Gujarat Travancore Agency, Cochin v. Commissioner Of Income-Tax, Kerala, Ernakulam

GUJARAT TRAVANCORE AGENCY, COCHIN v. COMMISSIONER OF INCOME-TAX, KERALA, ERNAKULAM MAY 2, 1989 [R.S. PATHAK, CJ. AND M.H. KANIA, J.] Income Tax Act 1961: Section 271( /)(a) and 276C-Failure to ji1rnish returns-Penalty-Means rea-Not required to be proved' in proceedings under section 271(1)(a)-To be established in proceedings under section 276-C. c 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 tiled. In the said D circumstances the Income Tax Officer initiated penalty proceedings against the assessee nhder s. 27l(l)(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 E 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 F t~ 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 G the view that mens rea need not be established before penalty is imposed under s. 27l(l)(a) of the Act, and the Appellate Tribunal was therefore not justified in cancelling the penalties levied for the two assessment years. On the question whether the clement of mens rea is a mandatory H requirement before a penalty can be imposed under section 271(1)(a) of the Income Tax Act, 1961. Dismissing the appeal, the Court. HELD: I. A penalty may be imposed under section 27l(l)(a) if the Income Tax Officer is satisfied that any person has without reason· able 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 tine. It is, therefore, clear that in ihe former case what was intended was a civil obligation, while in the latter what is imposed is a criminal sentence. [l003E-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 imposed under that provision unless the element of mens rea is established. [1003G-H] 3. The creation of an offence by Statute proceeds on the assump· lion that society suffers injury by the act or omission of the defaulter and that a deterrent must be imposed to discourage the repetition of the offence. I I004A-B] 4. Unless there is something in the language of the statute indi· eating 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. 27l(l)(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 coer-cion 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, r~fer· red to. 6. There is nothing in s. 27l(l)(a) which requires that mens rea must be proved before penalty can be levied under that provision. [l004C] CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 630· 31of1975. £1990]2 gHe fate To 216 HATA STAARE THAT (AAA) ,Bata HRT AAA BA, TAHAM 2 Wg, 1989. aea saTaAia AITo Yo WSF ate caTaula THo Tae aifqat qra-at afafaa, 1961 (1961 Bt 43) —aTe 271(1) (#)—afaraprateor aah at faazeit ore a LAH faq aifea—SAT ATT B stata niet~afaafad fee wa ga erates aacfeafa atfaa fa wy BT MALATATadi|| adrardi-fratfedt oe a fase Frater ag & faa stadt aafswazaaat ara-ae faaeolt BIRT Ae ay alt ZAR TTT AT aT AAA a faa aaadFat| aaa HAT BL feat TAT, fox ft adastfaathed gat A fracolt GISTwat Ht 1 ceavare afer aria fae oT H Tea eA aaa far aaa GIRwt at | Sat THT, HAT fraTeM ag & fa a at arg faazelt Sige FT|aaeaq at AAT ASG aiafae FE aTaaT st TRA frat Tat | alfa at aTAleiT& grad sat razoly BISA HL St | ACARATA, ATA-HE afaata a faaifedt-na> faag gad at fraten ast ® fau afer artarfgat gita at atl fratfeat-ak ay Zava ATT TTT 7 AAA HL ST| AA-BL AIA ATA (atta)«|> ane aire fee aia gt Gad ATTA AAT FT ay aat afaatad arfeaat @at at | Uses Paar F ATTA I atta afane F yet Sea aaa FH AATeaface ae feat| Sea ATMAGH carats Hate ase BT aTAT aTTETar feat | soa arate > fafaraa atx ara 8 eafaa diaz, faatfedt-aa 4 ka.gage caraTaa A ATA BEA ay | geaae eararay ater ater GET FT BT, fafaatica —ararta fac ater 271(1)(%) * ofa fram HAT Tale Z,faat Az saqafua[&][ fe][ afer][ afactira][ ay][ at][ aadt][ &][ afe][ area][ afaaret][ FT]qupata a stat @ FF peat safer A gfeaget ee aT eld ET FA AA atfaa al at &, alt ste 276-7 > ofa at fata feat frat ag srafaa 2fe ate are eafaa ATR 139(1) & Hata yafra aa at faa aay aaga TAGATT Al zat 2, at ag tet waft % mare areala a, feat aah THay an at at Tat aT gata a, esata dat | ag ease ot qaadt aaa 4 at -arafaa & 4@ fafa aera agafs qearqadt aaa t at afadfaa & aaarate FeteaBl RA AAT alg fata aal at waa g fe are 276-7 a gqaei at Bae ge, frah anfaaet at ate & Var AAGQATT 7 feu aA aT alaagt we @ cat atlea at sata at cata. F waa Eu, aif SSH 2, 24 Slag > ata feat TAHIR BT SSTAM Ga AAT IF afgafra ral feat AT Wea a waam fe arqefan aacfeafe fag vel et aret a) aifes afara % afaata aaa% faaraisat at atta ag @ fH arfet aaITTIHI Bt BAT are FeatATT BT TAA A ITTAT Te araifza slate fe eats aT anfaaent a HT aTstg ater gaa ata gaat 2 ate ag fe ares FT arafa at dar % fearg val qea sora afatifaa Prat arat atfed | aarfe, aet 271(1)(%) % aata B17ardt & arma 4, faaraisa ar ata TAA at aif & ava Tt TT VAT ATR| tat arf F fae STAT Srafat HAT 2, aafe facdeg, THIS TT Te afta FTfraara & | ga aaa Ha fader frat ates aT ATH feat wat &, AeaGTS|) qa aH TTA HT AIT B arrafirn aafeata ar aca fas Het BT ATAATATat gratad FA ET HS 7 Bl, AAA: AB atfaa aeat cated zea fH ara.ar agaraa Ter A eahaar garg Car 271(1)(%) 4 tar Ho sal g fraang aafaa a fe ze wae % data wifes sardla far ata gt argues FAfeqfa arfaa at oat arfer| (tz 4), Fafa aitet aferetfeat : 1975 at fafa adit Ho 630-31. 1972 ® want fram Ao 85 Hz 86 HHA GST TATAT gH aTT|10 fadax, 1974 % facta ate gan & faeg aaa |aratarat at ate & at ate & ate & &|aaa dal Xo alas, ver afea, dal Xo alas, ver afea, Xo alas, ver afea, alas, ver afea, ver afea, afea, aratarat at ate & at ate & ate & &|aaa dal Xo alas, ver afea, dal Xo alas, ver afea, Xo alas, ver afea, alas, ver afea, ver afea, afea,|Slo fama att Uo WUTgerat at Att aaat Stoato Waa At gal Uoaaifaoit|| eqraray at frota yer aaAia AIX Uo TSF A feat| —— 4 aha, Fea ToT ATATAA ar WAT FRE ACea earaata WeeGHINTT Ziel, FA GEA PATATAT > sa facta ® face at ag & feat va aa-HTfade Ht fafase fafa% fara set aT SAT IES favia %& get Fate faatfeat% fase fear wat aI— |caqt, aaa & aeal atc saat ofefeafaat #, afaac, Frateray 1965-66 att 1966-67 % fau, aan afafran,1961 &aver 271(1)() * aaa sardia afeaat wg. rea H fafa a aftey caratfaa & 2”9. fraifedt gael FIM FT AATITTT FTA att ua x<faedtga ate|cautfedt 3 Prater at 1965-66 % fag araat yafa aatq 30 Fa, 1965 7%x fac ara-ae afafaam, 1961 Rataia AIA AAT faacolt HET Agl &ait can ama faatolt HEA FA & faa aaa & fay aaa feat| 31 are 218 Beart eararata faba afer [1990] 2amo fo qo ਮਈ 2, 1989 From the Judgment and Order dated 10.9.1974 of the Kerala A High Court in Income Tax Reference Nos. 85 and 86 of 1972. Soli J. Sorabjee, Udayu Lalit, D. Vidyanandan and M. Raghura-man 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 c Reference in favour of the Revenue and against the assessee: "Whether, on the facts and in the circumstances 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 produce. 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. E Time was granted up to 3 i .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 application for extension of time was made either. When notice under s. 139(2) was served on the assessee on 21 June, F 1966 it filed a return on 23 September, 1967. In the circumstances, the Income-tax Officer initiated penalty proceedings against the assessee untler 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 Hona G 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. 27l(l)(a) of the Act was not attracted. In second appeal before the Income-tax H Appellate Tribunal permission was granted to the assessee to raise the 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 entertaining 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. 1966 am aa fear qari) fax vit ate razon wee Tal Bt TE 1 afafraa aORT 139(2) & tata Pathe at ada 22 fadaz, 1967 atatfea anitaFag art % She ane fear gad faacot Gree az a1 zat ware, frat ag1966-67 % far até at faazat 30 Tt, 1966 aH Gee aa a TE ataQl aaa agie wT % fry aE antear A Pear nar | Wa aT 139(2) & sarafratfedt ot arta 21 WA, 1966 a fea ante feat Tat, at gay 23fataz, 1967 at faawit oer ati a afefeafaat #, areae afwerd §afafrarr at arr 271( 1)() & state a faatzor anf > faq faitefares afer srtarfeat area a | fratwr ay 1965-66 % far ofa’ wy F*14,784eat st ufe sareta a a8 ate faatzo ag 1966-67 & fau aferot STH 11,447 eqe at ufiz afactad at 7$ ft 1 fratfedt > qa equfe Ga ae aearfas favare ot fe sak ora arg fratt ara aay at aitz,gata, sat cae frarfnat req Tal at Mt, ara-ae aferard are edlarz mal| Pear rar t aera aga gat (atte) & amet adie fa ary az, FraleyFeeqaatamare oe ae aad feat Pe Praca wee HUT yaal ate F até ara-arateate él fear war ar at< ag fe, gafae afatiay at are 271(1)(#) aet att oft) arag-ae ater afaawr & amet fidia atta far art Izfratfeat 1 ag aratz gar at APTA shag) atta afew a agafatrather wet gu atta wat a Ay Re Ta-5T aferare ag afaa wesfare, fe facia at ataa sak ane fear wer fratfedt ar equdtarcy ealaTe aTPRAT TAT atfag, fet sare st area} TIT TET HT qraT at, ate ag Pp aferaTrfas wafeale & ag ay atfaa feat arat atta gr ate ae aifaa aet@t Tat at, aa: mfeaat Xe feE Hy ate FT 3. Uses frat} arate at adie afew F qalaa sea aageeraraiaa % fry fafgce az fear | 7e seta frat at aparé fe us ate. gerat fafece frat aan, St acter afigacoy aT sare at afafar argrz HAL HWa aafaa at, fag gat ane at TS Atay BT a Taq a aaa aa 2 ag ce,frat sare daa 2 yea eqrarag ® Gt raise % fae fafzse frat Tat aT,we eT eqTAT A ag za eqATAT é fe afafiar at ara 271(1)(%) %vara wet afrdfia feo wee qa orrufie aafeafe fee fear araaaa qT g atk ae fx, wafee aia afi a fratzor auffacaifeaat tz Hwa FH earfea vet ary|.T4. tratfedt & fasta anda & emt ana ST Te BT aaa faeaa eqaetar et fe aot afatiom a are 27] (1)(#) & state afirater onfea ¥‘autae wafers atadfar Ae Gat wat ge ata F aade F fe tarBetwe Afe arqafizg afafam aafeafa a are aadfra 27 1(1)(%) att & 8, stata saa ofr NT ane agea HF etme argarfeat HF Learned counsel for the assessee has addressed an exhaustive argument before us on the question whether a penalty imposed under s. 271(1)(a) of the Act· involves the element 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 necessity 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 iefer 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 punish-able with rigorous imprisonment for a term ~hich 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 sen-tence. 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 SUPREME COURT REPORTS A 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 discourage 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 B doubt an element of.coercion is present in the penalty. In this connec-tion the terms .in Which the penalty falls to be measured is significant. - ' Unless there is something in the language of the statute indicating the ./ need of establish the element of mens rea it is generally sufficient to prove that a default in complying with the statute has occurred. In our opinion, there is nothing ins. 271(1)(a) which requires that mens rea c 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 obliga-tion, remedial and coercive in its nature, and is far different D 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 re-quired 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 E assessment years 1965-66 and 1966-67. In the result the appeals fail and are dismissed with costs. N.V.K. Appeals failed. srTafaraet wae at é ate, gafau, aa fe are 271(1)(%)aaa aries:afaatta fag art aga auf wafeafa stat ara ater a, zaaraTaa at sea earavaay aru fafafesa aaa sega faa fi ay za astfafavaat & sfa fade azar arama adl qaad fi aaa H, gat a aga a.fafaeaat ot sea carat ater faare Prat war ate sah ofa adtarefta fofH free fear varart fare ater 271 (1)(#) & sha fade azar gate 2,frat ag srafaa 3 fe ofes afedfaa at or anal 8 afe are-we afeard ar“aaraTa Bt Tray ff Peet eafea + gfaaqar saw 7 Ve su Hea ara AY faacoftmel tg, Ate are 276-7 & ofa at free fear feat ag saafaa & fe afeare eafer aver 139(1) & aaa wafers ara at fart aaa aaa F oaqx | WAHT AT TTS, ah ag Ua wafer F Bax Hata-B fast safe wT ag aH|al et wait ar gaia a, decle gtri ag ease & fH qaadh aaa FW arafya@ 9¢ fafa aemat g wate oeaaadt wae 8 wT afedfa 2, ag anqufkeSSA J1 RA Alaa Aly faare wal Bt waar F fH aver 276-7 F saaagl wy aaa8G, frat safeaet at az 8 tar aragaat a fee a at ara wet aE a aTafer at cafa at eare A cad gu, wife deren 8, <a sada % aha feetTHT BT RsTaT Ge aay as afadfea adt feat wr asa a aa aa fe ang.|uaa aafeafa fog aét at sict @1 aifsn atfaca & afiaia armel ¥, feeara-case at arma ag 2 fe ofa waltgeaard all wraqay are fat sous er araBA ATLTT I srariea stat x fe are st safelyat ar aie grep ear|afar agadt¢ ate ag fe aoa at arafa at dea H fac walaa gare-afadtad feat arar arfeq 1 aati, are 271(1)(%) & aata RATEare H, Var weil gar g fe faarades at anna uses at arfa & aeq gz wxdat ale tat gift & fag sare sqafua srat 3, aafa fatede, oiteq arace.,afer 4 faaara @ga aaa Fa fader, feat anfea ar armam Pear stay z,HEATFHT aH HITT aT MGT A arcufies aafeafs ar aca fag azz atATAMHA BISIAMT HT FL HO A el, aAAa: as afar Hear qaiea aTfe Bra BT aAIMaT HUT FH ego garg. aard wa F, gre 271(1)(%)ma a ga aTufaa wafeata aaa at ait afeet gard sa ara at anda% tar go agt g fara az aofera at fe ga soda ¥ stata arfea Sala feu |alera afta dasa, free 85% qo 580% FU1023 qe fav. ae Haq giz@lat g— “ar aaattear % fay afatifar aries tet fafa areqer tayaot waht F seat ate ottsa 8, site aifea or ee Payal % afa-aay sfc gs Feq H gaafaa aqug & faa amfer at Watt arAATaT fret Fv”| 9+ TATA, er ag afafrater axa & fe arvafas aafeafe = <i 220 sea arate feet after [1990] 2Bao fto qo aa-at afafaae a aver 271(1)(%) Fataia arene afrardy arer sree at7 argarfeat F fratzor ag 1965-66 ate 1966-67 % fau faatfedt & faegatfaa fear ara aafeta ag ar_ 6. oferraa:, aha tape edt s ate ae afer ater at areal F ahd afr att|- Jo/Fo7 |[1990] 2.aH0 fro go 220 aaa Aerret farfees (Fat) Uanifnare ata tatters eararfca emagre arate att UH BET |2481989 earagia afta alga wal alt veo waaraa aifear earfrare eat tates SUITS BART afafiun, 1969 (1969 aT-§4) —aret 36-a(1) (i) ate (v)—aafaa earnfee eqagrte—ardia aotBIT AAT HAT F Agate & gefat wr fafrate fear siar fey sas faaraatH araat Saat S searal HT gata fear wat—ga swe Hage Aa afret cate Bt WA seqra VIA Hl Aaraat at ake a at aafaa earaies saagiemt RE TET Et Tat aT AT || waters car sathrs eatafte eqagit afafaaa, 1969 (1969 &T54) —arer 36-5 et sgea—aafaa sqraries eaagre Ft Galei—ag watetaaa samt afe eqrafte “eqagre aatian at ale carena a Cat aa—Safase at frat ware ea Fats gfeagqea cafer Tate stat|: atartt-aaat wa arardt aad & wear & afsrs sareat defeat arfafaateerat at tél el aTT-aage seoreat & fre faearaF 1 atari aot faarratF rot serrata MATT HT Tat at 1 warfrareaar aatearysaraihte araeit salBTA BTU aT Fae aT we Shara sareH faaraata va fafeg act % fag ce aren afta fear fad saat araty sre Haat Fsat PRataara at aghaa eqrarfey aqaare sgear war| ara H fafavaa aanfaa stat atearat-saal at Seaae ara A ata at) BeaTT eaTaTATglut ada AAT HUT ET,a7|