Holding

Criminal proceedings are independent of tax appeals, but when the appellate authority's conclusions are relevant, the criminal court must await that outcome; the High Court's interim stay was proper and the petitions were dismissed.

Summary

Criminal proceedings under the Income‑Tax Act were instituted against the respondents while appeals against the income‑tax assessments were pending before the Income‑Tax Appellate Tribunal. The respondents sought a stay of the criminal case, which was granted by the Metropolitan Magistrate, affirmed by the Sessions Court and the High Court. The Supreme Court examined whether criminal and tax proceedings are independent and whether a stay is appropriate when the appellate authority's findings may affect the criminal case. It held that the two proceedings are independent, but where the appellate conclusions are relevant, the criminal court should await the outcome of the tax appeal. In the present matter, no request for quashing of the criminal case was made and the High Court’s interim stay was deemed justified, leading to dismissal of the Special Leave Petitions.

Issues considered

Whether criminal proceedings under the Income‑Tax Act can be stayed pending the outcome of appeals before the Income‑Tax Appellate Tribunal.
Whether the findings of the appellate authority in tax matters are relevant to the criminal prosecution and thus warrant a stay.

Legislation cited

Code of Criminal Procedure, 1973s. 151, s. 482
Income Tax Act, 1961

Subjects

Income Tax ActCriminal prosecutionStay of proceedingsAppellate TribunalSection 151 CrPCSection 482 CrPCTax assessment appealSupreme Court

Judgment

A COMMISSIONER OF INCOME TAX, MUMBAI
v.
BHUPEN CHAMPAK LAL DALAL AND ANR. ETC. ~

FEBRUARY 27, 2001

B [S. RAJENDRA BABU AND S.N. PHUKAN, JJ.]

Code of Criminal Pmcedure, 1973-Section 151-Stay of pmceed-
ings-Appeals regarding assessment of income pending before the Income-Tax
Tribunal-Pmceedings in criminal cases also pending-Held, when the find-
c ings of the appellate authorities are relevant to the criminal pmceedings
pending, the p1vceedings of the criminal court be stayed-Income Tax Act,
1961.

Criminal cases were filed against the respondents for the offences
punishable under the Income-Tax Act, 1961. Appeal regarding assessment
D were also filed before the Income-tax Appellate Tribunal. Respondent filed
application for stay of proceedings before the criminal court. Metropolitan
Magistrate allowed the application. Sessions Court dismissed the revision
petitions filed by the petitioner. High court also dismissed the writ petition
and granted interim order staying the proceedings in the criminal cases
before the Metropolitan Magistrate. Hence these Special Leave Petitions.
E
Dismissing the petitions, the Court

HELD : 1.1. The prosecution in criminal law and proceedings arising
under the Income-tax Act are independent proceedings and there is no
impediment in law for the criminal proceedings to proceed during the
F pendency of the proceedings under the Act. However, a wholesome rule
will have to be adopted when the conclusions arrived at by the appellate
authoritises have a relevance and hearing upon the conclusions to be
reached in the criminal case, one authority 'viii have to await the outcome
of the other authority. [180-C]
G
G.L Didwania andAnr. v. Income Tax Officer andAnr., [1995) Supp 2
SCC 723; Uuam Chand and Ors. v. Income-Tax Officer, Central Cirr:le Amritsar,

-
[1982] 2 SCC 543; P. Jayappan v. S.K. Perumal, First Income-Tax Officer,
Tuticorin, [1984) Supp. SCC 437, referred to.

H CRIMINAL APPELLATE JURISDICTION : Special Leave Petition
178
COMMR. OF INCOME TAX v. BHUPEN CHAMPAK LAL DALAL (R. BABU,!.] 179

• ~
(Cr!) No. 2430 of 2000 . A
From tlK Judgment and Order dated 29.4.99 of the Bombay High Court
in Crl. A. No. 613/99 Converted in Crl. W.P. No. 587 of 1999.

WITH

SLP. (Crl.) Nos. 2995 and 3141of2000. B
Altaf Ahmad, Additional Solicitor General, Laxmi Aiyangari, Rajiv
Nanda, R.N. Verma, Amit Mahajan, B.V. Bairam Das liltd Ms. Sushma Suri for
the Petitioner.

Dr. Rajiv Dhavan, Vimal Chandra, S. Dave, Manoj Shukla, S.S. Shinde c
and S. V. Deshpande for the Respondents.

The Judgment of tlie Court was delivered by

RAJENDRA BABU, J. Twelve cases were lodged against the respond-
ents under the Income Tax Act, 1961 [hereinafter refe1Ted to as 'the Act']
D
before the Metropolitan Magistrate for offences punishable wider the Act. 1n
relation to the assessments arising wider the Act, appeals had been prefe1Ted
either before the Commissioner of Income Tax [Appeals] or the Income Tax
Appellate Tribunal [hereinafter referred to as 'the Tribunal']. On the basis that
_,,,. the appeals were pending the respondents filed applications for stay of the
E

-
proceedings arising before the criminal court. Several decisions were cited
before the court to support the contention that the decision of the appellate
authorities in the income tax proceedings would be relevant to the criminal
prosecution instituted against the respondents. The learned Magistrate, after
examining the position in law as to whether the findings of the appellate
authorities are relevant for the purpose of the criminal proceedings and to
F
avoid conflicting decisions of tl1e criminal cowt and the appellate authorities,
felt that it would be appropriate to grant an interim order of the tallowing
nature:

"ORDER
•• G
The work of recording evidence shall proceed. However, passing of
order about framing of charge, discharge of the accused or acquittal of the
_,.,.. accused shall be stayed during pendency of the appeals by the accused before
the Income Tax Appellate Authorities. These orders will be passed after the
appeals filed by the accused before the Income Tax Authorities are finally
decided." H
180 SUPREME COURT REPORTS [2001] 2 S.C.R.
A Against that order, revision petitions were filed before the Sessions
Court. The Sessions Comt did not interfere with the order made by the learned i
...
Magistrate and dismissed the same. Thereupon, the matter was carried further
to the High Court and the High Comt, while entertaining a writ petition
noticing several decisions of that High Court and of this Court, issued rule
in the matter and granted an interim order staying the proceedings in the
B
criminal cases filed before the learned Magistrate. It is against this order that
these special leave petitions have been filed.

The prosecution in criminal law and proceedings arising under the Act
are undoubtedly independent proceedings and, therefore, there is no impedi-
c ment in law for the criminal proceedings to proceed even during the pendency
of the proceedings under the Act. However, a wholesome rule will have to
be adopted in matters of this nature where courts have taken the view that
when the conclusions atTived at by the appellate authorities have a relevance
and bearing upon tl1e conclusions to be reached in the case necessarily one .A.
authority will have to await the outcome of the other authority.
D
This Court in G.L Didwania & Anr. v. Income Tax Officer & Anr.,
[1995] Supp. 2 SCC 724, dealt with the similar situation where there is a
prosecution under the Act for making a false statement that tl1e assessee had
intentionally concealed his income and the Tribunal ultimately set aside the
assessment holding that there is no material to hold that such income belong ..,,.
E to the assessee and the petition was filed before the Magistrate to drop the
criminal proceedings and tl1ereiifter an application was filed before the High
Court under Section 482 Cr.PC. to quash those criminal proceedings. This
Court held that the whole question is whether the appellant made a false
statement regarding tl1e income which according to the assessing authority has
F escaped assessment and this issue was dependent on the conclusion reached
by tl1e Appellate Tribunal and hence the prosecution could not be sustained.
In Uttam Chand & Ors: v. Income Tax Officei; Central Circle, Amritsar,
[1982) 2 SCC 543, this Court held that in view of the finding recorded by the
Tribunal on appraisal of the entire material on the record that the firm was

G
a genuine firm and the assessee could not be prosecuted for filing false returns ..
and, therefore, quashed the prosecution. In?. Jayappan v. S.K. Perumal, First
Income-Tax Officer, Tuticorin, [1984] Supp. SCC 437, this Court observed
that the pendency of the reassessment proceedings under the Act cannot act ....__
as a bar to the institution of the criminal proceedings and postponement or
adjournment of proceedings for unduly long period on the ground that another
H proceedings having a bearing on the decision was not proper.
COMMR. OF INCOME TAX,., BHUPEN CHAMPAK LAL DALAL (R. BABU,!.] 181

In the present case, there is no claim of quashing of the proceedings. A
When ultimately the result to come out of the proceedings before tbe appellate
authorities have a definite hearing on the cases alleged against the respond-
ents, we find that the Higb Com1 is justified in granting the interim order it
did and we do not think that sucb an interim order calls for interference at
our hands. The learned counsel 011 either side relied on several decisions, but
B
in the view we have taken, it is unnecessary to refer to those decisions.

The petitions are, therefore, dismissed. No costs.

N.J. Petitions dismissed.