TMI Blog1976 (5) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... ivision Bench and, therefore, in order to answer correctly the question that has been canvassed before us, we reframe the question as follows : " When section 271(1)(a) of the Income-tax Act, 1961, provides for sanction of penalty in order to enforce compliance with a particular provision of the Act and the section requires that non-performance of the obligation without reasonable cause shall attract that particular penalty, (i) is reasonable cause an ingredient of the offence for which the penalty is provided ; and (ii) has the taxing authority to prove absence of reasonable cause or has the party in default to prove the presence of reasonable cause ? " The matter was referred to the Full Bench because the Division Bench found itself unable to agree with the view taken by J. B. Mehta and T. U. Mehta JJ. in Morvi Cotton Merchants' Industrial Corporation Ltd. v. State of Gujarat, since reported in [1975] 36 STC 347 (Guj), and in Special Application No. 1059 of 1972 decided by the same Bench on July 18, 1974 [Motilal Joitaram Patel v. Sales Tax Officer [1975] TLR 1589 (Guj)]. In those two cases the Division Bench, consisting of J. B. Mehta and T. U. Mehta JJ., had taken the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , or cause to be produced, on or before the date mentioned in any notice under sub-section (1) of section 142, such accounts and documents as are refered to in the notice ; and under clause (b) to furnish in due time any of the returns or statements mentioned in section 133, sub-section (2) of section 139, section 206, section 285 or section 286, is liable to be punished with fine which may extend to ten rupees for every day during which the default continues. It may be noticed that under section 276 the words are " without reasonable cause ". Under section 271A which was inserted in the Act by the Taxation Laws (Amendment) Act, 1975, any person failing without reasonable cause to keep and maintain such books of account and other documents as required by section 44AA or the rules made thereunder in respect of any previous year or to retain such books of account and other documents for the period specified in the said rules, is liable to pay by way of penalty, a sum which shall not be less than ten per cent. but which shall not exceed fifty per cent. of the amount of the tax, if any, which would have been leviable. Under section 272A, sub-section (2), which was also introduced by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause" or "without reasonable cause or excuse" occurring in one or the other sections of Chapter XXII must be interpreted as constituting an ingredient of the offence in question. He further contended that penalties imposable under Chapter XXI are imposed in quasi-criminal proceedings and, therefore, the words "without reasonable cause" occurring in section 271(1)(a) must also be held to constitute an ingredient of this particular wrongful action which is sought to be penalised by section 271(1)(a). His main contention is that the same words should be given the same meaning and should be interpreted in the same manner in the different sections of the same Act unless the subject or context otherwise requires. Before we can decide this contention of the learned Advocate-General, it is necessary to ascertain the exact nature of the penalty proceedings under section 271(1)(a) and other similar provisions. In C. A. Abraham v. Income-tax Officer [1961] 41 ITR 425 (SC) the Supreme Court had observed that penalty was an additional tax and that the penalty imposed under the Income-tax Act was merely an additional tax imposed in certain circumstances on account of the assessee's conduct. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) (Lancashire) Ltd. v. inland Revenue Commissioners " [1942] AC 643 ; [1943] 11 ITR (Suppl) 50 (HL)]. " In Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 ; [1970] 26 STC 211 (SC) the Supreme Court was concerned with certain provisions of the Orissa Sales Tax Act providing for penalty under certain circumstances and Shah, Acting C.J., delivering the judgment of the Supreme Court, observed at page 29 of the report : " Under the Act penalty may be imposed for failure to register as a dealer : section 9(1), read with section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that the reference to section 25(1)(a) at page 29 of the report is, really speaking, to section 12(5) of the Orissa Sales Tax Act because the Supreme Court in the passage which we have extracted above was not dealing with the question of an offence but with the question of penalty to be imposed and the question (F) referred by the Sales Tax Tribunal to the High Court of Orissa and question (3) formulated by the Supreme Court in Hindustan Steel Ltd.'s case [1972] 83 ITR 26 ; [1970] 26 STC 211 (SC) was considering the question of imposition of penalty and not the question of punishment under section 25(1)(a). We are emphasizing this aspect of the obviously wrong reference to section 25(1)(a) at page 29 of the report because we find that in a Full Bench case, Commissioner of Income-tax v. Gangaram Chapolia [1976] 103 ITR 613 (Orissa) [FB], the High Court of Orissa has considered this reference to section 25(1)(a) on page 621 of the report. In Khemka Co. (Agencies) Pvt. Ltd. v. State of Maharashtra [1975] 35 STC 571 (SC) the Supreme Court was considering the question of penalty under the Sales Tax Act and Ray C.J., who along with Khanna and Beg JJ. delivered the majority dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be relegated to the region of mere procedure and machinery for the realization of tax. It is more than that. Such liabilities must be created by clear, unambiguous, and express enactment. The language used should leave no serious doubts about its effect so that the persons who are to be subjected to such a liability for the infringement of law are not left in a state of uncertainty as to what their duties or liabilities are. This is an essential requirement of a good Government of laws. It is implied in the constitutional mandate found in article 265 of our Constitution. " No tax shall be levied or collected except by authority of law It is thus clear in view of these decisions in Khemka Company's case [1975] 35 STC 571 (SC), Hindustan Steel Ltd.'s case [1972] 83 ITR 26 (SC) and Anwar Ali's case [1970] 76 ITR 696 (SC) that the penalty which can be imposed under section 271(1) of the Act is to be imposed on contumacious or fraudulent assessees. It is a quasi-criminal proceeding as has been held in Anwar Ali's case [1970] 76 ITR 696 (SC) add the section is penal in the sense that its consequences are intended to be an effective deterrent which will put a stop to practices which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that particular section the onus of pleading and proving that it was not reasonably practicable to keep the place safe lay on the employers and accordingly the workman's case was properly pleaded and disclosed a cause of action. It must be pointed out that the House of Lords was not considering in that case the question of any criminal liability. The main question was, whether in the complaint preferred by the workman who had suffered an injury while unloading bales from a railway wagon on a siding at a factory, he had to aver in his pleading that his place of work was not kept safe as required under section 29(1) but he did not aver that it was reasonably practicable to make it safe. On an interpretation of section 29(1), the majority of the House of Lords held that onus of pleading and proving that it was not reasonably practicable to keep the place safe lay on the employers and accordingly the workman's case was properly pleaded and disclosed a cause of action. Lord Reid and Lord Wilberforce both held in their dissenting opinions that the words "so far as is reasonably practicable" constituted an ingredient of the cause of action. Lord Reid observed : " And I do not think ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an accused in a criminal trial and, therefore, all the ingredients of the offence for which the penalty can be imposed must be established by the department. It is from this aspect that one has to consider the question whether these words "failure without reasonable cause" constitute an ingredient of the offence or not. Since the gravamen of the offence is failure without reasonable cause to file one or the other of the returns mentioned in section 271(1)(a), the prosecutor, that is, the department, must establish the absence of the reasonable cause. It is not for the assessee to show in the first instance that there was reasonable cause on his part. It is for the department to show the absence of reasonable cause. In Collector of Customs v. D. Bhoormull AIR 1974 SC 859 the Supreme Court was concerned with a case of penalty under the Sea Customs Act, 1878, and with the question of fact within the knowledge of the delinquent or the person charged with the smuggling of goods before the customs authorities. In paragraph 30 at page 864 of the report, Sarkaria J., delivering the judgment of the Supreme Court, observed : " It cannot be disputed that in proceedings for imposing penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich, coupled with the presumptive evidence adduced by the prosecution or the department, would rebut the initial presumption of innocence in favour of that person, and in the result prove him guilty. As pointed out by Best in Law of Evidence, 12th edition, article 320, page 291, the 'presumption of innocence is, no doubt, presumption juris : but every day's practice shows that it may be successfully encountered by the presumption of guilt arising from the recent (unexplained) possession of stolen property ', though the latter is only a presumption of fact. Thus the burden on the prosecution or the department may be considerably lightened even by such presumption of fact arising in their favour. However, this does not mean that the special or peculiar knowledge of the person proceeded against will relieve the prosecution or the department altogether of the burden of producing some evidence in respect of that fact in issue. It will only alleviate that burden to discharge which very slight evidence may suffice." It is true, as the learned Advocate-General has emphasized, that what is known as the legal burden as distinct from evidentiary burden is on the department throughout but sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement. Sub-section (3) requires that the statement shall be submitted within twenty-one days from the relevant date or within such extended time not exceeding three months from that date as the official liquidator or the court may, for special reasons, appoint. Sub-section (4) provides that any person making or concurring in making the statement and affidavit required by this section shall be allowed and shall be paid by the official liquidator or provisional liquidator, as the case may be, out of the assets of the company such costs and expenses incurred in and about the preparation and making of the statement and affidavit as the official liquidator may consider reasonable. Sub-section (5) of section 454 provides : " If any person, without reasonable excuse, makes default in complying with any of the requirements of this section, he should be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to one hundred rupees for every day during which the default continues, or with both." The question before the Full Bench of the Delhi High Court was whether in a prosecution under section 454, sub-section (5) of the Companies Act, 1956, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iling of the statement of affairs within the time prescribed and the absence of application by the accused within the prescribed time shows that he had committed default and that it was for the accused in these circumstances to show that the default by him was for reasonable excuse. We do not see how illustration (a) is applicable to the facts of the present case. Late filing or non-filing of the statement of affairs only shows that a default has been made. By itself it is consistent equally with there being a reasonable excuse as well as there being no reasonable excuse at all. This by itself has no relevancy to the question of onus. The Supreme Court in Shambhu Nath Mehra v. State of Ajmer AIR 1956 SC 404 cautioned against invoking section 106 of the Evidence Act so as to place the burden of proof on the accused and pointed out that section 106 is an exception to section 101 which lays down that whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist and referred to illustration (a) which says that if A desires a court to give judgment that B shall be punished for a crime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout reasonable cause failed to file one or the other of the returns mentioned in section 271(1)(a) within the time specified in connection with that return. Some evidence, even though it may be slight, must be led by the prosecution since this is like the require- ment of "without reasonable excuse" in section 454(5) of the Companies 'Act, and is an ingredient of the offence for which penalty is sought to be imposed. We are unable to accept the contention of Mr. Kaji for the revenue that failure to file the return within the time specified itself is an offence and that the words "without reasonable cause" constitute an exception. Looking to the wording of the section and on a plain reading of section 271(1)(a), it is obvious first that the failure to file the return may be with reasonable cause or without reasonable cause but the offence for which the penalty is imposable is failure without reasonable cause to file the return within the time specified in the section and, therefore, it is for the department to establish as an ingredient that the failure in the particular case was without reasonable cause. Once the department has discharged that initial burden, it will be for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s we have just said, the very basis of the decision against the assessee is that the explanation he gave was a false one." This reasoning of Chagla C.J. was approved by the Supreme Court in Anwar Ali's case [1970] 76 ITR 696 (SC) and there Grover J., delivering the judgment of the Supreme Court, has observed in connection with the burden of proof at page 700: " The next question is that when proceedings under section 28 are penal in character what would be the nature of the burden upon the department for establishing that the assessee is liable to payment of penalty. As has been rightly observed by Chagla C.J. in Commissioner of Income-tax v. Gokuldas Harivallabhdas [1958] 34 ITR 98 (Bom) the gist of the offence under section 28(1)(c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and, therefore, the department must establish that the receipt of the amount in dispute constitutes income of the assessee. If there is no evidence on the record except the explanation given by the assessee, which explana- tion has been found to be false, it does not follow that the receipt constitu- tes his taxable inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is on the assessee and not on the revenue. This burden can be discharged by adducing evidence as in a civil case. The burden would be discharged by preponderance of probabilities and not by proof beyond reasonable doubt. It may be pointed out that in this case the Full Bench of the Orissa High Court considered the decision of the Supreme Court in Hindustan Steel Ltd.'s case [1972] 83 ITR 26; [1970] 26 STC 211 (SC) and observed : " This decision is no authority for the proposition that under section 12(5) of the Orissa Sales Tax Act the expression 'without sufficient cause' carries an import of mens rea or that the burden of proof is on the revenue to establish absence of sufficient cause." The Orissa High Court took the view that in Hindustan Steel Ltd.'s case [1972] 83 ITR 26 (SC), the Supreme Court inadvertently referred to section 25(1). A penalty proceeding is a quasi-criminal proceeding as concluded by the aforesaid observation. But the Full Bench felt that the decision in Hindustan Steel Ltd.'s case [1972] 83 ITR 26 (SC) could not be considered to mean that the burden of proof is on the revenue and that proof of mens rea was essential in a penalty proceeding. According to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Indian Income-tax Act, 1922, has been deleted in section 271(1)(c) of the Income-tax Act, 1961. Where the two sections (271 and 276C) themselves seem to draw a difference between the requirements for imposition of a penalty and punishment for an offence, there is no justification in reading into the earlier section, the requirements of any mens rea expressly provided for in the later one. It would not be correct to regard the ingredients of the misconduct under the two provisions as identical. Penalty is exacted not because an act or omission is an offence but because it is an attempt at evasion of tax on the part of the assessee. The penalty provisions under the Act are not provisions of a criminal nature which warrant the requirement of mens rea in the sense in which the same is required for an offence by the criminal law. Therefore, mens rea need not be established before imposition of penalty under section 271(1)(a) of the Act. The Full Bench of the Kerala High Court considered the earlier decision of a Division Bench of that court in Marikar (Motors) Ltd. v. Sales Tax Officer [1971] 31 STC 201 (Ker). That decision was in connection with section 10A of the Central Sales Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nwar Ali's case [1970] 76 ITR 696 (SC) clearly go to show that the Supreme Court has clearly laid down that the element of mens rea has to be read in the penalty proceed- ings in section 271. With utmost respect to the learned judges of the Kerala High Court, therefore, we are unable to agree with their conclusions regarding absence of mens rea. A number of decisions regarding the requirement of the presence of mens rea and consequences following from that requirement were cited before us. Besides, passages from Maxwell were also cited in this connection. But in view of the decisions of the Supreme Court in Hindustan Steel Ltd.'s case [1972] 83 ITR 26 (SC), Anwar Ali's case [1970] 76 ITR 696 (SC) and Khemka Company's case [1975] 35 STC 571 (SC), it is not necessary to refer to any of these decisions for the purpose of arriving at the conclusion regarding the requirement of mens rea having to be read in the provisions relating to penalty in section 271. In the light of the above discussion, our conclusions are as follows : (1) Under section 271(1)(a) of the Income-tax Act, 1961, failure without reasonable cause to furnish the return in question is an ingredient of the offenc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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