2019 (7) TMI 184 - HC - Income Tax

Prosecution quashed for Co-op Society & office bearers due to lack of tax evasion intent

M/s. Vyalikaval House Building Co Operative Society Ltd. Versus The Income Tax Department by Deputy Commissioner of Income Tax Central Circle -1 (1) Bangalore

M/s. Vyalikaval House Building Co Operative Society Ltd. Versus The Income Tax Department by Deputy Commissioner of Income Tax Central Circle -1 (1) ... Issues:1. Prosecution under Section 276C(2) of the Income Tax Act for alleged tax evasion.2. Compliance with self-assessment tax payment under Section 140A of the IT Act.3. Legality of the prosecution proceedings and abuse of court process.Issue 1: Prosecution under Section 276C(2) of the Income Tax Act for alleged tax evasion:The petitioners, a Co-operative Society and its office bearers, were facing prosecution under Section 276C(2) of the Income Tax Act for allegedly attempting to evade tax. The prosecution was based on the assertion that the petitioners willfully tried to create circumstances to avoid tax payment. The petitioners contended that their actions, including making substantial payments towards tax liabilities, did not indicate any intention to evade tax. The key legal aspect was the requirement to establish mens rea or intention to evade tax to prove the offense under Section 276C(2).Issue 2: Compliance with self-assessment tax payment under Section 140A of the IT Act:The petitioners had filed returns of income but failed to pay the self-assessment tax along with the returns under Section 140A of the IT Act. Subsequently, they made payments towards tax liabilities, albeit after coercive steps were taken by the Department. The Department argued that these actions, including issuing a cheque with instructions not to encash until property registration, demonstrated an intention to evade tax. The court analyzed whether delayed payments could be construed as an attempt to evade tax, emphasizing the legal requirement of a positive act with intent to evade tax to establish the offense under Section 276C(2).Issue 3: Legality of the prosecution proceedings and abuse of court process:The court scrutinized the circumstances and legal principles surrounding the offense under Section 276C(2) of the Income Tax Act. It noted that the mere act of filing returns did not inherently imply an attempt to evade tax, especially when viewed in conjunction with subsequent delayed payments. The court held that the prosecution initiated against the petitioners was illegal and amounted to an abuse of the court process. Consequently, the court quashed the proceedings against the petitioners while allowing the Department to take lawful steps for tax recovery, if applicable.This detailed analysis of the judgment highlights the legal intricacies involved in the prosecution under Section 276C(2) of the Income Tax Act, emphasizing the importance of establishing intent and positive acts to prove tax evasion offenses. The court's decision to quash the proceedings underscores the necessity for a clear demonstration of mens rea and deliberate attempts to evade tax to sustain such prosecutions.