1969 (9) TMI 15 - HC - Income Tax

Validating Constitutionality of Income-tax Act Section 277: Procedural Fairness Confirmed

S Sannana Chetty And Sons And Others Versus Third Income-Tax Officer, Circle I, Salem.

The court upheld the validity of Section 277 of the Income-tax Act, 1961 under Articles 14 and 20(2) of the Constitution, confirming procedural fairness ... Whether section 277 of the Act is violative of Art. 14 of the Constitution - held that this section is complete by itself and different from section 271(1)(c) - therefore, section 277 is not violative of Art. 14 of the Constitution Issues Involved:1. Validity of Section 277 of the Income-tax Act, 1961 under Article 14 of the Constitution.2. Validity of Section 277 of the Income-tax Act, 1961 under Article 20(2) of the Constitution.3. Procedural fairness in the sanction for prosecution by the Commissioner of Income-tax.Detailed Analysis:Issue 1: Validity of Section 277 of the Income-tax Act, 1961 under Article 14 of the ConstitutionThe petitioners contended that Section 277 of the Income-tax Act, 1961 is violative of Article 14 of the Constitution as there are no guiding principles in the Act for when to initiate prosecution under Section 277 or levy a penalty under Section 271(1)(c). They argued that the absence of guidelines could lead to arbitrary and discriminatory actions by the authorities.The court examined the relevant provisions of the Income-tax Act, 1961 and the Income-tax Act, 1922. Section 277 of the 1961 Act deals with the punishment for making false statements, whereas Section 271(1)(c) deals with penalties for concealing income or furnishing inaccurate particulars. The court noted that under Section 136 of the 1961 Act, proceedings under the Act are deemed judicial proceedings for specific purposes under the Indian Penal Code, but not all proceedings are judicial for all purposes.The court rejected the argument that the absence of guidelines leads to discrimination, stating that the discretion is vested in a higher authority, the Commissioner of Income-tax, which provides sufficient protection against arbitrary actions. The court also noted that the Commissioner's discretion is further fettered by Section 279(1A), which prevents prosecution if the penalty has been reduced or waived under Section 271(4A).The court concluded that Section 277 is not violative of Article 14, as the discretion given to the Commissioner is not arbitrary and there are sufficient safeguards in place.Issue 2: Validity of Section 277 of the Income-tax Act, 1961 under Article 20(2) of the ConstitutionThe petitioners argued that Section 277 violates Article 20(2) of the Constitution, which prohibits double jeopardy, as it allows for both penalty and prosecution for the same offense.The court distinguished between the proceedings for levying penalties under Section 271(1)(c) and prosecution under Section 277. It noted that the ingredients for the two are different, with Section 277 requiring mens rea (knowledge of the falsity of the statement), which is not required under Section 271(1)(c). Therefore, the two sections do not deal with the same offense.The court cited the Supreme Court's decision in Thomas Dana v. State of Punjab, which held that penalty proceedings are different from criminal prosecutions and punishments. The court concluded that Section 277 does not violate Article 20(2) as the penalty and prosecution are for different offenses and do not constitute double jeopardy.Issue 3: Procedural fairness in the sanction for prosecution by the Commissioner of Income-taxThe petitioners contended that the sanction for prosecution by the Commissioner without giving an opportunity to the accused to be heard violates principles of natural justice.The court rejected this argument, stating that the affected person has the opportunity to defend themselves during the trial. The court referenced the Supreme Court's decision in Ram Dial v. State of Punjab, which dealt with the necessity of a hearing before removal from office, but distinguished it from the present case, where the discretion for sanctioning prosecution is vested in higher authorities.The court concluded that the sanction for prosecution does not violate principles of natural justice as the accused has the opportunity to defend themselves during the trial.Conclusion:The court found no substance in any of the points raised by the petitioners and dismissed the petition, upholding the validity of Section 277 of the Income-tax Act, 1961 under Articles 14 and 20(2) of the Constitution and confirming the procedural fairness in the sanction for prosecution by the Commissioner of Income-tax.Petition dismissed.