K.T.M.S. MOHD. AND ANR. versus UNION OF INDIA

K.T.M.S. MOHD. AND ANR.

UNION OF INDIA APRIL 28, 19112

(S. RATNA VEL PANDIAN AND M. FATHIMA BEEVI, JJ.J

Indian Penal Code, 1860 :

S.193--Perjury-Prosecution for-lnculpatory statement given to officer of Enforcement department under s.39 of FERA subsequently retracted stating it as involuntary and obtained by inducement and threat-Allegation of false statement given later to I.T.0.-Prosecuting authority to apply its mind as to whether inculpatory statement was voluntary and, not obtained by inducement ·and threat and whether it was given in judicial proceeding-Prosecution tC' be taken only if expedient in the interest of justice.

S.120-B--Conspiracy-Can be infe"ed from direct or circumstantial evidence-Agreement between conspirators need not be directly proved.

Foreign Exchange Regulation Act, 1973:

Ss.39, 40-'Judicial proceeding'-Statement must be recorded by Gazetted Officer to bring it within the ambit of 'iudicial proceeding'.

Nature of proceedings-Quasi criminal-Statements falling within the ambit of Judicial proceeding' to be examined only quo the provisions of the FERA and not with reference to I. T. Act.

Evidence Act, 1872

S.24-Statement recorded by Enforcement Officer under FERA in ex-ercise of power as Custom Officer--Evidentiary value of-Whether bar to admissibility would apply@statement is obtained·by inducement and threat.

Income Tax Act, 1961

S.277~alse statement in verijication-Assessee found in posses~ion of large sum of money-lnculpatory statement to officer of Enforcement Dire.ctorate subsequently retracte~Statement to LT.O. in assessment proceedings deny(i.i~ .connection with money seized-l'rosecution for.giving 879

false statemen~ecision of Income Tax Appellate Tribunal in assessment proceedings exonerating assessee and. holding that money did not belong to him and s.69 had no application-Whether can be considered while deciding criminal liability.

Code of Criminal Procedure, 1973

Ss. 195, 34<>-0iminal proceedings for giving false evidence in assess-ment proceedings-Courts to take care and caution before taking action against deponent-Result of proceedings under I. T. (f.ct to be given due regard.

S.223-Misjoinder of charges and misjoinder of parties-Accused joint-ly charged of having conspired to commit offence ·under · I. T. Act.~oint Trial-No specific allegations or acceptalJle evidence to connect different accused with activities of each other-Whether amounted to mere ir-regularity or occasioned aifure of justice.

The Enforcement Directorate, Madras, OD receipt or infonnation that appellant-I was engaged in illegal disbursement of money, raided his premises on 19.10.1966 and recovered sum of Rs. 4,28,713. On the same day appellant-I and his brother-in-law appellant-2 were interrogated by Enforcement Officers. Appellant-I in his statement Ext. P. 39 admitted that he received sum of Rs. 6 lakh from person of Bombay on the previous day for being dis.bursed to various parties; that Rs. 48,000 were paid to accused No. S and Rs. ·so,ooo to another person; and that the amounts were disbursed in compliance of instructions received from · abroad. Appellant-2 in his statement Ext. P. 40 admitted the receipt of the amount by appellant-I and disbursement of the sum in compliance of bis instructi9ns. Accused No. S, 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 20.10.1966 both the appellants sent their retraction to the deputy Director of Enforcement Direct.orate through their Advocate stating that their statements Ext. P. 39 and P. 40 were not voluntary but obtained under threat and force and were bereft·oftrutb.

The Income-Tax · Officer, on coming to know of the raid, issued summons to appellant-I who was an assessee and recorded bis statement (Ext. P. 3) on 16.11.1966. Appellant-I denied or having any connection with

the cash of Rs. 4,28,780 recovered from his premises and reiterated that the statement by the Enforcement Officer was taken under force. Appel-lant-2 also gave similar statement Ext. P. 73 on 11.1.1974. Accused No. 5 also denied to have received any money.

Meanwhile the appellant in Criminal appeal No. 6.12 of 1990 (third appellant) who was related to appellants 1 and 2, sent letter (Ext. P. 41) to the Enforcement Officer claiming the money seized as belonging to him and explaining that he was neg~tiating with some film producers for financing fil,n production and the seized amoulit included the sale proceeds or his mother's jewels as also bis father's money and, therefore, the same be returned to him. Proceedings under the Income-Tax Act were initiated against him also. He submitted his return of income for the year 1967-68 showing the business income as Rs. 4,000 and sum of Rs. 2,79,000 representing the cost of Jewels belonging to his mother (accused No. 4). His claim was, however, rejected.

The Income-tax Officer treated the sum of Rs. 6 fakh as the income of appellant-1 from undisclosed sources and assessed him accordingly.

complaint against the three appellants and accused Nos. 4 and 5 was filed alleging that they conspired to give false statements in the proceedings under the Income-tax Act and to fabricate false evide~ce and thereby committed offences punishable under s. 120-8 read with s. 193 IPC, under s. 120-B IPC read with s. 277 of the Income Tax Act and under s.193 (simplicitor) of Indian Penal Code. The appellants 1 and 3 were also indicted under s. 277 of the Income Tax Act.

Appellant-1 challenged the assessment order and the matter twice went before the Income-tax Appellate ,Tribunal which in both the rounds of litigation held that the department bad failed to show that the assessee was the owner of the money, and that the evidence only indicated that the assessee had been engaged for disbursing the money belonging to third party. It set aside the assessment order and ultimately decided the matter· in favour of appellant-1.

In the meantime the proceedings initiated on the basis of the Criminal Complaint, led to the trial of the three appellants and accused No. 5. Accused No. 4 had died during the proceedings. The Trial Court convicted the three appellants of the offences levelled against them and

sentenced each· of them to undergo imprisonment till the rising of the Court for each of the offences and to pay total fine of Rs. 2,000, Rs. 600 and Rs. 1,500 respectively holding that they had been detained under c'OFEPOSA in respect of the amount seiud and bad undergone the ordeal of enquiries and trial for considerable length of time. It, however, ·

[acquitted accused No. ][S. ]

The first appellate court and the High Court upheld the judgment of the trial Court.

In the appeals to this Court it was contended on behalf of the appellants that (1) the evidence adduced in the case did not constitute the requisite ingredients to make out case punishable under the charge levelled against all the three appellants; (2) the statements of .appellants 1 and 2 Exts. P. 39 and P. 40 recorded by the Enforcement Officers cannot be said to have been recorded in judicial proceeding as contemplated by s.40, but fell only within the meaning of s. 39 of FERA and therefore could not form the basis for initiating criminal case of perjury; (3) the statements Ext. P. 39 and P. 40 being recorded under the FERA could not be made use of for prosecuting the deponents of those statements in separate and independent proceeding under the Income-Tax Act; (4) in view of the specific findings of the Income-Tax Appellate Tribunal that the appellant- 1/assessee was not the owner of the money seized and Section 69-A of the Income-Tax Act bad no application to the facts of the case, . appellants 1 and 2 could not be held liable under s.193 IPC and under s. 277 of the Income-Tax Act: (6) the evidence available on record was not sufficient to put the third aJ.>pellant in joint trial along with appellants 1 and 2 under the conspiracy charges as well as for recording the convic-tion under sections 193 IPC and 277 I.T. Act especially when the third appellant consistently took an uniform stand and when it was not the case of the Department that the amount seized was taxable amount in the hands of the third appellant.

Allowing the appeals and setting aside the conviction and sentence of the appellants, this court,

HELD : 1.1. The convictions recorded by the courts below under Section 120-B read with Section 193 IPC and Section 193 IPC (simplicitor) as against the appellants cannot be sustained.·[p. 902 F-G]

1.2. The complainant has stepped into the shoe of the Enforcement Directorate, and assumed the authority under the FERA and levelled charge stating that the appellants 1 and 2 by sending the letter of retrac-tion on 20.10.66 denying their earlier statements dated 19.10.66 have made themselves liable to be convicted under Section 193 IPC. [pp.902 GH, 903A]

1.3. The trial court eommitted an error in not only covicting appel-lants 1 and 2 for sending the letter of retraction dated 20.10.66 but also, holding appellant-3 and accused Nos. 4 and S as being parties to ~onspiracy for causing letter dated 20.10.66 to be sent to the Enfos;cement Directorate. [p. 903 AB]

1.4. Since the High Court, without adverting to the important intri-cated questions of law involved in the case and examining them in the proper perspective has disposed of the revisions in summary manner, ·its orders warrant an interference. [p. 909 DE]

2.1. Necessary care and caution are to be taken before initiating criminal proceeding for perjury against the deponent of contradictory statements ia,i judicial proceeding. [p. 901 B-C]

K Kamnakaran v. T. V. Eachara Wanier and Another, [1978) 1 SCC 18, referred to.

2.2. The mere fact that deponent has made contradictory state-ments at two different stages in judicial proceeding is not by itself always sufficient to justify prosecution for perjury under section 193 IPC but it must be established that the deponent has intentionally given false statement in any stage of the 'judicial proceeding' or fabricated false evidence for the purpose of being used in any stage of the judicial proceed-ing. And such prosecution for perjury should be taken only if it is expedient in the interest of justice. [p. 901 CD]

3.1. Every investigation or proceeding under s. 40 of FERA is deemed to be judicial proceeding by legal fiction embodied in its sub-section (4) though the -proceedings are neither in nor before any Court at that stage. But there is no such deeming provision under s. 39 of FERA bringing every investigation or proceeding in its ambit as "a judicial proceeding" within the meaning of Ss. 193 and 228 of the Indian Penal Code.

[p. 896 F-H}

[1992) 2 S.C.R.

3.2. The exercise of the power under section 40 of FERA to summon persons to give evidence and produce documents must satisfy the condition that the officer acting under that section should be gazetted officer of Enforcement because every person summoned by such an officer to make statement under Section 40(1) is under compulsion to state the truth on the pain of facing prosecution. [p. 896 AB]

Pushpdevi M. Jatia v. M.L. Wadhawan, (1987) 3 SCC 367, referred to.

3.3. The statem!lnts Exts. P. 39 and P. 40 were recorded only in exercise of the powers under s. 39 of the FERA and the prosecution has not established that those statements were recorded by any gazetted officer of the Enforcement under the provisions of s. 40 of the FERA bringing them within the meaning of'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 s. 193 and/or s. 228, IPC on the ground that the deponents of those statements have retracted from their earlier statements in subsequent proceeding which is deemed to be 'a judicial proceeding'.,·[pp. 901 E-F;,,897 A]

3.4. Even if statements E~s. P. 39 and P. 40 fall within the mischief of section 40 of the FERA, 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 the appellants 1 and 2 gave their earlier inculpatory statements voluntarily but not under any inducement, coercion, threat or promise; that the deponents have intentionally gave false statement before the I.T.O. at the subsequent stage within the ambit of s. 193 IPC and that it was expedient in the interest of justice to initiate the criminal proceedings for perjury. [p. 901 FGJ

4. The proceedings under the FERA are quasi-criminal in character. It is pellucid that the ambit, scope and intendment of these two _Acts are entirely different a,nd dissimilar. Therefore, the significance of state~ent recorded under the provisions of FERA during the investigation or proceeding under the said Act so as to bring them within the meaning of judicial proceeding must be examined only quo the provisions of the FERA but not with reference to the provisions of any other alien Act or Acts such as I.T. Act. [p. 898 BC]

Subba Rao v. /. T. Commr., AIR 1956 SC 604 = [1956} SCR 577; Mis

. ........-

~ Pannalal Bmjraj v. Union of India, AIR 1957 SC 397 = (1957) SCR 233 and Shanti Prasad Jain v. The Director of Enforcement, (1963) 2 SCR 297, referred to.

5.1. Even if the officers of the Enforcement intend to take action against the deponent of statement on the basis of his inculpatory --{ statement which has been subsequently repudiated, the officer concerned · must take both the statements together, give finding about the nature of the repudiation and then act upon the earlier inculpatory one. But to bisect the two statements and make use of the inculpat~ry statement afone by passing the ot~er cannot be legally permissible because admissibility, reliability and the evidentiary value or the inculpatory statement depend on the bench mark of the provisions of the Evidence Act and the general y criminal law. (898 F-GJ

5.2. The voluntary nature of any statement either made before the Customs Authorities or the officers of Enforcement under the relevant provisions or the respective Acts is sine quo 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. However, merely because statement is retracted, it cannot be recorded as involuntary or unlawfully obtained. It is for the maker of the statement who alleges ind~cement, threat, promise r etc. to establish that such improper means has been adopted. But 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 bis obligations in at least subjectively applying its mind to the subsequent retraction to hold that the inculpatory statement was not extorted. [p. 899 D-G]

~ Vallabhdas Liladhar v. Asstt. Collector of Customs, AIR 1965 SC 481 = [1965) 3 SCR 854 and P. Rustomji v. State of Maharashtra, AIR 1971 SC [1087] = [1971] SCR (Suppl.) 35, referred to.

5.3. The authority or any Court intending to act upon the inculpatory statement as voluntary one should apply its mind to the retraction and reject the same in writing. [p. 899 GH]

R.oshan Beevi v. Joint Secretary to the Govt. of Tamil Nadu, Public

Deptt. etc., (1983) Law Weekly (Crl.) 289 = (1984) 15 ELT 289, referred to.

5.4. The l.T.O. erred in not taking into consideration the letter of retraction sent by both the appellants through their lawyer on 20.10.1966 alleging that "they were coerced to sign statements by using bodily force and threatening with causing injuries to them and they signed the state-ments fearing danger to their life and body". [p. 902 DE]

6.1. Though criminal court has to judge the case before it inde· pendently on the materials placed before it, there is no legal bar in giving due regard to the result of the proceedings under l.T. Act, and it 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. [p. 905 C-FJ

Uttam Chand v. l.T.O. (1982) 133 ITR 909, r. Jayappan v. S.K. Perumal, [1985) 1 SCR 536, referred to.

6.2. In view of the findings of the Tribunal that the amount of Rs. 6 lakh was not owned by the first appellant and that s. 69(a) dealing with the unexplained money etc. has no application to the facts of the case; the appellants cannot be held to be liable for punishment under s. 120-B IPC read with s. 277 I.T. Act and s. 277 (simplicitor) of the I.T. Act 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 1 and 2. pp. 905 F-H; 906 A]

7 .1. An agreement between the conspirators need not be directly proved, and the offence of conspiracy can be established. by either direct or circumstantial evidence and s. 193 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.

[p. 907 AB]

Bhagwan Swarup and Ors. v. State of Maharashtra, AIR 1965 SC 682

= [1964) 2 SCR 378, referred to.

7.2. It was not stated that the individual acts of appellants 1 and 2 and that 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 specificall)· attributed only to him.[p. 907 DJ

7.3.Appellants 1 and 2 did not state that the amount seized belonged to the third appellant nor can it be said that they knew that the third appellant intentionally fabricated false evidem:e or wilfully made false return before the Income-Tax Officer. The evidence direct or circumstan-tial is very much lacking to bring all the three appellants and other two accused under the charge of conspiracy. [pp. 907 GH; 908 AB]

8. The third appellant could not be put on joint trial along with appellants 1 and 2 and others under the charge of conspiracy, and his conviction under this charge bas to f~il. Besides, in his case no question of evading the tax would arise. The Department itself stated that the money recovered did not belong to him. [pp. 908 C~ GH; 909 Al

9.1. Even assuming that the third appellant made himself liable to be punished under s. 193 IPC ands. 277 of Income-Tax Act (simplicitor), inasmuch as he was put in joint trial with appellants 1 and 2 for conspiracy of the said offences without any speicific allegation or accept-able evidence to connect him with the activities of appellants 1 and 2, there is clear misjoinder of charges which includes misjoinder of parties also.

[p. 909 AB)

9.2. In the facts and circumstances of the case, the misjoinder of charges cannot be said to be mere irregularity. 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 together as if all the offences were committed in the course of the same transaction pursuant to conspiracy which is neither supported ·by the . allegations in the complaint nor by any evidence as required under the law. Hence, the conviction under s. 193 IPC and s. 277 of Income-tax Act (simplicitor) have also to be set aside. [p. 909 BD]

CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No. 631of1990.

From the Judgment and Order dated 12.7.1984 of the Madras High Court in Criminal Revision Case No. 229 of 1981.

WITH

Criminal Appeal No. 632 of 1990

C.V. Vaidyanathan and A.T.M. Sampath for the Appellant.

(1992) 2 S.C.R.

K. T.S. Tuls~ Addi. Solicitor General (NP) and Ashok Bhan for the Respondent.

The Judgment of the Court was delivered by

S. RAtNAVEL. PANDIAN, J. The Criminal Appeal No. 631/90 is directed by the two appellants namely, K. T.S. Mohammed and M. Jamal Mohammed and Criminal Appeal No. 632/90 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 Case Nos. 229/81 and 239/81 respectively dismissing the "revisions and confirming the judgment of the lower Appellante Court made in Cr. A. Nos. 221 and 2i2 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 (hereinafter referred to as 'the I.T. 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 details, in order to enable us · · to give our own reasons for the fmdings which we will be arriving at.

E[[. ]]

The first appellant who is the brother-in-law of the second appellant E[[. ]]received cash of Rs. 6 lakhs, brought by person from Bombay for distributing the said amount to various persons as per the instructions received from 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 19.10.66 and recovered sum of Rs. 4,28,713 and certain documents in coded language relating to the disbursement of the cash. After the search, the first appel-lant K. T.M.D. Mohammed was interrogated by Shri Amritalingam, Enfor-cement Officer ·of Madras (PW 4) and the second appellant, Jamal Mohammed was interrogated by Shri Pancheksharan, Enforcement Officer on 19.10.66 and their statements were recorded under Exhs. P 39 and P 40. The first appellant under Exh. P 39 has admitted that he received sum of Rs. 6 lakhs from person of Bombay on the previous day-for being d~sbursed to various parties, and that Rs. 50,000 and Rs. 48,000 were paid to one Baskaran alias Kannan and Angappan of Sarathy & Co. respectively and the amounts were disbursed on receipt of instructions from one Gop~I of Singapore whose full address he did not know. The second appellant" in

""'-""'(

his statemcut £xh. P 40 has admitted the receipt of the amount by the first appellant and the disblirsement of, Rs. 50,000 to Bhaskaran and Rs. 40,000 to Angappan as instructed by the first appellant in compliance of the instructions received from Singapore.

The Enforcement Officers conducted further search at the premises of Sarathy and Co., and discovered 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 20.10.66, both the appellants sent their retraction. to the Deputy

Director of Enforcement Directorate thr:ough their Advocate stating that their statements recorded under Exhs. P j9 and P 40 on 19.10.66 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 statement Exh. P 3 from him on 16.11.66. The first appellant denied of having any connection with the cash of Rs. 4,28,718 said to have been recovered from his premises and reiterated that the statement by the Enforcement Officers was taken from him under force. The second appellant also gave similar statement under Exh. P 73 on 11.1.74 before PW 8 when examined after eight years. The appellant in Criminal Appeal No. 632/90, namely, Amanullah who was arrayed as accused No. 3 (hereinafter referred as 'third appellant') sent letter under Exh. P 41dated4.11.66 to the Enforcement Officers claiming the money seized as belonging to him and explaining that he was negotiat-F ing with some film producers for financing film production and the seized amount included 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 statement before the Enforcement Officers on 22.12.66 reiterating what he has stated in his letter dated 4.11.66.

In view of the subsequent developments; proceedings were initiated against the third appellant under the provisions of the l.T. 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 in-

come at Rs. 4,000 and that 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 accumulate(j 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 I.T. Act. According to the 'Complainant, all the appellants have conspired together to give false evidence at all stages of the procee~ under the I.T. 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 120-B IPC read with Sec. 193 IPC, under Section 120-B read with Section 2n of the I.T. Act and under Section 193 (simplicitor} of Indian Penal Code and in addition the appellants 1and3 were indicted under Section 277 (simplicitor) of the Act.

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

Be that as it may, we would like to refer 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 the 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 ITO 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 third party. On the above finding, the Tribunal set aside the assessment order and referred the case back to the ITO to make fresh a5sessment. But the ITO 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 12.5.1980 allowed the appeal of the assessee namely the first appel-lant 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 wit-' nesses and marked Exhs. P 1 to P 87. The appellants did not examine any witness but filed Exhs. 1 to 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 Vth Additional Judge, Madras. In the result, the three appellants stood convicted under Sections 120-B read with Sec. 193 IPC and Sec. 277 of the l.T. Act besides under Sections 193 IPC and appellants No. 1 and 3 separately under_Section 277 of the l.T. Act. But coming to the question of sentence, the trial court taking into consideration of the fact that the appellants were detained under COFEPOSA in respect of the amount seized and they have also undergone the ordeal of enquiries and the trial for considerable length of time sentenced each of them to undergo imprisonment till the rising of the Court for each of the offences and to [E ]pay total fine of Rs. 2,000, Rs. 600 and Rs. 1,500 repectively with the default clause.

Being aggrieved by the judgment of the first appellate court confirm-ing 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, the 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 Exh. 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 that "so Section 69-A of the Income~tax Act has no application to the facts of the case", appellants 1 and 2 on the basis of Exhs. P 36 and P 40 cannot be held to have intentionaQ.y resiled from their earlier stand when subsequently examined by the Income-tax Authorities thereby making themselves liable to be punished under Section 193 IPC for perjury and under Section 277 of the I.T. Act for making false statements in verification.3. The accusation made in the notice issued to the first appel-lant dated 8.5.70 by the lncome~tax Officer, Karaikudi stating "On 19.10.66 you have admitted in your statement before the Enforcement Directorate that the amount belongs to ....................................... Subsequently on 28.2.67 you have sent 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 Section 193 IPC and 277 of the l.T. Act is absolutely unsus-tainable.

4. The statements recorded from appellants 1 and 2 under Exhs, P 39 and P 40 by the Officers of the Enforcement Directorate fall only within the meaning of Section 39 of FERA and those .statements, therefore, cannot be made use of for initiating criminal case of perjury in the absence of any legal fiction bringing the investigatio~ or proceeding as judicial proceed· ing within the meaning of Sections 193 and 228 IPC as con-templated under Section 40 ( 4) of FERA.

5. The Income-tax Officer in exercise of his power under Section 136 of 1.T. Act cannot make use of the statements recorded by the Enforcement Directorate (an independent

......_

authority) under the provisions of the special Act-namely, FERA, for prosecuting the deponents of those statements in separate and independent proceeding under another special Act namely the I.T. 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 FERA against the appellants 1 and 2 on the strength of their statements Exhs. P 39 and P 40 recorded under Section 39 of FERA and appellants herein would partake the characteristic of an ac-cused or become an accused of an indictable offence, and therefore, on mere denial, normally, the appellants should not be subjected to face the grave charge of perjury, unless such 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 of 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 Exh. P 18, the income-tax returns filed by the third appellant was accepted on enquiry and though reopened belatedly it still stands incom-plete in spite of several years.

9. The evidence available on record is not sufficient to put the third appellant in joint trial along with appellants 1 and 2 under the conspiracy charge as well as for recording the con-viction under Section 193 IPC and 2771.T. 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 taxable amount in the hands of the third appellant.

10. The cognizance of the offence under Sections 120-B read with 193 and 193 (simplicitor) was taken beyond the period of limitation, prescribed under Section 468 of the Code of Criminal Procedui:e.

[1992} 2 S.C.R.

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

The Officers of the Enforcement Directorate conducted the raid and [seized the amount on ][19.10.66 ][on which ][day ][itself the statements under ]Exhs. P 39 and P 40 were recorded from the appellants 1 and 2 by the >-Officers of the Enforcement Directorate. On the very next day i.e. on 20.10.66 both the appellants sent their retraction to the Director of Enfor-cement through their Advocate stating that the statements were involuntary and bereft of truth. While it was so, the ITO of Karaikudi recorded the statement of the first appellant on 16.11.66. 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 22.12.66 the third appellant gave 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, proceed-]ings were taken against the third appellant under the provisions of the I.T. Act. The third appellant on 1.3.67 submitted his return of income on 27.2.67 for the assessment year 1967-68 accompanied by statement show-ing the business income at Rs. 4,000. The fourth accused before the trial Court who died during the proceedings gave sworn statement on 2.5.67 before the ITO stating that she gave 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 statement on 11.8.70 before the ITO denying the receipt of any amount from the appellants 1 and 2 on 18.10.66. Thereafter, appel-lants 1 and 3 gave separate statements on 27.2.71 and 4.11.71 respectively. The se.cond appellant gave his statement. before the ITO on 11.1.74 repudiating his earlier statement dated 19.10.66 (Exh. 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. -G 1 to 3 and accused No. 5 have committed the offenees punishable under Section 120-B read with 19~ IPC and 120-B IPC read with 277 of the I.T. Act.

The tri~ 1~ourt after having considered the allegations of the com-H [plaint, indicted the accused inclusive of the appellants thus: ]

The first and second appellants wilfully ca~ the Advocate's fetter dated 20.10.66 with false statement; that they, thereafter gave separate statements dated 16.11.66 and 11.1.74 respectively before the ITO repudiat-ing their earlier statements given before the Enforcement Officers and that they thereby, have committed an offence punishable under Section 193 IPC. Similarly, the third appellant not only by fabricating letter dated ~ 10.10.66, but also by filing false affidavit dated 23.3.67 and thereafter by making false statement before the ITO on 4.11.71 has made himself liable to be punished under Section 193 IPC. In addition, accused No.1 has committed an offence under Section 277 of the I.T. Act by delivering letter to the ITO on 27.2.71 containing false statement that his statement under Exh. P 39 was not true and obtained under duress. Accused No. 3 has also col}lllii,tttd siinilar offence under Section 277 of the I.T. Act by _ ~ deilv~iin.{ to the ITO ~alse sta~ement dated 13.6'. claiming t~e )--- amount of Rs. 4,28,713 as belongmg to him; Accused No. 5 has made him , liable for the offence under Section 277 by delivering false statement to the ITO on 11.8.70 denying the receipt of sum of Rs. 50,000 on 18.10.66.

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

Though specific ground is taken in the appeal grounds that Exhs. P 39 and P 40 are clearly relatable to the provisions of Section 39 of FERA and that no other statement was taken on oath, the respondent namely the Union of Indian 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 Exhs. P 39 and P 40 were recorded by the officers of the Enforcement in exercise of the power conferred under Section 39 of the Act.

Section 39 of FERA empowers the Director of Enforcement or any other Officer of Enforcement authorised by the Central Government in this behalf, (i) to require any person to produce or delive'r 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

FERA qualifies the officers stating that the officer of Enforcement em-powered to summon any person to give evidence and produce documents must be gazetted officer.

The exercise of the power under Section 40 of FERA to summon persons to give evidence and produce documents must staisfy the condition that the officer acting under th.at Sectior. shoilld be gazetted officer of Enforcement which is similar to Section 108 of the Customs Act. That is so because every person summoned by gazetted officer .of Enforcement to make statement under sub section 1 of Section 40 is under compul-sion to state the truth· on the pain of facing prosecution in view of sub-sec-tion 4 thereof. To say in other words, if the officer exercising the powers under Section 40 is not clothed with the insignia of gazetted post, there is no sanctity attached to the statements recorded under Section 40 (1) of FERA.

This Court in Pushpdevi M. Jatia v. M.L. Wadhawan (1987] 3 SCC

367 while dealing with the intent of Section 40 of FERA held as follows:

"All that is required by Section 40 (1) of the FERA is that such officer recording the statement must be holding gazetted post of an officer of Enforcement in contradistinction to that of an Assistant Officer of Enfo~cement which is 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 gazetted post."

Every investigation or proceeding under Section 40 is deemed to be judicial proceeding by 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 FERA bringing every investigation Of 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 Exhs. P 39 and P 40 cannot be brought 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 Sections 193 and/or 228 of the Indian Penal Code on the ground that the deponents of those statements have retracted from their earlier statements in subsequent proceeding which is deemed to be 'a judicial proceeding'.

It is pertinent to note in this connection that in the manner of recording statement under Section 40 of FERA there are no safeguards as in the case of recording statement of an accused.under Section 164 of the Criminal Procedure Code by Magistrate. Nevertheless, before receiv-ing 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 catena of decisions of this Court that the statements obtained from persons under the provisions of FERA 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 Exhs. P 39 and. P 40 were recorded only under Section 39 but not under Section 40 of the FERA.

Needless to emphasise that the FERA and the I.T. Act are two separate and independent special Acts operating in two different fields.

This Court in Subba Rao v. /. T. Commr., AIR 1956 SC 604 = [1956] SCR 577 has pointed out:

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

Further, in Mis Pannalal Binjraj v. Union of India, AIR 1957 SC 397

[1957] SCR 233 it has been observed thus:

"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 of 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 ac~eving that purpose."

Coming to the FERA, it is special law which prescribes special procedure for investigation of brea~hes of foreign exchange regulations. Vide Shanti Prasad Jain v. The Director of Enforcement, (1%3) 2 SCR 297. The proceedings under the FERA are quasi-criminal in character. It is pellucid tha~ the ambit, scope and intendment of these two· Acts are entirely different and dissimilar.

Therefore, the significance of statement recorded under the provisions of FERA during the investigation or proceeding under said Act so as to britig theni within the meaning of judicial proceeding must be examined only quo the provisions of the FERA but not with reference to the provisiollS of any other alien Act or Acts such as I:T. Act. .

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

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

Next we shall pass on to examine 'the admissibility and evidentiary

value of statement recorded by an Enforcement authority in exercise of his power as in the case of customs officer.

This Court in Vallabhdas Liladhar v.Asstt. Collector of Customs, AIR 1%5 SC 481 = (1%5] 3 SCR 854 while dealing with the question of admissibility of the statements made· before the Custoµis Officers held, "Section 24 would however apply, for customs authorities !llUSt be taken to be persons in authority and the statements would be inadmissible in criminal trial if it is proved that they were caused by induceme~/threat or promise." In subsequent decision l'~ Rustomji v. State of Maharashtra, AIR 1971 SC (1087] = (1971] SCR (Suppl.) 35 wherein ~his Court while answering question as to whether Section 24 of the Evidence Act is or is not bar to admissibility in evidence of statement made by person to Custom 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 promis~ 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 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 Custom Authorities or the officers of Enforcement under the relevant provisions of the respective Acts is sine quo 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 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 has 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 obliga-tions in at least subjectively applying its mind to the subsequent retraction to hold that the inculpatory statement was not extorted. It thus boils down that the authority or any Court intending to act upon the inculpatory statement as voluntary one should apply its mind to the retraction and reject the same in writing. It is only on this principle of law, this Court in

several decisions has ruled that even in passing detention order on the basis of an inculpatory statement of detenu who has voilated the provisions of the FERA 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 will be vitiated. Refer-B [ence may be made to decision of ][the ][full ][Bench of the Madras High ]Court in Roshan Beevi v. Joint Secretary to the Govt. of Tamil Nadu, Public Deptt. etc., [1983] Law weekly (Crl.) 289 = [1984] 15 ELT 289 to which one of us (S. Ratnavel Pandian, J.) was 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 certain offences affecting the administration of justice". This section confers an inherent power on Court to make complaint in respect of an offence committed in or in relation to proceeding in that Court, or as the case may be, in respect of a. document produced or given in evidence in 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 preliminary enquiry as it thinks necessary and then make complaint tliereof in writing after recording finding to that effect as comtemplated under sub-section (1) of Section 340. The words "in or in relation to 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 c:>r in relation to whose proceeding the offence has been committed. There is 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 Worrier and Another, (1978] 1 SCC 18 and in that decision, it has observed:

"At an enquiry held by the Court under Section 340 (1), Cr.P.C., irrespective of the result of the main case, the only question is whether prima facie case is made out which, if unrebutted, may have 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 prim acie case for complaint and secondly that it is expedient in the interest of justice to permit the prosecution under Section 193 IPC."

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

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

The facts of the present case when examined in the light of the above [E ]proposition of law, it can be safely concluded that the statements Exhs. 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 under the provisions of Section 40 of the FERA for bringing them within the meaning of 'judicial proceeding'. Even assuming for the sake of argu-ments that those statements fall within the mischief of Section 40 of the FERA, 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 the appellants 1 and 2 gave their earlier inculpatory statements voluntarily but not under any inducement, coercion, threat or promise; that the deponents have intentionally gave false statement before the ITO at the subsequent stage within 'the ambit of Section 193 IPC and that it was expedient in the interest of justice to initiate the criminal proceedings for perjury.

The statements Exhs. P 39 and P 40 were recorded on 19.10.66 from

appellants 1 and 2 as repeatedly pointed out above only under the provisions of FERA. But the subsequent two statements recorded by the Income-tax Officer from the first and the second appellants on 16.11.66• and 11.1.74 respectively were in exercise of the-powers under the provisions of the I.T. Act. It is not the case of the prosecution that these two appellants gave any inculpatory statement before the ITO and thereafter retracted. In fact, the appellants 1 and 2 have retracted their earlier statements even on the very next day which retraction was not taken note of by the ITO. On the other hand, the ITO, Central Circle, XIV, Madras in his reply letter sent on 8th March 1972 addressed to- the first appellant has stated as follows:

"The statement made by you before the Income-tax Officer on 16.11.66, that is long after statement was made before the Officer of the Enforcement Directorate, immediately after the seizure, and the statement was IW;lde 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 ITO has not . taken into considerion of lhe letter of retraction sent by both the appellants through their lawyer even on 20.10.66 alleging that "they were coerced to sign statements by vsing 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 Enforce-ment Officer, Shri Panchaksharam who recorded the statement from the second appellant has neither been cited as 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 recor<led by the Courts below under Sections 120-B read with 193 IPC and 193 (simplicitor) as against the appellants 1 and 2 cannot be sustained. It is very surprising and shocking to note that the complainant has stepped into the shoe of the · Enforcement Directorate, and appears to have as-sumed the authority under the FERA and levelled charge stating that the appellants 1 and 2 by sending the letter of retraction on 20.10;66 denying lI their earlier statements dated 19.10.66 hav~ made themselves liable to be

convicted under Section 193 IPC (vi~e paragraph 25 (i) of the complaint).

Still more shocking, the Trial Court has not only convicted the . appellants 1 and 2 for sending the letter of retraction dated 20.10.66 but also found the third appellant and accused Nos .. 4 and 5 as having been parties to a- conspiracy for causing letter dated 20.10.66 to be sent to the Enforcement Directorate.

The next question for consideration relates to the prosecution under Section 277 of the I.T. Act.

In the notice issued by the ITO, Karaikudi dated 8.5.70 asking the

first appellant to appear before him, the ITO has stated as follows:

"Thus in your statement before the Enforcement Directorate you have o\vned the amount whereas before the Income-true authorities you have denied ownership of the amount."

It transpires from the notice that the consistent case of the prosecu-tion 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 appell.ant as his income from other sources. The matter, as we have indicated earlier, canie before the Tribunal twice. In the first instance, the Tribunal observed that the evidence iridicated 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 ITO to make fresh assessment. But ITO again made the same· type of assessment which once again came before the Tribunal. It was under such circumstances, the Tribunal by its order dated 12.5.80 held as follows:

"But the error they committed was in thinking that assessee is also not the owner of the money ......... ~ ....................... The asses-see has said that he is only distributor of some other's money. This explanation is quite satisfactory. It is not cock and bull story or of imagination .......................................... The only con-clusion possible in the case is that the assessee is not the owner but only 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

[1992] 2 S.C.R.

distributor of the money belonging to others. That conclusion is the only possible conclusion in the case. Any other conclusion of ownership by assessee will only be perverse and uncalled for. So Section 69A of the Income-tax Act, 1961 has no application to the facts on the case. The appeal of the assessee has to be allowed and cross objections dismissed."

This finding has not been challenged and it reached its finality. close reading of the order of the Tribunal shows that the first appellant has been exonerated completely from the speci!ic case of the ITO 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 Sections 120-B read with 277 and 277 I.T. Act are or are not liable to be set aside in the light of the judgment of the Tribunal.

Mr. ATM Sampath very strenuously contended that the convictions

[recorded ][by ][the subordinate Courts as affirmed ][by ][the High Court under ]Sections 120-B read with 277 and 277 I.T. Act are liable to be set aside in the teeth of the judgment of the Tribunal completely exonerating the appellants from the liability of the income-tax. We shall examine this contention and dispose of the same in the ratio of decisions of this Court in P. Jayappan v. S.K Pernmal, [1985] 1 SCR 536.

In that case, the following dictum has been laid down:

"The criminal court no doubt has to give due regard to the result of any proceeding under the Act having 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 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 obsenlation was made:

"It may be that in an approriate case the criminal Court may adjourn or postpone the hearing of criminal case in exercise of its discretionary power under Section 309 cf the Code of

........

.......

Criminal procedure if the disposal of any proceeding under the Act which has bearing on the proceedings before it is im-minent 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 way as not to frustrate the object of the criminal proceedings. There is no rigid rule which makes ·it necessary for criminal court to adjourn or postpone the hearing of case before it indefinitely or for an unduly long period only because some proceeding which may have some bearing on it is pending else."

The above principle of law laid down by this Court gives an indica-tion that the result of the proceedings under the LT. Act 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. I. T.O., [1982] 133 ITR 909 wherein it was observed that the prosecution once initiated may be quashed in the light of finding favourable to the assessee recorded by an authority under the Act sub-sequently in respect of the relevant assessment proceedings. · But in Jayappan's case, it has been held that the decision in Uttam Chand's case is not an authority for the proposition that no proceedings can be initiated at all under Section 276 ( c) and Section 277 as long as some proceeding under the Act in which there is chance of success of the assessee is pending. Though as held in Jayappan's case that 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 LT. Act.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 Exh. 4, the Tribunal has further held that Section 69 (a) dealing with the unex-plained money etc. has no application to the facts of the case. Taking this finding of the Tribunal into constitution, we are constrained to hold that the appellants cannot be hdd to be liable for punishment under Section 120-B read with 277 and 277 (simplicitor) of the LT. Act 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 th.e question of the criminal

liability of the appellants 1 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 suit in O.S. No. 62/71 on the original side of the High Court of Madras agaisnt the Enforcement Directorate claiming the said amount but that suit was dismissed. Exh. P 87 is the certified copy of the judgment. While it was so, PW 2 who was then the Income-true Officer, City Circle, Madras during 1967-68 issued letter dated 2.2.67 enclosing notice under Section 139 (2) of the I.T. Act and also another notice under Sections 177 and 175 of the Act- both relating to the assessment years 1967-68-which notices are marked as Exhs. P 14andP15.He was further directed to file his return of income wtthin week of the receipt of Exh. P 15. The third appellant's plea for extension of time was rejected. The third appellant, thereafter, filed bis statement in verification accompanied by 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 false statement on oath before the ITO thereby making himself liable under Sections 120-B read with 193 IPC and 120-B r~ad with 277 l.T. Act and that he also committed offences punishable under Section 193 IPC and 277 of l.T. Act (simplicitor). On the allegations of the complaint, in our considered opinion, the third appellant could not be jointly indicated for the above conspiracy charges since the first and the second appellants are stated to have cospired (i) by sending the letter of retraction dated 20.10.66 and (2) by giving false statement before the ITO 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 1 and 2 conspired (i) to cause false entries in the account books of M/s Precious Stone Trade Company and (ii) to wilfully make false statement before the ITO on 4.11.71.

careful- perusal of the complaint leaves an impression that it has been ill-drafted and the necessary ingredients to make, out case for

........

~ [conspiracy are not brought out in ][.the ][complaint. ][It ][is true that in case ][of ][A ]conspiracy, an agreement between the conspirators need not be directly proved but it can also be inferred form the established facts in the case. As pointed out by this Court in Bhagwan Swarup and Ors v. State of Maharashtra, AIR 1965 SC 682 = [1964) 2 SCR 378 that 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 -..f. 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 ~hould beprimafacie evidence that person was party to the ~nspiracy. 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 20.10.66 committed an offence under Section 193 IPC and that they, thereafter, individually committed an offeni;e under Section 193 IPC '}'-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 a~unt books of M/s Precious Stone Trading Company and then wilfully made false statement in verification before the Income-tax Authority accom-panied by false statement. Nowhere, it is stated that the individual acts of appellants 1 and 2 and that 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 the appellants 1 and 2 were interrogated by the Enforcement Authorities on 19.10.66 and they sent their letter of retraction through their advocate on the very next day i.e. on 20.10.66 and that the ITO, Karaikndi has recorded the retraction statement of the first appellant even on 16.11.66. It was only thereafter the third appellant sent his letter to the Enforcement Authorities claiming the controversial amount on 22.12.66. The charges levelled against appellants 1 and 2 are only on the basis of their retractions made through their lawyer on 20.10.66 and by their subsequent statements. In the letter dated 20.10.66, the appellants 1 and 2 have not stated that the amount belonged to the third appellant. Similarly, it is not the case of the prosecution that t.he first appellant by his statement dated 16.11.66 explained the amount as belong-ing to the third appellant. Nor is it the case of the prosecution that the 'f-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 IPC or 277 LT. Act 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 the appellants · 1 and 2 knew that the third appellant intentionally fabricated faise evidence or wilfully made false return before the ITO. 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 the accused Nos . . 4 and 5. Moreover, t!te 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 joint trial along with appellants 1 and 2 and others under the charge of conspiracy. There-fore, 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 judgments, after· finding appellant No. 3 guilty of the c0nspiracy charge along with appellants 1 and 2, 4 (since dead) and 5 punishable under Sections 120-B read with 193 IPC and 120~B read with 277 I.T. Act has acquitted the fifth accused (Bhaskar alias Kannan) of all the 'charges in paragraph 89 of its judgment. This contradic-tory fmding of the trial court has not been noted either by the appellate court or by the High Court.

The next question that arises for cosideration is whether the third ~ appellant can be convicted for the offence under Sections 193 IPC and 277 of the l.T. Act (simp~citor). The third appellant has not voluntarily sub-F mitted any return before the ITO but only on receipt of notice from the ITO. 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 I.T. Act in general seeks to the penalise one who makes false statement in order to avoid his tax. liability. In the present case, the Revenue has not come forward 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 ITO that it is not the third appellant's money at all. Moreove~, 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 Sections 193 and 277 (simplicitor) of the 1.T. Act, inasmuch as he has been put in joint trial with the appellants 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 the appellants 1 and 2, there is 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 mere irregularity. In our :dmsidered opinion by the joint trial with misjoinder of charges, as pointed out by Mr. TM 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 5)together and considered the same as if all the offences were committed in the course of the same transaction pursuant to 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 IPC and 277 of 1.T. Act (simplicitor) also have to be set aside.The High Court, without adverting to the above important intricated questions of law involved in this case and examining them in the proper perspective has disposed of the revisions in summary manner and hence the impugned orders warrant an interference. Since we ·are inclined tc;> 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 unneces-sary to deal with the other questions raised in the appeal.

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

Both the appeals are allowed accordi1v'