Gujarat
Travancore Agency, Cochin Vs. Commissioner of Income-Tax, Kerala,
Ernakulam [1989] INSC 165 (2 May 1989)
Pathak,
R.S. (Cj) Pathak, R.S. (Cj) Kania, M.H.
CITATION:
1989 AIR 1671 1989 SCR (2)1000 1989 SCC (3) 52 JT 1989 (2) 446 1989 SCALE
(1)1275
CITATOR
INFO : F 1992 SC1762 (10)
ACT:
Income
Tax Act 1961: Section 271(1)(a) and 276C--Failure to furnish
returns--Penalty--Means rea--Not required to be proved in proceedings under
section 271(1)(a)--To be estab- lished in proceedings under section 276-C.
HEAD NOTE:
The assessee
appellant did not file its income-tax returns under the Income Tax Act, 1961
for the assessment years 1965-66, 1966-67 within the statutory period. It was
only after notices under s. 139(2) of the Act were served on the assessee the
returns were filed. In the said circum- stances the Income Tax Officer
initiated penalty proceedings against the assessee under s. 271(1)(a) of the
Act for the two assessment years and imposed penalties.
The
explanation of the assessee that he was under the bona fide belief that he had
no assessable income and had, therefore, not filed the returns earlier was not
accepted by the Income-tax Officer.
The
Appellate Assistant Commissioner dismissed the appeal, but in second appeal the
Appellate Tribunal allowed the appeal holding that the Income Tax Officer had
failed to bring on record any material to show that the explanation of the assessee
tendered before him in regard t9 the delay should not be accepted, and that as
the element of mens rea was required to be proved and had not been proved, the
penalties were liable to be cancelled.
The
Appellate Tribunal at the instance of the Revenue referred the question to the
High Court, and a Full Bench of the High Court took the view that mens rea need
not be established before penalty is imposed under s. 271(1)(a) of the Act, and
the Appellate Tribunal was therefore not justi- fied in cancelling the
penalties levied for the two assess- ment years.
On the
question whether the element of mens tea is a mandatory requirement before a
penalty can be imposed under section 271(1 )(a) of 1001 the Income Tax Act,
1961.
Dismissing
the appeal, the Court.
HELD:
1. A penalty may be imposed under section 271(1)(a) if the Income Tax Officer
is satisfied that any person has without reasonable cause failed to furnish the
return of total income. while s. 276C provides that if a person wilfully fails
to furnish in due time the return of income required under s. 139(1) he shall
be punishable with rigorous imprisonment which may extend to one year or with
fine. It is, therefore, clear that in the former case what was intended was a
civil obligation, while in the latter what is imposed is a criminal sentence.
[1003E-F]
2.
There can be no dispute that having regard to the provisions of s. 276C, which
speaks of wilful failure on the part of defaulter and taking into consideration
the nature of the penalty, which is punitive, no sentence can be im- posed
under that provision unless the element of mens rea is established. [1003G-H]
3. The
creation of an offence by Statute proceeds on the assumption that society
suffers injury by the act or omis- sion of the defaulter and that a deterrent
must be imposed to discourage the repetition of the offence. [1004A-B]
4.
Unless there is something in the language of the statute indicating the need to
establish the element of mens rea it is generally sufficient to prove that a
default in complying with the statute has occurred. [1004B-C]
5. In
a proceeding under s. 271(1)(a), it seems that the intention of the legislature
is to emphasise the fact of loss of. Revenue and to provide a remedy for such
loss, although no doubt an element of coercion is present. in the penalty. In
this connection the terms in which the penalty falls to be measured is significant.
[1004B] Corpus Juris Secundum, volume 85, page 580, para. 1023, referred to.
6.
There is nothing in s. 271(1)(a) which requires that mens rea must be proved
before penalty can be levied under that provision. [1004C]
CIVIL
APPELLATE JURISDICTION: Civil Appeal Nos. 63031 of 1975.
1002
From the Judgment and Order dated 10.9.1974 of the Kerala High Court in Income
Tax Reference Nos. 85 and 86 of 1972.
Soli
J. Sorabjee, Udayu Lalit, D. Vidyanandan and M. Raghuraman for the Appellant.
D.V. Gauri
Shankar and Ms. A. Subhashini for the Respondent.
The
Judgment of the Court was delivered by PATHAK, CJ. These appeals, by
certificate granted by the High Court of Kerala, are directed against the
judgment of that High Court answering the following question of law referred to
it in an Income-tax Reference in favour of the Revenue and against the assessee:
"Whether,
on the facts and in the circum- stances of the case, the Tribunal is justified
in law in cancelling the penalties levied under s. 271(1)(a) of the Income-tax
Act, 1961, for the assessment years 1965-66, and 1966-67?" The assessee is
a registered firm trading in hill pro- duce. The assessee did not file its
income-tax return under the Income-tax Act, 1961 for the assessment year
1965-66 within the statutory period, that is to say by 30 June, 1965, and
instead applied for time to file the return. Time was granted up to 31.August,
1966. Yet no return was filed.
It was
only after notice under s. 139(2) of the Act was served on the assessee on 22 September, 1967 that it filed a return on the next
day. Similarly for the assessment year 1966-67 no return was filed upto 30 June, 1966. No applica- tion for extension of
time was made either. When notice under s. 139(2) was served on the assessee on
21 June, 1966 it filed a return on 23 September, 1967. In the circum- stances, the
Income-tax Officer initiated penalty proceed- ings against the assessee under
s. 271(1)(a) of the Act for the two assessment years. A sum of Rs. 14,784 was
levied as penalty for the assessment year 1965-66 and a sum of Rs. 11,447 was
imposed as penalty for the assessment year 1966- 67. The explanation of the assessee
that he was under the bona fide belief that he had no assessable income and
had, therefore, not filed the returns earlier was not accepted by the
Income-tax Officer. In appeal before the Appellate Assistant Commissioner of
Income Tax, the assessee did not press the ground that there was no deliberate
omission on his part to file the returns and that therefore s. 271(1)(a) of the
Act was not attracted. In second appeal before the Income-tax Appellate
Tribunal permission was granted to the assessee to raise the 1003 ground. The
Appellate Tribunal allowed the appeals holding that the Income-tax Officer had
failed to bring on record any material to show that the explanation of the assessee
tendered before him in regard to the delay should not be accepted, and that as
the element of mens rea was required to be proved and had not been proved, the
penalties were liable to be cancelled.
At the
instance of the Revenue the Appellate Tribunal referred the question set forth
earlier to the High Court of Kerala. It may be mentioned that another question
was also referred, which related to the Appellate Tribunal entertain- ing the
additional ground of appeal, but the appeals before us are not concerned with
that question. The question with which we are concerned was referred to a Full
Bench of the High Court, and the High Court has taken the view that mens rea
need not be established before penalty is imposed under s. 271(1)(a) of the
Act, and that, therefore, the Appellate Tribunal was not justified in cancelling
the penalties levied for the two assessment years.
Learned
counsel for the assessee has addressed an ex- haustive argument before us on
the question whether a penal- ty imposed under s. 271(1)(a) of the Act:involves
the ele- ment of mens rea and in support of his submission that it does he has
placed before us several cases decided by this Court and the High Courts in
Order to demonstrate that the proceedings by way of penalty under s. 271(1)(a)
of the Act are quasi criminal in nature and that therefore the element of mens rea
is a mandatory requirement before a penalty can be imposed under s. 271(1)(a).
We are relieved of the neces- sity of referring to all those decisions. Indeed,
many of them were considered by the High Court and are referred to in the
judgment under appeal. It is sufficient for us to refer to s. 271(1)(a), which
provides that a penalty may be imposed if the Income Tax Officer is satisfied
that any person has without reasonable cause failed to furnish the return of
total income, and to s. 276C which provides that if a person wilfully fails to
furnish in due time the return of income required under s. 139(1), he shall be
punishable with rigorous imprisonment for a term which may extend to one year
or with fine. It is clear that in the former case what is intended is a civil
obligation while in the latter what is imposed is a criminal sentence. There
can be no dispute that having regard to the provisions of s. 276C, which speaks
of wilful 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.
In
most cases of criminal liability, the intention of the Legislature is that the
penalty should serve as a deterrent.
The
1004 creation of an offence by Statute proceeds on the assumption that society
suffers injury by and the act or omission of the defaulter and that a deterrent
must be imposed to dis- courage the repetition of the offence. In the case of a
proceeding under s. 271(1)(a), however, it seems that the intention of the
legislature is to emphasise the fact of loss of Revenue and to provide a remedy
for such loss, although no doubt an element of coercion is present in the
penalty. In this connection the terms in which the penalty falls to be measured
is significant. Unless there is some- thing in the language of the statute
indicating the need of establish the element of mens tea it is generally
sufficient to prove that a default in complying with the statute has occurred.
In our opinion, there is nothing in s. 271(1)(a) which requires that mens tea
must be proved before penalty can be levied under that provision. We are
supported by the statement in Corpus Juris Secundum, volume 85, page 580,
paragraph 1023:
"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." Accordingly, we hold that the element of mens rea was not
required to be proved in the proceedings taken by the Income tax Officer under
s. 271(1)(a) of the Income-tax Act against the assessee for the assessment
years 1965-66 and 1966-67.
In the
result the appeals fail and are dismissed with costs.
N.V.K.
Appeals failed.
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