GUJARAT TRAVANCORE AGENCY, COCHIN versus COMMISSIONER OF INCOME-TAX, KERALA, ERNAKULAM

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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.

The assessee appellant did not file its income-tax returns under the Jncome 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 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 returns earlier was not accepted by the Income-tax Officer.

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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 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.

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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. 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 requirement before a penalty can be imposed under section 271(1)(a) of

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GUJARAT TRAVANCORE AGENCY v. C.I.T.

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the Income Tax Act, 1961.

Dismissing the appeal, the Court.

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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 B

\ 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]

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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]

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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]

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CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 630· H

31of1975.

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1002

SUPREME COURT REPORTS

[1989] 2 S.C.R.

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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. Raghura

man for the Appellant.

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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:

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"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?"

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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, 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 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

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GUJARAT TRAVANCORE AGENCY v. C.I.T. [PATHAK, CJ.] 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.

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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.

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Learned counsel for the assessee has addressed an exhaustive D

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 E 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 F 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- G 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 H

1004

SUPREME COURT REPORTS

[1989] 2 S.C.R.

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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 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 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:

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"A penalty imposed for a tax delinquency is a civil obliga tion, 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 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

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In the result the appeals fail and are dismissed with costs.

N.V.K.

Appeals failed.

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