4 May 2022 6:47 AM GMT
The Madras High Court bench of Justice G. Jayachandran has held that the suppression of material facts, the intentional suggestion of falsehood and the non-application of mind go to show that there was a malicious prosecution initiated by the Income Tax department by abusing its power. The petitioners need not be forced to undergo the ordeal of a trial, which has no legs to stand...
The Madras High Court bench of Justice G. Jayachandran has held that the suppression of material facts, the intentional suggestion of falsehood and the non-application of mind go to show that there was a malicious prosecution initiated by the Income Tax department by abusing its power. The petitioners need not be forced to undergo the ordeal of a trial, which has no legs to stand on.
Two petitions were filed, one by the Director of M/s.AMK Solutions Pvt Limited and the other by the Company and its Directors.
The complaint for prosecution filed by the Income Tax Department alleges that the petitioners have wilfully attempted to evade payment of income tax for the Assessment Year 2017-2018 and have committed an offence under Section 276 C (2) of the Income Tax Act, 1961.
The complaint has been taken on file by the Additional Chief Metropolitan Magistrate Court. It was stated that the tax payable by the petitioners for the Assessment Year 2017–18 was paid well before the issuance of the show cause notice and it was intimated to the authorities that, without applying the mind and not considering the payment of tax with interest, sanction to prosecute was granted and the private complaint came to be filed, suppressing the factum of payment of tax much prior to sanction to prosecute.
The two petitions were filed to quash the complaint on the ground that there was a lack of ingredients to prosecute the petitioners under section 276 C (2), besides suppression of fact and non-application of mind.
The petitioner contended that to attract an offence under section 276C(2) of the Income Tax Act, two ingredients are required. Firstly, a culpable mental state to evade tax and, secondly, an attempt to evade tax. In the case of the petitioners, they never had the intention of evading tax. In fact, they have disclosed their income and tax payable while filing the returns.
The petitioner submitted that due to financial constraints and other reasons, they were not able to pay the tax along with the returns. Hence, after filing the returns within the time period disclosing the income and tax payable, the tax payable was remitted later, but much before initiating any proceedings for prosecution. Therefore, there was no evasion of tax or attempt to evade tax. In the absence of the core necessary ingredients to prosecute, the criminal complaint was filed based on the sanction to prosecute issued by the Principal Commissioner, who omitted to consider the fact that the tax payable was remitted much prior to the issuance of the show cause notice. In the complaint suppressing the payment of tax, it was falsely alleged that the petitioners did not pay the tax in spite of sufficient opportunities given and that they were wilfully evading the payment of tax due to the Income Tax Department.
The department submitted that, in the case of self-assessment, Section 140-A mandates the assessee to submit the returns along with the proof of payment of tax. As per Sub-Section (3) of Section 140 A, any failure on the part of the assessee to pay the tax in whole or in part along with the returns will be deemed to be a default and, without prejudice to the other consequences, the assessee shall be liable for prosecution. Further, under Section 278 E of the Act, there is a statutory presumption that there is a culpable mental state for evading tax. The reverse burden is on the assessee, therefore the factual aspect of the non-existence of a culpable mental state is a matter for trial. The complaint cannot be quashed by invoking Section 482 of the Cr.P.C.
The department contended that the failure to remit the tax and annexing the proof of payment of tax along with the returns filed was sufficient to deem the assessee, a defaulter. Being a defaulter, the presumption of a culpable mental state is against them. Therefore, they have to prove their innocence during the trial and cannot short circuit the judicial process by invoking Section 482 of the Cr.P.C.
The court observed that there was no concealment of any source of income or taxable item, no inclusion of a circumstance aimed to evade tax or furnishing of inaccurate particulars regarding any assessment or payment of tax. What was involved was only a failure on the part of the petitioner to pay the tax on time, which was later paid after four and a half months, along with interest payable. So, it would not fall under the mischief of Section 276 C of the Income Tax Act, which requires an attempt to evade tax and such an attempt must be wilful.
The court said that a "culpable mental state" which can be presumed under section 278E of the Income Tax Act would come into play only in a prosecution for any offence under the Income Tax Act when the offence requires a "culpable mental state" on the part of the accused. Section 278 E is really a rule of evidence regarding the existence of mens rea by drawing a presumption, though rebuttable. That does not mean that the presumption would be applied even in a case in which the basic requirements constituting the offence are not disclosed. In particular, when the tax is paid much before the process for prosecution is set into motion. The presumption can be applied only when the basic ingredient that would constitute any offence under the Act has been disclosed. Then only, the rule of evidence under section 278 E of the Act regarding the rebuttable presumption as to the existence of a culpable mental state on the part of the accused would come into play.
Case Title: Mrs. Noorjahan Versus The Deputy Commissioner of Income Tax
Citation: Criminal Original Petition Nos.2616 & 2781 of 2020 & Crl.M.P.Nos.1573, 1574, 1658 & 1660 of 2020
Citation: 2022 LiveLaw (Mad) 198
Counsel For Petitioner: Advocate .K.Chozhan
Counsel For Respondent: Special Public Prosecutor for Tax L.Murali Krishnan
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