2024 (2) TMI 405 - HC - Income Tax

Section 276C(2) prosecution quashed for delayed tax payment without willful evasion intent

Unique Trading Company, Munnidevi P. Purohit, Rakesh P. Purohit and Mukesh P. Purohit Versus Income Tax Officer – 18 (3) (5), Principal Commissioner of Income Tax-18 and The State of Maharashtra

The Bombay HC quashed prosecution under Section 276C(2) of the Income Tax Act against parties who delayed payment of self-assessed tax by 8 years. The ... Offence punishable u/s 276C(2) r.w.s. 278B of the Income Tax Act - Delay of 8 years in payment of tax - willful attempt to evade the tax or not? - Tax liability declared in the ITR as self-assessment but the tax and interest were not paid - HELD 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 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. 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 u/s 276C(2) and not a mere failure to pay tax. 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. 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 rather than the one which imposes penalty. (Tolaram Relumal and another vs. State of Bombay [1954 (5) TMI 20 - SUPREME COURT] Thus 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. We 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 u/s 276C(2) 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. 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. Thus offence punishable u/s 276C(2) of the Act, 1961 cannot be said to have been made out. Issues Involved:1. Quashing of complaint under Section 482 of the Code of Criminal Procedure, 1973.2. Alleged wilful attempt to evade tax under Section 276C(2) read with Section 278B of the Income Tax Act, 1961.Summary:Issue 1: Quashing of Complaint under Section 482 of the Code of Criminal Procedure, 1973The applicants sought 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 applicants, a partnership firm and its partners, had filed their return of income for AY 2010-2011, declaring a tax payable amount which was not paid on time due to the death of the managing partner, Mr. P. G. Purohit. Upon receiving a show cause notice from the Principal Commissioner of Income Tax, the applicants promptly paid the due tax and interest. Despite this, the Principal Commissioner sanctioned prosecution, leading to the filing of a complaint and issuance of process by the Additional Chief Metropolitan Magistrate.Issue 2: Alleged Wilful Attempt to Evade Tax under Section 276C(2) read with Section 278B of the Income Tax Act, 1961The applicants contended that there was no wilful attempt to evade tax as they had disclosed the income and tax liability in their return and paid the due amount promptly after receiving the show cause notice. They argued that mere failure to pay tax does not constitute a wilful attempt to evade tax, which requires a positive act of evasion. The respondents, however, argued that the delay in payment indicated a wilful attempt to evade tax.The court examined the provisions of Section 276C(2) and the requirement of 'wilful attempt to evade' tax, emphasizing that penal statutes should be construed strictly and require mens rea. The court referred to various judicial precedents, including the Supreme Court's decision in Prem Dass vs. Income Tax Officer, which highlighted the need for a positive act to establish a wilful attempt to evade tax.The court concluded that the applicants' prompt payment of the due tax upon receiving the show cause notice and their voluntary disclosure of income indicated a lack of intent to evade tax. The court found that the continuation of prosecution under Section 276C(2) amounted to an abuse of the process of the court and quashed the proceedings.Order:1. The application to quash the complaint is allowed.2. The proceedings in Criminal Case No. 1195/SW/2018 are quashed and set aside.3. No costs.