In this part of the prosecution series, we will be talking about the impact on the companies. Section 278B of the Income Tax Act contemplates offences committed by companies which are prosecutable. Prosecuting a juristic person comes with its own set of challenges, mostly in the determination of culpability of the people in charge of the operations of the company. Below we discuss some of the most common issues raised in prosecution cases involving companies.

Can a Company be prosecuted for an offence that mandates punishment of imprisonment?

Since Section 278B was introduced into the Income tax Act in 1975, this question has been repeatedly argued before the courts.

Judicial-trend

An interesting corollary to the above problem is the issue of whether imposition of penalty and initiation of prosecution against an assessee amounts to violation of the double jeopardy rule.


This issue was laid to rest by the Bombay HC in the case of ITO vs. Sultan Enterprises 256 ITR 185 (Bom) by holding that penalty and prosecution were two completely separate proceedings with one being a process for recovery of dues while the other was a penal action for an offence, and hence the rule of double jeopardy would have no application in the said circumstances.


What recourse to take when a company is sought to be prosecuted?

Nevertheless, the possibility to be charged with a criminal offence in case prosecution is launched remains a critical risk for directors on the board of Indian companies.

The risk is higher given the noticeable increase in the rate at which prosecution notices are currently issued by the Revenue for violation of income tax law provisions.

Rather than chasing after wilful tax defaulters, the recent spike in the number of prosecution notices issued by the department is fuelled by a rise in prosecutions launched for non-filing of tax returns and delayed or non- remission of TDS.


We analysed about 75 cases involving offences by companies and in about 85% of cases where prosecution has been launched u/s 278B, the primary recourse taken by individuals is to file a petition in the High Court u/s 482 of the Criminal Procedure Code for the quashing of the complaint.


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