2011 (6) TMI 617 - HC - Wealth-tax

Sanction for initiation of criminal proceedings - Prosecution - non filing of Wealth Tax return for the Assessment Year 1993-94 Held that - It has been repeatedly held that the requirement of getting a sanction order for prosecution is not an empty formality and any vital defect or infirmity in the sanction order will go to the root of the criminal proceedings itself since such a protection given will be meaningless if a person is to endure the ordeal of facing the trial and wait till the end of the trial to show that the sanction order is defective infirm and the proceedings initiated on the basis of the sanction order is vitiated. For the above said reasons this court is inclined to accept the contention of the learned counsel for the petitioner that the learned trial judge ought to have considered the above said aspect and decided the said question in favour of the petitioner. The failure on the part of the petitioner to file the wealth tax return in time was not wilful and only a wilful failure to file the return shall be a punishable offence under section 35-B of the Act and that this aspect was not at all considered by the sanctioning authority. Prosecution starts when the complaint or final report in case of a police case is taken on file by the court. Here the prosecution has been sought to be initiated by a complaint in writing as required by the provisions of the Act. According sanction for prosecution has to precede the launching of prosecution. Therefore there is no question of applying the presumption at the time of considering whether sanction has to be accorded or not? . petitioner had legal advice even from one of the retired judges of the Supreme Court that the tax liabilities of the previous years can be deducted to find out the net taxable wealth. - the cumulative effect of all the above said aspects will go to justify the stand taken by the petitioner that failure to submit the return within the time allowed by the statute was not wilful. Regarding continuing offence - the failure to submit a return within a time has led to the assessment of the wealth tax to the best of the judgment of the Assessing Officer. After such an assessment there is no question of the assessee filing a return. In such cases only for the escaped assets further particulars can be called for and consequential prosecution can be made under other provisions of the Act and not for the offence under section 35-B of the Wealth Tax Act 1957. The petitioner has clearly established a case for discharge and the court below has committed an error in rejecting the contention of the petitioner that she is entitled to discharge. Before parting with the case this court wants to make it on record that the implementation of the Tax Legislation should be tax payers friendly and at the same time the tax evaders should not be spared. Had the sanctioning authority approached the case keeping the same in his mind the sanctioning authority would not have granted sanction for prosecuting the petitioner under section 35-B of the Act.

Summary

Issues Involved:
1. Legality of the order dismissing the petition for discharge.
2. Jurisdiction of the assessing officer.
3. Validity of the sanction order for prosecution.
4. Wilfulness of the failure to file the wealth tax return.
5. Continuing nature of the offence under Section 35-B of the Wealth Tax Act, 1957.

Detailed Analysis:

1. Legality of the Order Dismissing the Petition for Discharge:
The petitioner challenged the trial court's order dated 08.07.2010, which dismissed her petition for discharge under Section 245(1) Cr.P.C. The petitioner argued that she had negative wealth and no tax liability for the assessment year 1993-94, thus falling under the proviso to Section 35-B of the Wealth Tax Act, 1957, which exempts individuals from prosecution if their tax liability does not exceed Rs. 3,000. The court found that the petitioner was assessed to wealth tax exceeding Rs. 3,000, thus the proviso did not apply, and the prosecution was valid.

2. Jurisdiction of the Assessing Officer:
The petitioner contended that the initial assessment order dated 15.02.1996 was passed without jurisdiction as the notification transferring her case did not cover wealth tax assessments. The court noted that Section 2(ca) of the Wealth Tax Act, 1957, incorporates provisions from the Income Tax Act for vesting jurisdiction, thus validating the assessing officer's jurisdiction for wealth tax assessments as well.

3. Validity of the Sanction Order for Prosecution:
The petitioner argued that the sanction order was invalid due to non-application of mind by the sanctioning authority and the omission of the assessment order dated 30.06.1997 from the list of documents considered. The court observed that the omission to refer to the assessment order and the failure to verify whether an appeal was preferred indicated non-application of mind. This vitiated the sanction order, making the criminal proceedings void ab initio.

4. Wilfulness of the Failure to File the Wealth Tax Return:
The petitioner claimed that her failure to file the return was not wilful but based on legal advice and pending finalization of previous years' tax liabilities. The court held that the sanctioning authority did not consider this aspect and relied on the presumption under Section 35-O of the Wealth Tax Act, which is not applicable at the pre-prosecution stage. The court accepted the petitioner's contention that the failure was not wilful, thus entitling her to discharge.

5. Continuing Nature of the Offence under Section 35-B of the Wealth Tax Act, 1957:
The prosecution argued that the failure to file the return was a continuing offence. The court rejected this, stating that the offence under Section 35-B is complete once the default occurs, and subsequent filing of the return does not absolve the criminal liability. The court further noted that the prosecution was not for non-compliance with notices under Section 16(4) but for the initial failure to file the return.

Conclusion:
The court concluded that the petitioner had established a case for discharge based on the invalidity of the sanction order and the non-wilfulness of her failure to file the wealth tax return. The order of the trial court was set aside, and the petitioner was discharged from the case. The court emphasized that tax legislation should be taxpayer-friendly while ensuring that tax evaders are not spared. The request for a certificate to appeal to the Supreme Court was declined.