1. The complaints alleging offence under Section 276 C (2) of the Income Tax Act are sought to be quashed on the ground that a mere failure to pay the income tax based on the self assessment would not constitute the offence under that section. Admittedly, at the time of submission of return based on self assessment tax, the tax was not remitted. Subsequently, it was remitted with interest by availing installment facility. Regarding the penalty imposed, an appeal was preferred, which is pending before the appellate authority.
2. The petitioner seeks to quash the complaints and its further proceedings on the reason that there is only a failure to make payment of the tax in time as per the self assessment return and it will not fall under any of the clauses (i) to (iv) in the Explanation attached to Section 276 C of the Income Tax Act and hence, the criminal liability under that section cannot be fastened. But it was countered by the Income Tax Department stating that it is incumbent on the tax payer to remit the tax based on the self assessment and the non-payment would come under the expression “evade the payment of tax” as incorporated in sub-section (2) of Section 276 C of the Act and cannot seek protection under the Explanation, which is not applicable to that sub-section. It was brought to the notice of this Court that in sub-section (1), the words used are “evade any tax”, but the words “evade the payment of any tax” have been incorporated in subsection (2). It is submitted that the word “payment” is conspicuously absent in sub-section (1) and the Explanation attached thereto and that what is dealt under the Explanation is with regard to “evade any tax” and not with respect to “evade the payment of tax” as incorporated in subsection (2) and hence the Explanation attached must be understood only relating to the cases, which would fall under sub-section (1) and not subsection (2) and took support from G.Viswanathan v. Income Tax Officer, A-Ward, Parameswar Nagar (1987 Vol. 167 ITR 103). The relevant portion of the said judgment is extracted below for reference :
“Sub-sections (1) and (2) of Section 276C deal with two different situations. Sub-section (1) deals with 'evasion of tax, penalty or interest chargeable or imposable under the Act'. Therefore, evidently, what is contemplated is evasion before charging or imposing tax, penalty or interest. That may include wilful suppression in the returns before assessment and completion. But sub-section (2) deals with evading 'the payment of tax, penalty or interest under the Act'. The words 'chargeable' or 'imposable' are not there. What sub-section (2) says is 'without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable.....'. Therefore, evidently, sub-section (2) takes in cases of tax evasion after 'charging' or 'imposition'. Evasion after completion of assessment also comes within the operation of the sub-section. We are concerned in these cases with such alleged evasion.
What the Explanation to Section 276C deals with is “wilful attempt to evade any tax, penalty or interest chargeable or imposable under this Act or payment thereof” contemplated by sub-section (1) and not “payment of any tax, penalty or interest under this Act' as contemplated in subsection (2). Therefore, the Explanation concerns only subsection (1) and not sub-section (2). Further the Explanation is only inclusive and not exhaustive. Item (iv) of the Explanation also makes this position clear. Sub-section (2) is so clear that at any rate it takes in the cases of evasion of tax, penalty or interest after assessments were made. Avoidance of tax is avoidance of tax liability under some manner as distinguished from evasion of tax whether before or after charging or imposition. It is not illegal as distinguished from penal evasion. Section 276C(2) deals with evasion after quantification. It becomes applicable only after income is assessed and the assessee attempts to evade payment.”
3. Section 276 C of the Income Tax Act is extracted below for reference :
“276C. Wilful attempt to evade tax, etc – (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 [or imposable, or under-reports his income,] 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 for fine.
Explanation – For the purposes of this section, a wilful attempt to evade any tax, penalty or interest chargeable or imposable 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
(iv) causes any other circumstance 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.”
4. A mere perusal of the said provision would show that the Explanation was given after sub-section(1) and (2) and not before subsection (2). It would prima facie show that the legislative intention is to make the Explanation applicable to both sub-section (1) and (2), otherwise, the Explanation would have been incorporated before sub-section (2). A conjoint reading of sub-sections (1) and (2) with clauses (i) to (iv) in the Explanation would show that the legislature never intended to exclude sub-section (2) from the operation of Explanation.
5. Earlier, an issue regarding difference of opinion as to the estimate and non-payment of tax came up for consideration before the Apex Court in Prem Dass v. Income Tax Officer [AIR 1999 SC 1079 = (1999) 5 SCC 241], and it was held that there should be concealment of income or furnishing of inaccurate particulars of income in order to attract Sections 276 C and 277 of the Income TAx Act . Paragraphs 8 and 9 of the said judgment are extracted below for reference:
“8. wilful attempt to evade any tax, penalty or interest chargeable opposable under the Act under Section 276C is a positive act on the part of the accused which is required to be proved to bring home the charge against the accused. Similarly a statement made by a person in any verification under the Act can be an offence under Section 277 if the person making the same either knew or believe the same to be false or does not believe to be true. Necessary mens rea, therefore, is required to be established by the prosecution to attract the provisions of Section 277. We see nothing in Section 132(4)(A) which would establish the ingredients of aforesaid two criminal offence contemplated under Sections 276C and 277 of the Indian Income Tax Act. It may be noticed at this point of time that the Tribunal while interfering with the penalty imposed under Section 271(1)(C) of the Act came to a positive finding that there is no act of concealment on the part of the assessee and he had returned the income on estimate basis. The Tribunal, further found that it is a case purely on difference of opinion as to the estimates and not a case of concealment of income or even furnishing of inaccurate particulars of income.
9. In the aforesaid premises, the High Court was totally in error in interfering with the order of acquittal passed by the learned Sessions Judge by an elaborate and well reasoned judgment. We have no hesitation to come to the conclusion that the ingredients of offence under Sections 276C and 277 of the Income Tax Act have not been established by the prosecution beyond reasonable doubt, and therefore, the appellant cannot be convicted of the offence under the said Sections.”
6. In view of the legal position settled by the Apex court in Prem Dass's case (supra) , it cannot be held that the legal position laid down by this Court in G.Viswanathan's case (supra) is good law. 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 availing installment facility with interest. The penalty imposed is now pending consideration before the appellate authority. So it would not fall under the mischief of Section 276 C of the Income Tax Act.
7. Yet another argument was also advanced based on the deeming provision – Section 278 E of the Income Tax Act regarding the presumption as to existence of culpable mental state on a prosecution for any offence under the Act. It was argued that any failure or non-payment of tax, penalty or interest must always be construed with the application of Section 278 E of the Act by presuming a culpable mental state and even an act of failure would stand with the necessary mens rea by virtue of the presumption available under that section, though it is rebuttable and relied on Praksh Nath Khanna and Ors. v. Commissioner of Income Tax and Ors. [2004 Vol. 266 ITR 1 = (2004) 9 SCC 686]
8. Section 278 E is extracted below for reference :
“278E – Presumption as to culpable mental state – (1) In any prosecution for any offence under this Act which requires a culpable mental state on the part of the accused, the court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution.
Explanation – In this sub-section, “culpable mental state” includes intention, motive or knowledge of a fact, or belief in, or reason to believe, a fact.
(2) For the purposes of this section, a fact is said to be proved only when the court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability.”
9. 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 278 E 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
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even in a case wherein the basic requirements constituting the offence are not disclosed. 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 278 E of the Act regarding rebuttable presumption as to existence of culpable mental state on the part of accused would come into play. As such there is no scope for applying the rebuttable presumption under Section 278E of the Act in the instant case. 10. What is dealt with in Prakash Nath Khanna's case is the criminal liability that can be fastened under Section 276CC of the Act when there is wilful failure to furnish return. The expression “failure” used in Section 276 CC of the Act is with respect to submission of assessment and return and the same cannot be equated with any failure to pay the tax in time and the liability under Section 276 C of the Act. A mere failure to pay the amount due (tax, interest or penalty) will not satisfy the requirement which would constitute the offence under Section 276C(2) of the Income Tax Act. Hence the crime registered and the further proceedings thereof will not serve any purpose, if it is proceeded further. The same is quashed. Both the Crl.M.Cs are allowed accordingly.