2019 (7) TMI 184 - HC - Income Tax

Offence u/s 276C(2) - non payment of self-assessment tax along with the return of income - willful attempt to evade any tax, penalty or interest chargeable or imposable under the Act - HELD THAT - In the instant case, the only circumstance relied on by the respondent in support of the charge levelled against the petitioners is that, even though accused filed the returns, yet, it failed to pay the self-assessment tax along with the returns. This circumstance even if accepted as true, the same does not constitute the offence u/s 276C (2). The act of filing the returns by itself cannot be construed as an attempt to evade tax, rather the submission of the returns would suggest that petitioner No.1 had voluntarily declared his intention to pay tax. The act of submitting returns is not connected with the evasion of tax. It is only an act which is closely connected with the intended crime, that can be construed as an act in attempt of the intended offence. In the backdrop of this legal principle in the case of Prem Dass vs Income Tax Officer 1999 (2) TMI 6 - SUPREME COURT has held that a positive act on the part of the accused is required to be established to bring home the charge against the accused for the offence u/s 276C(2). In the case on hand, conduct of petitioner No.1 making payments in terms of the returns filed by him, though delayed and made after coercive steps were taken by the Department do not lead to the inference that the said payments were made in an attempt to evade tax declared in the returns filed by him. Delayed payments, under the provisions of the Act, may call for imposition of penalty or interest, but by no stretch of imagination, the delay in payment could be construed as an attempt to evade tax so as to entail prosecution of the petitioners for the alleged offence u/s 276C(2). The prosecution initiated against the petitioners is illegal and tantamount to abuse of process of Court and is liable to be quashed.

Summary

Issues:
1. Prosecution under Section 276C(2) of the Income Tax Act for alleged tax evasion.
2. Compliance with self-assessment tax payment under Section 140A of the IT Act.
3. Legality of the prosecution proceedings and abuse of court process.

Issue 1: Prosecution under Section 276C(2) of the Income Tax Act for alleged tax evasion:
The petitioners, a Co-operative Society and its office bearers, were facing prosecution under Section 276C(2) of the Income Tax Act for allegedly attempting to evade tax. The prosecution was based on the assertion that the petitioners willfully tried to create circumstances to avoid tax payment. The petitioners contended that their actions, including making substantial payments towards tax liabilities, did not indicate any intention to evade tax. The key legal aspect was the requirement to establish mens rea or intention to evade tax to prove the offense under Section 276C(2).

Issue 2: Compliance with self-assessment tax payment under Section 140A of the IT Act:
The petitioners had filed returns of income but failed to pay the self-assessment tax along with the returns under Section 140A of the IT Act. Subsequently, they made payments towards tax liabilities, albeit after coercive steps were taken by the Department. The Department argued that these actions, including issuing a cheque with instructions not to encash until property registration, demonstrated an intention to evade tax. The court analyzed whether delayed payments could be construed as an attempt to evade tax, emphasizing the legal requirement of a positive act with intent to evade tax to establish the offense under Section 276C(2).

Issue 3: Legality of the prosecution proceedings and abuse of court process:
The court scrutinized the circumstances and legal principles surrounding the offense under Section 276C(2) of the Income Tax Act. It noted that the mere act of filing returns did not inherently imply an attempt to evade tax, especially when viewed in conjunction with subsequent delayed payments. The court held that the prosecution initiated against the petitioners was illegal and amounted to an abuse of the court process. Consequently, the court quashed the proceedings against the petitioners while allowing the Department to take lawful steps for tax recovery, if applicable.

This detailed analysis of the judgment highlights the legal intricacies involved in the prosecution under Section 276C(2) of the Income Tax Act, emphasizing the importance of establishing intent and positive acts to prove tax evasion offenses. The court's decision to quash the proceedings underscores the necessity for a clear demonstration of mens rea and deliberate attempts to evade tax to sustain such prosecutions.