Telangana High Court

Mr. Gundu Vijayaraj, vs The State Of Telangana on 6 September, 2024

        THE HONOURABLE SMT. JUSTICE K. SUJANA

     CRIMINAL PETITION Nos.7512, 7516 and 7520of 2024

COMMON ORDER:

Since these Criminal Petitions are challenging the

proceedings in C.C.No.3 of 2017, they are analogously heard

together and being disposed of by this common order.

2. Criminal Petition No.7512 of 2024: This Criminal

Petition is filed by the petitioner/accused No.4 to quash the

proceedings against him in C.C.No.3 of 2017 pending on the file

of the Court of Special Judge for Economic Offences at

Hyderabad.

3. Criminal Petition No.7516 of 2024: This Criminal

Petition is filed by the petitioner/accused No.3to quash the

proceedings against him in C.C.No.3 of 2017 pending on the file

of the Court of Special Judge for Economic Offences at

Hyderabad.

4. Criminal Petition No.7520 of 2024: This Criminal

Petition is filed by the petitioners/accused Nos.1 and 2 to quash

the proceedings against them in C.C.No.3 of 2017 pending on

the file of the Court of Special Judge for Economic Offences at

Hyderabad.

SKS,J CRIMINAL PETITION Nos.7512, 7516 and 7520 of 2024

5. For the purpose of disposal of these Criminal Petitions,

the facts in C.C.No.3 of 2017are taken into consideration.

6. Accused Nos.2 to 4 are directors of M/s.Sudha

Prabhakar Complex Private Limited/accused No.1(hereinafter

referred as 'the company')and the company running hotel

business in the name and style of Hotel Suprabha. On

17.11.2024, the company filed its original return of income for

the A.Y. 2013-14 for total income of Rs.37,78,160/- with tax

liability of Rs.16,06,659/- and at time of filing income tax

returns, the company paid Rs.13,092/- by way of TDS of the

admitted tax and Rs.15,93,570/- is declared as amount payable.

On 24.06.2017, respondent No.2 got show cause notice under

Section 276(2) read with 279(1) of the Income Tax Act, 1961 (for

short 'the Act') issued to the company for default of evading

payment of tax amount of Rs.15,93,570/-. On 02.01.2017

respondent No.2 filed complaint against the accused before the

Special Judge for Economic Offences, Hyderabad (for short 'the

trial Court') upon receiving authorization sanction order dated

14.10.2016 from the Principal Commissioner of Income Tax,

Hyderabad, under Section 279(1) of the Act.

SKS,J CRIMINAL PETITION Nos.7512, 7516 and 7520 of 2024

7. Heard Sri P. Vikram, learned senior counsel on behalf of

Sri N.Jeevan Reddy, Sri Manasvi Redddy, Sri Abhinay Reddy,

learned counsels appearing for the accused and Sri S.Ganesh,

learned Assistant Public Prosecutor for respondent No.1-State as

well as Sri Vijhay K Punna, learned Standing Counsel for

respondent No.2-Income Tax.

8. Learned counsel for the accused submitted that the

company has not paid the tax while filing income tax returns due

to its financial difficulties. Except that there is no mens rea in

not paying the tax within the stipulated time. He further

submitted that the company has not committed any willful act to

evade the tax.In this regard, he placed reliance on the judgments

of the Bombay High Court in the case of Unique Trading

Company and others v. Income Tax Officer 1and the judgment

of the Karnataka High Court in the case of Vyalikaval House

Building Co-operative Society Limited v. Income tax

Department 2 and prayed this Court to allow these Criminal

Petitions by quashing the proceedings against the accused.

9. On the other hand, learned Standing Counsel for

respondent No.2-Income Tax submitted that the company failed

2024 SCC OnLineBom 417

2019 SCC OnLineKar 3566

SKS,J CRIMINAL PETITION Nos.7512, 7516 and 7520 of 2024

to pay the tax while filing returns for the A.Y. 2013-14. He

further submitted that the company paid only Rs.13,092/- by

way of TDS and remaining Rs.15,93,570/- was left unpaid on

the day of filing income tax returns. Hence, he prayed this Court

to dismiss these Criminal Petitions.

10. In view of the rival submissions made by both the

parties, this Court has perused the material available on record.

The only allegation levelled against the accused is that the

company has willfully defaulted in payment of tax for A.Y. 2013-

14 on admitted income, as required under Section 140(A) of the

Act attracting the provision of Section 276(C)(2) of the Act. It is

pertinent to note that on 17.11.2014, the company was unable

to pay the tax of Rs.15,93,570/- while filing income tax returns

due to financial difficulties and later, on 27.07.2016 the

company submitted a letter to respondent No.2 intimating

payment of full tax amount i.e., Rs.15,93,570/-.

11. Thus, it is apposite to reproduce paragraph Nos.18 to 26

from the judgment of the Bombay High Court in the case of

Unique Trading Company (Supra 1) which reads as under:

"18. The moot question that wrenches to the fore is, "whether a failure to pay any tax, interest or penalty can be construed

SKS,J CRIMINAL PETITION Nos.7512, 7516 and 7520 of 2024

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.

"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. RamnathaAiyar's Advanced Law Lexicon, 3rdEdition, 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."

22. In the case of Kapildeo Prasad Sah vs. State of Bihar (1999(7) SCC 569 )in the context of civil contempt, the Supreme Court enunciated the word 'wilful' would exclude casual, accidental,

SKS,J CRIMINAL PETITION Nos.7512, 7516 and 7520 of 2024

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.

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"

(Emphasis supplied)

12. The Karnataka High Court in the case of Vyalikaval

House Building Co-operative Society Limited and

Others(Supra 2) at paragraph Nos.7 to 10 held as under:

"7. I have given my anxious consideration to the rival submissions made at the bar and have carefully scrutinised the material on record. Undisputedly, petitioners are sought to be prosecuted under Section 276C(2) of the Act. The Section reads as under :-

"276C(2) If a person willfully 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

SKS,J CRIMINAL PETITION Nos.7512, 7516 and 7520 of 2024

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 court, also be liable to fine."

8. The gist of the offence under Section 276C(2) of the Act is the willful 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 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)

13. A conjoint reading of the above makes it clear like

cloudless sky that mere failure to pay the tax in time cannot be

equated with willful attempt to evade as different considerations

SKS,J CRIMINAL PETITION Nos.7512, 7516 and 7520 of 2024

may come into play. The act of filing the returns by itself cannot

be construed as an attempt to evade tax, rather the submissions

of the returns itself shows that the petitioner voluntarily declared

his intention to pay tax.

14. On the aforesaid touchstone, in the instant case, the act

of submission of returns cannot be connected with the evasion of

tax. There is no positive act on the part of the accused to show