Shamrao Bhagwantrao Deshmukh vs Dominion Of India

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 11 November 1954

Coram: Mehr Chand Mahajan

In this case, the Court observed that the appeal concerned a judgment and decree dated 28 February 1945 issued by the High Court of Nagpur, which had affirmed the dismissal of a suit by the First Additional District Judge, Nagpur, on 30 June 1938. Leave to appeal to this Court was granted on 23 February 1951. The factual background leading to the appeal was set out as follows. The deceased P B Deshmukh, now represented on record by his legal representatives, and his cousin S B Deshmukh were members of a joint Hindu family, the former acting as the manager of the family. For the purpose of managing the family business, S B Deshmukh operated money‑ending shops located at Kelod and Rejegaon, while P B Deshmukh operated a shop at Badegaon. On 1 April 1930, the Income‑Tax Officer of Nagpur issued a notice under section 22, sub‑section (2) of the Income‑Tax Act demanding a return of the total income of the joint family for the assessment year 1928‑29. Subsequently, on 3 July 1930, M K Hirde, who possessed a general power of attorney from the two cousins, filed the required return, which he signed and verified in his capacity as their agent.

Pursuant to a further notice issued under section 23 (2) by the Income‑Tax Officer, the account books of the firm for the period 1924‑29 were produced, and on 23 November 1930 P B Deshmukh was examined on oath concerning certain omissions in the return. During that examination, P B Deshmukh explained that an omitted item amounting to Rs 7,231 represented an advance from his own personal funds and therefore did not belong to the joint family. He further stated that other omitted items, constituting repayments of Rs 30,477 by debtors, were the result of a mistake made by his former agent, Raghunath Choudhary, who had been dismissed since 1929. The Income‑Tax Officer found these explanations unsatisfactory, recommended prosecution of P B Deshmukh, and the Assistant Commissioner of Income‑Tax issued a notice requiring him to show cause why prosecution for the alleged omissions should not be sanctioned.

The Assistant Commissioner examined P B Deshmukh on 13 December 1930, at which time the latter admitted that he had concealed income exceeding Rs 30,000. He was informed that prosecution would be pursued under section 52 of the Act. During the subsequent discussion, P B Deshmukh proposed that the alleged offence be compounded pursuant to section 53 by paying Rs 30,000 to the tax authorities, a proposal that the Assistant Commissioner accepted. The agreed sum was paid in two instalments, and the matter was thereafter closed. In January 1934, the two cousins instituted a suit seeking recovery of Rs 30,000 together with interest of Rs 5,331‑1‑3, filing the claim against the Secretary of State for India in Council. The suit alleged that the statement of P B Deshmukh recorded on 13 December 1930 had been incorrectly documented, that the payment of Rs 30,000 had been extorted under threat of unlawful legal proceedings, and that no offence had been committed. The defendants contended that both statements dated 23 November and 13 December 1930 were correctly recorded, that the proposal to compound the offence originated from P B Deshmukh himself after consulting counsel, and that no coercion was involved. They further asserted that the agent, empowered by a general power of attorney, was fully competent to act for the manager and was aware of the omissions. The trial court consequently framed issues embodying the controversy between the parties.

The suit was filed by the Secretary of State for India in Council, alleging that the statement made by P B Deshmukh on 13 December 1930 had been recorded incorrectly and that the sum of Rs 30,000 had been obtained from him by means of a threat of legal proceedings that were without jurisdiction, contending that he had committed no offence. The plaintiff reiterated the plea that the omission in the tax returns was the result of a mistake made by the agent.

The defence argued that both statements of P B Deshmukh, dated 23 November and 13 December 1930, had been correctly recorded. It was asserted that the proposal to compound the alleged offence by paying Rs 30,000 originated with P B Deshmukh himself after he had consulted his counsel, and that no coercion had been exercised upon him in arriving at that composition. The defence further maintained that the agent, who possessed a general power of attorney from P B Deshmukh, was fully competent to act as manager on his behalf and that the agent was fully aware of the omissions in the returns.

The trial Court framed the issues encapsulating the controversy between the parties and, after a careful consideration of the whole evidence, held that the statements made by P B Deshmukh before the Income‑Tax authority accurately reflected the facts and that he had voluntarily offered to pay Rs 30,000, thereby acknowledging his own mistakes. The Court found that P B Deshmukh had not been compelled to accept the composition of the offence and that the claim arose from legal advice rather than from a person forced to pay under a threat of prosecution. The Court also held that the agent, empowered by the general power of attorney, was competent to sign and verify the income‑tax returns and that P B Deshmukh remained liable to prosecution under section 107 read with section 177 of the Indian Penal Code. On the basis of these findings, the trial Court dismissed the claim.

On appeal, the High Court upheld the finding that the two statements of 23 November and 13 December 1930 were authentic records of P B Deshmukh’s declarations. The High Court observed that P B Deshmukh was an experienced businessman and an honorary magistrate who had voluntarily offered to compound the offence after consulting his legal adviser, fully aware that he was at fault and liable to be prosecuted under section 52 of the Act. The Court further found that he apprehended a probable conviction and sentencing, and that this apprehension prompted his admission of guilt and his voluntary payment of Rs 30,000 as a composition fee. The High Court concluded that P B Deshmukh was bound by the actions of his agent and was liable under section 52, even if his liability might be characterised merely as that of an abettor.

In this case the Court observed that the question of whether the matter should be determined by the criminal court belonged to that court, and consequently the appeal was dismissed.

The Courts below had arrived at concurrent findings of fact, and no question of law arose from those findings; nevertheless the appellant relied on the authority of Commissioner of Agricultural Income‑tax, Bengal v. Shri Keshab Chandra Mandal to argue that an income‑tax return must be signed personally by the taxpayer and not by an agent even where a power of attorney exists, and further contended that P B Deshmukh could not be held liable for the act of his agent nor prosecuted for a false statement in the return under section 52 of the Income‑Tax Act.

The Court rejected that contention, holding that the argument had no force; it explained that section 53 provides that a person shall not be proceeded against for an offence under section 51 or section 52 except at the instance of the Inspecting Assistant Commissioner, and that the Assistant Commissioner may, before or after the institution of proceedings, compound any such offence.

The provision does not require proof that the offence was actually committed before a compounding is permissible; therefore any proceeding on a charge under section 51 or section 52 falls within the scope of section 53, and a compounding of the offence is fully authorized by that section.

The Court noted that P B Deshmukh, anxious to avoid liability for prosecution, voluntarily offered to compound the offence, an offer which the Assistant Commissioner of Income‑tax was fully competent to accept under section 53 of the Act, and that the offer was made to avert the disgrace and ignominy of a prosecution.

Even assuming, for the sake of argument, that P B Deshmukh was not liable to be prosecuted under section 52 because the verification was made by his agent and not by him personally, and even assuming that no return had been filed by him under section 22 of the Income‑Tax Act, the Court held that his liability under section 51(c) for failing without reasonable cause or excuse to furnish, in due time, any of the returns mentioned in section 22(2) would nevertheless remain unaffected.

The Court further explained that whether liability arose under section 51 for failure to furnish the return as required by section 51(c) or under section 52 for making a false statement in the return made no difference to the Assistant Commissioner’s authority to permit composition of the offence under section 53, which covers both offences.

Consequently there was no doubt that P B Deshmukh could be prosecuted either under section 51(c) or section 52, and even if the Income‑tax authorities had prosecuted him only under section 52, nothing prevented the Court from altering the charge to one under section 51(c) if it deemed appropriate.

On these grounds the Court found no substance in the appeal, dismissed it with costs, and entered the final order that the appeal was dismissed.