THE ASSISTANT COMMISSIONER, ASSESSMENT-II, BANGALORE AND ORS. versus M/S. VELLIAPPA TEXTILES LTD. AND ORS.

Citation: [2003] SUPP. 3 S.C.R. 763 · Decided: 16-09-2003 · Supreme Court of India · Bench: S. RAJENDRA BABU · Disposal: Dismissed

Judgment (excerpt)

THE ASSISTANT COMMISSIONER, ASSESSMENT-II, 
A 
BANGALORE AND ORS. 
v. 
Mis. VELLIAPPA TEXTILES LTD. AND ORS. 
SEPTEMBER, 16, 2003 
[S. RAJENDRA BABU, B.N. SRIKRISHNA 
AND G.P. MATHUR, JJ.] 
Income Tax Act, 1961 : 
B 
Section 279-Prosecution-Launching of-Sanction-Grant of- C 
Opportunity of hearing-Affording of-Whether mandatory-Held : (per 
curium) : No opportunity of hearing need be given to the accused before 
grant of sanction-Hence, sanction given by the Commissioner of Income 
Tax not vitiated on account of want of opportunity of hearing-Adminis-
trat ive Law. 
Sections 276C, 277 and 2788--Prosecution of a company-Launch-
ing of -Punishment-Imprisonment and fine-Held : (per majority) : 
D 
Court not empowered to impose only a fine-Imprisonment coupled with 
fine mandatory-Hence, company could not be prosecuted under Ss. 2 7 6C, 
277 r/w S. 278B-(per minority) : Company could be awarded a sentence E 
of fine only without a sentence of imprisonment-Hence, company could 
be prosecuted under Ss. 276C, 277 rlw S. 278B. 
Maxims: 
"Judicis est jus dicere, non dare". 
Respondent No. I was a company registered under the provisions 
of the Companies Act, 1956 and respondent No. 2 was its Managing 
Director. They were sought to be prosecuted under Sections 276C, 277 
and 278 read with Section 278B of the Income Tax Act, 1961. The 
respondents challenged the prosecution proceedings by filing a petition 
under Section 482 of the Code of Criminal Procedure, 1973 in the High 
Court on the following grounds : 
F 
G 
(a) That the sanction granted by the Commissioner of Income Tax 
under Section 279 of the Act was invalid as the same was given without H 
763 
764 
SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R. 
A affording any opportunity to the respondents. 
(b) That the first respondent was a company, a juristic person, 
and therefore, incapable of being punished with a sentence of impris-
onment, which was mandatory under the provisions of Sections 276C 
B and 277 and, therefore, prosecution under these Sections against a 
juristic person like a company was not maintainable. 
The High Court relying upon an earlier Division Bench decision 
of the same Court in P. V. Pai v. R.I. Rinawma, ILR 1993 Kar. 709 held 
that as the company was a juristic person, it could not be punished with 
C imprisonment and, therefore, its prosecution was unpurposeful. The 
High Court further held that since the sanction to prosecute the 
respondents had been granted without affording them any opportunity 
of hearing, the principles of natural justice were violated and the order 
granting sanction was invalid. The petition was allowed and the 
D proceedings of the complaint case were quashed. Hence the appeal. 
On behalf of the appellants it was contended that in law there was 
no requirement of affording an opportunity of hearing before grant 
of sanction; that when the statute specifically provided penal liability 
E of the company, there could be no legal impediment in launching of 
prosecution against it, even ifthe substantive sentence of imprisonment 
could not be awrded; and that as Section 276C of the Act provided for 
both, a substantive sentence and a fine, the punishment of fine only 
could be imposed upon a company. 
F 
Allowing the appeal against the first respondent and dismissing 
the appeal against the second respondent by majority, the Court 
HELD : Per curium : l. The sanction given by the Commissioner 
of Income Tax is not vitiated on account of want of opportunity of 
G hearing. (773-C-D) 
Per Rajendra Babu, J. : 
1. The constitution of a modern company consists of two docu-
ments usually bound up as one-the memorandum and articles of 
H association. A company's authority always remains circumscribed by 
.( 
' 
ASSTT. COMMR ASSESSMENT-II BANGALORE v. VELLIAPPA TEXTILES LTD. 765 
the object clause of its memorandum and it cannot contain anything A 
unlawful. Anything done outside the object and powers of the company 
is ultra vires. With regard to criminal activities, the agents are beyond 
their authority and corporate capacity. Company is thus a potentially 
complex organization, which is assimilated into the pre-existing indi-
vidualistic framework of the law by pursuit of fiction and analogy with B 
a natural person. (773-G-H, 774-A] 
2.1. In order to trigger corporate criminal liability for the actions 
of the employee (who must generally be liable himself), the actor-
employee who physically committed the offence must be the ego

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