Bombay High Court
Unique Trading Company And Ors vs The State Of Maharashtra And Ors on 5 February, 2024
Author: N. J. Jamadar
Bench: N. J. Jamadar
2024:BHC-AS:5572
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Santosh
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPLICATION NO. 165 OF 2023
1. Unique Trading Company
2. Munnidevi P. Purohit
3. Rakesh P. Purohit
4. Mukesh P. Purohit ...Applicants
Versus
1. Income Tax Officer - 18 (3)(5)
2. Principal Commissioner of Income Tax-18
3. The State of Maharashtra ...Respondents
Mr. Sameer Dalal, i/b Satish Mody, for the Applicants.
Mr. S. R. Aagarkar, APP for the State/Respondent.
Mr. Siddharth Chandrashekhar, for Respondent No.2.
CORAM: N. J. JAMADAR, J.
RESERVED ON: 2nd JANUARY, 2024
PRONOUNCED ON: 5th FEBRUARY, 2024
JUDGMENT:
-
1. This is an application under Section 482 of the Code of
Criminal Procedure, 1973 ("the Code") to quash the complaint
lodged by the Income Tax Authorities for an offence punishable
under Section 276C(2) read with Section 278B of the Income Tax
Act, 1961 ("the IT Act, 1961").
2. Shorn of unnecessary details, the background facts can be
stated as under:
(a) Applicant No.1 is a partnership firm registered under
the provisions of Indian Partnership Act, 1932. Applicant No.1
is engaged in the business of distribution of welding electrodes,
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machines and accessories. Applicant Nos.2 to 4 are the partners
of applicant No.1 firm.
(b) Applicant No.1 firm had filed its original return of
income for Assessment Year (AY) 2010-2011 declaring income of
Rs.21,79,850/- computing the tax payable alongwith interest at
Rs.7,15,573/-. Out of which Rs.1,06,512/- was claimed as Tax
Deducted at Source (TDS) and Rs.1,00,000/- was paid as
advance tax. An amount of Rs.5,09,061/- was shown as tax
payable on the reported income.
(c) The applicants claim, applicant No.1 firm is a family
run concern. Mr. P. G. Purohit, the husband of applicant No.2
and father of applicant Nos.3 and 4, was managing the entire
affairs of the firm. Mr. P. G. Purohit passed away in the month
of May, 2014. Applicant Nos.2 to 4 were unaware of the affairs
of the firm especially the non-payment of the tax of
Rs.5,09,061/- declared in the return for AY-2010-2011.
3. Principal Commissioner of Income Tax, respondent No.2,
issued a notice calling upon the applicant to show cause as to
why prosecution proceedings under Section 276C(2) of the IT
Act, 1961 be not initiated as the applicant had allegedly wilfully
attempted to evade payment of due tax. After assessing the
position, the applicants claim, immediately on 12th March, 2018
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the applicants paid the entire due tax including interest thereon
aggregating to Rs.5,32,410/-. A reply was also filed to the show
cause notice on 13th March, 2018 pointing out the payment of
the aforesaid amount of Rs.5,32,410/- and also ascribing the
reason for non-payment thitherto, namely, the late P. G. Purohit
then being at the helm of the affairs of the firm and the
applicants unaware thereof.
4. The applicants assert, without considering the factum of
payment, the reason ascribed in the reply and absence of wilful
attempt to evade the payment of tax, respondent No.2 granted
sanction to prosecute the applicants for an offence punishable
under Section 276C(2) of the IT Act, 1961. The sanction is
vitiated by non-application of mind.
5. Armed with the said sanction, respondent No.1 filed a
complaint for an offence punishable under Section 276C(2) read
with Section 278B of the IT Act, 1961. The learned Additional
Chief Metropolitan Magistrate, 30th Court Ballard Pier, issued
process against the applicants for an offence punishable under
Section 276C(2) read with Section 278B of the IT Act, 1961.
6. The applicants aver prosecution of the applicants for the
alleged offence punishable under Section 276(2) of the IT Act,
1961 is an abuse of the process of the Court. Even if the case of
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the Income Tax Department, as set out in the complaint, is
taken at its face value, no offence under Section 276C(2) of the
IT Act, 1961 can be said to have been made out. In substance,
it is the contention of the applicants that there was no wilful
attempt to evade the tax on the part of the applicants. Under
four days of the service of the show cause, the applicants
deposited the due tax and interest thereon. Subsequently, the
applicants have also deposited a sum of Rs.4,47,220/- towards
interest for AY-2010-2011 under Section 220 of the IT Act, 1961,
on 23rd January, 2020. Since applicant No.1 firm had faithfully
disclosed the income and the tax which was payable thereon
and the due tax alongwith interest came to be paid immediately
after service of the show cause notice, the non-payment cannot
be construed as a wilful attempt to evade the payment of tax, to
fall within the mischief of Section 276C(2) of the IT Act, 1961.
Hence, the applicants were constrained to invoke the inherent
jurisdiction of this Court.
7. An affidavit-in-reply is filed on behalf of respondent Nos.1
and 2 controverting the contentions in the application. At the
outset, respondent Nos.1 and 2 contend that the claim of the
applicants that applicant Nos.2 to 4 were unaware of the affairs
of the firm as late P. G. Purohit was managing the entire affairs
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is patently incorrect. In fact, the ITR filed on 28 th September,
2019 was signed and verified by Mr. Rakesh Purohit, applicant
No.3. Thus, the applicants cannot feign ignorance.
8. The respondents further contend that it was only after the
service of the show cause notice the applicants paid the tax
which was shown to be payable in the ITR for AY-2010-2011.
Had the applicants paid the tax suo motu, different
considerations would have come into play. Therefore, the
applicants cannot derive mileage from the factum of payment of
the tax after service of the show cause notice, in the year 2018.
On the contrary, according to respondent Nos.1 and 2, the said
fact points to the wilful evasion of tax.
9. Respondent Nos.1 and 2 have also refuted the assertions
of the applicants that mere failure to pay the tax does not
amount to a wilful attempt to evade the tax. In any event,
according to respondent Nos.1 and 2, the aspect of the intent on
the part of the applicants in the non-payment of the tax is a
matter for trial. Therefore, at this stage, a legitimate prosecution
cannot be interdicted.
10. In the wake of the aforesaid pleadings, I have heard Mr.
Sameer Dalal, the learned Counsel for the applicants, Mr.
Chandrashekhar, the learned Counsel for respondent Nos.1 and
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2 and Mr. Aagarkar, the learned APP for the State - respondent
No.3. With the assistance of the learned Counsel for the parties,
I have also perused the material on record especially the ITR for
AY-2010-2011, show cause notice, reply thereto, order of
sanction and the complaint lodged by respondent No.1.
11. Mr. Dalal, the learned Counsel for the applicant,
submitted that the order passed by respondent No.2 granting
sanction for prosecution suffers from the vice of complete non-
application of mind. Despite having noted that the applicants
had paid the entire tax due upon being served with the notice,
respondent No.2 unjustifiably observed that the applicants had
made a wilful attempt to evade the tax. Respondent No.2 clearly
lost sight of the fact that the applicants had disclosed the
income and also computed the self-assessment tax which was to
be paid. Mere failure to pay the tax due by itself cannot be
construed as a wilful attempt to evade the tax. Absence of the
mens rea to evade the payment of tax was not at all considered
by respondent No.2.
12. Mr. Dalal submitted that by catena of decisions it has been
held that there is a distinction between a mere failure to pay the
tax due and wilful attempt to evade the tax, which requires a
positive act on the part of the assessee. To bolster up this
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submission, the learned Counsel for the applicants placed
reliance on the decision of the Supreme Court in the case of
Prem Dass vs. Income Tax Officer1, a decision of Karnataka High
Court in the case of Vyalikaval House Building Co-operative
Society Ltd & ors. vs. Deputy Commissioner of Income Tax 2, a
decision of the Madras High Court in the case of S. P.
Velayutham vs. Assistant Commissioner of Income Tax3, a
decision of Gujarat High Court in the case of Ganga Devi
Somani & ors. vs. State of Gujarat4 and another decision of
Madras High Court in the case of Bejan Singh Eye Hospital Pvt.
Ltd. and ors. vs. Income Tax Department5.
13. Per contra, Mr. Chandrashekhar, the learned Counsel for
respondent No.2, would submit that the time-lag of more than
eight years in making the payment in itself speaks volumes
about the intent on the part of the applicants to evade the tax.
It is only after the service of the show cause notice, the
applicants paid the amount of self-assessment tax. The
applicants, therefore, cannot be heard to urge that there was no
wilful attempt at evasion of the tax.
1 (1999) 5 SCC 241.
2 (2020) 428 ITR 89 (Karn.).
3 (2022) 327 CTR (Mad).
4 (2021) 321 CRT (Guj) 640.
5 (2020) 428 ITR 206 (Mad).
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14. Taking the Court through the provisions of sub-sections
(1) and (2) of Section 276C of the IT Act, 1961 and comparing
and contrasting the text thereof, the learned Counsel for
respondent No.2 submitted that the legislature has consciously
used different language to prescribe punishment in the matter
of wilful evasion of tax chargeable and imposable, i.e. before
filing of return, and wilful evasion of payment of tax, i.e. after
filing of the return. The evasion of payment of self-assessment
tax by the applicants squarely falls within the dragnet of the
offence punishable under Section 276C(2) of the Act, 1961 as a
clear case of deliberate evasion for eight long years has been
made out.
15. Mr. Chandrashekhar placed reliance on a decision of this
Court in the case of Nayan Jayantilal Balu vs. Union of India
and ors.6, wherein a Division Bench of this Court declined to
interfere with an order sanctioning prosecution and the
consequent complaint under Section 276C(1) of the IT Act, 1961,
opining that prima facie the ingredients of the said offence were
made out and the veracity or otherwise of the allegations
contained therein can only be decided at the stage of trial.
6 Cri.WP/2698/2021 dtd.7/12/2021.
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16. To start with, it may be apposite to note the provisions
contained in Section 276C of the IT Act, 1961. Section 276C is
subsumed in Chapter XXI under caption 'Penalties Imposable'.
It reads as under:
"276C. (1) If a person wilfully attempts in any manner
whatsoever to evade any tax, penalty or interest chargeable
or [imposable, or under reports his income,] under this Act,
he shall, without prejudice to any penalty that may be
imposable on him under any other provision of this Act, be
punishable,-
(i) in a case where the amount sought to be evaded
[or tax on under- reported income] exceeds [twenty-five]
hundred thousand rupees, with rigorous
imprisonment for a term which shall not be less than
six months but which may extend to seven years and
with fine;
(ii) in any other case, with rigorous imprisonment
for a term which shall not be less than three months
but which may extend to [two] years and with fine.
(2) If a person wilfully attempts in any manner whatsoever
to evade the payment of any tax, penalty or interest under
this Act, he shall, without prejudice to any penalty that may
be imposable on him under any other provision of this Act,
be punishable with rigorous imprisonment for a term which
shall not be less than three months but which may extend
to [two] years and shall, in the discretion of the court, also
be liable to fine.
Explanation.- For the purposes of this sections, a wilful
attempt to evade any tax, penalty or interest chargeable or
imosable under this Act or the payment thereof shall
include a case where any person-
(i) has in his possession or control any books of
account or other documents (being books of account or
other documents relevant to any proceeding under this
Act) containing a false entry or statement; or
(ii) makes or causes to be made any false entry or
statement in such books of account or other
documents; or
(iii) wilfully omits or causes to be omitted any
relevant entry or statement in such books of account
or other documents; or
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(iv) causes any other circumstances to exist which
will have the effect of enabling such person to evade
any tax, penalty or interest chargeable or imposable
under this Act or the payment thereof.].
17. On a plain reading of sub-section (1) and (2) of Section
276C, the distinction between two sub-sections becomes
evidently clear. While sub-section (1) of Section 276C deals with
wilful attempt to evade any tax penalty or interest chargeable or
imposable or under reporting of income, sub-section (2) of
Section 276C punishes wilful attempt to evade the payment of
any tax, penalty or interest. Evidently, sub-sections (1) and (2)
of Section 276C operate in different spheres. However, the
linchpin of the offences covered by sub-section (1) as well as
sub-section (2) of Section 276 is, "wilful attempt to evade". The
Explanation to Section 276C by way of illustration provides the
the kinds of acts which may amount to wilful attempt to evade
tax. Undoubtedly, the Explanation is inclusive and, therefore,
there can be a wilful attempt to evade tax in any other manner
not expressly referred to in the Explanation. Nonetheless, the
illustrations adverted to in the Explanation emphasise a
conscious act or omission on the part of the assessee with a
design to evade the tax.
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18. The moot question that wrenches to the fore is, "whether a
failure to pay any tax, interest or penalty can be construed as a
wilful attempt to evade tax, interest or penalty, without anything
more?
19. The text of sub-section (2) of Section 276C is required to
be construed keeping in view its evident nature and purport
being penal. A penal statute is required to be construed strictly.
It is not open to expand the scope of the words used in a penal
statute so as to fasten liability on the persons who would
otherwise not fall within the dragnet of the penal provision.
Undoubtedly, the object of the penal provision cannot be lost
sight of and it must be construed in such a manner as to
advance the object of the enactment. In substance, both the
text and the context deserve to be taken into account.
20. As noted above, the key phrase in sub-sections (1) and (2)
of Section 276C is "wilful attempt to evade". When the
expression wilful is used in a penal statute it is generally
construed to bring in its trail the element of a mental state. In
the Black's Law Dictionary, Eighth Edition, the term 'wilful' is
explained as under:
"wilful, adj. Voluntary and intentional, but not necessarily
malicious. -- Sometimes spelled wilful. Cf. WANTON. --
wilfulness, n.
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"The word 'wilful' or 'wilfully' when used in the definition of a
crime, it has been said time and again, means only
intentionally or purposely as distinguished from accidentally
or negligently and does not require any actual im-propriety;
while on the other hand it has been stated with equal
repetition and insistence that the requirement added by such
a word is not satisfied unless there is a bad purpose or evil
intent." Rollin M. Perkins & Ronald N. Boyce, Criminal Law
875-76 (3d ed. 1982)."
21. In P. Ramnatha Aiyar's Advanced Law Lexicon, 3 rd Edition,
after noting the aforesaid explanation in the Black's Law
Dictionary, the import of the term in civil and criminal causes is
elucidated as under:
"The question whether an act or omission is wilful arises
oftener in criminal than in civil causes; since in the former
the general principle requiring the presence of mens rea
excludes from criminality acts done accidentally and
unintentionally and even acts done intentionally under
honest but mistaken belief in the existence of facts which, if
true, would have made the acts lawful or excusable."
(emphasis supplied)
22. In the case of Kapildeo Prasad Sah vs. State of Bihar 7 in
the context of civil contempt, the Supreme Court enunciated the
word 'wilful' would exclude casual, accidental, bona fide or
unintentional acts or genuine inability to comply with the terms
of the order.
23. It would be contextually relevant to note what the term "to
evade" or "evasion" implies.
7 1999(7) SCC 569.
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24. In Black's Law Dictionary, 'tax evasion', is defined as a
wilful attempt to defeat or circumvent the tax law in order to
illegally reduce one's tax liability. In P. Ramnathan Law Lexicon,
the word "evade" is defined as under:-
"Evade. To avoid by some dexterity; by some device or
stratagem; to elude: to escape (as) to evade a blow; to evade
punishment; to evade the force of an argument."
25. In the context of the payment of duty as enunciated by the
Supreme Court in the case of Tamil Nadu Housing Board vs.
CCE8, the word 'evade' means defeating the provisions of law of
paying duty. In substance, evasion of tax means illegal non-
payment of tax as due.
26. If the aforesaid two expressions, "wilful attempt" and "to
evade" are read in conjunction, to fall within the tentacles of
Section 276C(2) the act or omission ought to constitute a wilful
attempt with a design to defeat the liability to pay tax. "Attempt"
in turn, means an act or an instance of making an effort to
accomplish something. In criminal law an attempt connotes an
overt act that is done with the intent to commit a crime but that
falls short of completing the crime. It is an inchoate offense
which is distinct from the attempted crime.
8 1995 (Supp.) (1) SCC 50.
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27. In the backdrop of the aforesaid juridical connotation of
the key words used in Section 276C(1) and (2) of the IT Act,
1961, a reference to the judgments, which bear upon the
determination of the controversy, may become advantageous.
28. In the case of Prem Dass (supra) the appellant therein was
convicted under Section 276C(1) of the Act, 1961 on a complaint
by the Tax Authorities that the appellant had incorrectly made a
verification on the Income Tax Return. The learned Magistrate
convicted the appellant; which order was set aside by the Court
of Session. In appeal against acquittal, the High Court was
persuaded to set aside the order of acquittal and convict the
appellant.
29. In the aforesaid factual background, after adverting to
provisions contained in Section 276C(1) and Section 277 (false
statement in verification etc.) of the IT Act, 1961, the Supreme
Court enunciated that wilful attempt to evade any tax, penalty
or interest chargeable or imposable under Section 276C is a
positive act on the part of the accused which is required to
bring home the charge against the accused. Similarly, a
statement made by a person in any clarification under the Act
can be an offence under Section 277 if the person making the
same effort knew or believed the same to be false or does not
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believe it to be true. Necessary mens rea, therefore, is required
to be established by the prosecution to attract the provisions of
Section 277 of the Act.
30. Following the aforesaid pronouncement, a learned Single
Judge of the Karnataka High Court in the case of Vyalikaval
House Building Co-operative Society Ltd. (supra) enunciated the
law as under:
"8. The gist of the offence under Section 276C(2) of the Act
is the wilful attempt to evade any tax, penalty or interest
chargeable or imposable under the Act. What is made
punishable under this Section is an "attempt to evade tax
penalty or interest" and not the actual evasion of tax.
'Attempt' is nowhere defined in the Act or in the Indian
Penal Code. In legal echelons 'attempt' is understood as a
"movement towards the commission of the intended crime".
It is doing "something in the direction of commission of
offence". Viewed in that sense, in order to render the
accused guilty of "attempt to evade tax" it must be shown
that he has done some positive act with an intention to
evade tax.
9. In the instant case, the only circumstance relied on by
the respondent in support of the charge levelled against the
petitioners is that, even though accused filed the returns,
yet, it failed to pay the self-assessment tax along with the
returns. This circumstance even if accepted as true, the
same does not constitute the offence under Section 276C (2)
of the Act. The act of filing the returns by itself cannot be
construed as an attempt to evade tax, rather the submission
of the returns would suggest that petitioner No.1 had
voluntarily declared his intention to pay tax. The act of
submitting returns is not connected with the evasion of tax.
It is only an act which is closely connected with the
intended crime, that can be construed as an act in attempt
of the intended offence. In the backdrop of this legal
principle, the Hon'ble Supreme Court in the case of Prem
Dass - vs - Income Tax Officer cited supra, has held that a
positive act on the part of the accused is required to be
established to bring home the charge against the accused
for the offence under Section 276C(2) of the Act.
10. In the case on hand, conduct of petitioner No.1 making
payments in terms of the returns filed by him, though
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delayed and made after coercive steps were taken by the
Department do not lead to the inference that the said
payments were made in an attempt to evade tax declared in
the returns filed by him. Delayed payments, under the
provisions of the Act, may call for imposition of penalty or
interest, but by no stretch of imagination, the delay in
payment could be construed as an attempt to evade tax so
as to entail prosecution of the petitioners for the alleged
offence under Section 276C(2) of the Act. In that view of the
matter, the prosecution initiated against the petitioners, in
my considered opinion, is illegal and tantamount to abuse
of process of Court and is liable to be quashed."
(emphasis supplied)
31. To the same effect is the decision of the Madras High
Court in the case of Mrs. Noorjahan vs. Deputy Commissioner
of Income Tax9. Repelling the submissions that presumption
contained in Section 278B of the IT Act, 1961 comes to the aid
of the prosecution, the learned Single Judge, in the facts of the
said case, observed as under:
13. In the instant case, admittedly there is no concealment
of any source of income or taxable item, inclusion of a
circumstance aimed to evade tax or furnishing of inaccurate
particulars regarding any assessment or payment of tax.
What is involved is only a failure on the part of the
petitioner to pay the tax in time, which was later on paid
after 4½ months along with interest payable. So, it would
not fall under the mischief of Section 276 C of the Income
Tax Act, which requires an attempt to evade tax and such
attempt must be a wilful.
14. If the intention (culpable mental state) of the assessee
was to evade tax or attempt to evade tax, they would not
have filed the returns in time disclosing the income and the
tax liable to be paid. They would not have remitted the tax
payable along with interest without waiting for the
authorities to make demand or notice for prosecution. Thus,
except a delay of 4 ½ months in payment of tax, it is clear
that there was no tax evasion or attempt to evade the
payment of tax. To invoke the deeming provision, there
should be a default in payment of tax in true sense. Nothing
9 (2022) 445 ITR (Mad).
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can be deemed contrary to the fact borne by record. If such
deeming fiction is applied by the authority, is has to be
termed as non application of mind over the material
records.
......
16. A 'culpable mental state' which can be presumed
under Section 278E of the Act would come into play only in
a prosecution for any offence under the Act, when the said
offence requires a 'culpable mental state' on the part of the
accused. Section 278E of the Act is really a rule of Evidence
regarding existence of mens rea by drawing a presumption
though rebuttable. That does not mean that, the
presumption would stand applied even in a case wherein the
basic requirements constituting the offence are not
disclosed. More particularly, when the tax is paid much
before the process for prosecution is set into motion. The
presumption can be applied only when the basic ingredient
which would constitute any offence under the Act is
disclosed. Then only, the rule of evidence under Section
278E of the Act regarding rebuttable presumption as to
existence of culpable mental state on the part of accused
would come into play.
17. When the facts on record discloses that the tax already
paid and no evasion of tax, no man of ordinary prudence
can presume that there is an attempt to evade tax and such
attempt is a wilful one."
(emphasis supplied)
32. In the case of S. P. Velayutham (supra), another learned
Single Judge of Madras High Court, after noticing the decisions
holding the field, observed that the word employed in the
section namely, "wilful attempt" cannot be imported to mere
failure to pay the tax. The judgment of Gujarat High Court in
the case of Ganga Devi Somani (supra) inter alia observes that
delayed payment under the provisions of the Act may call for
penalty or interest but by no stretch of imagination (in the facts
and circumstances as pleaded by the petitioners therein) could
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be construed as an attempt to evade tax so as to entail
prosecution of the petitioner for the alleged offence under
Section 276C(2) of the IT Act, 1961.
33. The decision of this Court in the case of Nayan Balu
(supra), on which reliance was placed by the learned Counsel for
respondent No.1, does not govern the facts of the case as in the
said case the challenge was to the initiation of the prosecution
under Section 276C(1) of the IT Act, 1961 as it was alleged that
the petitioner therein failed to substantiate the claim of
purchases as the Assessing Officer had found the purchases to
be bogus.
34. A profitable reference, in this context, can be made to a
decision of the Supreme Court in the case of M/s. Gujarat
Travancore Agency vs. Commissioner of Income Tax, Kerala,
Ernakulam10, wherein pointing out the distinction between the
nature of the provisions contained in Section 271(1)(a) (failure to
furnish return) and Section 276C (as it then stood), the
Supreme Court enunciated that there can be no dispute having
regard to the provisions of Section 276C, which speaks of wilful
failure on the part of the defaulter and taking into consideration
the nature of the penalty, which is punitive, no sentence can be
10 (1989) 3 SCC 52.
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imposed under that provision unless the element of mens rea is
established. In most cases of criminal liability, the intention of
the legislature is that the penalty should serve as a deterrent.
The creation of an offence by statute proceeds on the
assumption that society suffers injury by the act or omission of
the defaulter and that a deterrent must be imposed to
discourage the repetition of the offence. Thus, there was
nothing in Section 271(1)(a) which required that mens rea must
be proved before penalty can be levied under that provision.
35. In the case of Union of India and others vs. Dharmendra
Textile Processors and others11, the question that arose before a
Three-Judge Bench of the Supreme Court was, whether Section
11-AC of the Central Excise Act, 1944 inserted by the Finance
Act, 1996 with the intention of imposing mandatory penalty on
persons who evaded payment of tax should be read to contain
mens rea as an essential ingredient and whether there is a
scope of levying penalty below the prescribed minimum.
Emphasising the element of mens rea as an essential ingredient
for fastening the criminal liability, the Supreme Court inter alia
observed that the explanation appended to Section 271(1)(c) of
the IT Act, 1961 clearly indicates that element of strict liability
11 (2008) 13 SCC 369.
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on the assessee for concealment or for giving inaccurate
particulars while filing return.
36. There was a duality of opinion in two Division Bench
judgments of the Supreme Court in the cases of Dilip N. Shroff
vs. CIT 12 and SEBI vs. Shriram Mutual Fund13. While resolving
the conflict, the Supreme Court in the case of Dharmendra
Textile Processors (supra) enunciated as under:
"17. It is of significance to note that the conceptual and
contextual difference between Section 271(1) (c) and Section
276C of the IT Act was lost sight of in Dilip Shroff's case
(supra).
18. The Explanations appended to Section 272(1)(c) of the IT
Act entirely indicates the element of strict liability on the
assessee for concealment or for giving inaccurate particulars
while filing return. The judgment in Dilp N. Shroof's case
(supra) has not considered the effect and relevance of
Section 276C of the I.T. Act. Object behind enactment of
Section 271 (1)(e) read with Explanations indicate that the
said section has been enacted to provide for a remedy for
loss of revenue. The penalty under that provision is a civil
liability. Wilful concealment is not an essential ingredient for
attracting civil liability as is the case in the matter of
prosecution under Section 276C of the I.T. Act."
(emphasis supplied)
37. The aforesaid pronouncements thus indicate that there is
an essential distinction between the cases where failure or
breach leads to civil liability, even in the nature of imposition of
monetary penalty, and the cases which entail punishment as a
sequel to the commission of offences. Ordinarily in the cases
12 (2007) 6 SCC 329.
13 (2006) 5 SCC 361
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where the breach or failure leads to civil liability, mens rea is not
considered as an essential ingredient and proof of mere failure
or breach in itself may be sufficient. In contrast, where the
punishment is to be imposed, existence of mens rea is ordinarily
considered as an essential ingredient of the offence, save and
except the cases where the punishment is imposed on the
principle of strict liability.
38. From the text of the provisions contained in Section
276C(1) and the use of the expressions, "wilful attempt" "to
evade" it becomes clear that Section 276C professes to punish
an act or omission on the part of the assessee designed to evade
the liability to pay the tax and not a "mere failure" to pay the
tax. There are provisions in the Income Tax Act, 1961 which
take care of interest (of the revenue) of recovering the due tax
amount alongwith interest and/or penalty where the tax has not
been paid within time. It is the wilful evasion of tax due which
is the crux of the offence under Section 276C(2) and not a mere
failure to pay tax.
39. The matter can be looked at from a slightly different
perspective. The sections which precede Section 276C deserve to
be noted. Section 276B punishes failure to pay tax to the credit
of the Central Government, which has been deducted at source
under Chapter XVIIB or the tax payable under Section 115-O or
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the second proviso to Section 194B. Likewise, Section 276BB
provides punishment for failure to pay to the credit of the
Central Government, the tax collected by a person as required
under the provisions of Section 206C. Under these two
sections, it is the act of mere failure to credit the tax, which has
already been collected or deducted that entails punishment.
The text of Section 276, on the other hand, professes to punish
wilful attempt to evade payment of tax interest or penalty.
40. In a given case, if it could be demonstrated that though
the assessee was in a position to pay tax, interest on penalty,
the assessee evaded payment of tax by dishonestly disabling
himself from payment of tax, interest or penalty or fraudulently
dealt with his assets or property with intent to evade the
payment of tax, interest or penalty, different considerations may
come into play. However, mere failure cannot be equated with
wilful attempt to evade.
41. To sum up, on a plain reading the provisions contained in
Section 276C(2) do not indicate that mere failure to pay the tax,
interest or penalty falls within the dragnet of the said provision.
Even otherwise, it is a well settled rule of construction of penal
statutes that if two possible and reasonable constructions can
be put upon a penal provision, the Court must lean towards
that construction which exempts the subject from penalty
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rather than the one which imposes penalty. ( Tolaram Relumal
and another vs. State of Bombay14)
42. On the aforesaid touchstone, reverting to the facts of the
case, there is material to indicate that within five days of the
show cause notice the applicants had deposited the tax due as
declared in the return for AY-2010-2011. Since the applicants
had declared the income and assessed the self-assessment tax,
it cannot be urged that there was an attempt to evade the tax. It
was neither a case of under reporting of income nor that of
showing diminished tax liability. The action on the part of the
applicants to pay the tax due under five days of the notice
militates against the stand of the Income Tax Department that
there was an intent to evade the tax throughout. It is not
disputed on the date of the lodging of the complaint, no tax was
due, and even the applicants deposited the amount of
Rs.4,47,420/- towards interest on the due amount.
43. In the aforesaid view of the matter, I find substance in the
submissions on behalf of the applicants that in the facts of the
case the continuation of the prosecution for the offence
punishable under Section 276C(2) of the IT Act, 1961 amounts
to abuse of the process of the Court. It is true there was delay of
about eight years in paying the amount of self-assessment tax.
14 AIR 1956 SC 496.
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In this proceeding, it may not be appropriate to delve into the
veracity of the claim of the applicants that on account of death
of Mr. P. G. Purohit they were unaware of the tax liability. It is
the conduct of the applicant, after being served with the show
cause notice, that assumes significance. Payment of tax due
under five days of the service of the show cause notice,
underscores the bona fide of the applicants. Thus, the aspect of
delay, which was forcefully canvassed on behalf of respondent
No.2, does not detract materially from the applicants claim.
44. In the totality of the circumstances, the offence punishable
under Section 276C(2) of the Act, 1961 cannot be said to have
been made out.
45. For the foregoing reasons, I am inclined to allow the
application. Hence, the following order:
:ORDER:
(i) The application stands allowed in terms of prayer Clause
(a).
(ii) The proceedings in Criminal Case No.1195/SW/2018
pending on the file of the learned Additional Chief
Metropolitan Magistrate, Ballard Peer Court, Mumbai,
(now transferred to the Court at Mazgaon), stand
quashed and set aside,
(iii) Application stands disposed.
No costs.
[N. J. JAMADAR, J.]
