Report No. 29
Tax Evasion-prosecutions in India for-extracts from Report of The Direct Taxes Administration Enquiry Committee (1958-59)
(Pages 150 and 169-170, paras. 7.12 and 7.63, 7.64).
"7.12. Absence of deterrent punishment.-One important reason for the prevalence of evasion is stated to be that in actual practice no deterrent punishment like imprisonment is being meted out to tax evaders when they are caught. Though the direct taxes Acts provide for prosecution and imprisonment in cases of concealment and false statements in declarations, the Department has not, during the last 10 years, got even a single person convicted for evasion. It is seen that prior to 1939, prosecutions were being freely resorted to in suitable cases. We feel that unless it is brought home to the potential tax evader, that attempts at concealment will not only not pay but also actually land him in jail, there could be no effective check against evasion. At present, a tax evader even if caught, has only to pay the tax sought to be evaded and a percentage thereof as penalty. Though the maximum penalty leviable is 150 per cent. of the tax sought to be evaded such a high penalty is rarely levied. Even the moderate penalties levied by the assessing officers are reduced to nominal sums by appellate authorities. Both these factors, the non-resort to prosecution and the non-levy of deterrent penalties have, no doubt, encouraged the growth of evasion.
"7.63. We have suggested in para. 7.60 that in the matter of levying penalties, a distinction should be made between the different kinds of defaults and offences, and that the penalties leviable should be specified in a detailed schedule. In our opinion, a similar distinction should be made in the matter of requiring the prior approval of the Inspecting Assistant Commissioner for levying penalties, and such approval should be obligatory only in cases of more serious offences, where the quanta of penalties leviable are heavier. Further, the Inspecting Assistant Commissioner should be statutorily required to give a hearing to the assessees before according his approval to the levy of penalty in such cases. In order to avoid unduly long delays in the finalisation of penalty proceedings, we also recommend that the law should be amended so as to require such proceedings to be completed within one year of the passing of the relevant assessment order or of the appellate order of the Appellate Assistant Commissioner or the Appellate Tribunal or of the revision order of the Commissioner, as the case may be.
"7.64. Prosecutions.-Section 51 of the Income-tax Act and the corresponding sections of the other direct taxes Acts provide for the prosecution of a person who fails, without reasonable cause or excuse, to deduct taxes at source and pay them to the Government or to furnish such certificates, returns or statements, or to allow inspections as required under the Acts. He is punishable, on conviction before a magistrate, with fine which may extend to Rs. 10 for every day of default. Under section 52 of the Income-tax Act, if a person makes a false statement in the verification contained in the return of income, the return of dividends, application for registration, appeals, etc., he is punishable, on conviction before a Magistrate, with simple imprisonment which may extend to six months or with fine which may extend to Rs. 1,000 or both. The period of imprisonment prescribed an the other direct taxes Acts for such offences, is, however, one year."