attempt to evade tax nor any false statement in the verification, because amount of Rs. 50,760 which was traced at the time of settlement of account between partners as balance sheet difference has been very well shown in the return Part III showing it as a goodwill of the firm and claiming it to be not liable for payment of income-tax as the same has been distributed among the partners. He has further submitted that the balance sheet difference shown was pertaining to earlier years which could only be detected at the time of dissolution of the firm and when balance sheet was prepared. The moment it was discovered, the amount was immediately shown in the return of the firm under a bona fide belief that this amount is not liable to be included in the taxable income of the firm as it was not income of the current year of the firm. Therefore, learned senior advocate argued that it was not a case of concealment of any income by the applicants or any wilful act to evade payment of tax.
12. Learned senior counsel Shri R.L. Jain appearing for the IT Department firstly tried to justify the conclusion drawn by the two Courts below but ultimately he stated that as the income of Rs. 50,760 was shown as income of the firm in Part III of the IT return as a goodwill income, therefore, the present case cannot be said to be the case of concealment of any income.
13. Return Ex. P-1 which was filed on behalf of the firm applicant No. 1 and was signed and verified by applicant No. 2 shows that goodwill income of Rs. 50,760 has been shown in the column of 'Other sums not included in total income and claimed to be not taxable'. There is a specific column for showing such sums in the IT return when an amount is shown as a sum which has not been included in the total income then at the time of assessment and computing the income of the firm ITO can very well inquire regarding such sums shown in column III and then can take suitable decision for including or excluding such sums from the total income. But once when such sums have been shown by the applicant in the IT return and the amount was not detected by the ITO on some secret inquiry or otherwise, then it can very well be said that there was no concealment of any fact by the applicant at the time of filing of their return of income. It can also be safely inferred that as the same was detected at the time of preparation of balance sheet of the firm on dissolution of the firm then under bona fide belief they thought it not an amount which can be included in the sums which can be termed as taxable being not an income of the firm in the relevant accounting year. Whatever may be the case as the amount has been shown very well by the applicant in the IT return and has not been invented by the ITO, therefore, it is not a case of concealment of income or tax evasion. Hon'ble Supreme Court in the case of Cement Marketing Co. of India Ltd. v. Assn. CST and Ors. : [1980]124ITR15(SC) , while considering the matter pertaining to Sales-tax Act has observed as under:
A return cannot be 'false' unless there is an element of deliberateness in it. It is possible that even where the incorrectness of the return is claimed to be due to want of care on the part of the assessee and there is no reasonable explanation forthcoming from the assessee for such want of care, the Court may, in a given case, infer deliberation and the return may be liable to be branded as a false return. But where the assessee does not include a particular item in the taxable turnover under a bona fide belief that he is not liable so to include it, it would not be right to condemn the return as a 'false' return inviting imposition of penalty.
14. The penal provision of Section 43 of the Sales-tax Act requires that assessee should have filed a 'false' return and a return cannot be said to be false unless there is an element of deliberateness in it. Provisions of Section 276C of the Act say that if a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable under this Act, he shall be punished. Therefore a wilful act or deliberate act is the essential element for the offence under Section 276C of the Act also and so the above judgment which was pertaining to Sales tax Act can also be looked into for assessing wilful act or mens xea in the facts of the present case.
15. A bare reading of the return filed by the applicants clearly shows that there was no deliberate attempt on the part of applicants to conceal any income. On the contrary, the income which was detected as balance sheet difference was shown by them, as such, in Part III of the return, showing their bona fide intention that the information was furnished by them to the IT Department for the purpose of assessment. The assessment of income-tax was done accordingly by the Department, and as there was no wilful act to conceal any income so the act of the applicant does not come under the provision of Section 276C of the Act. It also appears that there is nothing to infer that there was any false statement in the return filed by the applicants.
16. The two Courts below have failed to consider the effect of introduction of provisions of Section 278B w.e.f. 1st Oct., 1975 and the effect of mentioning the balance sheet difference as goodwill income in part III of the return submitted by the applicant. As they have not appreciated the facts of the case and evidence available on record correctly so findings have become erroneous which are liable to be quashed.
17. Consequently, the revision succeeds and is allowed. The judgments passed by two Courts below are set aside and the applicants are acquitted from the charge of the offences punishable under Sections 276C and 277 read with Section 278B of the IT Act. The amount of fine if deposited by the applicant, be returned to them.