Crl.p/3668/2018 Of Shri M A Zahid v. Assistant Commissioner Of Income Tax (Osd)

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 26 DAY OF JUNE 2018 BEFORE. THE HON’BLE MR. JUSTICE JOHN MICHAEL CUNHA| CRIMINAL PETITION NO.3668 OF 2018 BETWEEN: SHRI M A ZAHID |S/O LATE M ABDUL RAHIM AGED ABOUT 54 YEARS,RESIDENT OF ELEGANT DAVIS APARTMENT,FLAT NO.503, 11TH DAVIS ROADRICHARDS TOWNBANGALORE-560084 ... PETITIONER| (By Sri. MURTHY D NAIK, ADVOCATE) AND ASSISTANT COMMISSIONER OF INCOME TAX (OSD)THE TAX RECOVERY OFFICE (CENTRAL)‘ FLOOR,CENTRAL REVENUE BUILDING,QUEENS ROAD,BANGALORE-560 OO1 ... RESPONDENT| (By Sri. K V ARAVIND, STANDING COUNSEL) THIS CRIMINAL PETITION IS FILED U/S.438 CR.P.C|PRAYING TO ENLARGE THE PETITIONER ON BAIL IN THEEVENT OF HIS ARREST IN F.NO.M A ZAHID/TRO(C)/2017-18,BANGALORE FOR THE OFFENCE PUNISHABLE UNDER SECTION2/6(C) OF INCOME TAX ACT. THIS CRIMINAL PETITION HAVING BEEN HEARD AND|RESERVED FOR ORDERS ON 19.06.2018 AND COMING ON FORPRONOUNCMENT THIS DAY,JOHN MICHAEL CUNRHA,.|MADE THE FOLLOWING:-. ORDER Whether a person issued witn a notice under Rule73 of the Second Schedule of the [ncome Tax Act1961 Is entitled to Invoke section 438 of Cr.P.C.is the question tnat arises for consideration in.this petition. Tne contextual background giving rise to the above)question is that a notice was issued by the AssistantCommissioner of Income Tax (OSD), the Tax Recovery Office,Bengaluru directing the petitioner to appear before him on 2[5>]day of April 2018 and to show cause why the petitioner shouldnot be committed to civil prison in execution of the saidcertificate? The notice reads as under: (Annexure-B) “In execution of the certificate for A.Y. ZO00708, Whereas you have failed to pay the amount of|arrears specified in said certificate Notice of,demand in ITCP-1 vide’ F.No.4/TRO.CR-1/CCBelgaum/M.A. Zanid/2013-14dated18.06.7013drawn up by the then Tax Recovery Officer (Central Range-1), Bangalore for A.Y. 2007-08 forrecovery of arrears in your case along with theinterest payable under section 220(2) of theIncome Tax Act, 1961 and it is proposed fo.execute the above certificate by arrest andimprisonment of your person; You are hereby required to appear before theundersigned on theQO[nd]day of April 2018 at11'05 AMand to snow cause why you should notbe committed to the civil prison in execution of theSaid certificate. Given under my nand and seal at Bangalorethis28[th]day of March 2018.“ 2D The case of the petitioner is that he has beencarrying on business in the name and style of S.M.S.K. MineralTrading Company at Hospet, Karnataka. He is an income taxassessee paying taxes regularly. In connection with the saidbusiness there have been certain demands from the IncomeTax department, which were in excess to the taxes paid by thepetitioner and as such, there was some dispute regarding theactual tax to be paid by the petitioner. | cmTne petitioner received three notices to snow causein Form No.ITCP-25 dated 28.3.2018 for the assessment year2007-08, 2009-10, 2010-11 respectively. Apprenending hisarrest pursuant to the said communication, the petitionerapproached tne LIX Aadl. City Civil & Sessions Judge,Bangalore for grant of anticipatory bail. Tne learned SessionsJudge having rejected the petition, the petitioner hasapproached tnis court seeking protection from arrest undersection 438 of Cr.P.C. 4(1) The objection raised by the respondent is that |petition under section 438 of Cr.P.C. is not maintainableagainst the show cause notice issued under Rule 73 of theSecond Schedule of the Income Tax Act. Any order passedunder Rule 73 is appealable under Rule 86 of the SecondSchedule of the Income Tax Act. Rule 74 to 81 of SecondSchedule of Income Tax Act further provide for mechanism ofrelease of the assessee subject to compliance of certainconditions. Therefore, the petitioner is not entitled to maintainthe petition under section 438 of Cr.P.C. 4(1) The objection raised by the respondent is that |petition under section 438 of Cr.P.C. is not maintainableagainst the show cause notice issued under Rule 73 of theSecond Schedule of the Income Tax Act. Any order passedunder Rule 73 is appealable under Rule 86 of the SecondSchedule of the Income Tax Act. Rule 74 to 81 of SecondSchedule of Income Tax Act further provide for mechanism ofrelease of the assessee subject to compliance of certainconditions. Therefore, the petitioner is not entitled to maintainthe petition under section 438 of Cr.P.C. 4(2) It is further contented that against the show cause.notice referred to in the petition, the petitioner has approachedtne High Court in W.P.14833/2018. Though interim order wasrequested, the same nas not been granted. The petitioner isnot entitled to invoke two parallel remedies in respect of theSame cause of action. On this score also tne petition is liableto be rejected. 4(3) Provisions of section 438 of Cr.P.C. mandates|accusation of having committed a non-bailable offence. In thevarious notices issued by the respondent, no offence has beenalleged to nave been committed by the petitioner. Thepetitioner has not established that he has been accused ofcommittinganon-palilableoffenceunderany,statute.Therefore, the provision of section 438 of Cr.P.C. is notattracted to the facts of this case. 4(4) The jurisdiction of this court under section 438 of|Cr.P.C. could be exercised only in the event of any offencesalleged to have been committed under the Indian Penal Code or any offence under other law as contemplated under section4 of Cr.P.C. The notices issued to the petitioner do not allegecommission of any offence under Indian Penal Code or undertne provisions of Income Tax Act. Therefore, the question ofinvoking the jurisdiction under section 438 of Cr.P.C. does notarise. 4(5) A snow cause notice dated 30.1.2018 was issued|by the Principal Commissioner of Income Tax for the purposeof issuing sanction for offence punishable under section2/6C(2) of the Act. The petitioner has to reply to the saidnotice. The Principal Commissioner of Income Tax either canaccept the explanation or drop the proposal or issue sanctionfor filing complaint under section 200 of Cr.P.C. before theSpecial Court in terms of section 280A of the Act and the samewould be dealt by the Special Court as per the provisions of theCriminal Procedure Code. The Income Tax Department has nopower to arrest in the course of proceedings under section2/6C(2) of the Income Tax Act. Therefore, the apprehensionexpressed by the petitioner is misplaced. 4(6) Show cause notice under Rule 73 of the Second)Scnedule is for non-payment of the tax dues pursuant to thedemand raised by the Assessing Officer. Whereas the showcause notice under section 2/6C(2) of the Act is for willfulattempt to evade payment of any tax, penalty or interest. Intne present case, snow cause notice under section 2/6C(2) ofthe Act has been issued for non-payment of admitted tax ontne income voluntarily admitted by the petitioner, which is notunder dispute. The attempt of the petitioner interlinking thesetwo different proceedings is an attempt to misiead this Court. |If the show cause notice issued under Rule 73 of the SecondScnedule is interfered by this Court, the very purpose andobject of Rule 73 of the Second Schedule would be defeatedand tne Rule 7/73 would be rendered redundant. 4(7) The assessee has failed to discharge the admitted|tax liability. The admitted tax liability is not an issue in any ofthe appeals pending before the Appellate Authorities. What isproposed to be recovered under the show cause notice Is onlythe admitted tax. The demand of tax has not been stayed by any authority, tribunal or by any court. In the usual course, ifdemand of tax is sougnt to be stayed, the same would beconsidered subject to payment of partial demand. Withoutexnausting the said remeay, the petitioner is not entitied tomaintain this petition and nence, the petition is liable to berejected. 4(7) The assessee has failed to discharge the admitted|tax liability. The admitted tax liability is not an issue in any ofthe appeals pending before the Appellate Authorities. What isproposed to be recovered under the show cause notice Is onlythe admitted tax. The demand of tax has not been stayed by any authority, tribunal or by any court. In the usual course, ifdemand of tax is sougnt to be stayed, the same would beconsidered subject to payment of partial demand. Withoutexnausting the said remeay, the petitioner is not entitied tomaintain this petition and nence, the petition is liable to berejected. 5.|In the course of the argument, the learnedcounsels appearing for the respective parties have reiteratedthe very same grounds urged by them in the petition and intne objection statement submitted before tne court withreference to the relevant provisions of the Income Tax Act andthe Code of Criminal Procedure. Botn tne learned counsel]Submit that they have not come across any precedent on thequestion of the jurisdiction of the Sessions Court and the HighCourt to stall the arrest of the assessee under Section 438 ofCr.P.C., against wnom recovery proceedings are initiated underthe provisions of the Income Tax Act. 6.|I have bestowed my careful thought to thecontentions urged by the respective parties and nave perusedthe documents filed along with the petition. J.|In order to resolve the controversy, a quickreference may have to be made to section 438 of Cr.P.C. Itreads as under: 'Section 438. Direction for grant of bail to personapprenenaing arrest.- (1) Wnere any person nas reason to believe that nemay be arrested on accusation of naving committeda non-bailable offence, he may apply to the HighCourt or the Court of Session for a direction underthis section that in the event of such errest he shallbe released on bail; and that Court may, aftertaking into consideration, inter alia, the followingfactors, namely:-_ (1) tne nature and gravity of the accusation; (il) the antecedents of tne applicant including the fact as to whether he has previously undergone imprisonment on — conviction by a Court inrespect of any cognizable offence;respect of any cognizable offence; (iil) the possibility of the applicant to flee from Justice; and | (iv) wnere the accusation has been made witn tne |object of injuring or humiliating the applicant —object of injuring or humiliating the applicant — by naving him so arrested, either reject the application forthwith or issue aninterim order for the grant of anticipatory Dall: Provided that, where the High Court or, as tnecase may be, the Court of Session, has not passedany interim order under this sub-section or hasrejected the application for grant of anticipatorybail, it snail be open to an oOfficer-in-cnarge of apolice station to arrest, witnout warrant theapplicant.Of)thebasisoftheaccusationapprenended in sucn application. KK OK KK OK (3) If such person is thereafter arrested|without warrant by an officer in charge of a policeStation on such accusation, and is prepared eitner atthe time of arrest or at any time while in thecustody of such officer to give bail, he shall bereleased on bail, and if a Magistrate takingcognizance of such offence decides that a warrantsnould issue in tne first instance against thatperson, he_ snalli issue a_ebailable warrant’conformity with the direction of the Court undersub-section (1).” 8.|It is now well settled that section 438 of Cr.P.C. Isa devise to secure the liberty of a person who is apprehendinghis arrest in a non-bailable offence. As held by theConstitutional Bench of tne Honble Supreme Court inGURUBAKSH SINGH SIBBIA vs. STATE OF PUNJAB, AIR 1980S.C. 1632, anticipatory bail is “neither a passport to the.commission of crimes nor a shield against any and all kinds ofaccusation, likely or unlikely”. ‘Reason to believe’ that aperson is likely to be arrested for a non-bailable offence is asine qua nonfor invoking the jurisdiction under section 438 of|Cr.P.C.| 8.|It is now well settled that section 438 of Cr.P.C. Isa devise to secure the liberty of a person who is apprehendinghis arrest in a non-bailable offence. As held by theConstitutional Bench of tne Honble Supreme Court inGURUBAKSH SINGH SIBBIA vs. STATE OF PUNJAB, AIR 1980S.C. 1632, anticipatory bail is “neither a passport to the.commission of crimes nor a shield against any and all kinds ofaccusation, likely or unlikely”. ‘Reason to believe’ that aperson is likely to be arrested for a non-bailable offence is asine qua nonfor invoking the jurisdiction under section 438 of|Cr.P.C.| Q.|In the case in nand, the petitioner has Knockedthe doors of this Court on the apprehension that he is likely tobe arrested by the Assistant Commissioner of Income Tax(OSD) pursuant to the notice at “Annexure-B”. Placing relianceon section 2/76-C of the Income Tax Act, 1961, and part II ofthe First Schedule of the Code of Criminal Procedure, learnedcounsel has put forth a plea that an act of willful attempt toevade any tax, penalty or interest is made punishable with rigorous imprisonment for a term which shall not be less thansix months, but wnich may extend to seven years and with finein case where the amount sougnt to be evaded exceedstwenty-five nNundred thousand rupees. This provision whenconjointly read with Part II of the First Schedule of the CriminalProcedure Code undoubtedly renders the offence non-bailablein nature and therefore, the notice issued under Rule 73 of theSecond Scnedule of Income Tax Act has to be construed tonave been issued in respect of the commission of a non-bailable offence. By the said notice, the respondent havingtnreatened to arrest and detain the petitioner in civil prison,there is well founded apprehension of arrest within themeaning of Section 438 Cr.P.C., and therefore the petitioner isentitled for a protection order under Section 438 of Cr.P.C. 10.|The argument of the learned counsel for thepetitioner, in my opinion, is totally misplaced. Wilful attemptto evade tax etc., is dealt in Section 2/76-C of the Income TaxAct. Tne section reads as under: | 2/76-CWilful attempt to evade tax,etc.-(1) If a person willfully attempts in any manner wnatsoever to evade anytax, penalty or interest chargeable or|imposable under this Act, ne snall, without|prejudice to any penalty that may be)imposable|Of)himUnderanyotherprovision of this Act, he punishable,- (i) In a case wnere the amountsought to be evaded exceeds (twenty five|Nnunared tnousand rupees), witn rigorousimprisonment for a term wnicn shall not)be less than six montns but wnicn may|extend to seven years and with fine. Tnere cannot be two opinions tnat section 2/76 is a penalprovision which constitutes evasion of tax, penalty or interestan offence under the Income Tax and therefore by virtue of theFirst Schedule Part II of Cr.P.C., the offence under section 276has to be classified as a non-ballable offence. 11.|Tne scneme of the Income Tax Act provides for aseparate machinery to try the offences under the Income TaxAct. By virtue of section 280-B of tne Act, the offences undertne Act are made triable by the Special Court. Section 280-Bis extracted nerebelow: 280-B. Offences triabie Dy SpecialCourt-Notwitnstanding—anytningcontainedIntheCode|of.Criminal]Procedure, 1973 (2 of 1974)- (a) the offences punishable underthis Chapter shail be triable only by tne|Specia! Court, if so designated, for tne|area or areas or for cases or class orsgroup of cases, as the case may be, in|which the offence has peen committed: Provided that a Court competent to try|offences under Section 797-. (1) wnicn Nas been designated as a.Speciai Court under this section, shallcontinue to try the offences before it or|offences arising under this Act after suchdesignation; (il) wnhicn nas not been designatedas a Special Court may continue to try|sucn offence pending before it till its|disposal; (D) a Special Court may, upon acomplaintMadeDyaf)autnorityauthorized in this pehelf under this Act|take cognizance of the offence for which|the accused is committed for tria/. (a) the offences punishable underthis Chapter shail be triable only by tne|Specia! Court, if so designated, for tne|area or areas or for cases or class orsgroup of cases, as the case may be, in|which the offence has peen committed: Provided that a Court competent to try|offences under Section 797-. (1) wnicn Nas been designated as a.Speciai Court under this section, shallcontinue to try the offences before it or|offences arising under this Act after suchdesignation; (il) wnhicn nas not been designatedas a Special Court may continue to try|sucn offence pending before it till its|disposal; (D) a Special Court may, upon acomplaintMadeDyaf)autnorityauthorized in this pehelf under this Act|take cognizance of the offence for which|the accused is committed for tria/. Furtner, as per section 280-D of the Act, provisions of the Code of Criminal Procedure 1973 are made applicable to theproceedings before the Special Court. Section 280-D reads: 280-D-|Application ofCode|of|CriminalProcedure,1973toproceedings before Special Court.- (1) Save as otherwise provided in this Act,the provisions of the Code of CriminalProcedure, 1973 (2 of 1974) (includingtne provisions as to bails or bonds), snallapply to the proceedings before a SpecialCourt and tne person conducting theprosecution before the Specia! Court, snalibe deemed to pe a Public Prosecutor. 17|From the above provisions, it is clear that theoffences under tne Income Tax Act are triable only by theSpecial Court and while trying the offences under the said Act,tne Special Court is required to follow tne Code of CriminalProcedure including the provisions of bail and bonds. But thefacts of the present case are entirely different. Tne petitioneris not sought to be prosecuted for the offence under Section2/6-C of the Income Tax Act. Tne records revea/] tnat the taxliability or the evasion of the tax by the petitioner is alreadyadjudicated by the competent authority and a certificate nasbeen issued under section 2727 of the Income Tax Act. 13.|The notice under Rule 73 is issued for the recoveryof tne tax dues determined under section 22727 of tne Act. Itisa recovery proceeding. By the said notice, petitioner is not sought to be prosecuted for the alleged offence under section2/6-C of the Act. Thnerefore the contention of he petitionerthat he is apprehending his arrest in a non-bailable offence hasno legs to stand. The proceedings initiated against thepetitioner are akin to the proceedings for execution of decreeunder Order XXI Rule 3/7 of CPC. Rule 4 of tne SecondSchedule of the Income Tax Act provides for the various modesof recovery. As per the said provision, if the amountmentioned in the notice is not paid within tne time specifiedtherein or within such further time as the Tax Recovery Officermay grant in his discretion, the Tax Recovery Officer shallproceed to realize the amount by one or more of the followingmodes:-. (9,by attachment and sale of the defaulter’s movableproperty;property; (;,DYattacnment|anaSaleOf|thedefaulter’simmovable property;immovable property; (3,by arrest of the defaulter and nis detention inprison;prison; (>,by appointing a receiver for the management oftne defaulter’'s movable and immovable properties.tne defaulter’'s movable and immovable properties. 14Tne petitioner in the instant case is not an‘offender but a defaulter as defined in the Second Scnedule.Part V of the Second Schedule deals with arrest and detentionof the defauiter. Rule 73 provides for issue of snow causenotice. I[t states: Ruje 73. Notice to show cause-(1) No order|for the arrest and detention in civil prison of a.defaulter shall be made unless the TaxRecovery Officer has issued and served 4anotice upon the defauiter calling upon nim to.appear before him on the date specified in thenotice and to show cause why ne should notbe committed to tne civil prison, and unlessthe Tax Recovery Officer, for reasons recordedin writing, is satisfiead- 14Tne petitioner in the instant case is not an‘offender but a defaulter as defined in the Second Scnedule.Part V of the Second Schedule deals with arrest and detentionof the defauiter. Rule 73 provides for issue of snow causenotice. I[t states: Ruje 73. Notice to show cause-(1) No order|for the arrest and detention in civil prison of a.defaulter shall be made unless the TaxRecovery Officer has issued and served 4anotice upon the defauiter calling upon nim to.appear before him on the date specified in thenotice and to show cause why ne should notbe committed to tne civil prison, and unlessthe Tax Recovery Officer, for reasons recordedin writing, is satisfiead- (a)that the defaulter, with the object oreffect of obstructing the execution of the|certificate, nas, after the drawing up of thecertificate|DytheTaxRecovery.Officer,dishonestly transferred, concealed, or removedany part of his property, or (Db) tnat the defauiter nas, or nas nad since thedrawing up of the certificate by the Tax'Recovery Officer the means to pay the arrears|or some substantial part thereof and refuses or neglects or has refused or neglected to pay theSd/rie (3)Where|appearance IS|notmade.InObedience to a notice issued and served undersub-rule(1), the Tax Recovery Officer mayissue a warrant for the arrest of the defaulter. 1L5.Even though the petitioner has invoked thejurisdiction under section 438 Cr.P.C. on tne supposition thattne said notice has given rise to ‘reason to believe’ that hewould be arrested and detained by the Tax Recovery Officer,yet the following Rules completely dispels the apprehensionentertained by the petitioner. In this regard, a mere glance atRules 74 to 76 would show that elaborate procedure has Deenprescribed under the Second Schedule of the Income Tax Actregarding the arrest and detention of a defaulter. The saidRules are reproduced herebelow and tney read: Rule 74- When a defaulter appears before theTax Recovery Officer in obedience to a noticeto snow cause or is brougnt before the Tax.Recovery Officer under rule 73, (tne Tax.Recovery Officer shall give the defaulter) an|opportunity of showing cause why he shouldnot be committed to tne civil person. Rufe 75- Custody pending nearing- Pending|the conclusion of the inquiry, the Tax Recovery|Officer may, in his discretion, order the|defauiter to be detained in the custoay of sucn officer as the Tax Recovery Officer may think.fit or release him on his furnishing security tothe satisfaction of the Tax Recovery Officer for|Nis appearance wnen required. Rule 76- Order of detention.- (1) Upon the.conclusion of the inquiry, the Tax Recovery|Officer may make an order for the detention ofthe defaulter in the civil prison and snall in.that event cause him to be arrested if he is not|alreaay under arrest: Provided that in order to give tnedefaulter an opportunity of satisfying the|arrears, the Tax Recovery Officer may, before|making tne order of detention leave thedefauiter in the custody of tne officer arrestinghim or of any other officer for a_ specifiedperiod not exceeding 15 days, or release him.on nis furnisning security to the satisfaction oftne Tax Recovery Officer for nis appearance atthe expiration of tne specified period if thearrears are not so satisfied. (2) Wnen the Tax Recovery Officer doesnot make an order of detention Under sub-rule(1), he shall, if the defaulter is under|arrest, direct nis release. 16.|Further Rule 86 provides for the remedy of appeal. |It reads as follows, Rule 86 Appeals-[(1) An appeal from anyoriginal order passed by the Tax Recovery.Officer under this Schedule, not being an order|wnhicn is conclusive, snail lie to tne (PrincipalChief Commissioner or Chief Commissioner) or.(Principal Commissioner or Commissioner) (2) Every appeal unaer this rule must bepresented within thirty days from the date of|tne order appealed against. (3) Pending the decision of any appeal,execution of the certificate may be stayed if the appellate autnority so directs, but not.otherwise. (2) Wnen the Tax Recovery Officer doesnot make an order of detention Under sub-rule(1), he shall, if the defaulter is under|arrest, direct nis release. 16.|Further Rule 86 provides for the remedy of appeal. |It reads as follows, Rule 86 Appeals-[(1) An appeal from anyoriginal order passed by the Tax Recovery.Officer under this Schedule, not being an order|wnhicn is conclusive, snail lie to tne (PrincipalChief Commissioner or Chief Commissioner) or.(Principal Commissioner or Commissioner) (2) Every appeal unaer this rule must bepresented within thirty days from the date of|tne order appealed against. (3) Pending the decision of any appeal,execution of the certificate may be stayed if the appellate autnority so directs, but not.otherwise. 1/7.In the wake of the above provisions of the IncomeTax Act and tne Rules contained in tne Second Scnedulethereof, I do not find any justifiable reason to hold that thepetitioner has a genuine reason to believe’ that ne would bearrested in a non-bailable offence as contended. § First andforemost the petitioner is not accused of committing any non-bailable offence so as to invoke the jurisdiction under section438 of Cr.P.C. Secondly, the apprehension expressed by thepetitioner is also without any basis. As could be seen from theabove Rules, the proceedings are _ initiated against thpetitioner for recovery of the tax dues with the issuance ofshow cause notice as contemplated in Rule 73 of the SecondScnedule. Rule 73 specifically provides that no order for thearrest and detention in a civil prison of a defaulter could be made unless the Tax Recovery Officer has issued and served anotice upon the defaulter calling upon him to appear beforehim on the date specified in the notice and to show cause as towhy he should not be committed to civil prison. When adefaulter appears before the Tax Recovery Officer, he shall begiven an opportunity of hearing and only thereafter, an ordercould be passed for detention of the defaulter in the civilprison. Tnerefore, the apprenension of the petitioner tnat onissuance of a snow cause notice under Rule /3 of the SecondSchedule of the Income Tax Act, he has a reason to believetnat ne would be arrested and detained in prison is whollymisconceived and misplaced. 18.|In the lignt of the above discussion, I hold that byissuance of notice under Rule 73 of the Second Schedule of theIncome Tax Act, the petitioner is not accused of committingany non-bailable offence and the said notice does not give riseto any apprehension of immediate arrest so as to invoke thejurisdiction of the Sessions Court or High Court under section438 of Cr.P.c. Both the constituents of section 438 of Cr.P.C. are not attracted to the facts of this case. Asa result, I holdtnat the petition under section 438 of Cr.P.C. is notmaintainable. Consequently, the petition is liable to beGcismissecd Accordingly, criminal petition isaismissed. Sd/-| JUDGE| BSS