India: Mens Rea, Limitation & Prosecution Under Income Tax Act

Last Updated: 21 May 2019
Article by Vijay Pal Dalmia, Partner

Article by Vijay Pal Dalmia, Advocate, Supreme Court of India and Delhi High Court, Partner & Head of Intellectual Property Laws Division, Vaish Associates Advocates, India

Section 276C(2) of the Indian Income Tax Act reads as under:

"276C. Willful attempt in to evade tax, etc.-..........

(2) If a person willfully attempts in any manner whatsoever to evade the payment of any tax, penalty or interest under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and shall, in the discretion of the Court, also be liable to fine.

Explanation : For the purposes of this section, a willful attempt to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof shall include a case where any person-

(i) has in his possession or control any books of account or other documents (being books of account or other documents relevant to any proceeding under this Act) containing a false entry or statement; or

(ii) makes or causes to be made any false entry or statement in such books of account or other documents; or

(iii) willfully omits or causes to be omitted any relevant entry or statement in such books of account or other documents; or

(iv) causes any other circumstance to exist which will have the effect of enabling such person to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof."

The expression 'willfully admits' employed in the above provision is an inclusive one, despite which, it does not, in any way, change the common and fundamental meaning of it.

In the case of the Supreme Court in CIT vs. Bhupen Champaklal Dalai & Anr. MANU/SC/0141/2001 : (2001) 167 CTR (SC) 283 : (2001) 3 SCC 459, wherein, the Supreme Court, relying upon P. Jayappan vs. S.K. Perumal, ITO MANU/SC/0100/1984 : (1984) 42 CTR (SC) 180 : 1984 Supp. SCC 437, has held as under:

"3. The prosecution in criminal law and proceedings arising under the Act are, undoubtedly, independent proceedings and, therefore, there is no impediment in law for the criminal proceedings to proceed even during the pendency of the proceedings under the Act.

However, a wholesome rule will have to be adopted in matters of this nature where Courts have taken the view that when the conclusions arrived at by the appellate authorities have a relevance and bearing upon the conclusions to be reached in the case necessarily, one authority will have to await the outcome of the other authority."

The case of G.L. Didwania & Anr. vs. ITO MANU/SC/0910/1993 : (1997) 140 CTR (SC) 273 : 1995 Supp (2) SCC 724 dealt with the similar situation where there is a prosecution under the Act for making a false statement that the assessee had intentionally concealed his income and the Tribunal ultimately set aside the assessment holding that there is no material to hold that such income belongs to the assessee and the petition was filed before the Magistrate to drop the criminal proceedings and thereafter, an application was filed before the High Court under s. 482 CrPC to quash those criminal proceedings. The Court held that the whole question is whether the appellant made a false statement regarding the income which according to the assessing authority has escaped assessment and this issue was dependent on the conclusion reached by the Tribunal and hence the prosecution could not be sustained.

In Uttam Chand vs. ITO MANU/SC/0283/1979 : (1982) 2 SCC 543 : 1982 SCC (Tax) 150 Supreme Court held that in view of the finding recorded by the Tribunal on appraisal of the entire material on the record that the firm was a genuine firm and the assessee could not be prosecuted for filing false returns and, therefore, quashed the prosecution.

However, in P. Jayappan vs. S.K. Perumal, ITO MANU/SC/0100/1984 : (1984) 42 CTR (SC) 180 : 1984 Supp SCC 437 : 1985 SCC (Tax) 7) Supreme Court observed that the pendency of the reassessment proceedings under the Act cannot act as a bar to the institution of the criminal proceedings and postponement or adjournment of a proceedings for unduly long period on the ground that another proceedings having a bearing on the decision was not proper.

In Gujarat Travancore Agency vs. CIT MANU/SC/0332/1989 : (1989) 77 CTR (SC) 174 : (1989) 3 SCC 52, the Supreme Court has considered s. 276C of the IT Act and has held as under:

"4. There can be no dispute that having regard to the provisions of s. 276C, which speaks of willful failure on the part of the defaulter and taking into consideration the nature of the penalty, which is punitive, no sentence can be imposed under that provision unless the element of mens rea is established."

The expression "willful" has been explained as follows in P. Ramanatha Aiyar's The Law Lexicon, Second Edition, 1977:

"The question whether an act or omission is willful arises oftener in criminal the in civil causes; since in the former the general principle requiring the presence of mens rea excludes from criminality acts done accidentally and unintentionally and even acts done intentionally under honest but mistaken belief in the existence of facts which, if true, would have made the acts lawful or excusable,"

Therefore, in any prosecution, the element of mens rea i.e. willful evasion of tax, is quite important which needs to be established by the prosecution. In the absence of mens rea, the case would not sustain.

Moreover, there is no necessity or urgency for the IT Department to launch the prosecution hurriedly since the law of limitation under s. 468 Cr.P.C. for criminal prosecution has been excluded by the Economic Offences (Inapplicability of Limitation) Act, 1974.

From the above discussion, it is clear that the prosecution for offences under the Income Tax Act, and the success of the same is dependent upon the final decision of the Income Tax Authorities, Tribunals and Courts. No punishment can be awarded if the assessment is under challenge, and the prosecution before the Court has to wait for the final determination of the tax by various Authorities. Since, limitation law is not applicable on criminal prosecutions, there should be no hurry in launching the criminal prosecution.

The above propositions have been discussed by the Hon'ble Madras High Court in the case of Sayarmull Surana Vs. Income Tax Officer ((2019) 260 Taxman). The complete judgment can be accessed from http://164.100.79.153/judis/chennai/index.php/casestatus/viewpdf/430200 .

© 2018, Vaish Associates Advocates,
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Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

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