1992-VIL-54-SC-DT

Equivalent Citation: 1992 AIR 1831, 1992 (3) SCC 178, [1992] 197 ITR 196 (SC)

Supreme Court of India

Criminal appeal No. 631 and 632 of 1990

Date: 28.04.1992

KTMS MOHAMMED AND ANOTHER

Vs

UNION OF INDIA

BENCH

S. RATNAVEL PANDIAN., M. FATHIMA BEEVI.

JUDGMENT

The judgment of the court was delivered by

S. RATNAVEL PANDIAN J. - Criminal Appeal No. 631 of 1990 is directed by the two appellants, namely, K. T. M. S. Mohammed and M. Jamal Mohammed and Criminal Appeal No. 632 of 1990 is directed by Amanullah Quareshi. All the three appellants are challenging the correctness of the common order made by the High Court of Madras in Criminal Revision Cases Nos. 229 of 1981 and 239 of 1981, respectively dismissing the revisions and confirming the judgment of the lower appellate court made in Criminal Appeals Nos. 221 and 222 of 1980, which in turn affirmed the judgment of the trial court convicting and sentencing the appellants under the provisions of the Indian Penal Code and the Income-tax Act.

The facts leading to the prosecution case are well set out in the judgments of the courts below. Nevertheless, we think it necessary to recapitulate the basic matrix, though not in detail, in order to enable us to give our own reasons for the findings which we will be arriving at.

The first appellant who is the brother-in-law of the second appellant, received cash of Rs. 6 lakhs, brought by a person from Bombay for distributing the said amount to various persons as per instructions received from a person at Singapore. While he was engaged in the said illegal transaction, the Enforcement Directorate, Madras, raided his premises at No. 34, Appu Maistry Street, Madras-1, on October 19, 1966, and recovered a sum of Rs. 4,28,713 and certain documents in coded language relating to the disbursement of the cash. After the search, the first appellant, K. T. M. S. Mohammed, was interrogated by Shri Amritalingam, Enforcement Officer of Madras (PW-4) and the second appellant, Jamal Mohammed, was interrogated by Shri Panchaksharam, Enforcement Officer on October 19, 1966, and their statements were recorded under exhibits P-39 and P-40. The first appellant under exhibit P-39 has admitted that he received a sum of Rs. 6 lakhs from a person of Bombay on the previous day for being disbursed to various parties, and that Rs. 50,000 and Rs. 48,000 were paid to one Bhaskaran alias Kannan and Angappan of Sarathy and Co., respectively, and the amounts were disbursed on receipt of instructions from one Gopal of Singapore whose full address he did not know. The second appellant, in his statement, exhibit P-40 has admitted the receipt of the amount by the first appellant and the disbursement of Rs. 50,000 to -Bhaskaran and Rs. 40,000 to Angappan as instructed by the first appellant in compliance with the instructions received from Singapore.

The Enforcement Officers conducted a further search at the premises of Sarathy and Co. and discovered a cash amount of Rs. 48,100 and three bank drafts. Angappan, when examined, admitted the receipt of Rs. 49,000 for being disbursed as per the details given in certain sheets of paper available with him.

On October 20, 1966, both the appellants sent their retraction to the Deputy Director of Enforcement Directorate through their advocate stating that their statements recorded under exhibits P-39 and P-40 on October 19, 1966, were not voluntary statements but obtained under threat and force and the facts stated therein were not correct.

While it was so, the Income-tax Officer, Karaikudi, (PW-1) on coming to know about the raid, issued summons to the first appellant who was then an assessee within his jurisdiction and recorded a statement, exhibit P-3, from him on November 16, 1966. The first appellant denied having any connection with the cash of Rs. 4,28,718 said to have been recovered from his premises and reiterated that the statement before the Enforcement Officers was taken from him under force. The second appellant also gave a similar statement under exhibit P-73 on January 11, 1974, before PW-8 when examined after eight years. The appellant in Criminal Appeal No. 632 of 1990, namely, Amanullah who was arrayed as accused No. 3 (hereinafter referred as " third appellant ") sent a letter under exhibit P-41, dated November 4, 1966, to the Enforcement Officers claiming the money seized as belonging to him and explaining that he was negotiating with some film producers for financing film production and the seized amount included a sum of Rs. 2,79,000 being the sale proceeds of his mother's jewels and Rs. 70,000 being his father's money and, therefore, the said amount should be returned to him. Thereafter, the third appellant gave a statement before the Enforcement Officers on December 22, 1966, reiterating what he had stated in his letter dated November 4, 1966.

In view of the subsequent developments, proceedings were initiated against the third appellant under the provisions of the Income-tax Act. The third appellant submitted his return of income for the years 1967-68 to the Income-tax Officer accompanied by statements showing the business income at Rs. 4,000 and stating that a sum of Rs. 2,79,000 was realised by him by sale of rubies and jewels belonging to his mother, Smt. A. M. Safia, who was arrayed as accused No. 4 in the complaint. PW-8, on enquiry, found that the third appellant was not in affluent position and as such he could not have accumulated such huge sum and that his statement about the sale of the family jewels was false.

After-rejecting the claim of the third appellant, the amount of Rs. 6 lakhs said to have been received by the first appellant has been treated as the income of the first appellant from some undisclosed sources and the first appellant was assessed under the relevant provisions of the Income-tax Act. According to the complainant, all the appellants have conspired together to give false evidence at all stages of the proceedings under the Income-tax Act and to fabricate false evidence intending that the same might cause the Income-tax Officer to arrive at an erroneous opinion touching the nature and source of the sum of Rs. 4,28,713 which is alleged to have been recovered from the first appellant and that all the appellants thereby have committed the offences punishable under section 120B, Indian Penal Code read with section 193, Indian Penal Code, under section 120B read with section 277 of the Income-tax Act and under section 193 (simpliciter) of the Indian Penal Code and in addition the appellants Nos. 1 and 3 were indicted under section 277 (simpliciter) of the Income-tax Act.

On the above allegations, the Income-tax Officer, Central Circle XIV, Madras, filed a criminal complaint before the Chief Judicial Magistrate, Egmore, in C. C. No. 356 of 1977 on his file which proceedings have culminated in these appeals.

Be that as it may, we would like to refer to certain proceedings before the income-tax authorities which are very much relevant for the disposal of these appeals.

The Income-tax Officer, on the basis of the statement of the first appellant given before the Enforcement Authorities, found that the amount of Rs. 6 lakhs was income from other sources of the assessee (the first appellant) and that the explanation given by him was not satisfactory and included that amount in his taxable income. The Appellate Assistant Commissioner agreed with the Income-tax Officer but the Income-tax Appellate Tribunal held that the Department had not brought any material to show that the assessee was the owner of the money in question and that the evidence only indicated that the assessee had been engaged for disbursing the money not belonging to him but belonging to a third party. On the above finding, the Tribunal set aside the assessment order and referred the case back to the Income-tax Officer to make a fresh assessment. But the Income-tax Officer again made the same type of assessment. The first appellant took his statutory appeals under the Act and ultimately went before the Tribunal once again which, by its order dated May 12, 1980, allowed the appeal of the assessee, namely, the first appellant, and dismissed the cross-objection of the Department. In the meantime, the criminal proceedings against these three appellants were initiated in January, 1977. To substantiate the case, the prosecution examined 12 witnesses and marked exhibits P-1 to P-87. The appellants did not examine any witness but filed exhibits D-1 to D-4. The trial court, accepting the evidence adduced by the prosecution, convicted and sentenced the appellants by its judgment which was confirmed in C.A. Nos. 221 and 222 of 1980, on the file of the Fifth Additional judge, Madras. In the result, the three appellants stood convicted under sections 120B read with section 193, Indian Penal Code and section 277 of the Income-tax Act besides under section 193, Indian Penal Code, and appellants Nos. 1 and 3 separately under section 277 of the Income-tax Act. But, coming to the question of sentence, the trial court, taking into consideration the fact that the appellants were detained under the COFEPOSA Act in respect of the amount seized and they have also undergone the ordeal of enquiries and trial for a considerable length of time, sentenced each of them to undergo imprisonment till the rising of the court for each of the offences and to pay a total fine of Rs. 2,000, Rs. 600 and Rs. 1,500, respectively, with a default clause.

Being aggrieved by the judgment of the first appellate court confirming the judgment of the trial court, two revisions were filed before the High Court as aforementioned. The High Court, for the reasons mentioned in its order, confirmed the judgment of the first appellate court and dismissed the revisions. Hence, these two appeals.

Mr. A. T. M. Sampath, learned counsel appearing on behalf of the appellants, assailed the impugned order of the High Court raising multiple questions of law the core of which is formulated hereunder :

1. The evidence both oral and documentary-produced by the complainant does not constitute the requisite ingredients to make out case punishable under the charges levelled against all the three appellants.

2. In view of the specific findings of the Income-tax Appellate Tribunal in its order exhibit D-4 (enclosed as annexure 'J' to the appeal papers) that the assessee is not the owner of the money seized, that " any other conclusion of ownership will only be perverse and uncalled for and " so section 69A of the Income-tax Act has no application to the facts of the case ", appellants Nos. 1 and 2, on the basis of exhibits P-39 and P-40, cannot be held to have intentionally resiled from their earlier stand when subsequently examined by the income-tax authorities thereby making themselves liable to be punished under section 193, Indian Penal Code, for perjury and under section 277 of the Income-tax Act for making false statements in verification.

3. The accusation made in the notice issued to the first appellant dated May 8, 1970, by the Income-tax Officer, Karaikudi, stating " On October 19, 1966, you have admitted in your statement before the Enforcement Directorate that the amount belongs to you. Subsequently, on February 28, 1967, you have sent a letter to this office wherein you had denied ownership of the amount above " is factually incorrect because, at no point of time, the first appellant as pointed out by the Income-tax Appellate Tribunal had admitted the ownership of the amount. Therefore, the very basis of the notice for launching the prosecution under sections 193, Indian Penal Code, and 277 of the Income-tax Act is absolutely unsustainable.

4. The statements recorded from appellants Nos. 1 and 2 under exhibits P-39 and P-40 by the Officers of the Enforcement Directorate fall only within the meaning of section 39 of the Foreign Exchange Regulation Act and those statements, therefore, cannot be made use of for initiating a criminal case of perjury in the absence of any legal fiction bringing the investigation or proceedings as a judicial proceeding within the meaning of sections 193 and 228, Indian Penal Code, as contemplated under section 40(4) of the Foreign Exchange Regulation Act.

5. The Income-tax Officer, in exercise of his power under section 136 of the Income-tax Act, cannot make use of the statements recorded by the Enforcement Directorate (an independent authority) under the provisions of the special Act, namely, the Foreign Exchange Regulation Act, for prosecuting the deponents of those statements in a separate and independent proceeding under another special Act, namely, the Income-tax Act, on the ground that the deponents have retracted their statements given before the authorities of the Enforcement Directorate.

6. If any criminal proceeding is initiated under the Foreign Exchange Regulation Act, against appellants Nos. 1 and 2 on the strength of their statements, exhibits P-39 and P-40, recorded under section 39 of the Foreign Exchange Regulation Act, the appellants herein would partake of the character of an accused or become an accused of an indictable offence, and, therefore, on a mere denial, normally, the appellants should not be subjected to face the grave charge of perjury, unless such a serious action is warranted.

7. The third appellant cannot be held to have committed the offences charged merely because he has failed to establish his consistent rightful claim for the amount of Rs. 4,28,713 as being the sale proceeds of his mother's Jewels.

8. The courts below ought to have seen that exhibit P-18, the income-tax return filed by the third appellant, was accepted on enquiry and, though reopened belatedly, it still stands incomplete in spite of several years.

9. The evidence available on record is not sufficient to put the third appellant to a joint trial along with appellants Nos. 1 and 2 under the conspiracy charge as well as for recording the conviction under sections 193, Indian Penal Code and 277 of the Income-tax Act especially when the third appellant has consistently taken an uniform stand and when it is not the case of the Department that the amount of Rs. 4,28,713 was a taxable amount in the hands of the third appellant.

10. The cognizance of the offence under sections 120B read with section 193 and section 193 (simpliciter) was taken beyond the period of limitation prescribed under section 468 of the Code of Criminal Procedure.

Before pondering over the above contentions, we would like to make a reference to certain salient facts for a proper understanding and appreciation of the issues involved.

The Officers of the Enforcement Directorate conducted the raid and seized the amount on October 19, 1966, on which day itself the statements under exhibits P-39 and P-40 were recorded from appellants Nos. and 2 by the Officers of the Enforcement Directorate. On the very next day, i.e., on October 20, 1966, both the appellants sent their retraction to the Director of Enforcement through their advocate stating that the statements were involuntary and bereft of truth. While it was so, the Income-tax Officer of Karaikudi recorded the statement of the first appellant on November 16, 1966. Meanwhile, the third appellant sent letter to the Enforcement Officers claiming that he was the owner of the said amount of Rs. 4,28,713 and asked for the return of the same. On December 22, 1966, the third appellant gave a statement before the Enforcement Officers explaining how the said amount came into his possession. But that explanation was not accepted. In view of the above developments, proceedings were taken against the third appellant under the provisions of the Income-tax Act. The third-appellant, on March 1, 1967, submitted his return of income dated February 27, 1967, for the assessment year 1967-68 accompanied by a statement showing the business income at Rs. 4,000. The fourth accused before the trial court who died during the proceedings gave a sworn statement on May 2, 1967, before the Income-tax Officer stating that she gave a cash amount of Rs. 70,000 to the third appellant and also one necklace studded with red stones and two bangles studded with blue stones besides some ornaments. The statement of the fourth accused was also not accepted. The fifth accused (since acquitted) gave a statement on August 11, 1970, before the Income-tax Officer denying the receipt of any amount from the appellants Nos. 1 and 2 on October 18, 1966. Thereafter, appellants Nos. 1 and 3 gave separate statements on February 27, 1971, and November 4, 1971, respectively. The second appellant gave his statement before the Incometax Officer on January 11, 1974, repudiating his earlier statement dated October 19, 1966 (exhibit P-40) and stated that the said statement was obtained under duress. On the basis of the above statements and subsequent correspondence, it is stated that appellants Nos. 1 to 3 and accused No. 5 have committed the offences punishable under section 120B read with section 193, Indian Penal Code, and section 120B, Indian Penal Code, read with section 277 of the Income-tax Act.

The trial court, after having considered the allegations of the complaint, indicted the accused inclusive of the appellants thus:

The first and second appellants wilfully caused the advocate's letter dated October 20, 1966, with a false statement ; that they thereafter gave separate statements dated November 16, 1966, and January 11, 1974, respectively, before the Income-tax Officer repudiating their earlier statements given before the Enforcement Officers and that they thereby have committed an offence punishable under section 193, Indian Penal Code. Similarly, the third appellant not only by fabricating a letter dated November 4, 1966, but also by filing a false affidavit dated March 23, 1967, and thereafter by making a false statement before the Income-tax Officer on November 4, 1971, has made himself liable to be punished under section 193, Indian Penal Code. In addition, accused No. 1 has committed an offence under section 277 of the Income-tax Act by delivering a letter to the Income-tax Officer on February 27, 1971, containing a false statement that his statement under exhibit P-39 was not true and obtained under duress. Accused No. 3 has also committed a similar offence under section 277 of the Income-tax Act by wilfully delivering to the Incometax Officer a false statement dated March 1, 1967, claiming the amount of Rs. 4,28,713 as belonging to him. Accused No. 5 has made himself liable for the offence under section 277 by delivering a false statement to the Income-tax Officer on August 11, 1970, denying the receipt of sum of Rs. 50,000 on October 18, 1966.

Be that as it may, a perusal of the entire records shows that the gist of the allegations levelled against these appellants is that appellant No. 1 disowned his ownership of the amount contrary to the version in exhibit P-39 and appellant No. 2 has repudiated the statement given tinder exhibit P-40 and that appellant No. 3 made a false claim and that, thus, all the three appellants did so only in pursuance of a conspiracy.

Though a specific ground is taken in the grounds of appeal that exhibits P-39 and P-40 are clearly relatable to the provisions of section 39 of the Foreign Exchange Regulation Act and that no other statement was taken on oath, the respondent, namely, the Union of India, represented by the Commissioner of Income-tax, Central Circle, Madras, has not filed any counter denying that plea. Therefore, we are constrained to hold that exhibits P-39 and P-40 were recorded by the Officers of the Enforcement Directorate in exercise of the power conferred under section 39 of the Act.

Section 39 of the Foreign Exchange Regulation Act empowers the Director of Enforcement or any other Officer of the Enforcement Directorate authorised by the Central Government in this behalf, (i) to require any person to produce or deliver any document relevant to the investigation or proceeding, and (ii) to examine any person acquainted with the facts and circumstances of the case. Section 40 of the Foreign Exchange Regulation Act qualifies the officers stating that the Officer of the Enforcement Directorate empowered to summon any person to give evidence and produce documents must be a gazetted officer.

The exercise of the power under section 40 of the Foreign Exchange Regulation Act to summon persons to give evidence and produce documents must satisfy the condition that the officer acting under that section should be a Gazetted Officer of the Enforcement Directorate which is similar to section 108 of the Customs Act. That is so because every person summoned by a Gazetted Officer of the Enforcement Directorate to make a statement under sub-section (1) of section 40 is under a compulsion to state the truth on pain of facing prosecution in view of sub-section (4) thereof. In other words, if the officer exercising the powers under section 40 is not clothed with the insignia of a gazetted post, there is no sanctity attached to the statements recorded under section 40(1) of the Foreign Exchange Regulation Act.

This court in Pushpadevi M. Jatia v. M. L. Wadhavan [1988] 64 Comp Cas 228, 244 ; [1987] 3 SCC 367, while dealing with the intent of section 40 of the Foreign Exchange Regulation Act held as follows (at page 386):

"All that is required by section 40(1) of the FERA is that such Officer recording the statement must be holding a gazetted post of an Officer of Enforcement, in contradistinction to that of an Assistant Officer of Enforcement which is a non-gazetted post....

In our opinion, the expression 'Gazetted Officer of Enforcement' appearing in section 40(1) must take its colour from the context in which it appears and it means any person appointed to be an Officer of Enforcement under section 4 holding a gazetted post".

Every investigation or proceeding under section 40 is deemed to be a judicial proceeding by a legal fiction embodied in sub-section (4) of that section though the proceedings are neither in nor before any court at that stage. But, there is no such deeming provision under section 39 of the Foreign Exchange Regulation Act bringing every investigation or proceeding in its ambit as " a judicial proceeding " within the meaning of sections 193 and 228 of the Indian Penal Code. When it is so, as rightly pointed out by Mr. A.T.M. Sampath, the statements recorded under exhibits P-39 and P-40 cannot be treated as having been recorded in " a judicial proceeding " so as to make use of them as the basis for fastening the makers of those statements with the criminality of the offences under section 193 and/or section 228 of the Indian Penal Code on the ground that the deponents of those statements have retracted from their earlier statements in a subsequent proceeding which is deemed to be " a judicial proceeding".

It is pertinent to note in this connection that, in the manner of recording a statement under section 40 of the Foreign Exchange Regulation Act, there are no safeguards as in the case of recording a statement of an accused under section 164 of the Criminal Procedure Code by magistrate. Nevertheless, before receiving that statement in evidence and making use of the same against the maker, it must be scrutinised to find out whether that statement was made or obtained under inducement, coercion, threat, promise or by any other improper means or whether it was voluntarily made. There are a catena of decisions of this court that the statements obtained from persons under the provisions of the Foreign Exchange Regulation Act or the Customs Act should not be tainted with any illegality and they must be free from any vice. In the present case, we have to hold as pointed out ibid that the statements under exhibits P-39 and P-40 were recorded only under section 39 but not under section 40 of the Foreign Exchange Regulation Act.

Needless to emphasise that the Foreign Exchange Regulation Act and the Income-tax Act are two separate and independent special Acts operating in two different fields.

This court in Rao Bahadur Ravulu Subba Rao v. CIT [1956] 30 ITR 163 ; AIR 1956 SC 604 ; [1956] SCR 577 (headnote of 30 ITR 163) has pointed out :

"The Indian Income-tax Act is a self-contained code exhaustive of the matters dealt with therein, and its provisions show an intention to depart from the common rule, qui facit per alium facit per se. "

Further, in Pannalal Binjraj v. Union of India [1957] 31 ITR 565 AIR 1957 SC 397 ; [1957] SCR 233, it has been observed thus (at pages 583, 584 of 31 ITR) :

" It has to be remembered that the purpose of the Act is to levy income-tax, assess and collect the same. The preamble of the Act does not say so in terms, it being an Act to consolidate and amend the law relating to income-tax and super tax but that is the purpose of the Act, as disclosed in the preamble to the first Indian Income-tax Act of 1886 (Act II of 1886). It follows, therefore, that all the provisions contained in the Act have been designed with the object of achieving that purpose. "

Coming to the Foreign Exchange Regulation Act, it is a special law which prescribes a special procedure for investigation of breaches of foreign exchange regulations. Vide Shanti Prasad Jain v. Director of Enforcement [1963] 33 Comp Cas 231 ; [1963] 2 SCR 297. The proceedings under the Foreign Exchange Regulation Act are quasi-criminal in character. It is pellucid that the ambit, scope and intendment of these two Acts are entirely different and dissimilar.

Therefore, the significance of a statement recorded under the provisions of the Foreign Exchange Regulation Act during the investigation or a proceeding under the said Act so as to bring them within the meaning of a judicial proceeding must be examined only qua the provisions of the Foreign Exchange Regulation Act but not with reference to the provisions of any other alien Act or Acts such as the Income-tax Act.

If it is to be approved and held that the authorities under the Incometax Act can launch a prosecution for perjury on the basis of a statement recorded by the Enforcement Officer, then, on the same analogy, the Enforcement Authority can also, in a given situation, launch a prosecution for perjury on the basis of any inculpatory statement recorded by the Income-tax Authority, if repudiated subsequently before the Enforcement Authority. In our opinion, such a course cannot be and should not be legally, permitted.

Even if the Officers of the Enforcement Directorate intend to take action against the deponent of a statement on the basis of his inculpatory statement which has been subsequently repudiated, the officer concerned must take both the statements together, give a finding about the nature of the repudiation and then act upon the earlier inculpatory one. If, on the other hand, the officer concerned bisects the two statements and makes use of the inculpatory statement alone conveniently bypassing the other, such a stand cannot be legally permissible because the admissibility, reliability and the evidentiary value of the inculpatory statement would depend on the bench mark of the provisions of the Evidence Act and the general criminal law.

Next shall we pass on to examine the admissibility and evidentiary value of a statement recorded by an Enforcement, authority in exercise of his power as in the case of a customs officer.

This court in Soni Vallabhdas Liladhar v. Asst. Collector of Customs, AIR 1965 SC 481 ; [1965] 3 SCR 854, while dealing with the question of admissibility of the statements made before the Customs Officers held, " Section 24 would, however, apply, for, customs authorities must be taken to be persons in authority and the statements would be inadmissible in a criminal trial if it is proved that they were caused by 'inducement, threat or promise ". In a subsequent decision, Percy Rustomji Basta v. State a Maharashtra, AIR 1971 SC 1087, 1093 ; [1971] (Suppl.) SCR 35, wherein this court, while answering a question as to whether section 24 of the Evidence Act is or is not a bar to the admissibility in evidence of a statement made by a person to the Customs Officers in an enquiry under section 108 of the Customs Act, held, " In order to attract the bar, it has to be such an inducement, threat or promise which should lead the accused to suppose that by making it, he would gain any advantage or avoid any evil of temporal nature in reference to the proceedings against him".

We think it is not necessary to recapitulate and recite all the decisions on this legal aspect. But suffice it to say that the core of all the decisions of this court is to the effect that the voluntary nature of any statement made either before the Customs Authorities or the officers of Enforcement Directorate under the relevant provisions of the respective Acts is a sine qua non to act on it for any purpose and, if the statement appears to have been obtained by any inducement, threat, coercion or by any improper means, that statement must be rejected brevi manu. At the same time, it is to be noted that, merely because a statement is retracted, it cannot be recorded as involuntary or unlawfully obtained. It is only for the maker of the statement who alleges inducement, threat, promise, etc. to establish that such improper means have been adopted. However, even if the maker of the statement fails to establish his allegations of inducement, threat, etc. against the officer who recorded the statement, the authority, while acting on the inculpatory statement of the maker, is not completely relieved of his obligation at least subjectively to apply its mind to the subsequent retraction to hold that the inculpatory statement was not extorted. It thus boils down to this that the authority or any court intending to act upon the inculpatory statement as a voluntary one should apply its mind to the retraction and reject the same in writing. It is only on this principle of law that this court, in several decisions, has ruled that, even in passing a detention order on the basis of an inculpatory statement of a detenu who has violated the provisions of the Foreign Exchange Regulation Act or the Customs Act, etc., the detaining authority should consider the subsequent retraction and record its opinion before accepting the inculpatory statement lest the order be vitiated. Reference may be made to a decision of the Full Bench of the Madras High Court in Roshan Beevi v. Joint Secretary to the Government of Tamil Nadu, Public Deptt. etc. [1983] Mad LW (Crl.) 289 ; [1984] 15 ELT 289, AIR 1984 NOC 103, to which one of us (S. Ratnavel Pandian, J.) was a party.

In this context, reference may be made to section 340 of the Code of Criminal Procedure under Chapter XXVI under the heading " Provisions as to offences affecting the administration of justice ". This section confers an inherent power on a court to make a complaint in respect of an offence committed in or in relation to a proceeding in that court, or as the case may be, in respect of a document produced or given in evidence in a proceeding in that court, if that court is of opinion that it is expedient in the interest of justice that an enquiry should be made into an offence referred to in clause (b) of sub-section (1) of section 195 and authorises such court to hold a preliminary enquiry as it thinks necessary and then make a complaint thereof in writing after recording finding to that effect as contemplated under sub-section (1) of section 340. The words "in or in relation to a proceeding in that court" show that the court which can take action under this section is only the court operating within the definition of section 195(3) before which or in relation to which proceeding the offence has been committed. There is a word of caution inbuilt in that provision itself that the action to be taken should be expedient in the interest of justice. Therefore, it is incumbent that the power given by this section 340 of the Code should be used with utmost care and after due consideration. The scope of section 340(1) which corresponds to section 476(1) of the old Code was examined by this court in K. Karunakaran v. T. V. Eachara Warrier [1978] 1 SCC 18, AIR 1978 SC 290, 295, and in that decision, it was observed:

"At an enquiry held by the court under section 340(1) of the Criminal Procedure Code, irrespective of the result of the main case, the only question is whether a prima facie case is made out which, if unrebutted, may have a reasonable likelihood to establish the specified offence and Whether it is also expedient in the interest of justice to take such action . . . .

The two pre-conditions are that the materials produced before the High Court make out a prima facie case for a complaint and secondly, that it is expedient in the interest of justice to permit the prosecution under section 193, Indian Penal Code. "

The above provisions of section 340 of the Code of Criminal Procedure are alluded to only for the purpose of showing that necessary care and caution are to be taken before initiating a criminal proceeding for perjury against the deponent of contradictory statements in a judicial proceeding.

The mere fact that a deponent has made contradictory statements at two different stages in a judicial proceeding is not by itself always sufficient to justify a prosecution for perjury under section 193 of the Indian Penal Code, but it must be established that the deponent has intentionally given a false statement at any stage of the " judicial proceeding " or fabricated false evidence for the purpose of being used at any stage of the judicial proceeding. Further, such a prosecution for perjury should be taken only if it is expedient in the interest of justice.

From the facts of the present case, when examined in the light of the above proposition of law, it can be safely concluded that the statements, exhibits P-39 and P-40, were recorded only in exercise of the powers under section 39 of the Act and that the prosecution has not established that those statements were recorded by any Gazetted Officer of the Enforcement Directorate under the provisions of section 40 of the Foreign Exchange Regulation Act, 1973, for bringing them within the meaning of "judicial proceeding". Even assuming for the sake of argument that those statements fall within the mischief of section 40 of the Foreign Exchange Regulation Act, 1973, there is absolutely nothing on record to show that either the sanctioning authority or the prosecuting authority applied its mind even subjectively and found that appellants Nos. 1 and 2 gave their earlier inculpatory statements voluntarily and not under any inducement, coercion, threat or promise ; that the deponents have intentionally given a false statement before the Income-tax Officer at the subsequent stage within the ambit of section 193, Indian Penal Code, and that it was expedient in the interest of justice to initiate criminal proceedings for perjury.

The statements, exhibits P-39 and P-40, were recorded on October 19, 1966, from appellants Nos. 1 and 2 as repeatedly pointed out above only under the provisions of the Foreign Exchange Regulation Act, 1973. But the subsequent two statements recorded by the Income-tax Officer from the first and the second appellants on November 16, 1966, and January 11, 1974, respectively, were in exercise of the powers under the provisions of the, Income-tax Act, 1961. It is not the case of the prosecution that these two appellants gave any inculpatory statement before the Income-tax Officer and thereafter retracted. In fact, appellants Nos. 1 and 2 have retracted their earlier statements even on the very next day which retraction was not taken note of by the Income-tax Officer. On the other hand, the Income-tax Officer, Central Circle XIV, Madras, in his reply letter sent on March 8, 1972, addressed to the first appellant has stated as follows:

" The statement was made by you before the Income-tax Officer on November 16, 1966, that is long after the statement was made before the officer of the Enforcement Directorate, immediately after the seizure, and the statement was made before the Income-tax Officer to get over the difficult situation of having to explain the source for the sum of Rs. 6,00,000. "

The above statement unambiguously shows that the Income-tax Officer has not taken into consideration the letter of retraction sent by both the appellants through their lawyer even on October 20, 1966, alleging that " they were coerced to sign statements by using bodily force and threatening with causing injuries to them and they signed the statements fearing danger to their life and body ". It may be stated in this connection that only the Enforcement Officer, namely, Shri Amritalingam, who recorded the statement from the first appellant alone has been examined as PW-4 and the other Enforcement Officer, Shri Panchaksharam, who recorded the statement from the second appellant has neither been cited as a witness in the complaint nor appears to have been examined before the court.

Hence, for all the reasons stated supra, we hold that the convictions recorded by the courts below, under sections 120B read with section 193, Indian Penal Code and section 193 (simpliciter) as against appellants Nos. 1 and 2 cannot be sustained. It is very surprising and shocking to note that the complainant has stepped into the shoes of the Enforcement Directorate and appears to have assumed the authority under the Foreign Exchange Regulation Act, 1973, and levelled a charge stating that appellants Nos. and 2, by sending the letter of retraction on October 20, 1966, denying their earlier statements dated October 19, 1966, have made themselves liable to be convicted under section 193, Indian Penal Code (vide paragraph 25(i) of the complaint).

Still more shocking, the trial court has not only convicted appellants Nos. 1 and 2 for sending the letter of retraction dated October 20, 1966, but also found that the third appellant and accused Nos. 4 and 5 had been parties to a conspiracy for causing the letter dated October 20, 1966, to be sent to the Enforcement Directorate.

The next question for consideration relates to the prosecution under section 277 of the Income-tax Act, 1961.

In the notice issued by the Income-tax Officer, Karaikudi, dated May 8, 1970, asking the first appellant to appear before him, the Income-tax Officer stated as follows:

"Thus in your statement before the Enforcement Directorate you have owned the amount whereas before the income-tax authorities, you have denied ownership of the amount. "

It transpires from the notice that the consistent case of the prosecution is that the entire amount of Rs. 6 lakhs was owned by the first appellant and that the said amount was assessable in the hands of the first appellant as his income from other sources. The matter, as we have indicated earlier, came before the Tribunal twice. In the first instance, the Tribunal observed that the evidence indicated that the assessee had been engaged only in disbursing the money not belonging to him but belonging to some third party and, on that basis, the Tribunal set aside the assessment and referred the case back to the Income-tax Officer to make a fresh assessment. But the Income-tax Officer again made the same type of assessment which once again came before the Tribunal. It was under such circumstances that the Tribunal, by its order dated May 12, 1980, held as follows :

" But the error they committed was in thinking that the assessee is also not (sic) the owner of the money. The assessee has said that he is only a distributor of some others' money. This explanation is quite satisfactory. It is not a cock and bull story or of imagination. The only conclusion possible in the case is that the assessee is not the owner but only a person in possession of others' money and that he is only distributor of those amounts on commission basis. The possession of the assessee is certainly not as owner but only as a distributor of the money belonging to others. That conclusion is the only possible conclusion in the case. Any other conclusion of ownership by the assessee will only be perverse and uncalled for. So section 69A of the Income-tax Act, 1961, has no application to the facts of the case. The appeal of the assessee has to be allowed and cross-objections dismissed. "

This finding has not been challenged and it reached finality. A close reading of the order of the Tribunal shows that the first appellant has been exonerated completely from the specific case of the Income-tax Officer that he is the owner of the entire amount of Rs. 6 lakhs. Therefore, now the point that arises for consideration is whether the conviction recorded by the subordinate courts as affirmed by the High Court under section 120B read with section 277 and section 277 of the Income-tax Act, 1961, are or are not liable to be set aside in the light of the judgment of the Tribunal.

Mr. A. T. M. Sampath very strenuously contended that the convictions recorded by the subordinate courts as affirmed by the High Court under section 120B read with section 277 and section 277 of the Incometax Act, 1961, are liable to be set aside in view of the judgment of the Tribunal completely exonerating the appellants from the liability to income-tax. We shall examine this contention and dispose of the same on the ratio of the decisions of this court in P. Jayappan v. S. K. Perumal, First ITO [1984] 149 ITR 696 (SC) ; [1985] 1 SCR 536.

In that case, the following dictum has been laid down (at page 700):

" The criminal court no doubt has to give due regard to the result of any proceeding under the Act having a bearing on the question in issue and in an appropriate case, it may drop the proceedings in the light of an order passed under the Act. It does not, however, mean that the result of a proceeding under the Act would be binding on the criminal court. The criminal court has to judge the case independently on the evidence placed before it. "

In the penultimate paragraph of the same judgment, the following observation was made (at page 702)

"It may be that in an appropriate case, the criminal court may adjourn or postpone the hearing of a criminal case in exercise of its discretionary power under section 309 of the Code of Criminal Procedure, if the disposal of any proceeding under the Act which has a bearing on the proceedings before it is imminent so that it may take also into consideration the order to be passed therein. Even here the discretion should be exercised judicially and in such a way as not to frustrate the object of the criminal proceedings. There is no rigid rule which makes it necessary for a criminal court to adjourn or postpone the hearing of a case before it indefinitely or for an unduly long period only because some proceeding which may have some bearing on it is pending elsewhere. "

The above principle of law laid down by this court gives an indication that the result of the proceedings under the Income-tax Act, 1961, is one of the major factors to be considered and the resultant finding in the said proceeding will have some bearing in deciding the criminal prosecution in appropriate cases.

It may not be out of place to refer to an observation of this court in Uttam Chand v. ITO [1982] 133 ITR 909, wherein it was observed that the prosecution once initiated may be quashed in the light of a finding favourable to the assessee recorded by an authority under the Act subsequently in respect of the relevant assessment proceedings. But, in jayappan's case [1984] 149 ITR 696 (SC), it has been held that the decision in Uttam Chand's case [1982] 133 ITR 909, is not an authority for the proposition that no proceedings can be initiated at all under section 276C and section 277 as long as some proceeding under the Act in which there is a chance of success of the assessee is pending. Though, as held in jayappan's case [1984] 149 ITR 696 (SC), a criminal court has to judge the case before it independently on the materials placed before it, there is no legal bar in giving due regard to the result of the proceedings under the Income-tax Act, 1961.

In the present case, on two occasions, the Tribunal has held that the amount of Rs. 6 lakhs was not owned by the first appellant. In exhibit D-4, the Tribunal has further held that section 69A dealing with unexplained money, etc., has no application to the facts of the case. Taking this finding of the Tribunal into consideration, we are constrained to hold that the appellants cannot be held to be liable for punishment under section 120B read with section 277 and section 277 (simpliciter) of the Income-tax Act, 1961, as the very basis of the prosecution is completely nullified by the order of the Tribunal which fact can be given due regard in deciding the question of the criminal liability of appellants Nos. and 2.

Now, coming to the case of the third appellant, it is his specific case throughout that the entire amount of Rs. 4,28,712 belonged to him. It appears from paragraphs 70 and 71 of the judgment of the trial court that the third appellant filed a suit in O. S. No. 62 of 1971 on the original side of the High Court of Madras against the Enforcement Directorate claiming the said amount but that suit was dismissed. Exhibit P-87 is the certified copy of the judgment. While it was so, PW-2, who was then the Income-tax Officer, City Circle, Madras, during 1967-68 issued a letter dated February 2, 1967, enclosing a notice under section 139(2) of the Income-tax Act, 1961, and also another notice under sections 177 and 175 of the Act both relating to the assessment year 1967-68 which notices are marked as exhibits P-14 and P-15. He was further directed to file his return of income within a week of the receipt of exhibit P-15. The third appellant's plea for extension of time was rejected. The third appellant, thereafter, filed his statement in verification accompanied by a signed statement claiming exemption of the sum of Rs. 4,28,713 as non-taxable on the ground that the said amount represented the sale proceeds of his mother's jewels, etc.

The allegations in the complaint on the basis of which the charges were framed against the third appellant are that he, along with the first and the second appellants, conspired to fabricate false evidence and to file a false statement on oath before the Income-tax Officer thereby making himself liable under section 120B read with section 193, Indian Penal Code, and section 120B read with section 277 of the Income-tax Act, 1961, and that he also committed offences punishable under section 193, Indian Penal Code, and section 277 of the Income-tax Act, 1961 (simpliciter). On the allegations in the complaint, in our considered opinion, the third appellant could not be jointly indicted for the above conspiracy charges since the first and the second appellants are stated to have conspired (i) by sending the letter of retraction dated October 20, 1966, and (ii) by giving a false statement before the Income-tax Officer retracting their earlier statements given before the Enforcement Officers which are not the case qua the third appellant. The allegations against the third appellant are that he, along with appellants Nos. 1 and 2, conspired (i) to cause false entries in the account books of Messrs. Precious Stone Trading Company, and (ii) to wilfully make a false statement before the Income-tax Officer on November 4, 1971.

A careful perusal of the complaint leaves an impression that it has been ill-drafted and the necessary ingredients to make out a case for conspiracy are not brought out in the complaint. It is true that, in case of conspiracy, an agreement between the conspirators need not be directly proved but it can also be inferred from the facts established in the case. As pointed out by this court in Bhagwan Swarup Lal Bishan Lal v. State of Maharashtra AIR 1965 SC 682 ; [1964] 2 SCR 378, the offence of conspiracy can be established either by direct evidence or by circumstantial evidence and this section will come to play only when the court is satisfied that there is reasonable ground to believe that two or more persons have conspired to commit an offence or an actionable wrong, that is to say, there should be prima facie evidence that a person was a party to the conspiracy. The charges levelled in the complaint in paragraphs 25(i), (ii) and (iii) read that the first and the second appellants, by sending the letter through their lawyer on October 20, 1966, committed an offence under section 193, Indian Penal Code, and that they, thereafter, individually committed an offence tinder section 193, Indian Penal Code, by retracting their earlier statements given before the Enforcement Authorities. Under paragraph 25(iv), (vi) and (vii) of the complaint, the third appellant is stated to have caused false entries to exist in the account books of NM/s. Precious Stone Trading Company and then wilfully made a false statement in verification before the income-tax authority accompanied by a false statement. Nowhere it is stated that the individual acts of appellants Nos. 1 and 2 and those of the third appellant were due to any conspiracy among all the three. On the other hand, the offence said to have been committed by the third appellant is specifically attributed only to him. So the question is whether any conspiracy could be inferred under these circumstances. In our opinion, on the facts of the case, no such inference could be drawn for the simple reason that appellants Nos. 1 and 2 were interrogated by the Enforcement authorities on October 19, 1966, and they sent their letter of retraction through their advocate on the very next day, i.e., on October 20, 1966, and that the Income-tax Officer, Karaikudi, has recorded the retraction statement of the first appellant even on November 16, 1966. It was only thereafter that the third appellant sent his letter to the Enforcement authorities claiming the controversial amount on December 22, 1966. The charges levelled against appellants Nos. 1 and 2 are only on the basis of their retractions made through their lawyer on October 20, 1966, and by their subsequent statements. In the letter dated October 20, 1966, appellants Nos. 1 and 2 have not stated that the amount belonged to the third appellant. Similarly, it is not the case of the prosecution that the first appellant, by his statement dated November 16, 1966, explained the amount as belonging to the third appellant. Nor is it the case of the prosecution that the second appellant came forward by his statement recorded in the year 1974 which is the basis for prosecuting him for perjury stating that the amount belonged to the third appellant. Therefore, no agreement to commit the offence punishable under sections 193, Indian Penal Code, or 277 of the Incometax Act, 1961, can be said to have been hatched among all the three appellants. Further, it is neither the case of the complainant nor could it be said that appellants Nos. 1 and 2 knew that the third appellant intentionally fabricated false evidence or wilfully made a false return before the Income-tax Officer. Merely because the third appellant happens to be related to the first appellant and claimed that amount as owner thereof, no irresistible inference can be safely drawn that there was conspiracy among all the three appellants and accused Nos. 4 and 5. Moreover, the evidence, direct or circumstantial, is very much lacking to bring all the three and the other two accused under the charge of conspiracy. Hence the third appellant cannot be put on a joint trial along with appellants Nos. 1 and 2 and others under the charge of conspiracy. Therefore, the conviction of the third appellant under the conspiracy charge has to fail.

It is pertinent to note, in this connection, that the trial court, in paragraphs 87 and 88 of its judgment, after finding appellant No. 3 guilty of the conspiracy charge along with appellants Nos. 1 and 2, A-4 (since dead), and A-5 punishable under section 120B read with section 193, Indian Penal Code, and section 120B read with section 277 of the Income-tax Act, 1961, has acquitted the fifth accused (Bhaskar alias Kannan) of all the charges in paragraph 89 of its judgment. This contradictory finding of the trial court has not been noted either by the appellate court or by the High Court.

The next question that arises for consideration is whether the third appellant can be convicted for the offence under sections 193, Indian Penal Code, and 277 of the Income-tax Act, 1961 (simpliciter). The third appellant has not voluntarily submitted any return before the Incometax Officer but only on receipt of a notice from the Income-tax Officer. No doubt, this will not absolve the criminal liability of the third appellant if the ingredients to constitute the offences under these two sections are established and the trial of the case is not vitiated by any illegality.

Section 277 of the Income-tax Act, 1961, in general, seeks to penalise one who makes a false statement in order to avoid his tax liability. In the present case, the Revenue has not come forward with the case that the money represents the income of the third appellant liable to be taxed but on the other hand, it is the case Of the Income-tax Officer that it is not the third appellant's money at all. Moreover, a cursory reading of the penal clause proposes to impose punishment depending upon the quantum of tax sought to be evaded. Here no question of evading the tax will arise. Even assuming that the third appellant has made himself liable to be punished under section 193 of the Indian Penal Code and section 277 of the Income-tax Act, 1961 (simpliciter), inasmuch as he has been put on a joint trial with the appellants Nos. 1 and 2 for the conspiracy of the said offences without any specific allegation or acceptable evidence to connect the third appellant with the activities of appellants Nos. 1 and 2, there is a clear misjoinder of charges which includes misjoinder of parties also. In the facts and circumstances of the case on hand, the misjoinder of charges cannot be said to be a mere irregularity. In our considered opinion, by the joint trial with misjoinder of charges, as pointed out by Mr. A. T. M. Sampath, failure of justice has in fact been occasioned since all the courts below have clubbed all the allegations levelled against all the three appellants and two other accused (A-4 and A-5) together and considered the same as if all the offences were committed in the course of the same transaction pursuant to a conspiracy which is neither supported by the allegations in the complaint nor by any evidence as required under the law. Hence, the conviction under sections 193, Indian Penal Code, and 277 of the Income-tax Act, 1961 (simpliciter) also have to be set aside.

The High Court, without adverting to the above important intricat questions of law involved in this case and examining them in the proper perspective, has disposed of the revisions in a summary manner and hence the impugned orders warrant an interference. Since we are inclined to allow all these appeals mainly on the various questions of law which we have discussed in the preceding part of this judgment, we feel it unnecessary to deal with the other questions raised in the appeal.

In the upshot, for the decision made above, we allow the appeals by setting aside the convictions and sentences as affirmed by the High Court and acquit the appellants of all the charges. The fine amount, if already paid, is directed to be refunded to the appellants.

Both the appeals are allowed accordingly.

Appeals allowed.

 

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.