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TMI Blog1975 (12) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... hed the orders of the Commissioner on the ground that penalties could only be imposed if it was found that the assessee acted deliberately in defiance of the law or was guilty of contumacious or dishonest conduct or acted in conscious disregard of his obligations and not otherwise. He directed the Commissioner to reconsider the matters. The Commissioner has preferred these writ appeals. We find it extremely difficult to agree with the view expressed by Obul Reddy J. But that view was approved by a Division Bench of this court consisting of Obul Reddy C.J. and Punnayya J. in Additional Commissioner of Income-tax v. Narayanadas Ramkishan [1975] 100 ITR 18 (AP). In the circumstances, we think that the question should be resolved by a Full Bench. We would, however, like to express our view in the matter. Section 271(1)(a) of the Income-tax Act provides that if the Income-tax Officer is satisfied that any person " has without reasonable cause " failed to furnish the returns of total income, etc., he may levy a penalty on such person. All that the Income-tax Officer has to be satisfied about is that the failure of the assessee to submit return is " without reasonable cause " neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KB 471 (CA) and Donovan J. in Regina v. St. Margaret's Trust Ltd. [1958] 1 WLR 522 (C Cr App). We may refer here to Bruhn (Jacob) v. The King [1909] AC 317, 324 (PC), where dealing with a case arising out of a contravention of revenue laws, Lord Atkinson said : " In many cases connected with the revenue certain things are prohibited unless done by certain persons, or under certain conditions. Unless the person who does one of these things can establish that he is one of the privileged class, or that the prescribed conditions have been fulfilled, he will be adjudged guilty of the offence, though in fact he knew nothing of the prohibition." In Lim Chin Aik v. The Queen [1963] AC 160 (PC), the Privy Council recognised that where " public welfare offences " (which most modern statutory offences are) were concerned there was a presumption of strict liability and the presumption of mens rea was displaced. In Indo-China Steam Navigation Co. Ltd. v. Jasjit Singh [1964] 34 Comp Cas 435 (SC) the Supreme Court attached great importance to the social purpose of the legislation rather than to the so called presumption relating to mens rea. In State of Maharashtra v. Mayer Hans George [196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r like to point out that it is wrong to classify proceedings for levy of penalty under taxation statutes as offences of a criminal nature. In Corpus Juris Secundum, Vol. 85, p. 580, it is said. " A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws. " In Ummali Umma v. Inspecting Assistant Commissioner of Income-tax [1967] 64 ITR 669, 676 (Ker), Mathew J. said : " I cannot say that the penalty imposed under section 28 of the repealed Act or under section 271 of the Act was or is imposed on the basis that it was or is an offence. For the offence punishment was or is prescribed such as imprisonment, fine or both. The imposition of penalty on the basis of an act or omission by an assessee is not because the act or omission constitutes an offence, but because that act or omission would constitute an attempt at evasion. Therefore, penalty is exacted not because an act or omission is an offence but because it is an attempt at evasion of tax on the part of the assessee. " In R.C.No. 64/1970 [Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he firms for some time owing to some personal reasons. The Income-tax Officer was not inclined to accept this explanation and levied penalties for late submission of the returns. The respondents preferred revision petitions before the Commissioner of Income-tax. Before him, the reason for the delay was stated as family troubles. He rejected the revision petitions as he did not accept the explanation. Thereupon, writ petitions were filed in this court by the respondents. Obul Reddy J., as he then was, quashed the orders of the Commissioner, holding that the penalties could be imposed only when it was found that the assessee acted deliberately in defiance of the law, or was guilty of contumacious or dishonest conduct, or acted in conscious disregard of his obligations and not otherwise. The learned judge sent back the matters to the Commissioner for reconsidering them in the light of the observations he made and the observations of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC). The department preferred these writ appeals challenging the learned judge's order. The view expressed by Obul Reddy J., sitting single in these writ petitions, was later ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of an offence can be displaced either by the words of the statute creating the offence or by the subject matter with which it deals, in which case both must be considered. It may be that mens rea is a necessary ingredient in every traditional crime which is given statutory form. But it has very limited application, and in some cases, it has no application at all to offences created by modern, social, industrial, fiscal and economic legislation. The Indian Income-tax Act is one such modern fiscal legislation. As a piece of modern fiscal and economic legislation, the Act provides for deterrents in many shapes and forms for not acting in accordance with its provisions. It may rest content with collecting interest for delayed submission of returns. In some other cases, it goes a step further and provides for levy of penalty, and in still some other cases, it treats the delayed filing of the returns an offence making the offender liable to punishment. May be, that one of the three modes of deterrents laid down by the Act for preventing delayed filing of the returns is imposition of a penalty under section 271(1)(a). Penal proceedings are quasi-criminal in their nature. But section 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income is less than eighty per cent. of the total income as assessed under section 143 or 144 or 147 to prove that his failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. In the absence of such proof emanating from him, the Explanation deems him to have concealed the particulars of his income or to have furnished inaccurate particulars of his income. The Explanation thus introduces into section 271 the need to prove existence or absence of fraud or any gross or wilful neglect. If the returned total income is less than 80 per cent. of the total income as finally assessed, it would be for the assessee to prove absence of fraud or gross or wilful neglect. From this, it must logically follow that if the returned income is not less than 80 per cent. of the finally assessed income, the burden would lie on the revenue to show that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income on account of fraud or gross or wilful neglect. Such being the position in regard to the cases arising under clause (c) of section 271 (1) there is no reason whatever to exclude the ideas of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139 or section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section 139 or by such notice, as the case may be, or (b) has without reasonable cause failed to comply with a notice under sub-section (1) of section 142 or sub-section (2) of section 143, or (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,-- (i) in the cases referred to in clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent. of the assessed tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the assessed tax. Explanation.--In this clause " assessed tax " means tax as reduced by the sum, if any, deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C ; (ii) in the cases referred to in clause ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sclosure of such particulars ; (b) has co-operated in any enquiry relating to the assessment of such income ; and (c) has either paid or made satisfactory arrangements for payment of any tax or interest payable in consequence of an order passed under this Act in respect of the relevant assessment year : Provided that-- (i) if in a case the minimum penalty imposable under clause (i) of sub-section (1) for the relevant assessment year, or, where such disclosure relates to more than one assessment year, the aggregate of the minimum penalty imposable under the said clause for those years, exceeds a sum of fifty thousand rupees, or (ii) if in a case falling under clause (c) of sub-section (1), the amount of income in respect of which penalty is imposable for the relevant assessment year, or, where such disclosure relates to more than one assessment year, the aggregate amount of such income for those years, exceeds a sum of five hundred thousand rupees, no order reducing or waiving the penalty shall be made by the Commissioner unless the previous approval of the Board has been obtained. (4B) An order under sub-section (4A) shall be final and shall not be called in question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rue a statute in conformity with the common law. But it cannot be postulated that a statute cannot alter the course of the common law. Parliament in exercise of its constitutional powers makes statutes and in exercise of that power it can affirm, alter or take away the common law altogether. Therefore, if it is plain from the statute that it intends to alter the course of the common law, then the plain meaning should be accepted. The existence of mens rea as an essential ingredient of an offence has to be made out by the construction of the statute. This is what Wright J. said in Sherras v. De Rutzen [1895] 1 QB 918, 921 on the subject : " There is a presumption that mens rea, an evil intention, or a knowledge of the wrongfulness of the act, is an essential ingredient in every offence ; but that presumption is liable to be displaced either by the words of the statute creating the offence or by the subject-matter with which it deals, and both must be considered." Absolute liability for an offence in order to presume mens rea should be established. In order to find out whether means rea, i.e., a guilty mind is an ingredient or not, reference has to be made to the language of the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision under which penalty is imposable, whether imposition of penalty is provided as a punishment for an offence. Simply because something more than the usual payment of tax that is payable by an individual is imposed on him, could it be said that a punishment is inflicted on him for an offence he has committed ? Once again, it will have to be kept in mind that as human values have been changing and changing at a fast pace, a spate of social legislation has been taken up by all countries, particularly developing countries like India. Taxation statutes have two purposes. They are intended not only to collect revenues for the State, but also for bringing about social justice and to enable the State to implement social welfare schemes undertaken by it. Consequently, several taxation statutes, if not all, have taken great care in making provisions for collection of taxes imposed, as speedily as possible. If there is a delay on the part of the taxpayer to pay his taxes, taxation statutes have provided for not only remedial and coercive proceedings, but also punishments treating certain tax delinquencies as offences. These several measures should not be confused with each other. The po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Officer [1961] 41 ITR 425 (SC) that penalty is only an additional tax. Mathew J., sitting single in Kerala High Court, in P. Ummali Umma v. Inspecting Assistant Commissioner of Income-tax [1967] 64 ITR 669 (Ker), after referring to the two decisions of the Supreme Court of the United States, observed at pages 675 and 676 : No conviction for any offence is involved in the imposition of a penalty. Article 20(1) of the Constitution will have application only when a person is subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence. This would indicate that commission of an offence and a conviction thereof are necessary in order that the provisions of the article may be attracted... A penalty, therefore, would come within the purview of article 20(1) only if the earlier part of the clause is attracted, i.e., there must have been a conviction for an offence. Unless there is a conviction, no question of the latter part of the article applying will arise... The imposition of penalty on the basis of an act or omission by an assessee is not because the act or omission constitutes an offence, but because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are concerned, there is not much of a distinction between penalty for taxation delinquency and punishment for taxation offence. It is in this view, Sri Dasaratharama Reddy submitted, the observations of Shah, Actg. C.J., in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 at page 29 (SC) should be understood. There the learned Acting Chief Justice was considering, as one of the questions, whether imposition of penalties for failure to get registered as a dealer was justified under the Orissa Sales Tax Act of 1947. The learned Chief Justice observed at page 29 : " Under the Act penalty may be imposed for failure to register as a dealer : section 9(1), read with section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged. either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. " Resting on these observations of the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th imposition of penalty, in the light of the general scheme of the Act, that should be looked into to find out whether guilty mind is necessary for imposition of penalty. If that is not done, and if penalty proceeding is conducted on general common law principles alone, it would result in ignoring and even contravening the provisions of the statute itself, under which penalty is imposed. We will now examine how the Income-tax Act, 1961, had dealt with late filing of the returns. Practically all taxing statutes lay down their own procedure and machinery for enforcing implementation of their provisions. It must be remembered that all these taxation laws are intended to fetch revenue for the State to enable it to run its administration and to implement welfare programmes. There shall be neither evasion of tax, nor delay in the procedure relating to assessment and collection of taxes. In order to see that payment of tax is not evaded, that there is no delay in assessment or in the collection of tax imposed, every taxation statute lays down a clear cut procedure. While doing so, the statute may treat minor delinquencies lightly, some other delinquencies which are not simple in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppropriate cases the Income-tax Officer is given power to remit the whole or part of it. Section 271(1)(a) goes a step further and deals with somewhat graver situations. A penalty as provided in clause (i) may be imposed only when the Income-tax Officer or the Appellate Assistant Commissioner is satisfied that the delay has occurred without reasonable cause. Every cause cannot explain away the delay in filing the return. If a cause, which is reasonable, in other words, a cause which appeals to or satisfies any reasonable mind, does not exist, then alone penalty can be imposed, The quantum of penalty is heavier than the interest that is collectable under section 139(8). But, as sub-clause (i) to sub-section (1) of section 271 now stands, it may be anything between two per cent. of the assessed tax for every month during which the default continued, and fifty per cent. of the aggregate thereof. It is very much noteworthy that for failure to comply with a notice under section 142(1) or 143(2) without reasonable cause, section 271(1)(b) read with sub-clause (ii) provides for the higher rate of penalty starting from ten per cent. of the tax. When it comes to concealment of particulars o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailure to furnish returns in time "without reasonable cause". Certainly, the expression "without reasonable cause" and the expression "wilful failure" cannot be equated. It is important to note that the word " wilful " was introduced with effect from April 1, 1971, by Act 42 of 1970. Until then, the words which appeared were "without reasonable cause". For the change, the reason, as could be seen from Taxation, Volume 30, at page 101, is that the Joint Select Committee felt that " in accordance with the accepted canons of criminal jurisprudence failure to furnish returns or produce documents, etc., should be made punishable only when such failure is wilful ". It is thus manifest that the word "wilful" has been deliberately introduced to incorporate into the provision and to clearly specify the idea of mens rea. That is absent in section 271(1)(a). Thus, it is seen that the Act postulates three modes of enforcement of the statutory requirement of filing the income-tax return in time, (1) by levying interest, (2) by imposing penalty if the delay has been occasioned without reasonable cause, and (3) by punishing the assessee treating failure to file the returns as an offence if it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gredient for an action under section 276C and not for penalty proceeding under section 271(1)(a). Sri Dasaratharama Reddy pointed out the difference in the language between rule 117A(v) of the Income-tax Rules, 1962, and section 146 of the Income-tax Act on one side and section 271(1)(a) on the other. In the first set of provisions, the phrase "sufficient cause" is used, while in section 271(1)(a), the expression "reasonable cause" is used. Section 146 relates to "reopening of assessment at the instance of the assessee", and enables the assessee to seek cancellation of the assessment on the ground that he was prevented by "sufficient cause" from making the return required under sub-section (2) of section 139. His attempt was that the expression "sufficient cause" used in section 146 is analogous to the same language used in section 5 of the Limitation Act or Order 9, rule 9, or Order 9, rule 13, of the Civil Procedure Code and that it is different from the expression " reasonable cause " used in section 271(1)(a). The cause being sufficient or otherwise does not indicate the guilty element but the expression " without reasonable cause " would suggest its presence. He amplified th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd. At the same time, we must take notice of the use of the expression " without reasonable cause or excuse " in some of the offences for which prosecutions can be levied under the Act. As we have said, Chapter XXII relates to " offences and prosecutions ". Sections 276, 276A and 276B make offences of failure to make payments or deliver returns or statements or allow inspection, failure to comply with the provisions of sub-sections (1) and (3) of section 178 and failure to deduct and pay tax " without reasonable cause or excuse ", and they are punishable with either fine or imprisonment. These sections, using the above said expression, occur in the Chapter relating to " Offences and prosecutions " and expressly declare that, if these acts are done without reasonable cause or excuse, they would be punishable offences. It is noteworthy that immediately following these sections and occurring in the same Chapter, section 276C, which deals with " failure to furnish returns of income " in due time, clearly declares that such failure becomes an offence when it is wilful . There cannot be a more eloquent testimony to the intention of Parliament to maintain the distinction between the off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stablishing that his failure to return the correct income does not arise out of gross or wilful neglect on his part. If he does not make any attempt to do so, a presumption is raised by the explanation that he has concealed the particulars of his income or furnished inaccurate particulars of such income. By parity of reasoning, the learned counsel argued, when the total income returned is not less than eighty per cent. of the total income as finally assessed, then the burden would be on the department to prove that the failure to return the correct income was due to fraud or gross or wilful neglect on the part of the assessee. Likewise, clauses (a) and (b), which deal with failure to furnish returns in due time and failure to comply with reasonable notices, should also be construed as placing the burden on the department to prove fraud or wilful neglect on the part of the assessee in committing the two acts mentioned in the two clauses. Our attention was invited to a decision of the Patna High Court in Commissioner of Income-tax v. Patna Timber Works [1977] 106 ITR 452 (Pat). That is a case relating to penalty levied for concealment. It was found there that there was a difference o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ti High Court in Rajputana Stores v. Inspecting Assistant Commissioner of Income-tax [1975] 99 ITR 499 (Gauhati) and the decision of the Orissa High Court in Commissioner of Income-tax v. K. C. Behera [1976] 103 ITR 479 (Orissa), which were brought to our notice by Sri Dasaratharama Reddy. All these decisions of the various High Courts examined the scope of the Explanation to sub-clause (iii) and its impact on the main provision contained in clause (c) of section 271(1). It must be noted that none of them relates to the other clauses of section 271(1). The decisions pointed out that the object behind the enactment of the Explanation was to check more effectively the evasion of income-tax. Obviously, the main purpose of the Explanation is to place the burden of establishing want of fraud or gross or wilful neglect in the matter of income-tax return filed by the assessee on him, where the difference revealed between the returned income and assessed income is more than twenty per cent. But in case the difference is less than twenty per cent. then the assumption postulated by the Explanation would not arise, and it shall be for the department to establish that the assessee had conceale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be any ambiguity about it. But section 271 is only a provision under which penalties could be imposed in some eventualities. It is true, penalty, as the very name suggests, implies penal proceeding. It was so held in Hindustan Steel Ltd.'s case [1972] 83 ITR 26 (SC), and the character of a penal proceeding was also made clear by a Division Bench of this High Court in T. Venkata Krishnaiah Co. v. Commissioner of Income-tax [1974] 93 ITR 297 (AP). The learned judges were dealing with the distinction between charging of interest and imposition of penalty and observed that interest was civil in nature while penalty was penal and so both could be levied. Sri Dasaratharama Reddy further endeavoured to reinforce the above argument by referring to the circumstances that by the Finance Act of 1964, the word " deliberately " was deleted from clause (c) which was there earlier before the words furnished inaccurate particulars of such income ". How he developed the argument is, when once the word " deliberately " was deleted, the very act of furnishing of inaccurate particulars of income is treated as a ground for imposition of penalty. When mere furnishing inaccurate particulars of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no possibility for any doubt that its operation is limited only to cases which come under clause (c). Otherwise, the application of fraud and gross or wilful neglect to cases of concealment of particulars of income and the words " for the purpose of clause (c) of the sub-section " would be meaningless. If it was intended by the Explanation that its principle should govern all the three clauses of sub-section (1), Parliament could have said so. Instead of saying it, it specifically restricted and limited its application only to cases falling under clause (c). Therefore, there is no warrant whatever for extending the principle of the Explanation to clause (a). Further, though all the three varieties of cases mentioned in sub-section (1) in clauses (a), (b) and (c) are grouped together, the section treats each one of them separately and distinctly. While the words " without reasonable cause " occur in clauses (a) and (b), they do not appear in clause (c). Furthermore, all the three categories of delinquencies are separately dealt with. Had the intention been to impose a similar penalty for all those delinquencies, there was no need for Parliament to provide three varying degrees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn of total income. Whatever the meaning that expression has, when used in clause (a) of sub-section (1), the same meaning should be attributed when it occurs in clause (i) of sub-section (4A). The reasonable understanding of sub-section (4A) would be that the Commissioner should see in cases of failure to furnish the return of income without reasonable cause, before he reduces or waives the amount of minimum penalty, whether the assessee had acted voluntarily and in good faith and made full disclosure of his income prior to the issue of notice to him under section 139(2). The presence or absence of good faith cannot be extended to the late filing of returns of income. Otherwise, the sub-section would have said so clearly. Apart from that, sub-section (4A) deals only with reduction or waiver of the amount of minimum penalty imposable which can be granted by the Commissioner while clause (a) refers to a situation which arises in the course of any proceedings under the Act dealt with by the Income-tax Officer or the Appellate Assistant Commissioner. For these reasons, we are unable to agree with Sri Dasaratharama Reddi in his submission that section 271 itself gives a definite clue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e [1965] 35 Comp Cas 557 ; AIR 1965 SC 722 the majority held that : " Unless the statute, either clearly or by necessary implication rules out mens rea as a constituent part of a crime an accused should not be found guilty of an offence against the criminal law unless he has got a guilty mind. Absolute liability is not to be lightly presumed but has to be clearly established." The court can only interpret the law as it finds it. Parliament's mind has to be gathered from the provisions it has incorporated in a statute. When all the relevant provisions in the Income-tax Act relating to failure to file the return of income before due date are considered, it cannot be held that contumacious conduct is made an ingredient of a proceeding under section 271(1)(a). We go even a step further. By making wilful failure to file a return an offence under section 276C and by the very language in section 271(1)(a), it can safely be concluded that mens rea is not an ingredient of a proceeding under sub-clause (a) of section 271 (1). So far, we have not gone into any of the decided cases directly dealing with this aspect of the matter. That is because the true meaning of a provision will have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out.". It can be immediately seen that these observations are of a general nature. May be, certain penalties can be imposed only if the party either acted deliberately in defiance of law, or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. For imposition of penalties in some other cases, contumacious conduct may not be necessary. Simply because it is called penalty, contumacious conduct cannot be automatically imported into its proceeding. As we have time and again observed above, relying on the Supreme Court decisons, it depends upon the statutory provisions. It may be that under section 9(1) read with section 25(1)(a) of the Orissa Sales Tax Act, contumacious conduct was necessary before a penalty would be imposed. But section 271(1)(a) of the Income-tax Act clearly says, as distinct fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income-tax v. Alimohamad and Co. [1974] 97 ITR 133 (Orissa) and Dawn Co. v. Commissioner of Income-tax [1973] 87 ITR 71 (Ker). Obul Reddi C.J. and Punnayya J., in Additional Commissioner of Income-tax v. Narayanadas Ramkishan [1975] 100 ITR 18 (AP), had to consider a petition filed under section 256(2) of the Income-tax Act. One of the questions posed was, whether the penal provisions of section 271(1)(a) were not attracted to the facts of the case. The Tribunal expressed the view that they did not find material let in by the revenue to show that the assessee wilfully defaulted, more especially, when it had been seen that the return was filed voluntarily without issue of notice under section 139(2). Consequently, the Tribunal set aside the orders of the authorities below imposing penalty upon the assessee. After considering the case, in the course of the judgment, the learned Chief Justice referred to the majority view of the Supreme Court spoken by Subba Rao J., in Nathulal v. State of Madhya Pradesh AIR 1966 SC 43, that mens rea is an essential ingredient of a criminal offence and only where it is absolutely clear that the implementation of the object of the statute would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department. We must also refer to a decision of Vaidya and Sriramulu JJ. in Mullapudi Venkatarayudu v. Union of India [1975] 99 ITR 448 (AP). It is also a case which arose under section 271(1)(a). The learned judges held among other things : " As there is no exclusion of mens rea either expressly or by necessary implication in section 271, it has to be determined whether there was any mens rea in the assessee acting against the provisions of the statute, that is, whether the non-compliance with the provisions of section 139(1) was with a wrongful intention or culpable negligence. In order to determine whether there was culpable negligence it will have to be determined whether the assessee did his best as a reasonable man to avoid the non-compliance. Where the Income-tax Officer came to the conclusion that the mere fact that the petitioner was under the impression that as in earlier years he would be served with a notice to file the return was not sufficient to hold that he had taken reasonable care to comply with the provisions of the section." For the reasons we have stated above, the position as stated by the Division Bench in this case cannot be accepted. Then came the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnish any explanation or furnishes a cause which is not accepted as reasonable, penalty is leviable for not furnishing the return within the time allowed. Then the learned judges compared section 271(1)(a) and section 276C and observed at page 619 : " Wilful failure to file the return in due time is the gravamen of the offence under section 271(1)(c) (obviously, a mistake for 276C). The burden of proof is on the revenue to establish beyond reasonable doubt that the failure to file the return in due time is wilful. There is a well-marked distinction between the meanings of the expressions 'without reasonable cause' and 'wilfully'. The word 'wilfully' in Chamber's Twentieth Century Dictionary carries the following meanings : 'governed only by one's will, obstinate ; done intentionally.' When a person acts wilfully he acts without reasonable cause, but the converse is not true. Not to carelessly or negligently file the return within the time allowed is an act without reasonable cause, but it may not be wilful. The word 'wilful' imports the concept of 'mens rea' while it is absent in the expression 'without reasonable cause'." Then the learned judges referred to the observations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able opportunity of being heard. Therefore, the position that emerges from the reading of section 271(1)(a) and section 274 together is : When an assessee files the return after the due date, the Income-tax Officer gives him an opportunity to explain the delay. If after considering the explanation of the assessee the Income-tax Officer is satisfied that there is no reasonable cause for the delay, he levies the penalty. The burden is upon the Income-tax Officer to be satisfied that there is no reasonable cause. Even if the assessee, when given an opportunity, does not avail himself of that opportunity it is for the Income-tax Officer to go through the records and satisfy himself that there was no reasonable cause. It is the responsibility of the officer concerned to examine the reason advanced and find out whether it is reasonable in the circumstances of the case. If he is satisfied that it is reasonable cause then he cannot impose a penalty. He can impose penalty only if he is satisfied that the delay has occurred without reasonable cause. Though the preliminary responsibility is that of the assessee to advance some cause, it is the task of the Income-tax Officer or the Appellate A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner can do and is expected to do, to reach the satisfaction that is required under section 271(1), is to examine the entire record relating to the proceeding and to find out whether the delay has been occasioned on account of any reasonable cause or without reasonable cause. This, in our view, is the scope of the burden or satisfaction that rests with the Income-tax Officer or the Appellate Assistant Commissioner. It may also be emphasised that, having regard to the penal consequences, the expression " reasonable cause " has to be liberally construed in favour of the assessee. Construing section 5 of the Limitation Act there is a long line of cases beginning with Krishna v. Chathappan [1889] ILR 13 Mad 269, which was approved by the Supreme Court in Ramlal v. Rewa Coalfields AIR 1962 SC 361, that the word " sufficient cause " should receive a liberal construction so as to advance substantial justice. This is particularly true with regard to a case where non-submission of return in time results in penal consequences. Having expressed our opinions as to the nature of the proceeding under section 271(1)(a) and the scope of the burden in reaching the satisfaction, we will now proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enquiry by himself as to what those family troubles were and how long they lasted and whether they really prevented the assessees from filing the returns in time, when obviously no further material was available from the record to show cause for the delayed filing of the returns. In these circumstances, we are satisfied that the Commissioner was right in refusing to accept these bald and unexplained family troubles as the reasonable cause for the delayed filing of the returns. We, therefore, uphold the decisions of the Commissioner in rejecting the revision petitions of the assessees, set aside the order of Obul Reddy J. (as he then was) quashing the order of the Commissioner of Income-tax and allow these writ appeals. It is, however, open to the assessees to approach the Commissioner under section 271(1)(4A) for appropriate relief. We would also like to make it clear that what we have decided is only in respect of the proceedings under section 271(1)(a) and not in regard to section 271(1)(c). In view of the unsettled law on the subject so far, we direct the parties to bear their own costs throughout. LAKSHMAIAH J.--I agree with the conclusion of my learned brother that thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ea into a situation where the requisite mental state is already defined.........Nor is there any reason for qualifying the failure to furnish a return with expressions like 'contumacious', 'dishonest', 'in deliberate defiance of law, etc.' To do so, is to rewrite section 271(1)(a)." It is for the purpose of solving that conflict this Full Bench is constituted. The problem presented for solution is essentially one of interpretation or construction of statutes necessitating thus a consideration of-- (I) the nature, subject matter, object and policy of the Income-tax Act, 1961, and (II) the common law tradition of judicial approach towards modern legislation. (I)(a). The Income-tax Act : nature and subject-matter.--This Act was enacted by Parliament in exercise of the exclusive power conferred upon it under articles 245 and 246 of the Constitution of India to make law with respect to matters enumerated in the Union List, particularly in entry 82 dealing with "taxes on income other than agricultural income", in entry 93 dealing with "offences against laws with respect to any of the matters in this list", and in entry 95 dealing with "jurisdiction and powers of all courts ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 53 deals with punishments and provides thus : " 53. Punishments.--The punishments to which offenders are liable under the provisions of this Code are,-- Firstly,--Death ; Secondly,--Imprisonment for life ; Thirdly,--(Repealed by Act XVII of 1949) ; Fourthly,--Imprisonment, which is of two descriptions, namely :-- (1) Rigorous, that is, with hard labour ; (2) Simple ; Fifthly,--Forfeiture of property ; Sixthly,--Fine. " Criminal Procedure Code.--Section 4(o) of the Code of Criminal Procedure, 1898, defines the expression " offence " to mean " any act or omission made punishable by any law for the time being in force ;......" Section 5 deals with " Trial of offences under Penal Code and against other laws " and reads thus : " 5. (1) All offences under the Indian Penal Code shall be investigated, inquired into, tried and otherwise dealt with according to the provisions hereinafter contained. (2) All offences under any other law shall be investigated, inquired into, tried and otherwise dealt with according to the same provisions, but subject to any enactment for the time being in force regulating the manner or place of investigating, inquiri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffence among other things under section 276C except at the instance of the Commissioner. Sub-section (2) provides for a compounding of any offence by the Commissioner either before or after the institution of the proceedings. Section 292 of the Act deals with cognisance of offences and provides that no court inferior to that of a presidency magistrate or a magistrate of the first class shall try any offence under this Act. Income-tax Act : Penalties :-- Chapter XXI of the Income-tax Act deals with penalties imposable wherein section 271 occurs. It has already been noticed that under section 271(1)(a), the Income-tax Officer or the Appellate Assistant Commissioner has power subject to the fulfilment of the conditions mentioned therein to direct any person to pay by way of penalty for failure to furnish, among other things, the return of total income under sub-section (1) of section 139. Sub-section (4A) of that section empowers the Commissioner to reduce or waive the amount of minimum penalty imposable on a person under clause (i) of sub-section (1) for failure, without reasonable cause, to furnish the return of total income which such person was required to furnish under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gate the two objectionable aspects of unrestricted private property : first, the inequalities of wealth, and secondly, the power to use property for private profit, and without regard to community purpose. In popular consciousness the first aim still predominates. By graded taxation and surtax on high incomes, gross inequalities of wealth are evened out more easily than by the equalisation of incomes or the abolition of private property. But the second aspect of taxation policy is becoming increasingly more important. On the one hand, taxation is a cheap means by which the State finances its costly social service scheme. Under the British National Health Service Act, 1946, medical services are free for all. The cost of medical services is no longer met by millions of contributions of varying magnitude from private pockets, but out of public revenue. This means that income and property taxes largely pay for the medical services of the poorer classes. To the extent that the State contributes to the cost of national insurance (National Insurance Act, 1946) the same applies." (Law in a Changing Society by W. Friedmann at page 85). My learned brother is also of the view that the taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment ". Note the constitutional mandate in article 37 : " It shall be the duty of the State to apply these principles in making laws ", principles declared to be fundamental in the governance of the country. The process of the governance of this country as per article 37 of the Constitution is to be carried on by law-making instrumentalities by applying the Directive Principles of State Policy as laid down in Part IV, while making laws and by law applying and enforcing instrumentalities, by interpreting and construing such laws embodying such principles. There is a duty cast on the courts to interpret the Constitution and the laws to further the Directive Principles. While interpreting the laws, the courts shall have to make a functional and pragmatic approach to the problems in terms of utility and social consequences. That is the sociological approach. It is only through this approach, that the aspirations of the people, enshrined in the Preamble and embodied in Part IV of the Constitution, can be realised. It is a mistake to suppose that the Directive Principles in Part IV are subordinate to the rights conferred by Part III because of articles like 32 and 226 providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound in the legislature which evolves the legislative process passing into law its own statutes. Certain rules of common law and equity we find in their statutorised form in England in Acts like the Bills of Exchange Act, 1882, Sale of Goods Act, 1893, and Law of Property Act, 1925. There are other statutes containing welfare legislation adding new dimensions to the law, creating rights and obligations where before there were none. The common law is treated as a private law system, concerned essentially with the person, the property, and the reputation of the individual. Its primary concern has been to defend private property and to distribute justice between individuals in disputes with each other. The business of the courts has thus been distributive justice, the interest of the State being to do justice between man and man. From that outlook and approach, there has arisen the common law's lack of concern with public law which is concerned with the rights and obligations of the State in the setting of municipal law. The welfare State is challenging the relevance, or at least the adequacy of the common law's concepts and classifications and rules and principles. (See Sir Leslie Sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erious. It has been well said that English courts have often inhibited themselves from 'seizing the spirit of institutions and situations which are in substance the creatures of modern legislation'. These effects have been the subject of critical comment in connection with many major fields of legislation, for instance public health, the emancipation of married women, and the related matter of family life insurance policies, road traffic legislation, workmen's compensation legislation, industrial safety legislation, industrial reorganisation legislation, trade union legislation, criminal law, sale of goods legislation, housing legislation, town planning legislation, legislation on the adoption and custody of infants, and many others ........" " The antithetical relationship between the common law and statute law, the law deposited and preserved in the hearts of the judges and law propounded by Parliament " is admirably brought out in a brilliant essay written as early as in the year 1908 and published in 21 Harvard Law Review at page 383 by Roscoe Pound under the heading " Common Law and Legislation " : " Four ways may be conceived of in which courts in such a legal system as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause of judicial jealousy of the reform movement. The judge should not substitute his will for that of the legislature, said Hand, even though he might have more wisdom, because statutes embody the will of the elected representative of the people. Sociological jurisprudence insists, as a matter of value, that the social advantage of the rule is its major test, since the welfare of society is the general aim of the law. (From Society and the Law). The joint report of the two Law Commissions, i.e., Law Commission and Scottish Law Commission Report on the Interpretation of Statutes of 1969 says that " the rule in Heydon's case [1584] 3 Co Rep 7a, while not without merits, is somewhat outdated, because it assumes that statute is subsidiary or supplemental to the common law, whereas in modern conditions many statutes mark a fresh point of departure rather than a mere addition to, and qualification of the principles of common law." (From Introduction to Jurisprudence by Lord Lloyd of Hampstead, third edition, at page 741). One of the rules deduced by Sri L. Scarman from the speech of Lord Herschell in Vagliano v. Bank of England [1891] AC 107, 145 (HL) is "The law is to be deduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a held the view that " In the case of modern statutory offences the maxim has no general application and the statutes are to be regarded as themselves prescribing the mental element which is a prerequisite to a conviction ". The learned author suggests that much of the confusion can be avoided if reference to mens rea in modern statutory offences is avoided. In Hobbs v. Winchester Corporation [1910] 2 KB 471, 483 (CA) Kennedy L.J. said that : " There is a clear balance of authority that in construing a modern statute this presumption as to mens rea does not exist. " Donovan J. in R. v. St. Margaret's Trust Ltd. [1958] 1 WLR 522, 527 (C Cr App) said that " modern statutes create offences where knowledge on the part of an offender is not essential, and that accordingly there is no universal prior presumption of mens rea ". In Lim Chin Aik v. R. [1963] AC 160, 174 (PC,) Lord Evershed said about the strict liability with respect to statutory functions thus : " Where the subject-matter of the statute is the regulation for the public welfare of a particular activity--statutes regulating the sale of food and drink are to be found among the earliest examples--it can be and freq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rea may be the foundation of liability in criminal law but need not necessarily be under statutory law. Speaking about the offences of absolute liability, J. C. Smith in his article " The Guilty Mind in the Criminal Law " [1960] 76 Law Quarterly Review says at page 78 and at page 97, thus : " Not only are these offences a departure from the principle discussed above in that they do not require mens rea, but it is not even necessary to prove negligence, the usual criterion of liability in the civil law. A person may be convicted of one of these even though he was taking all reasonable care. All that the prosecution have to do is to prove that D (defendant) caused the actus reus by a voluntary act..." R.M. Jackson in his article " Absolute Prohibition in Statutory Offences " published in [1936] VI Cambridge Law Journal, at page 83, said : " In all common law crimes, other than common nuisance, it appears that some culpable mental element or mens rea is required. The mental element is 'culpable' in the sense that the actus is only criminal when it is coupled with a realization of the probable consequence of the act or omission. In statutory offences this rule does not hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M. C. Setalvad in The Hamlyn Lectures on The Common Law in India, summed up very neatly the position as regards the applicability of the maxim actus non facit reum nisi mens sit rea to statutory offences in India thus at pages 139 to 141 : " Unlike in England all offences in India, excepting contempts of the courts of record like the Supreme Court and the High Courts, are statutory. The offences defined in the Penal Code and also in various other statutes incorporate in the definition of the offence itself the guilty mind needed in order that the crime may be committed. Under the English common law mens rea may vary from crime to crime. So does it vary in the Indian statutory definitions of crime. What the Indian Code seems to have done is to incorporate into the common law crime the mens rea needed for that particular crime so that the guilty intention is generally to be gathered not from the common law but from the statute itself. This may be regarded as a modification of the common law worked into the Code of Macaulay and his colleagues to make it suit Indian conditions. By adopting this course they have also avoided the doubt and obscurity which has not infrequently arise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same with a remedy to have the said penalty reduced or waived. When the framers of the Act have defined all the ingredients of the penalty, there is absolutely no need to import into this something which is not there. The doctrine of mens rea is, therefore, not applicable to the situation contemplated under section 271 of the Act. The infringement of the law cannot be considered to be a crime or an offence in the nature of a crime as to attract the applicability of the doctrine of mens rea. The next Chapter XXII provides for offences and prosecutions. Even there, the ingredients of the offence have been defined statutorily. The punishment is indicated. They are rendered compoundable too. The person at whose instance and the court before whom proceedings shall have to be initiated were indicated therein. The contravention of provisions of the Act mentioned in various sections under that Chapter were rendered punishable with rigorous imprisonment ranging from six months to two years, with further liability to fine also. Having regard to the definition of offence, as contained in the General Clauses Act, 1897, in the Indian Penal Code and the Code of Criminal Procedure the offences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law-making instrumentalities by applying the Directive Principles of State Policy, while making laws and by law applying and enforcing instrumentalities by interpreting and construing such laws enforcing those principles embodied therein. (3) Individualism and collectivism : The key note of the nineteenth century thought was individualism. The emphasis of common law was on freedom of property, freedom of contract and freedom of the person. Interference with those freedoms was not to be countenanced. That concept was carried into the American Constitution. This reflects the philosophy underlying Part III of our Constitution. With the changes in the purpose and function of Government from its traditional role which is negative to the modern role which is positive, laissez faire died with the dawn of the 20th century and today the State has to concern itself with the welfare of its members. This reflects the philosophy underlying Part IV of the Constitution. (4) Legislative innovation and judicial approach : The judiciary shall have to receive the legislative innovations into the body of the law as affording not only a rule to be applied but a principle from which to reason and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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