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Report No. 29

115. Placing provisions as to evasion in the Penal Code.-So far as we could ascertain, there is hardly any country governed by the common law system where the offence of evasion of taxes has been incorporated in the Penal Code. The provisions are found to exist either in the enactments relating to the particular taxes1, or in a general Taxation Law2.

1. For example, section 198 of the Tasmania (Australia) Criminal Code Act, (1924), reproduced in Appendix 28.

2. For example, section 201, Internal Revenue Code of the U.S.A., discussed in Appendix 22.

116. Further, the administration of these laws requires specialised knowledge and experience, including, particularly, a knowledge of the various classes of income or transactions that are taxable, the various deductions, exemptions and concessions that are permissible, and the departmental practice. Even if these provisions are transferred to the Penal Code,-assuming that such transfer is feasible-the need for this special knowledge and experience will always remain. There will be no practical improvement as the police will not possess this special knowledge and experience.

117. So far as we could gather, none of the various Committees or Commissions1 that have gone into the question of taxation structure or Taxation Laws or the administration of Taxation Laws, has found fault with the placing of the penal provisions in the taxation enactments.

1. See Appendices 12, 13, 14 and 15.

118. Question of enactment of general provision as to tax evasion considered.-We also considered at length the question whether it would be desirable to insert a general provision in the Indian Penal Code, punishing the evasion of taxes. The arguments for and against the adoption of such a course are summarised below:-

Arguments for and against including in the Indian Penal Code of the offence of tax-evasion

For

Against

(1) A provision in the Indian Penal Code will reflect the society's abhorrence of the crime in question and the importance which it attaches to it.

(1) The abhorrence ins already indicated by the income-tax Act. It is not necessary to put it in the Indian Penal Code.

(2) A comprehensive provision applicable to all taxes would be desirable.

(2) The purpose is adequately served by existing provision in the law relating to each tax.

(3) Evasion of taxes is a major problem, and should be dealt with criminally.

(3) the defect in not in the law but i8n its enforcement. Even the existing penal provisions are not enforced.

(4) Acts like keeping false accounts, making false entries, keeping unaccounted money, should be covered.

(4) In practice, filing a false return is the usual types of evasion. This is sufficiently provided for by existing laws.

(5) Prosecution for tax-evasion should be allowed at the instance of any person.

(5) Tax evasion is a technical subject, requiring special knowledge. Only the Departmental Officers are in a position to understand the technicalities.

(6) A sweeping provision may, in practice, turn out to be vague, and thus cause hardship.

(7) In particular, the word "evade" is vague, and may be interpreted so as to embrace even legitimate avoidance.

(8) Any widening of the penal provisions regarding taxation laws should be undertaken with caution, as it may bring into being a weapon which has great potentialities for abuse.

(9) Prosecution is not the only method of checking evasio9n. The real remedy lies in various other non-penal measure, such as a proper tax structure, adequate strength of officers, increased civic consciousness, creation of cordial relation with assessees, and p0rompt action under the existing laws.

(10) None of the various Committees that have gone into the subject of taxation in India have recommended such a change.

After a careful consideration of all the issues involved, we have come to the conclusion that the inclusion of a general penal provision of the nature referred to above would not prove to be an improvement in practice, and may even cause hardship by reason of its vagueness. In considering the question of inserting such a penal provision, regard must be had not only to those who are guilty, but also to those who are innocent.



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