2022 (2) TMI 50 - HC - Income Tax

Offence u/s 276C(2) - Default in payment of tax and payment of the tax in instalment - proof of mens rea - immovable property was attached and attachment is still continued - HELD THAT - Mere failure to pay the tax in time without any intention or deliberate attempt to avoid tax in totality or without any mens rea to avoid the payment, the word employed wilful attempt cannot be inferred merely on failure to pay tax in time. If the intention of the assessee to evade the payment of tax was present from the very inception, he would not have made further payments. The statements filed by the Department would also indicate that he was continuously paying the taxes from the year 2017 by instalments and he has paid the tax from 2016 till 10.11.2021 around 40 instalments he paid about ₹ 1,95,76,736/-. His conduct itself shows that there was no wilful attempt to evade the payment of tax and payment of the tax in instalment in fact clearly probabalise his reply given to the show cause notice which has not taken note of the Revenue. It is also relevant to note that for non-payment of tax the attachment order also passed on the immovable property of the assessee in the year 2016 itself. The authorities have attached the property till now keeping silent without making any recovery proceedings as contemplated under Sections 222, 223 and 226 of the Act. It is also relevant to note that as per Sub-Clause 4 Section 220 of the Act, ff the tax is not paid within the time limited under sub- section (1) or extended under sub- section (3), as the case may be, the assessee shall be deemed to be in default. The word Wilful is also not included the above legal fiction. Having attached the property the department has not made any attempt to recover all the taxes. Therefore, when the immovable property was attached and attachment is still continued, it is common knowledge that liquidating the asset is very difficult. Therefore, explanation offered by the assessee in this case for failure to pay the amount is very reasonable. The conduct of making payment of tax to the tune of ₹ 1,95,00,000/- is also clearly show that he never had an intention to defeat the provision of law by evading the payment of tax. As long as there is no deliberate Act or willful act on the part of the accused to evade the payment of tax, mere failure to pay the tax will not constitute the offence under Section 276C(2). This Court is of the view that the prosecution in this case is nothing but shear waste of time and there was no intention or willful attempt made by the Assessee to evade the payment of tax. Only he expressed his inability and mere failure to pay a portion of the tax cannot be construed to mean that he has wilfully attempted to evade the payment of tax. Proceedings on the file of the learned Additional Chief Metropolitan Magistrate (Economic Offences)-II, Egmore at Allikulam, Chennai, is quashed.

Issues Involved:
1. Whether the petitioner’s failure to pay the entire tax amount constitutes a willful attempt to evade tax under Section 276C(2) of the Income Tax Act.
2. Whether the prosecution initiated against the petitioner is maintainable.

Issue-wise Detailed Analysis:

1. Willful Attempt to Evade Tax:
The petitioner filed a return for the financial year 2012-13, showing a tax payable of ?2,22,23,010 but paid only ?10,000,000 as self-assessment tax. The assessment was completed, accepting the returned income. The remaining tax amount was not paid, leading to prosecution under Section 276C(2) of the Income Tax Act.

The petitioner contended that there was no suppression of income or undisclosed income unearthed. The return was accepted, and the assessment order confirmed the income. An immovable property was attached, and despite difficulties, the petitioner paid a substantial amount of tax, leaving only ?7,62,945 unpaid. The petitioner argued that mere delayed payment without intent to evade tax does not constitute an offense under Section 276C(2).

The court noted that Section 276C requires a willful attempt to evade tax, which involves positive acts like false entries in books of accounts or other documents. The court found no evidence of such acts by the petitioner. The petitioner’s failure to pay the entire tax was due to business losses and the attachment of property, preventing fund mobilization. The court concluded that mere failure to pay tax in time does not imply a willful attempt to evade tax.

2. Maintainability of Prosecution:
The respondent argued that failure to pay tax makes the petitioner a defaulter under Section 140A, and prosecution is maintainable. The court, however, emphasized that Section 140A(3) deems a person a defaulter for non-payment but does not imply willful evasion. The court referred to precedents, including Prem Dass vs. Income Tax Officer, which established that willful evasion requires deliberate acts beyond mere non-payment.

The court also referred to judgments like Tamil Nadu Housing Board vs. Collector of Central Excise, which clarified that evasion involves deliberate avoidance of payment. The petitioner’s continuous payments and the attachment of property indicated no intent to evade tax. The court found the prosecution to be an abuse of process, as there was no willful attempt to evade tax.

Conclusion:
The court quashed the proceedings in E.O.C.C.No.82 of 2017, ruling that the prosecution lacked merit as the petitioner’s actions did not constitute a willful attempt to evade tax. The petitioner’s inability to pay the full tax amount was due to genuine financial difficulties, and there was no deliberate attempt to evade tax. The Criminal Original Petition was ordered, and the connected Miscellaneous Petitions were closed.

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