Prosecution malicious and invalid if tax and interest paid before complaint tax
Facts and Issue of the case
The assessee is M/s. AMK Solutions Pvt. Limited. The assessee company submitted a return of income for AY 2017–18 on October 31, 2017. However, the assessee did not submit the admittedly due tax with the return as required by law under Section 140A of the Income-tax Act of 1961. Thereafter, after: delay of 4 ½ months, the assessee remitted a sum of 6,85,462 towards the tax and interest payable However, the Income-tax Department filed complaints alleging that the petitioners willfully attempted to escape payment of Income-tax for the A.Y. 2017–18 against the assessee company and the directors for offences under Section 276C(2).
The assessee company and the directors filed criminal writ petitions challenging the validity of complaints and requesting discharge. It was emphasised that the tax payable by the petitioners for A.Y. 2017-18 was paid well before the issuance of show-cause notice, and the same was intimated to the authorities. Without thinking it through and without considering the payment of tax with interest into account, a sanction to prosecute was given, and a private complaint was later filed to obstruct the fact that the tax was paid with interest well before the sanction to prosecute. That, there is a lack of ingredients to prosecute the petitioners u/s 276C(2), besides suppression of fact and non-application of mind. The Madras High Court allowed the writ petitions and held
Observation of court
The Learned Counsel for the petitioners submitted that, to attract offence under section 276 C (2) of the Income Tax Act, two ingredients are required. They are (i) culpable mental state to evade Tax and (ii) Attempt to evade tax. In the case of the petitioners, they never had the intention to evade tax. In fact, they have disclosed their income and tax payable while filing the returns. 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 time disclosing the income and tax payable, the tax payable was remitted later, but much before initiating any proceedings for prosecution. Therefore, there is no evasion of tax or attempt for evasion of tax.
Wilful attempt to evade any tax, penalty or interest chargeable or imposable u/s. 276C of the Income-tax Act, 1961, is a positive act on the part of the assessee which is required to be proved to bring home the charge against the assesse . A “culpable mental state” which can b presumed u/s. 278E of the Act would come into play only in a prosecution for any offence which requires a culpable mental state on the part of the assessee .Section 278E of the Act is really a rule of evidence of existence of mens rea by drawing a presumption though rebuttable. This does not mean that the presumption would hold true even if the essential elements of an offence were concealed. More specifically, when the tax is paid well before the prosecution procedure gets started. The presumption can be applied only when the basic ingredients which would constitute any offence under the Act are disclosed. Then alone would the rule of evidence u/s. 278E of the Act regarding rebuttable presumption as to existence of culpable mental state on the part of accused come into play.
There was no concealment of any income or taxable items, inclusion of a situation intended to evade taxes, or provision of false information on any tax assessment or payment. Only the assessee’s inability to pay the tax on time, which was later paid after 4 ½ months along with interest due, was at issue. What was involved was only a failure on the part of the assessee to pay the tax in time, which was later on paid after months along with interest payable. So, it would not fall under the mischief of section 276C of the Act, which requires an attempt to evade tax and such attempt must be wilful. If the intention (culpable mental state) of the assessees was to evade tax or attempt to evade tax, they would not have filed the returns in time disclosing the income and the tax liable to be paid. They would not have remitted the tax payable with interest without waiting for the authorities to make demand or notice for prosecution. Thus, except a delay of 4½ months in payment of tax, there was no tax evasion or attempt to evade the payment of tax.
To invoke the deeming provision, there should be a default in payment of tax in true sense. The assessee’s payment of tax with interest on February 15, 2018, was not taken into account by the Principal Commissioner when granting sanction on March 14, 2019. Additionally, aside from noting that the tax was not paid on time, the Principal Commissioner had glaringly omitted to record that the tax was paid with interest. This led to the conclusion that this was a malicious prosecution started by the Income-tax authorities who were misusing their authority due to the suppression of important data, the purposeful implication of lying, and the lack of application of mind. When mala fides were patently manifested, the assessees need not be forced to undergo ordeal of trial. The complaint was quashed.
The court held that except a delay of 4½ months in payment of tax, there was no tax evasion or attempt to evade the payment of tax. The assessee remitted a sum of 6,85,462 towards the tax and interest payable. The High Court quashed the complaint of Income tax Department.
Full Case law given below
In the High Court of Judicature at Madras
Mrs. Noorjahan Vs The Deputy Commissioner of Income Tax
The Honourable Dr. Justice G.JayachandranNoorjahan-Vs-DCIT-Madras-High-Court