2006 (1) TMI 102 - HC - Income Tax

This revision petition is against the judgment passed by the Additional Sessions Judge, confirming the conviction and sentence - A bare reading of the return filed by the applicants clearly shows that there was no deliberate attempt on the part of the applicants to conceal any income. On the contrary, the income which was detected as balance-sheet difference was shown by them, as such, in Part III of the return, showing their bona fide intention that the information was furnished by them to the Income-tax Department for the purpose of assessment. - there was no wilful act to conceal any income so the act of the applicant does not come under the provision of section 276C - two courts below have failed to consider the effect of introduction of 16 the provisions of section 278B w.e.f. October 1, 1975, and the effect of mentioning the balance-sheet difference as goodwill income in Part III of the return. - revision succeeds and is allowed. The judgments passed by the two courts below are set aside and the applicants are acquitted from the charge of the offences punishable under sections 276C and 277 r.w.s. 278B. The amount of fine if deposited by the applicants, be returned to them.

Summary

Issues Involved:
1. Applicability of Section 278B of the Income-tax Act retrospectively.
2. Allegation of concealment of income and evasion of tax by the applicants.

Issue-Wise Detailed Analysis:

1. Applicability of Section 278B of the Income-tax Act Retrospectively:
The primary contention raised by the applicants was that the provisions of Section 278B of the Income-tax Act, which were inserted by the Taxation Laws (Amendment) Act, 1975, with effect from October 1, 1975, were not applicable retrospectively. The return for the assessment year 1975-76 was filed on July 30, 1975, before the insertion of Section 278B. This section introduced a deeming provision making every person in charge of and responsible to the company for the conduct of its business liable for offences committed by the company. The applicants argued that prior to October 1, 1975, only the company was responsible for criminal acts committed under the Act, and subsequent laws cannot be applied retrospectively to punish individuals.

The court agreed with this contention, stating that penal provisions cannot be construed to have retrospective effect. The court cited judgments from the Delhi High Court (Parmeet Singh Sawney v. Dinesh Verma), Madras High Court (Manian Transports v. S. Krishna Moorthy, ITO), and Calcutta High Court (Vinar and Co. v. ITO) to support this interpretation. Consequently, it was held that the provisions of Section 278B were not applicable prior to October 1, 1975, and thus, applicant No. 2 could not be held liable for any offence committed by the firm under Sections 276C and 277 of the Act.

2. Allegation of Concealment of Income and Evasion of Tax by the Applicants:
The second issue revolved around whether the applicants had concealed income or made any false statements to evade tax. The applicants contended that the amount of Rs. 50,760, shown as goodwill in the return, was not concealed but was disclosed in Part III of the return, claiming it to be non-taxable. This amount was detected during the dissolution of the firm and was believed to be not liable for tax as it was not the income of the current year.

The court noted that the return, Exhibit P-1, clearly showed the goodwill income of Rs. 50,760 in the column for "Other sums not included in total income and claimed to be not taxable." The court emphasized that since this amount was disclosed in the return and not detected by the Income-tax Officer through any secret inquiry, it could not be considered as concealment. The court also referenced the Supreme Court's judgment in Cement Marketing Co. of India Ltd. v. Asst. CST, which stated that a return cannot be "false" unless there is an element of deliberateness in it.

The court concluded that there was no deliberate attempt by the applicants to conceal income or evade tax, as the amount was shown in the return under a bona fide belief. The court found no evidence of wilful act or mens rea, which are essential elements for the offence under Section 276C of the Act. Consequently, the court held that the applicants' actions did not constitute concealment of income or tax evasion.

Conclusion:
The court set aside the judgments passed by the two lower courts, acquitting the applicants of the charges under Sections 276C and 277 read with Section 278B of the Income-tax Act. The amount of fine deposited by the applicants was ordered to be returned to them. The court's decision was based on the non-retrospective application of Section 278B and the lack of evidence for deliberate concealment of income or tax evasion by the applicants.