Mens rea required for s.276C(2); mere delay or non-payment not wilful tax evasion where tax declared and promptly paid

HC held that offence under s.276C(2) (wilful attempt to evade tax) was not made out. The court emphasized mens rea is essential for criminal liability under s.276C(2) and mere delay or non-payment does not automatically constitute wilful evasion. Here the return declared the tax, the taxpayers paid the due tax within five days of the show-cause notice and later deposited interest; there was no under-reporting or dishonest disposition of assets. Continued prosecution was held to be an abuse of process and the complaint could not be sustained.

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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, 1973

The 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, 1961

The 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.

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