2021 (4) TMI 957 - HC - Income Tax

Offence under Section 276 C (2) - failure to pay the income tax based on the self assessment - HELD THAT - In the instant case, admittedly there is no concealment of any source of income or taxable item, inclusion of a circumstance aimed to evade tax or furnishing of inaccurate particulars regarding any assessment or payment of tax. What is involved is only a failure on the part of the petitioner to pay the tax in time, which was later on paid after availing installment facility with interest. The penalty imposed is now pending consideration before the appellate authority. So it would not fall under the mischief of Section 276 C of the Income Tax Act. Argument advanced based on the deeming provision Section 278 E of the Income Tax Act regarding the presumption as to existence of culpable mental state on a prosecution for any offence under the Act - A 'culpable mental state' which can be presumed under Section 278E of the Act would come into play only in a prosecution for any offence under the Act, when the said offence requires a 'culpable mental state' on the part of the accused. Section 278 E of the Act is really a Rule of Evidence regarding existence of mens rea by drawing a presumption though rebuttable. That does not mean that the presumption would stand applied even in a case wherein the basic requirements constituting the offence are not disclosed. The presumption can be applied only when the basic ingredient which would constitute any offence under the Act is disclosed. Then only the rule of evidence under Section 278 E of the Act regarding rebuttable presumption as to existence of culpable mental state on the part of accused would come into play. As such there is no scope for applying the rebuttable presumption under Section 278E of the Act in the instant case. What is dealt with in Prakash Nath Khanna's 2004 (2) TMI 3 - SUPREME COURT case is the criminal liability that can be fastened under Section 276CC of the Act when there is wilful failure to furnish return. The expression failure used in Section 276 CC of the Act is with respect to submission of assessment and return and the same cannot be equated with any failure to pay the tax in time and the liability under Section 276 C of the Act. A mere failure to pay the amount due (tax, interest or penalty) will not satisfy the requirement which would constitute the offence under Section 276C(2) of the Income Tax Act. Hence the crime registered and the further proceedings thereof will not serve any purpose, if it is proceeded further. The same is quashed.

Summary

Issues:
1. Whether failure to pay income tax based on self-assessment constitutes an offence under Section 276 C (2) of the Income Tax Act.
2. Interpretation of the Explanation attached to Section 276 C in relation to sub-sections (1) and (2).
3. Applicability of Section 278E regarding presumption of culpable mental state in prosecution for an offence under the Income Tax Act.

Issue 1:
The petitioners sought to quash complaints alleging an offence under Section 276 C (2) of the Income Tax Act, arguing that mere failure to pay income tax based on self-assessment does not constitute the offence. The Income Tax Department contended that failure to remit tax based on self-assessment falls under "evade the payment of tax" in sub-section (2) of Section 276 C. The court analyzed the legislative intent, noting that the Explanation applies to both sub-sections (1) and (2), emphasizing that the legislature did not intend to exclude sub-section (2) from the Explanation's operation. The court referred to legal precedents to support its interpretation, ultimately quashing the complaints as the penalty was pending before the appellate authority.

Issue 2:
The court delved into the interpretation of the Explanation attached to Section 276 C, distinguishing between sub-sections (1) and (2). It highlighted that the Explanation pertains to "wilful attempt to evade any tax, penalty or interest chargeable" in sub-section (1) and not to "payment of any tax" in sub-section (2. The court emphasized that the Explanation is inclusive and not exhaustive, clarifying that sub-section (2) covers cases of tax evasion after assessment, not before charging or imposition. The court's analysis of the Explanation's applicability to both sub-sections reinforced its decision to quash the complaints.

Issue 3:
Regarding the applicability of Section 278E on presumption of culpable mental state, the court explained that this provision applies in prosecutions requiring a culpable mental state on the part of the accused. The court clarified that the presumption under Section 278E is a rule of evidence regarding mens rea, which can only be applied when the basic ingredients constituting the offence are disclosed. In this case, where there was no concealment of income or inaccurate particulars, and the tax was paid later with interest, the court ruled that the presumption under Section 278E does not apply. The court also differentiated between failure to furnish a return under Section 276CC and failure to pay tax in time under Section 276 C (2), emphasizing that the latter does not satisfy the requirements for the offence. Consequently, the court quashed the criminal liability and further proceedings.

In conclusion, the court's detailed analysis of the issues involved in the legal judgment led to the quashing of complaints alleging an offence under Section 276 C (2) of the Income Tax Act, based on the interpretation of relevant provisions and legal precedents.