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
That as per Section 276 C of the Income Tax Act, 1961 ("IT Act"), if a person willfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable, or under reports his income, under the IT Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of the IT Act, be punishable with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine where the amount involved is more than Rs. 25 Lakhs and in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and with fine.
That as per the provisions of Section 277 of the IT Act, if a person makes a statement in any verification under the IT Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine where the amount involved is more than Rs. 25 Lakhs and in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and with fine.
That from a bare perusal of the provisions of the Section 276 C of the IT Act, it is apparent that a person can only be prosecuted under the present provision, if he had willfully attempted to evade any tax, penalty or interest chargeable or imposable under the IT Act or under reports his income. What is punishable is not a mere failure to disclose correct income but a dishonest or a mala fide intention in doing so, resulting in evasion. Now, coming to the provisions of the Section 277 of the IT Act, a person can only be prosecuted under the present provision, if he had intentionally and willing made wrong statement in verification in order to fulfil his ulterior motive.
That any bonafide mistake on the part of the person resulting in evasion of tax or attempt to evade tax, or false verification cannot be construed as an offence under the IT Act.
In the case of Prem Dass v. Income Tax Officer, MANU/SC/0083/1999, the Hon'ble Supreme Court has examined the objectivity and necessity of initiating a criminal action under Section 276-C of the IT Act and has found that when there is no act of concealment, on the part of the Assessee, then the ingredients of the offence prescribed under Sections 276C and 277 of the IT Act would not be attracted. The relevant extract from the judgment is as under:
"8. Willful attempt to evade any tax, penalty or interest chargeable opposable under the Act under Section 276C is a positive act on the part of the accused which is required to be proved to bring home the charge against the accused. Similarly statement made by a person in any verification under the Act can be an offence under Section 277 if the person making the same either knew or believe the same to be false or does not believe to be true. Necessary mens rea, therefore, is required to be established by the prosecution to attract the provisions of Section 277......
In the case of Jyoti Traders and Ors. vs. S.M. Gore and Ors., MANU/MH/0370/1984, the Hon'ble Bombay High Court while deciding a quashing petition in favour of the assesse, quashed the criminal complaint filed under sections 276C, 277 and 278 of Income Tax Act, 1961, and held as under:
....Under section 271(1)(c), penalty can be levied if the Officer is satisfied that the assessee has concealed the particulars of his income. Section 276-C relates to willful attempt to evade the tax and which describes punishment. However, the overriding principle is expressed in the qualification that even assuming that there is an attempt of evading the tax, still to make it punishable it must be willful attempt. "Willful" has a peculiar characteristic indicating the guilty mental State of the party. Section 277 relates to the allegation of false statement in verification. There is also a qualification in that it is not only the falsity of statement which is the governing factor inviting punishment but the statement should be much "which is false" and which he either "knows or believes to be false or does not believe to be true. In other words, such statement should be made deliberately with the full knowledge or belief of its falsity."
That in the case of Jarnail Singh vs. The Income Tax Officer, MANU/PH/1162/1989, the Hon'ble Punjab and Haryana High Court while deciding quashing petitions in favour of the assessee, quashed the criminal complaint filed under sections 276C and 277 of Income Tax Act, 1961, stated as under
"To bring an act under the provisions of Section 276(c) of the Act, the action of the person concerned has to be willful attempt to evade any tax, penalty or interest chargeable or impassable under the Act and this word 'willful' imparts the concept of mens rea and if mens rea is absent no offence under this Section is made out. Case of B.T.X. Chemicals Pvt. Ltd. v. Suraj Bhar, I.T.O. and another, 1989(1) Crimes 327 has come to my notice where D.C. Gheewala Justice of Gujarat High Court has held that dishonest intention or mala fide intention for committing a particular crime is a must before an assessee can be prosecuted. According to this judgment, what is to be found by the Court is as to whether the assessee wanted to defraud the revenue."
Further, in the case of Union of India (UOI) vs. Jiwan Lal Chironji Lal and Ors., MANU/MP/0143/2010, the Hon'ble Madhya Pradesh High Court examined the scope and extent of application of provisions contained in Sections 276C, 277 and 278 of the Income Tax Act and found that unless there exist a deliberate intention of concealment of income, on the part of the Assessee, the conviction could not be sustained.
That in the case of J.M. Shah vs. Income Tax Officer,  218ITR38(Mad) MANU/TN/0297/1995, the Hon'ble Madras High Court considered the scope of committing the offence under Sec. 277 of the Income Tax Act and held as under:
"14. The wording of the section makes it clear that to constitute an offence, the statement under the Act or under any rule, should have been made, or account should have been delivered and such statement or account should be false to the knowledge of the assessee or he should believe the same is false or believe that it is not true. These words very clearly indicate that unless the assessee knows or believes that the statement of account is false, or does not believe it to be true, there cannot be an offence under s. 277 of the IT Act, 1961. When the words are so carefully worded that "he knows or believes to be false", the criminal intention is connected with the filing of the statement or delivering of the account and mens rea becomes an ingredient of the offence. If a person files a statement or delivers an account with incorrect particulars, due to his negligence or lack of knowledge, there is no element of consciousness as to the falsity of the statement or account and in such cases, s. 277 of the Act cannot be made applicable. Learned counsel for the respondent, Mr. Ramasamy, also is unable to support the view of the learned Judge that mens rea is immaterial for this offence. Therefore, the learned Principal Sessions Judge is not correct in holding that the statement which is not true per se, is an offence under s. 277 of the Act."
In view of the above precedents, it is manifest that until and unless there is any willful or deliberate or intentional evasion of any tax or attempt to evade any tax, or false verification, there cannot be any punishment under the provisions of the Section 276 C and Section 277 of the IT Act. Mere omissions or negligence cannot be construed as an offence. In other words, mens rea or the intention on the part of the person to defraud the Income Tax Department is sine qua non for conviction under the IT Act.
Vijay Pal Dalmia, Advocate
Supreme Court of India & Delhi High Court
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