Sonarome Chemicals Pvt. Ltd. And Ors v. Union Of India (uoi) And Ors

V.K. Singhal, J.

1. The validity of the provision of Sections 276C(1) and 276CC of the Income Tax Act, 1961, has been challenged in these writ petitions as violative of Articles 14 and 21 of the Constitution of India. The order dated March 22, 1996, passed under Section 279(1) of the Act for the assessment years 1988-89 to 1991-92 has been challenged as without jurisdiction. The complaint filed before the Special Court for Economic Offences at Bangalore, is also prayed to be quashed.

2. A survey was conducted on December 7, 1995, under Section 133A of the Act. Notice under Section 148 was issued on December 15, 1995. Notices dated February 14, 1996, and March 1, 1996, were issued as to why the prosecution proceedings should not be launched against the petitioners for not filing the returns in time. The Commissioner of Income Tax not satisfied with the reply, authorised the Assistant Commissioner of Income Tax to file a complaint under Sections 276C(1) and 276CC of the Act. Interest under Sections 234A, 234B and 234C has been levied by the assessing authority. It is stated that, since the returns were accepted under Section 143(1)(a) of the Act, vide assessment order dated March 29, 1996, subsequently, the assessment order under Section 143(1) read with Section 147 was passed, levying interest. Interest under Sections 139(8), 215 and 217 of the Act has to be charged for the assessment year 1988-89 and for the subsequent period, interest under Sections 234A, 234B and 234C of the Act has to be levied, which has, in fact, been levied and even payment thereof, has been made for 1989-90 to 1990-91 and application for waiver has been moved for 1988-89. The provisions of Sections 276C(1) and 276CC of the Act are as under :

"276C. (1) If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable,--

(i) in a case where the amount sought to be evaded exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine ;

(ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine."

"276CC. If a person wilfully fails to furnish in due time the return of income which he is required to furnish under Sub-section (1) of Section 139 or by notice given under Clause (i) of Sub-section (1) of Section 142 or Section 148, he shall be punishable,--

(i) in a case where the amount of tax, which would have been evaded if the failure had not been discovered, exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine ;

(ii) in any other case, with imprisonment for a term which shall not be less than three months but which may extend to three years and with fine :

Provided that a person shall not be proceeded against under this Section for failure to furnish in due time the return of income under Sub-section (1) of Section 139

(i) for any assessment year commencing prior to the 1st day of April, 1975 ; or

(ii) for any assessment year commencing on or after the 1st day of April, 1975, if-

(a) the return is furnished by him before the expiry of the assessment year ; or

(b) the tax payable by him on the total income determined on regular assessment, as reduced by the advance tax, if any, paid, and any tax deducted at source, does not exceed three thousand rupees."

3. It is stated that, for belated payment of tax and submission of the returns, the provisions existed under Sections 139(8) and 215/217 and penalty is also provided under Section 271(1)(a) of the Act for the assessment year 1988-89. For the subsequent year from April 1, 1989, the provision for levy of interest for belated return and non-payment of tax existing under the provisions of Sections 234A, 234B and 234C there cannot be any prosecution for the same default. The provisions of Section 271(1)(a) have been deleted from April 1, 1989, and the validity of the provisions of Sections 234A, 234B and 234C has already been upheld by this court in Union Home Products v. Union of India : [1995]215ITR758(KAR) , which has subsequently been affirmed in Dr. S. Reddappa v. Union of India : [1998]232ITR62(KAR) . Since the levy of interest is in the nature of compensation as held by the apex court in Ganesh Dass Sreeram v. ITO : [1988]169ITR221(SC) , there cannot be any further liability for the same offence. Charging of interest by way of compensation is also approved in Calcutta Jute Mfg. Co. v. CTO : 1997(93)ELT657(SC) . It is a substantive law as observed in India Carbon Limited v. State of Assam : AIR1997SC3054 , and, therefore, the rigour of alleged offences under Sections 276C(1) and 276CC of the Act, is obliterated or otherwise eclipsed, the moment an assessee is subjected to interest. The provisions of Sections 276C(1) and 276CC are not overriding the provision for interest as contained in Sections 139(8), 217, 234A, 234B and 234C. In a taxation matter, the interpretation favourable to the asses-see has to be taken as held in C.W.S. (India) Ltd. v. CIT : [1994]208ITR649(SC) . Under article 21, a citizen has a right to live with human dignity as held in P. Rathinam v. Union of India, : 1994CriLJ1605 , and, as such, the provision for prosecution cannot be allowed to remain on the statute book. It is a naked arbitrary power which is unfettered, unguided and uncontrolled and hit by article 14 of the Constitution as observed in Pannalal Binjraj v. Union of India : [1957]31ITR565(SC) . The sanction accorded under Section 279(1) is also challenged on the ground that the Chief Commissioner of Income Tax had not issued any instructions or directions for institution of proceedings under Sections 276C(1) and 276CC of the Act, The provisions of Sub-section (1) of Section 279 of the Act read as under :

"279. (1) A person shall not be proceeded against for an offence under Section 275A, Section 276, Section 276A, Section 276B, Section 276BB, Section 276C, Section 276CC, Section 276D, Section 277 or Section 278 except with the previous sanction of the Commissioner or Commissioner (Appeals) or the appropriate authority :

Provided that the Chief Commissioner or, as the case may be, Director-General may issue such instructions or directions to the aforesaid Income Tax authorities as he may deem fit for institution of proceedings under this Sub-section.

Explanation.--. . . ."

4. The Commissioner of Income Tax cannot pass an order of sanction. The sanction stands on a different footing than a direction for a prosecution as observed in Rameshwar Bhartia v. State of Assam, : 1953CriLJ163 .

5. On the basis of the averments made in the objections and the arguments, the following two points are to be decided :

(i) Whether the provisions of Sections 276C(1) and 276CC of the Income Tax Act are violative of Articles 14 and 21 of the Constitution of India on the ground that the respondents are compensated with regard to delay in payment of tax or submission of return by making the payment of interest and whether it amounts to a total punishment prohibited under Article 21 of the Constitution of India

(ii) Whether it was necessary for the Commissioner of Income Tax to pass orders only after instructions or directions were issued by the Chief Commissioner for institution of proceedings for prosecution

6. Article 21 of the Constitution provides that, no person shall be deprived of his life or his personal liberty except according to the procedure established by law. Under Article 20(2) of the Constitution, no person can be prosecuted and punished for the same offence more than once. In Shiv Dutt Rai Fateh Chand v. Union of India : [1984]148ITR664(SC) , the provisions of Article 20 of the Constitution were interpreted and it was observed (page 688) :

"The expression offence is not defined in the Constitution. Article 367 of the Constitution says that unless the context otherwise provides for words which are not defined in the Constitution, the meaning assigned in the General Clauses Act, 1897, may be given. Section 3(38) of the General Clauses Act defines offence as any act or omission made punishable by any law for the time being in force. The marginal note of our Article 20 is protection in respect of conviction for offences. The presence of the words conviction and offences, in the marginal note convicted of an offence, the act charged as an offence and commission of offence in Clause (1) of Article 20, prosecuted and punished in Clause (2) of Article 20 and accused of an offence and compelled to be a witness against himself in Clause (3) of Article 20, clearly suggests that Article 20 relates to the constitutional protection given to persons who are charged with a crime before a criminal court : (see H. M. Seervai : Constitutional Law of India (third edition), volume 1, page 759). The word penalty is a word of wide significance. Sometimes it means recovery of an amount as a penal measure even in a civil proceeding. An exaction which is not of compensatory character is also termed as a penalty even though it is not being recovered pursuant to an order finding the person concerned guilty of a crime. In Article 20(1) the expression penalty is used in the narrow sense as meaning a payment which has to be made or a deprivation of liberty which has to be suffered as a consequence of a finding that the person accused of a crime is guilty of the charge."

7. It was further observed that (page 691) :

"... that the word penalty used in Article 20(1) cannot be construed as including a penalty levied under the sales tax laws by the departmental authorities for violation of statutory provisions. A penalty imposed by the sales tax authorities is only a civil liability, though penal in character. It may be relevant to notice that Sub-section (2A) of Section 9 of the Act specifically refers to certain acts and omissions which are offences for which a criminal prosecution would lie and the provisions relating to offences have not been given retrospective effect by Section 9 of the Amending Act. The argument based on Article 20(1) of the Constitution is, therefore, rejected."

8. In K. Jagadeesan v. ITO : [1993]199ITR307(Mad) , a contention was raised that, since interest has been charged for delay in filing the return, it amounts to extension of time for filing the return and therefore prosecution is not permissible. The Madras High Court has negatived the contention. Interest, penalty and prosecution stand on a different footing. In the case of Shiv Dutt Rai Fateh Chands case : [1984]148ITR664(SC) , the provisions for penalty and prosecution were considered different and it was held that both can be invoked. The contention that, interest has been paid as compensation, even if it is accepted, then, it is the compensation of not receiving the tax by the respondent in time which might have been delayed but the offence is not obliterated. In these circumstances, it cannot be considered that the provisions are ultra vires. The constitutional validity of Section 276C was challenged in the case of Dr. (Mrs.) M. S. Dhowani v. J. Ranganathan, Second ITO : [1992]194ITR690(Mad) , on the ground of violation of Article 14 of the Constitution, contending that, Section 276C(1) provided for a minimum imprisonment of six months and under Clause (2), the minimum sentence prescribed was only three months which is contrary to the concept of equality. The court observed that the Sub-sections operate in different fields and that there is a rationale behind the classification, the equality contemplated under article 14 of the Constitution cannot be considered to have been violated. The contention which has been raised is based mainly on the ground that since the respondents have already been compensated, Parliament could not have enacted the provision for prosecution for the same default. There is no illegality or lack of jurisdiction with Parliament in making a provision for prosecution even in a case where the interest is charged which stands on different footing than the offence for which the punishment is provided. In these circumstances, this contention has no force.

9. The second contention that there should have been instructions or directions by the Chief Commissioner or the Director-General and only then, the authorities mentioned can prosecute, has also no substance. Section 279(1) provides that the previous sanction of the Commissioner or the Commissioner (Appeals) or the appropriate authority can be there. Under the proviso, the Chief Commissioner or the Director-General may also give direction for institution of prosecution proceedings. This is an additional power which has been conferred on the Chief Commissioner or the Director-General who may or may not give the direction. If the directions are not given to the Commissioner or the Commissioner (Appeals), it does not mean that the Commissioner or the Commissioner (Appeals) or the appropriate authority has no jurisdiction to give the sanction for prosecution. Prior to 1989, it was only the Commissioner who was empowered to give the sanction and, therefore, the contention that, in the absence of any directions or instructions being given by the Chief Commissioner, the Commissioner has no power to sanction the prosecution has no substance.

10. The writ petitions having no substance, are accordingly dismissed.

11. In respect of other matters, the petitioners would be free to raise the objections before the court having jurisdiction.