I. Introduction

The expression “Law” is of wide import and varied dimensions. It cannot be confined to a single field, though primarily a given statute may be enacted for meeting a particular purpose. This holds true about taxation laws as well. The taxation laws though primarily enacted to mobilize revenue for the development and progress of the nation at large and to remove inequality of incomes, yet they travel far ahead and transgress upon other laws as well. The taxation laws also provide certain inroads into other laws operating in a totally different environment and context. The taxation laws have to consider various amendments made from time to time in these laws so that they can work in a more appropriate manner. Similarly, the other laws also provide inroads into the taxation laws and thus dilute the operation and rigours of the taxation laws. These laws help the assessee or the defaulter to escape its/his liability under the provisions of the taxation laws. These laws also provide an opportunity to the concerned person to mould and use the provisions of the taxation laws as per his own requirements and advantages. Thus, a comparative study of these laws is inevitable to understand the proper working of the taxation laws.

II. Inter connection between Taxation laws and Other laws

The taxation laws and other laws are not only inter linked but also operate in a holistic manner. The impact of one law on the other cannot be undermined in a Welfare State where the task of the State is to generate and mobilize the revenue collected in the most beneficial manner. Thus, while allowing genuine tax management, the State deals with tax evasion very stringently. The impact of other laws on the taxation laws is basically felt in the arena of tax management or tax evasion. These laws are used as a veneer for tax evasion and hence curbed at their very threshold, though at the same time genuine cases of tax management are allowed to operate with their full force. These other laws can be categorized as follows:

(1) The Indian Companies Act, 1956,
(2) The Hindu Law,
(3) The Succession Law,
(4) The Indian Partnership Act, 1932,
(5) The Banking Law,
(6) The Accounting Law, and
(7) The Criminal Law.

(1) Companies Act:

The Indian Companies Act, 1956 has an important bearing on the applicability of the taxation laws. In some cases the separate legal entity of the company provides a complete immunity from criminal prosecution of the company, whereas in other cases the taxation laws prevails over the accounting practices and corporate arrangements of the company.
In the following cases the taxation provisions prevailed over the corporate arrangements:

In C.I.T v Grace Collis the assesses were shareholders of the amalgamating company who were allotted 14 shares for each share in the amalgamating company. They sold their shares in the amalgamated company, which were subjected to tax by the income tax officer (ITO). The assessee challenging the same contended that there was no “transfer” within the meaning of section 2 (47) of the Income tax Act, 1961. The Supreme Court observed: “ The definition of transfer in section 2 (47) clearly contemplates the extinguishment of rights in a capital asset distinct and independent of such extinguishment consequent upon the transfer thereof. It is not possible to approve of the limitation of the expression “extinguishment of any right therein” to such extinguishment on account of transfer or of the view that the said expression cannot be extended to mean the extinguishment of rights independent of or otherwise than on account of transfer. To so read the expression is to render it ineffective and its use meaningless. Therefore, the expression does include the extinguishment of rights in a capital asset independent of, and otherwise than on account of transfer. Therefore, the rights of the assessee in the shares in the amalgamating company stood extinguished upon the amalgamation of the amalgamating company with the amalgamated company. There was, therefore, a transfer of shares in the amalgamating company within the meaning of section 2 (47). It was, therefore, a transaction to which section 47 (vii) applied and, consequently, the cost to the assessee of the acquisition of shares of the amalgamated company had to be determined in accordance with the provisions of section 49(2)”.

In Income Tax Officer v Radha Krishnan the Supreme Court considered the question whether taxing the company and the shareholders simultaneously amounts to double taxation. In this case the undistributed profits was already taxed in the hands of the company before its distribution to the company’s shareholders. The assessee-shareholder challenged the subsequent taxation. The Supreme Court held that the question of double taxation arises only when the assessee is the same. The fact that the company had been taxed on the amount would not exempt the shareholder from the liability of the tax when the amount is being paid as income to the shareholder”.

In N.Bhagwathy v C.I.T the question before the Supreme Court was whether agricultural lands received by the shareholder upon liquidation of a company are exigible to capital gains tax. The Court observed: “ A distinction is drawn between a “transfer of asset” and a “distribution of assets” of the company in liquidation. Where there is transfer of assets and not a distribution on liquidation, then having regard to section 47(viii), which provides that nothing contained in section 45 shall apply to any transfer of agricultural land in India effected before 01-03-1970, it might have been argued at least on behalf of the company that the transfer having been concluded in 1969 was exempt from capital gains but such argument is not available to the shareholders who receive assets from the company in distribution consequent upon liquidation because of section 46(2) which was introduced to make the receipts of assets from a company in liquidation by its shareholders a taxable event for the first time. Section 46(2) does not contain any reference to capital assets either in connection with the imposition of capital gains tax nor its computation. Having referred to capital assets in section 45(1), 47 and 48, Parliament appears to have deliberately chosen to use the word “asset’ in section 46(1) and (2), the ostensible intention being to bring assets of all kinds within the scope of the charge. It is not necessary to refer to a dictionary to hold that capital assets are a species of the genus “assets”. If the words “capital assets” and “assets” as used in sections 45(1) and 46 respectively did not overlap, then there was no need to provide for a non obstante clause in section 46(1) with reference to section 45. The agricultural land would have been a capital asset but for the exclusion from the definition of capital asset and what is not a capital asset may yet be an asset for the purposes of section 46(2). Therefore, to the extent a shareholder receives assets whether in capital or any other form from the company in liquidation, the said shareholder is liable to pay tax on the market value of the assets as on the date of distribution as provided U/S 46(2). The invocation of section 2(14) which defines “capital asset” is as much unnecessary for the purpose of construing section 46(2)”.

The incorporation of a company under the Companies Act may provide a complete immunity from criminal prosecution in certain situations. For instance, in The Assistant Commissioner, Assessment-II, Bangalore v M/s. Velliappa Textiles Ltd. & Anr the questions considered by the Supreme Court were whether prosecution could be maintained against a juristic person like company and whether monetary fine in lieu of imprisonment could be imposed. By a majority of two to one the Court held that although the definition of “person” includes a company, it cannot be prosecuted for the offences U/S 276C, 277, 278 read with 278B, since each of the section requires the imposition of mandatory term of imprisonment coupled with fine and leave no choice to the court but to impose only a fine. The Court observed: “ It is a basic principle of criminal jurisprudence that a penal statute is to be construed strictly. If the act alleged against the accused does not fall within the parameters of the offence described in the statute the accused cannot be held liable. There is no scope for intendment based on the general purpose or object of law. If the Legislature has left a lacuna, it is not open to the Court to paper it over on some presumed intention of the Legislature. The doctrine of casus omissus, expressed in felicitous language in CST Vs. Parson Tools and Plants (1975) 4 SCC 22, is: "If the legislature willfully omits to incorporate something of an analogous law in a subsequent statute, or even if there is a casus omissus in a statute, the language of which is otherwise plain and unambiguous, the court is not competent to supply the omission by engraving on it or introducing in it, under the guise of interpretation, by analogy or implication, something what it thinks to be a general principle of justice and equity. To do so "would be entrenching upon the preserves of legislature". The primary function of a court of law being jus dicere and not jus dare. The maxim "Judicis est jus dicere, non dare" pithily expounds the duty of the Court. It is to decide what the law is and apply it; not to make it”. The question of criminal liability of a juristic person has troubled Legislatures and Judges for long. Though, initially, it was supposed that a Corporation could not be held liable criminally for offences where mens rea was requisite, the current judicial thinking appears to be that the mens rea of the person in-charge of the affairs of the Corporation, the alter ego, is liable to be extrapolated to the Corporation, enabling even an artificial person to be prosecuted for such an offence. That in India the situation has not been free from doubt is evident from two reports of the Law Commission of India, which recommended specific amendments in order to get over this difficulty. The Law Commission of India in its 41st report at paragraph 24.7 recommended as under: -
"24.7 - As it is impossible to imprison a corporation practically the only punishment which can be imposed on it for committing an offence is fine. If the penal law under which a corporation is to be prosecuted does not provide for a sentence of fine, there will be a difficulty. In order to get over this difficulty we recommend that a provision should be made in the Indian Penal Code e.g. as section 62 in Chapter III relating to punishments, on the following lines: -"In every case in which the offence is only punishable with imprisonment or with imprisonment and fine and the offender is a company or other body corporate or an association of individuals, it shall be competent to the Court to sentence such offender to fine only".
Again, the Law Commission of India in its 47th report vide paragraph 8.3 recommended as under: -
"8.3 - In many of the Acts relating to economic offences, imprisonment is mandatory. Where the convicted person is a corporation, this provision becomes unworkable, and it is desirable to provide that in such cases, it shall be competent to the court to impose a fine. This difficulty can arise under the Penal Code also, but it is likely to arise more frequently in the case of economic laws. We, therefore, recommend that the following provision should be inserted in the Penal Code as, say, Section 62: -
"(1) In every case in which the offence is punishable with imprisonment only or with imprisonment and fine, and the offender is a corporation, it shall be competent to the court to sentence such offender to fine only.
(2) In every case in which the offence is punishable with imprisonment and any other punishment not being fine, and the offender is a corporation, it shall be competent to the court to sentence such offender to fine.
(3) In this section, 'corporation' means an incorporated company or other body corporate, and includes a firm and other association of individuals."
The Law Commission's recommendations focused on the fact that the law as it exists renders it impossible for a court of law to convict a Corporation where the statute mandates a minimum term of imprisonment plus fine. It would not be open to the court of law to hold that a Corporation would be found guilty and sentenced only to a fine for that would be re-writing the statute and exercising discretion not vested in the court by the statute. It is precisely for this reason that the Law Commission recommended that where the offence is punishable with imprisonment, or with imprisonment and fine, and the offender is a corporation, the Court should be empowered to sentence such an offender to fine only. These recommendations have not been acted upon, though several other recommendations made by the 47th Report of the Law Commission have been accepted and implemented by Parliament vide the Taxation Laws (Amendment) Act, 1975. Hence, the state of law as noticed by the Law Commission continues. Prior to the substitution of Section 276C, 277 and 278 by the Taxation Laws (Amendment) Act, 1975 with effect from 1.10.1975 in the present form, there was no minimum sentence of imprisonment provided for. The intention of the legislature in imposing a minimum term of imprisonment for offences punishable thereunder was to do away with the Court's discretion of only imposing of a fine and make the punishment more stringent. The Law Commission in its 47th Report recommended (Chapter 18, pg. 157) that the punishment under section 276B, 276C, 276E, 277 and 278 should be increased. It further recommended, "there should be a provision for minimum imprisonment and minimum fine'. These recommendations were implemented vide the Taxation Laws (Amendment) Act, 1975. Hence, it is apparent that the legislative mandate is to prohibit the Courts from deviating from the minimum mandatory punishment prescribed by the statute. If, in spite of the amendment, the situation is seen as before, then I fail to see the purpose of the amendments made by the Taxation Laws (Amendment) Act, 1975. I am of the view that the Court should be slow in interpreting a penal statute in a manner, which would amount to virtual re-writing of the statute to prejudice to the accused. For the aforesaid reasons, I am of the view that the first respondent company cannot be prosecuted for offences under Sections 276C, 277 and 278 read with Section 278 since each one of these Sections requires the imposition of a mandatory term of imprisonment coupled with a fine and leaves no choice to the Court to impose only a fine”.

(2) Hindu Law:

The taxation laws have made drastic departures from the Hindu law as prevailing in India. For instance, in Tatavarthi Rajah v Wealth Tax Commr, Hyderabad the question before the Supreme Court was whether the provisions of section 20 of the Wealth Tax Act, 1957 could be applied to a case where the partition in the HUF in accordance with the principles of Hindu law has taken place before the commencement of the Act. The Supreme Court observed: “ Provision of section 20 is similar to that contained in section 25A of the Income Tax Act, 1922 and section 171 of the Income Tax Act, 1961.These provisions in the tax laws make a departure from the personal law governing partition in a Joint Hindu Family. Under the Hindu law a mere declaration of an intention to severe the joint status of the members of the HUF is sufficient to constitute the partition and the moment such a declaration is made, the joint family comes to an end and thereafter the members of undivided family becomes separated in status and they gold the joint family property as tenant under common ownership with definite shares in the property. But for the purpose of assessment of income tax and wealth tax, the legislature has imposed the requirement that for a partition in an HUF, it is necessary that the joint family property should be partitioned among the various members or groups of members in definite portions. The object underlying section 20 is also to avoid a situation where neither the HUF nor the individual members can be taxed in respect of the property of the joint family. No distinction can, therefore, be made between the cases where partition is alleged to have taken place before the commencement of the Act and where the partition is said to have taken place after the commencement of the Wealth Tax Act because the idea behind section 20 of the Act as well as section 171 of the Income Tax Act, 1961 is that for a given assessment year either the HUF must be assessed or its members must be assessed individually and unless the joint family properties are divided in definite portions and allotted to each individual member, it cannot be said that a particular member can be assessed with respect to a particular property or income, as the case may be, and mere division in status does not indicate which member is entitled to which of the properties”.

Similarly, in M/S Rashik Lal &CO v I.T.Commissioner, Orissa the Supreme Court observed: “ A firm is a compendious way of describing the individuals constituting the firm. A Hindu Undivided Family (HUF), directly or indirectly, cannot become a partner of a firm because the firm is an association of individuals. When section 4 of the Partnership Act speaks of “persons” who had entered into partnership with one another, it could only be individuals and not a body of persons. A body of persons, like a firm, could not enter into partnership with other individuals. An HUF cannot be in a better position than a firm in the scheme of the Partnership Act. In law, an HUF can never be a partner of a partnership firm. If a “karta” or any other member of the HUF joins a partnership, he can do so only as an individual. His rights and obligations vis-à-vis other partners are determined by the Partnership Act and not by the Hindu law. Where a “Karta” of an HUF enters into a partnership agreement with a stranger, the karta alone, in the eyes of law, is the partner. If any payment by the firm to a partner is prohibited by law, the Karta cannot be heard to say that the payment was received by him not as a partner but in some other capacity. Thus, if any remuneration is paid or a commission is given to a partner by a partnership firm, section 40(b) will apply even if the partner has joined the firm as a nominee of an HUF”.

On the other hand, the taxation laws have specifically recognized the applicability of the basic principles of Hindu law in certain cases. For instance, in C.I.T, Bihar v Sandhya Rani Dutta the Supreme Court observed: “ The principal question that we are concerned with here is the capacity of Hindu females to form among themselves an HUF. No authorities to support this are brought to our notice; indeed they cannot be, for the concept appears to us to be alien to the Hindu personal law which requires the presence of “a male” for the purposes of the constitution of an HUF. In the present case, the assessee and her two daughters inherited in their individual capacity a one-third share in the estate of the deceased. We have no authority before us, which can lead us to the conclusion that the assessee and her two daughters were capable of forming a Joint Hindu Family or of throwing the interest of any one of them in the inherited property therein. The concept of Hindu females forming a Joint Hindu Family by agreement amongst themselves appears to us to be contrary to a basic tenet of the Hindu personal law”.

(3) The Succession Laws:

The Succession Laws have their own impact on the taxation laws. The taxation statutes also contain provisions granting exemption from tax in case of a receipt by the legal representatives on the death of the earning member. The purpose seems to be to give some solace to the legal representatives of the deceased. For instance, the lump sum payment made gratuitously or by way of compensation or otherwise to the widow or other legal heirs of an employee, who dies while still in active service, is not taxable as income under the Income Tax Act, 1961. The courts are generally liberal in granting exemptions from tax to the legal representatives of the deceased. For instance, in C.I.T v Amarchand. N. Shroff the Supreme Court held that money paid to the heirs of a deceased person being sums earned by, or having accrued to, the deceased during his lifetime as a partner in a solicitor’s firm would be received by the heirs as part of the estate of the deceased, and, therefore, would be capital receipt not chargeable to tax. The Supreme Court in C.I.T v James Anderson reiterated this view.

Similarly, in Kapil Mohan v I.T. Commissioner, Delhi the question before the Supreme Court was whether payment of annuity to the legal representatives of the deceased would be taxable in their hands. The court observed: “ On the original depositor’s death the balance of the annuity deposit that he had made became part of his estate and was liable to tax as such. On becoming a part of his estate, his legal representatives became entitled to recover it, and they would under the general law be entitled to recover it in one lump sum, paying no tax on it (except estate duty, should a statute levying it be on the statute book, at the relevant time). It cannot be taxed as income in the hands of the legal representatives unless the statute were expressly to deem it to be income in his hands”.
Thus, succession laws have their own positive impact on the taxation laws from the point of view of recipient legal heirs.

(4) The Indian Partnership Act, 1932:

The provisions of Indian Partnership Act, 1932 plays an important role in bringing different tax results. The provisions of the Act would be the guiding force for deciding whether there is a partnership in existence or not for the purpose of fixation of taxation liability. The settled legal position is that unless the taxation laws expressly provides to the contrary, the provisions of the Partnership Act would prevail and will be conclusive for deciding whether there is a genuine partnership or it is merely used as a cloak for tax evasion.

In Commr of Sales Tax v K.Kelukutty the Supreme Court observed: “ In every case where the assessee professes that it is a partnership firm and claims to be taxed in that status, the first duty of the assessing officer is to determine whether it is, in law and in fact, a partnership firm. The definition in the tax law defines an “assessee” or a “dealer” as including a firm. But for determining whether there is a firm, the assessing officer will apply the Partnership law, subject of course, to any specific provision in that regard in the tax law modifying the partnership law. If the tax law is silent, it is the partnership law only to which he will refer. Having decided the legal identity of the assessee, that it is a partnership firm, he will then turn to the tax law and apply its relevant provisions for assessing the partnership income. The Kerala general Sales Tax Act contains no provision, which bears on the identity of a partnership firm. Therefore, recourse must be had for that purpose to the partnership law alone. Where it is claimed that there are not one but two partnership firms constituted by the same persons and carrying on different businesses, the assessing authority must test the claim in the light of the partnership law. It is only after that question has been first determined that the next question arises: whether the turnover is assessable in the hands of the partnership firm as taxable entity separate and distinct from its partners? There is first a decision under the law of partnership; therefore, the second question arises, the question as to the assessment under the tax law. It is clear that reference must be made first to the partnership law.
The Court further observed: “ The Indian partnership Act, 1932, has, by section 4, defined a “partnership” as the relation between the persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The section declares further that the persons who have entered into a partnership with one another are called individually “partners” and collectively a “firm”. The foundation of a partnership and, therefore, of a firm is a partnership agreement. If that conclusion be right, it is only a further step to hold that each partnership agreement may constitute a distinct and separate partnership and, therefore, distinct and separate firm. That is not to say that a firm is a corporate entity or enjoys a juristic personality in that sense. The firm name is only a collective name for the individual partners. But each partnership is a distinct relationship. The partners may be different and yet the nature of the business may be the same, the business may be different and yet the partners may be the same. It will all depend upon the intention of the partners. The intention of the partners will have to be decided with reference to the terms of the agreement and all the surrounding circumstances, including evidence as to the interlacing or interlocking of management, finance and other incidents of the respective businesses”.

(5) The Banking Law:

A Banking Company operating in the banking sector is governed by its own rules and regulations as well as by the rules and regulations framed by the Reserve Bank of India and the Indian Companies Act from time to time. Within its sphere it is autonomous and supreme and its operation cannot be curtailed and superseded by any external agency. The taxation laws, however, have made inroads into this autonomy and functioning of a bank and have given powers to the assessing officers to ask for legitimate and genuine information from them. In Karnataka Bank Ltd v Secretary, Govt of India the Supreme Court considered the scope of section 133(6) of the Income Tax Act which deals with power of the assessing officer to call for information from a bank. The Court observed: “ It is clear from the mere reading of section 133(6) that it is not necessary that any inquiry should have been commenced with the issuance of notice or otherwise before section 133(6) could have been invoked. It is with the view to collect information that power is given U/s 133(6) to issue notice, inter alia, requiring a banking company to furnish information in respect of such points or matters as may be useful or relevant. The second proviso makes it clear that such information can be sought for even when no proceedings under the Act is pending, the only safeguard being that before this power can be invoked, the approval of the Director or Commissioner, as the case may be, has to be obtained. In the instant case, the notice indicates that it was at the instance of the Director of Income Tax (Investigation) that the information was sought for”.

(6) The Accounting Law:

The method of accounting followed by the assessee has an important bearing on the tax liability of the assessee. Section 145 of the Income Tax Act, 1961 provides that income under the head “Profit and gains of business or profession” and income under the head “ Income from other sources” are to be computed in accordance with the method of accounting regularly employed by the assessee. The method of accounting is, however, irrelevant for computing the income under the head salary, income from house property and capital gains. In the “Cash system” the income is charged on “receipt” basis whereas in a “Mercantile system” the income is charged on “accrual” basis. In Bison Field Estate v IAC and Others the assessee, a planter of coffee, handed over the coffee to the coffee pool and credited the value of the coffee on the basis of estimated value as given by the pooling agent. He received in the subsequent year amounts in excess of the estimated value and treated the same as the income of the subsequent year. It was held that the entire consideration for the coffee pooled in each year accrued in the year of sale and had to be assessed in that year as the assessee was following the mercantile system of accounting.

The accounting principles adopted by the assessee may provide him an opportunity to reduce the amount of income chargeable to tax if they are in accordance with settled and well established accounting principles. For instance, in Commissioner of Income Tax, Kanpur v U.P. State Industrial Development Corporation the assessee was maintaining the accounts according to settles principles of accountancy. It earned an amount in the form of underwriting commission, which the revenue claimed to be his income. The Supreme Court, rejecting the contention of the revenue, observed: “ In the present case, the Tribunal, after referring to authoritative books on Accountancy, has found that the assessee was maintaining the accounts correctly in accordance with the principles of accountancy applicable to underwriting accounts and keeping in view the said principles the underwriting commission on the shares which were not subscribed by the public and were purchased by the assessee could not be treated as profit earned by the assessee in the transaction and the said commission could only be treated as reducing the price of the shares purchased by the assessee. The Tribunal has also stated that there is no contrary provision in the Act. The learned counsel for the Revenue has not shown that the accountancy practice followed by the assessee is repugnant to any provision of the Act. In the circumstances, it must be held that the Tribunal has not committed any error in taking the view that the underwriting commission earned by the assessee in respect of the shares which were not subscribed by the public and were purchased by the assessee could not be treated as a part of its taxable income”.

(7) The Criminal law:

The most important and interesting relationship between taxation law and other laws is the relationship between taxation laws and the criminal laws. It must be noted that a violation under the Income Tax Act may also give rise to criminal proceedings. These proceedings may be simultaneous and may have a bearing on the final disposal of the criminal proceedings. A criminal prosecution based on the violation of the provisions of the taxation laws cannot and should not survive if the violation under the taxation laws itself is set aside or is found baseless. The criminal proceedings may be stayed or quashed in such cases depending upon the facts and circumstances of each case.

In C.I.T v B.C.Dalal the Supreme Court considered the question whether the criminal proceeding under the Income Tax Act in the criminal court, was required to be stayed during the pendency of appeals before the Income Tax Authorities. The Court observed: “ Although the said two types of proceedings are independent proceedings, however, where the fate of the appeal in relation to assessment before the Income Tax Authorities had a direct bearing on the criminal case and there was no claim to quashing of the criminal proceedings, the High Court was right in granting an interim order staying the proceedings of the criminal case”.

Similarly, in Ashirvad Enterprises and Ors. V State of Bihar & Anr the prosecution was launched against the appellants for alleged concealment of income and thereby willfully attempting to evade tax, and for making false statement on verification in terms of Sections 276C of the Income Tax Act, 1961 (in short the 'Act'). The Supreme Court observed: “Section 245C of the Act deals with application of settlement of cases. As noted above no immunity can be granted by the Commission in cases where the proceedings for prosecution under the Act or under the Indian Penal Code, 1860 (in short 'the IPC') or under any Central Act for the time being in force have been instituted before the date of receipt of application under Section 245C after 1.6.1987. There is logic in the prohibition. It is intended to discourage filing of belated applications after prosecution is launched. Section 245H is a magnet which attracts large tax-dodgers, and it was emphasised that power of immunisation against criminal prosecution should be used in deserving cases. Whether grant of immunity is called for in a given case is to be decided by the Commission on the facts of each case and no straightjacket formula for any universal application can be laid down. In the instant case, the Commission has been satisfied that grant of immunity is called for. Since that decision has not been questioned by the Income Tax Authorities it has attained finality. Conditions required to be fulfilled before immunity can be granted are that the Commission has to be satisfied that the applicant (a) has made full and true disclosure of his income and the manner in which such income has been derived and (b) has co-operated with the Commission in the proceedings before it. In the instant case as the records reveal the application for settlement in terms of Section 245C was filed on 27.5.1991. The prosecution was launched on 27.2.1992. Obviously, therefore, application for settlement was filed before prosecution was launched. Above being the position, the proceedings before the Special Court are quashed”.

Again in K.C Builders v Assistant Commissioner of income Tax the Supreme Court observed: “ In the instant case, the penalties levied U/S 271 (1) (c) were cancelled by the respondent by giving effect to the order of the Income tax Appellate Tribunal. It is settled law that levy of penalties and prosecution U/S 276C are simultaneous. Hence, once the penalties are cancelled on the ground that there is no concealment, the quashing of prosecution U/S 276C is automatic. The appellant cannot be made to suffer and face the rigours of criminal trial when the same cannot be sustained in the eyes of law because the entire prosecution in view of the conclusive finding of the Income Tax Tribunal that there is no concealment of income becomes devoid of jurisdiction and U/S 254 of the Act, a finding of the Tribunal supersedes the order of the assessing officer U/S 143 (3), more so, when the assessing officer cancelled the penalty levied. Once the finding of concealment and subsequent levy of penalties U/S 271(1) (c) of the Act has been struck down by the Tribunal, the assessing officer has no other alternative except to correct his order U/S 154 of the Act as per the directions of the Tribunal. If the Tribunal has set aside the order of concealment and penalties, there is no concealment in the eyes of law and, therefore, the prosecution cannot be proceeded with by the complainant and further proceedings will be illegal and without jurisdiction. If the trial is allowed to proceed further after the order of the Tribunal and the consequent cancellation of penalty, it will be an idle and empty formality to require the appellants to have the order of Tribunal exhibited as a defence document inasmuch as the passing of the order as aforementioned is unsustainable and unquestionable. It is a well established principle that the matter which has been adjudicated and settled by the tribunal need not be dragged into the criminal courts unless and until the act of the applicants could have been described as culpable”.

In Nirmal& Navin Pvt Ltd v D. Ravindran the Settlement Commission granted immunity from levy of penalty and prosecution in respect of fictitious profit earned. The revenue, however, initiated prosecution proceedings while completing reassessment. The Supreme Court observed: “ The order is passed in view of the power conferred on the Settlement Commission to grant immunity from prosecution and penalty U/S 245H of the Income Tax Act, which empowers the settlement Commission to grant such immunity, if any person has made a full and true disclosure of his income and the manner in which such income has been derived, on such condition as it may think fit to impose, from prosecution for any offence under the Act or under the I.P.C or under any other Central Act for the time being in force with respect to the case covered by the settlement. Further, section 245-I specifically provides finality and conclusiveness to such order and it cannot be reopened in any proceeding under the Act or under any other law for the time being in force. In view of the total immunity granted by the Settlement Commission, it was totally unjustified on the part of the Commissioner of Income Tax to proceed with the complaint against the appellants. It is also not open to the criminal court to go behind the order passed by the Settlement Commission. Hence, in view of the order passed by the Settlement Commission, the prosecution which is pending against the appellants would not survive”.

These cases clearly show that a criminal proceeding, which has its origin in the provisions of the taxation laws, cannot survive independently of those provisions. If the substantive provision under which the prosecution was launched itself is quashed, nothing survives for the appraisal of the criminal court. In such a situation the criminal prosecution is required to be quashed. The continuance of such prosecution amounts to abuse of process of law and is violation of Article 21 of the Constitution of India, which mandates a just and reasonable trial.

III. Conclusion

The discussion above clearly shows that the taxation laws cannot be interpreted and applied in isolation, but a holistic approach should be adopted while dealing with them. The correct legal implications of the taxation laws cannot be ascertained and applied unless and until a person is aware of the working and effect of other laws on it. The taxation laws cannot be interpreted and applied merely by applying the bare provisions of the taxation laws but they have to be construed in a “purposive manner” so that it does not result in miscarriage of justice and absurd results. These provisions must not only be in conformity with the Constitutional provisions but also with other statutes, so that taxation laws can be applied in their true letter and spirit.