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Ganga Sagar Vs. Emperor - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation;Criminal
Decided On
Reported inAIR1929All919
AppellantGanga Sagar
- - as the result of the revision filed on behalf of the crown, the question whether the applicant's conviction is good on facts, has been reopened. having considered the evidence i am fully satisfied that mr. coming to the question of sentence i realize that even the maximum sentence of fine which i can inflict will be no real punishment for a rich man like the accused. almost all the owners of private motor oars are well-to-do people. in technical cases, a few rupees would be enough even though the convicted person be a rich man. in the case of a very poor man, a small fine may really be heavier to him than a fine of a short term of imprisonment. but, from the fact that the accused person is a rich man, it does not follow that he must pay the full penalty provided by the law,.....mukerji, j.1. this is an application to revise the order of the district magistrate convicting the applicant under section 177, penal code read with section 52, income-tax act, and sentencing him to pay a fine of rs. 1,000 and the order of the sessions judge, in appeal, confirming the said conviction and sentence. on behalf of the crown a revision has been filed, being revision no. 311 of 1929, praying that the sentence passed on rai bahadur seth ganga sagar may be enhanced on the ground that it is inadequate. as the result of the revision filed on behalf of the crown, the question whether the applicant's conviction is good on facts, has been reopened. we have heard the learned counsel for the parties at length. the facts which led to the conviction of mr. ganga sagar, briefly are.....

Mukerji, J.

1. This is an application to revise the order of the District Magistrate convicting the applicant under Section 177, Penal Code read with Section 52, Income-tax Act, and sentencing him to pay a fine of Rs. 1,000 and the order of the Sessions Judge, in appeal, confirming the said conviction and sentence. On behalf of the Crown a revision has been filed, being revision No. 311 of 1929, praying that the sentence passed on Rai Bahadur Seth Ganga Sagar may be enhanced on the ground that it is inadequate. As the result of the revision filed on behalf of the Crown, the question whether the applicant's conviction is good on facts, has been reopened. We have heard the learned Counsel for the parties at length. The facts which led to the conviction of Mr. Ganga Sagar, briefly are these:

Mr. Ganga Sagar is a wealthy trader of Khurja in the district of Bulandshahr. He holds a large amount of shares in different companies including many jute mills in Bengal which pay very handsome dividends. He was to be assessed with income-tax and the Income-tax Officer, Mr. Samiullah, served him with a notice for making a return of the income earned by him in the year 1926-1927, so that on the basis of that income the tax payable by him for the year 1927-1928 might be assessed. The notice was issued on 2nd April 1927, and by it the return was to be filed on 15th May 1927. The applicant, Mr. Ganga Sagar, took time for preparing the return and, ultimately, on 20th July 1927, appeared personally with his books before Mr. Samiullah. It is important to note that 25th July 1927 had not been fixed for the appearance of Mr. Ganga Sagar nor had the date been fixed for him to produce his account-books. His only duty was to file a statement of his income. Mr. Samiullah was requested by Mr. Ganga Sagar to examine his (latter's) account-books and to satisfy himself as to the income of the proposed assessee. Mr. Samiullah ought to have plainly told the applicant that it was no part of his (Mr. Samiullah's) duty to examine the account-books for the benefit of Mr. Ganga Sagar and it was for Mr. Ganga Sagar to find out, from his own books, what his income, on the several heads, was and to make a return. Mr. Samiullah, however, was persuaded to accede to Mr. Ganga Sagar's request and he noted down on two pieces of paper what was the income of Mr. Ganga Sagar, according to his books. After the several items of income had been added up, Mr. Ganga Sagar entered those figures in the form provided for making a return by an assessee, and he signed it. This return is Ex. P and the note made by Mr. Samiullah is Ex. O. Mr. Samiullah, after the return had been made, recollected that he had some information conveyed to him by the Income-tax Officer of 'companies district' that Mr. Ganga Sagar had received a dividend of Rs. 6,000 on account of his shares in Sura Jute Mills, Ltd., that Mr. Samiullah asked Mr. Ganga Sagar how it was that this dividend did not find place in his books. Mr. Ganga Sagar replied, according to Mr. Samiullah, that the date of payment as recorded in the letter of the Income-tax Officer of companies' districts, (Ex. N), was merely the date of the declaration of the dividend. The suggestion conveyed by this reply was that the actual dividend had not yet been received by Mr. Ganga Sagar. This set Mr. Samiullah a thinking and he made certain further enquiries as to Mr. Ganga Sagar's income from dividends. The enquiries took the shape of a letter addressed to the Calcutta Income-tax Office. Mr. Samiullah also got certain information from the companies intimating what dividends had been paid to Mr. Ganga Sagar.

2. The letter Ex. V. and the enclosures Ex. VI to Ex. V.5 show that Mr. Ganga Sagar had received dividends to the amount of about Rs. 70,000 over and above the dividends that had been declared in the return made on 25th July 1927. Before receiving Ex. V. Mr. Samiullah had already issued notice to Mr. Ganga Sagar to produce his account books for the Sambat year 1981 to 1982. I may mention here that the Hindu year for which Mr. Ganga Sagar was expected to make a return was 1982 to 1983, Dewali to Dewali, corresponding to 17th October 1925 to 5th October 1926. On receipt of Ex. V. and its enclosures, he issued another notice, on 19th October 1927, calling on Mr. Ganga Sagar to make a return of his income for the previous year, on the ground that a portion of the income of that year had 'escaped' assessment. Evidently the Income-tax Officer thought that Mr. Ganga Sagar had a much larger income than for which he had made a return and that he had not fully disclosed his income either for the year 1982 to 1983 or for the previous year. Mr. Ganga Sagar admits in his statement before the Court that he received the notice by the end of October 1927. Then he consulted some friends and, as the result of what he was told, he sent a letter from Calcutta to the Income-tax Officer (Mr. Samiullah) at Bulandshahr stating that he had made a mistake in the figures supplied by him on 25th July 1927. This letter is Ex. W and was received in the office of the Income-tax Officer on 7th November 1927. Attached to this letter was a statement of the income in Hindi. This has been marked as Ex. W-l. Along with this letter and the enclosure, Mr. Ganga Sagar sent one of the printed forms in Hindi, in which an assessee is required to make a statement of his income. He said on the letter Ex. W in Hindi (while the letter itself is in English) that he did not know how to fill up the form. The suggestion was that the Income-tax Officer might enter the figures contained in Ex. W-1 into the blank form W. 2 and substitute the fresh return in place of the return made on 25th July 1927. The letter Ex. W runs as follows:

I find that during your inspection of my bahikhata on 25th July 1927, you omitted to look into certain entries. As you yourself had looked into it I believe that you should have examined the whole of it. Just then in your presence in a hurry I prepared the statement and gave it over to you. Since then I had been busy in other works. Now on Dewali when I went into the accounts to carry over into the bahikhata. I found that mistakes had crept in the examination of accounts. The statement that I prepared in a hurry in your presence and gave to you was not quite accurate. I herewith send another correct statement. The former is not correct. This is correct according to accounts. Please cancel the former statement and put this revised one on file.

3. It is common ground that Ex. W-1 submitted with this letter Ex. W, contains, substantially, a correct statement of the applicant's income.

4. The applicant was assessed on an income of Rs. 4,73,045 with a tax of Rs. 2,761 and odd and super-tax of rupees 75,951 and odd. He was also assessed on account of the previous year (1926-1927) on the ground that a considerable portion of his income had escaped assessment. The basis of this assessment, made under Section 34(escaped items) was Rs. 5,00,000 and odd.

5. Negotiations were then started with Mr. Ganga Sagar calling on him to pay a sum of Rs. 7,00,000 on pain of being prosecuted for having made a false return on 25th July 1927. Mr. Ganga Sagar did not agree to pay this large sum and the income-tax authorities came down to the sum of Rs. 3,00,000. Even this sum Mr. Ganga Sagar refused to pay and then his prosecution was ordered, not only under Section 52, Income-tax Act, read with Section 177, I.P.C., but also under Section 193(perjury) and Section 465(forgery) of the same Code.

6. As the result of a trial before the District Magistrate of Bulandshahr Mr. Ganga Sagar was acquitted of the offences under Sections 193 and 465, I.P.C., and was convicted of the offence under Section 177(read with Section 52, Income-tax Act), I.P.C., and was sentenced as already stated.

7. As I have already stated, the whole evidence has been thoroughly thrashed out and all possible arguments have been put forward on either side before us. Having considered the evidence I am fully satisfied that Mr. Ganga Sagar when he filed his return on 25th July 1927 either knew or believed that it was false or at least did not believe that it was true. If that is so, he has been rightly convicted. I shall examine the evidence very briefly, (an extensive survey of the evidence is not called for). But before I do so it is necessary to examine the contention of Sir Tej Bahadur Sapru on behalf of Mr. Ganga Sagar that, under the law, Mr. Ganga Sagar was not at all liable to be prosecuted, inasmuch as he filed a fresh return which was received in the Income-tax Officer's Office on 7th November 1927 and which was substantially correct. For the Crown it was urged that this supposed return was no return at all, for, the form provided for preparing a return was not filled in nor signed. I am not prepared to attach much importance to this pure technicality. I take it that the letter Ex. W and its enclosure Ex. W-1 and the blank form sent by the applicant did substantially amount to the making up of a return; because Mr. Ganga Sagar filed a correct return on 7th November 1927(this is the date of the receipt), is he not liable to be prosecuted under Section 52, Income-tax Act. Section 52 reads as follows, so far as it is relevant at the present moment:

If a person makes a statement in a verification mentioned in... Section 22... which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be deemed to have committed the offence described under Section 177, I.P.C.

8. On a plain reading of this provision of law an offence is committed on the day a return made under Section 22 is verified by a party. It follows that on 25th July 1927, Mr. Ganga Sagar did commit an offence under Section 177, I.P.C., if he made a statement which was false and which he either knew or believed to be false or did not believe to be true. This return was made by Mr. Ganga Sagar under Section 22, Clause (2), Income-tax Act. In the same section, Clause (3) says that where a person has not furnished a return or, having furnished a return 'discovers any omission or wrong statement therein' he may furnish a return or a revised return as the case may be, at any time before the assessment is made and any return so made shall be deemed to be a return made in due time under this section. Sir Tej Bahadur argued that when Mr. Ganga Sagar furnished a revised return which was received on 7th November 1927 the earlier return, Ex. V, was 'washed out' and it could not be used even for the purpose of prosecution.

9. There is nothing in Clause (3), Section 22 which says that any offence committed with respect to a return made under Clause (2), Section 22, must be condoned if the revised return be true. All that Clause (3) provides is that this return would be treated as a return made in due time, provided it is made before an assessment has been made. In my opinion Clause (3) does not go in any way beyond this. The result is that if, on facts, Mr. Ganga Sagar be found guilty with respect to the return Ex. V. he must be convicted. It may be that the fact that Mr. Ganga Sagar made a revised and correct return may go in mitigation of the offence but the offence once committed is there and a conviction is bound to follow unless it is compounded under Section 53, Clause (2), Income-tax Act.

10. Now as to facts. Mr. Ganga Sagar knew that his income from the dividends received from various companies was Rs. 3, 47,000. In the return, that he made in the presence of Mr. Samiullah (Ex. P), he put down the income at Rs. 62,000 and odd. His explanation is two-fold. First he says that he put down his books before Mr. Samiullah. Mr. Samiullah examined the accounts, noted the income and then Mr. Ganga Sagar put down the figures found by Mr. Samiullah in Ex. P. This is no doubt true, but it is equally true that Mr. Samiullah was not fully cognizant of all the entries in the applicant's book, and the applicant knew that this was the case. What the applicant has done as regards the entry of the dividends in his book is this. At p. 37 of his account book he has entered under the heading income from shares' certain amounts received from certain companies totalling to Rs. 62,000 and odd. At p. 39 he put down certain figures with reference to pages of 'naqal bahi.' The heading of this page is 'account of profit and loss relating to shares.' If this p. 39 be read with the naqal bahi, the entries would show that large sums of money, amounting to nearly three lakhs of rupees, were received by Mr. Ganga Sagar from companies other than those mentioned at p. 37, and the amounts so received were entered in the book by him, in a particular manner. He purchased certain new shares at a premium. What Mr. Ganga Sagar did was to debit himself with the amounts he paid over and above the face values of the shares, on the ground that the price paid by him over and above the face values represented his loss in the transactions of the purchase of the new shares.

11. It is clear from what took place on 25th July 1927 before Mr. Samiullah that Mr. Ganga Sagar did not disclose to Mr. Samiullah the fact that he had received other dividends also (dividends other than those shown at p. 37) and that he had recorded in his books, those dividends in a particular manner. When Mr. Samiullah asked where the entry as to the dividend paid by Sura Jute Mill was entered Mr. Ganga Sagar gave an evasive reply. He did not disclose the fact that this income (which amounted to Rs. 18,000) had been used by him in purchasing further shares. It has been contended on behalf of Mr. Ganga Sagar that the latter, most foolishly, but honestly, believed that if he employed a part of his income in purchasing shares at prices which went beyond the face values he would be entitled to treat the excess amount so paid above the face value as his loss and he would be entitled to deduct the same from his total income and to show the balance alone as his real income. On the evidence given by Mr. Chatura Dutt Joshi, a Deputy Collector, there can be no doubt that Mr. Ganga Sagar did think that he might escape payment of heavy income-tax and still heavier super-tax if he could show that he had suffered a loss in his dealing with shares. Mr. Chatura Datt Joshi, whose evidence is beyond suspicion and has never been challenged, stated that the applicant met him at Cawnpore and spoke to him about his investments and asked him if he was not justified in debiting himself, as with a loss, with the amounts paid by him in excess of the face values of the shares. Mr. Chatura Dutt Joshi plainly told him that he could not do so and Mr. Ganga Sagar argued that the money so spent was really his 'loss.' This happened either at the end of October or early in November 1927. Soon after that Mr. Ganga Sagar sent him the letter and statement of accounts already mentioned (Exs. W and W-1).

12. On the basis of the evidence of Mr. Chatura Dutt Joshi, Sir Tej Bahadur has argued and with great vehemence that the applicant was under the honest but extremely foolish impression that he was entitled to deduct the money invested as described from his total income and to show the balance as his real income. I am prepared to concede and it must indeed be conceded that a man who is liable to pay a tax is entitled to take shelter under all devices which he may adopt, within the law, to avoid payment of the tax. Indeed, the whole scheme of the Indian Income-tax Act contemplates that people, liable to be assessed with the income-tax, were likely to shirk making true disclosures and if they did go wrong they were to be treated with more or less leniency. But it does not follow that a person who has made a return can legitimately suppress matters within his knowledge.

13. Mr. Ganga Sagar did not disclose to Mr. Samiullah the fact that he had received dividends from companies other than those mentioned at p. 37 of the khata bahi, and that he had invested them in such a way as to entail him a supposed loss. If Mr. Ganga Sagar had done that, he would have disclosed the whole truth and, then, the question would have been, for decision, by the Income-tax Officer and his superior officers and perhaps ultimately by the High Court, whether Mr. Ganga was entitled to the deduction he claimed. There can be no doubt that Mr. Ganga Sagar did not want to commit himself definitely by making a return, on his own responsibility. That is why he took all his books to the Income-tax Officer and laid them before that gentleman. But it was not to be expected that Mr. Samiullah would be able to find out what were the entries at p. 39 of the khata book and whether, they, if read with the entries in the naqal bahi, showed that Mr. Ganga Sagar had received dividends other than those noted by Mr. Samiullah himself in Ex. O. Then it is conceivable, and indeed I am prepared to accept the statement of Mr. Ganga Sagar, that he thought that he would be able to escape payment of tax on sums invested by him in the manner already described. But the question is, did he really believe, when he said that his total income, from dividends was Rs. 62,000, that he was making a correct statement? Mr. Ganga Sagar was perhaps trying to hoodwink himself and was trying to quiet his conscience, by the method adopted by him, for avoiding the payment of the income-tax. But in spite of that, it is difficult to believe that he believed it to be true that the statement Ex. P contained correct figures, against the head 'dividends.'

14. I hold that the conviction is right.

15. Now I come to the question of sentence. I note that not a single ground for revision has been taken on behalf of Mr. Ganga Sagar that the sentence passed against him is excessive. Nor has the Court been addressed on the ground of severity of the sentence. The reason is clear. Mr. Ganga Sagar is a very wealthy man and it is the conviction that he minds and not the amount of the fine that has been imposed on him. The learned District Magistrate has imposed the maximum fine that is provided by law under Section 177, I.P.C. and has remarked that the case did not call for any sentence of imprisonment. He said:

coming to the question of sentence I realize that even the maximum sentence of fine which I can inflict will be no real punishment for a rich man like the accused. At the same time the moral stigma attaching to the accused for conviction is sufficient, in my opinion, to make a sentence of imprisonment unnecessary.

16. Although I agree with the latter portion of his remark in my opinion, the learned Magistrate was entirely wrong in the principle he adopted in awarding the sentence. The maximum sentence whether of fine or of imprisonment, provided for by law, represents the sentence to be inflicted in extreme cases. Because a man may easily pay a fine is no ground for ordering him to pay the maximum line, fixed by law, if the nature of the offence committed by him is not of the most serious character, having regard to the description of the offence itself. Take, for example, a conviction under the Motor Vehicles Act. Almost all the owners of private motor oars are well-to-do people. If a minor motor rule is infringed, on the principle adopted by the learned Magistrate, the maximum fine, provided by the rule, must be inflicted, because the owner of the motor can easily pay that amount. No doubt, the Court must look to the means of the accused person, his respectability, his standard of living and all similar matters in inflicting a sentence. In technical cases, a few rupees would be enough even though the convicted person be a rich man. In the case of a very poor man, a small fine may really be heavier to him than a fine of a short term of imprisonment. But, from the fact that the accused person is a rich man, it does not follow that he must pay the full penalty provided by the law, irrespective of whether the nature of the offence committed by him demands it or not.

17. The foregoing remarks are relevant to the application made on behalf of the Grown for enhancement of sentence.

18. It has been urged by the learned Government Advocate that a sentence of Rs. 1,000 is nothing to Mr. Ganga Sagar and the Courts below should have sent him to jail, and that we should do the same now. In my opinion the application for enhancement is entirely ill-advised in this case. If I had been trying the case, as a Magistrate, I would never have sentenced Mr. Ganga Sagar to a fine exceeding Rs. 250. There can be no doubt that he tried to escape payment of taxes. An anxiety to escape the payment of a tax amounting to Rs. 78,000 out of a total income of Rs. 4,00,000 is almost natural. His anxiety to escape payment of this tax led him to invent the idea of debiting himself with a supposed loss in the manner already described above. I have already pointed out that the talk Mr. Ganga Sagar had with Mr. Joshi establishes that Mr. Ganga Sagar was prepared to defend his action. Mr. Ganga Sagar did, after all send a revised statement of his income which was true. No doubt he did this after he had been called upon to produce his account books of the previous year and to make a return of his income of the previous year. But when he made the revised return, he did not know what materials the Income-tax Officer had in his possession for proving his income. Indeed, the materials showed only an additional income of Rs. 75,000 and odd and not nearly Rs. 3,00,000, declared on 7th November 1927. The law does contemplate making of revised returns and does contemplate cases, where incomes, which ought to have been taxed, have escaped taxation. Section 23, Income-tax Act, provides for penalty for concealment of income. It says:

If the Income-tax Officer... is satisfied that an assessee has concealed the particulars of his income or has deliberately furnished inaccurate particulars of such income and has thereby returned it below the real amount, he may direct that the assessee in addition to the income-tax payable by him, pay by way of penalty a sum not exceeding the amount of income-tax which would have been evaded if the income, so returned by the assessee, had been accepted as the correct income,

19. The legislature knew that it would be hard for a person to tell the truth when the telling of the truth meant a payment of money and a heavy sum of money in some cases. Few people would be expected to realize the fact that taxation is necessary for the carrying on of the Government and, therefore, they should pay the tax ungrudgingly and honestly. People always grumble at taxation, however necessary and the Income-tax Act did recognize this fact when it made the offence under Section 52 a compoundable one, although the offence under Section 177, I.P.C., itself is not compoundable.

20. Then again, Mr. Ganga Sagar put all his books before the Income-tax Officer. No doubt, in doing this, he wanted to act 'within the law.' He thought that he would not take the risk of making a false return and would let the income-tax authorities discover, if they can, from his books, what the total income was. All this would go to show that Mr. Ganga Sagar was struggling between his anxiety to save his money and fear of committing anything which was unlawful.

21. For reasons best known to them, the income-tax authorities did not take action under Section 28 of the Act. If they had taken action under that Act they would have, probably, been in a position to realize nearly Rs. 70,000 from Mr. Ganga Sagar. They, under the law, could not realize more than that, even if Mr. Ganga Sagar had managed to escape payment of lawful taxes for several years. Knowing that, the income-tax authorities tried to realise, I had almost used the word 'extort,' Rs. 7,00,000 from Mr. Ganga Sagar. Ultimately they came down to Rs. 3,00,000: vide the statement of Mr. Bhawan, Income-tax Officer. They were prepared to compound the offence, if Mr. Ganga Sagar paid Rs. 3,00,000. But what did the sum of Rs. 3,00,000 represent? The Government Advocate has told us that Rs. 3,00,000 were really only a small portion of the taxes Mr. Ganga Sagar should have paid in the course of several previous years. We have no evidence on the point and, even if this were true, the law did not provide for recovery of taxes on 'escaped income' for more than one year see Section 34. The Income-tax authorities were, therefore, trying to realize, by the threat of prosecution, what they could not realize under the law. This is a hardly desirable conduct in officers of the Government who are really servants of the State and, therefore, of the people. Then, I am rather surprised to find that when the negotiations for compounding the offence fell through, Mr. Ganga Sagar was charged not only with an offence under Section 177, I.P.C., but also with offences under Sections 195 and 465, I.P.C. Neither the offence under Section 193 nor the offence under Section 465, I.P.C., is compoundable. If the income-tax authorities believed that Mr. Ganga Sagar had committed offences under those two sections of the Indian Penal Code, they had no right to drop the prosecution under these sections, on receipt of money. The talk of compromise could only have related to the offence under Section 177, I.P.C., read with Section 52, Income-tax Act. In that case, on the failure of the compromise, no prosecution under Sections 193 and 465 should have been ordered. The officers of the Crown, therefore, on whose behalf the learned Government Advocate is now pressing for a sentence of imprisonment, have hardly been fair in their dealings with Mr. Ganga Sagar, and the prayer for a sentence of imprisonment comes but with ill grace from their mouth.

22. In the result I would dismiss the application in revision made by Mr. Ganga Sagar as also the application for revision made on behalf of the Crown.

Niamatullah, J.

23. The facts of the case have been stated at length by my learned colleague, with whom. I entirely agree in the conclusions arrived at by him. It is no longer in dispute that the applicant showed only part of his income in the return which he made on 25th July 1927. A sum of Rs. 3,47,795 had been received by him as dividend on his shares in a number of jute mill concerns, which he invested in the purchase of new shares of the face value of Rs. 62,000 odd. The difference between the face value and the actual price paid, therefor (which came to several times the face value) represented the price he had to pay above par. Ho showed Rs. 62,000 odd as the amount of dividends received by him, as, according to the account which he produced before the Income-tax Officer, Bulandshahr, on 25th July 1927, that amount alone represented his income under that head,. The remaining amount (i e., the difference between the face value of the shares purchased and the actual price paid) was entered in the account books as a loss, in a khata headed as 'profit and loss of shares.' It was not till 7th November 1927, or thereabout, that he attempted to rectify the error by his letter, Ex. W, and the accompanying details given in Ex. W 1.

24. The contention put forward on his behalf, and strenuously urged by Sir Tej Bahadur Sapru, is that he showed Rs. 62,000 odd, on 25th July 1927, as the net amount of dividends received, by him in consequence of a mistaken notion of his that anything paid for shares over and above the face value of the shares purchased should be considered to be his loss. I am unable to accept this contention. No one who has even an elementary knowledge of business principles, much less a man of the position and antecedents of the applicant, can possibly think that any part of the money invested in the purchase of shares of the face value below the price paid can be put down as a loss. The mere fact that he considered it worth his while to pay several times more than the face value of the shares is a proof positive of the value which he placed on such shares. It is obvious that, if he had regarded the investment as a losing bargain, he would have refrained from making the investment.

25. The circumstances under which the return was made on 25th July 1927 leave no doubt in my mind that the applicant did not believe the statement contained therein to be true. He had received a notice early in April to submit a return by 15th May 1927, when an extension of time was granted till 15th June 1927. Another extension of one month was obtained, but no return was made. On 25th July 1927, the applicant appeared in person before the Income-tax Officer with his account books. The Income-tax Officer examined the khata in which receipt of dividends had been shown, and within a comparatively short time prepared Exhibit O, in which various receipts of dividends were noted and totalled as Rs. 62,000 odd. The applicant, who had refrained for over two months from making his return, found his opportunity to take the Income-tax Officer at his own word, and prepared a statement there and then, entering the amount noted by the Income-tax Officer as his dividend. If he had believed that the amount shown as his dividend in the khata, which the Income tax Officer accepted, was the correct amount, he would have himself prepared a return long before 25th July 1927 instead of obtaining extensions, as he did. It seems to me that he knew the state of his account, and was not prepared to take the responsibility of submitting a return showing Rs. 62,000, odd as the only dividend received by him, the rest of it being loss according to another khata of his account. When he found that the Income-tax Officer himself arrived, on examination of his account, at the figure 62,000 odd as his receipts from dividends, he considered it quite safe to prepare a statement there and then according to the figures noted down by the Income-tax Officer himself. That he had previously prepared his account to support the plea that the major part of the dividends represented the price paid by him over and above the face value of the shares purchased and, therefore, a loss to that extent, is not open to question; but he realized that the plea was not likely to be accepted and did not, therefore, prepare his statement before he found the Income-tax Officer to have arrived at the figure 62,000 odd on a cursory examination of his account. It is significant that he did not mention to the Income-tax Officer, on 25th July 1927, that his account in respect of the dividends was made up in the manner in which it had been prepared. On the contrary, it is clear that he concealed from the Income-tax Officer entries of part of receipts of dividend in the profit and loss khata of his account. On being questioned by the Income-tax Officer regarding the receipt of certain dividends referred to in the letter received by the latter from the Income-tax Officer of Companies, he gave evasive replies, suggesting that the letter referred to receipts of dividend which had not been actually received till then, though, as a matter of fact, part of it, at any rate, was entered in the profit and loss khata.

26. Reliance has been placed upon the evidence of Mr. Chatur Datt Joshi in support of the plea of good faith on the part of the applicant. As I read his evidence, it does not support the case which is sought to be built on it. He says:

I came to Cawnpore from Azamgarh about 30th October 1927, to give evidence in a case before the Sessions. I want back from Cawnpore probably on 1st November or 2nd November. In Cawnpore I met Seth Ganga Sagar at the house of Pandit Rameshar Dayal, Deputy Collector. He asked me a question about his income-tax. The question was whether he would be liable to pay tax on the money which he had spent out of his income in buying shares above their face value. I told him he would be so liable and he said it really represented his loss. I said that might be so, but no one would accept that view and it would be taxed, He was going to Calcutta. I told aim he could consult people in Calcutta and send in his return accordingly.

27. This statement of Mr. Chatur Datt Joshi itself shows that the applicant had misgivings in his mind. He had adopted a queer system of account, which was nothing short of a device to obtain exemption from payment of income tax in part. He consulted Mr. Joshi to ascertain if there was any chance of the device being successful, and the answer was what he probably expected. The incident does not show that he believed on 25th July 1927 that his income from dividends was no more than Rs. 62,000 odd. He had been previously examined by the Assistant Commissioner, Income-tax, on 2nd September 1927, regarding certain dividends not included in the Rs. 62,000 odd, entered in his statement of 25th July 1927. He had also received a notice, dated 19th October 1927, requiring him to submit a return of income which had escaped assessment. He must have been aware of the practice of the Income-tax Officers of companies receiving regular information from the companies regarding payment of dividends to the recipients, and communicating the same to the Income tax Officers of various districts. It was not unnatural, under these circumstances, for the applicant to have become nervous by 1st November 1927, when he met Mr Chatur Datt Joshi, to whom he mentioned his peculiar views in the matter of investment of money in shares purchased above par, and subsequently wrote the letter, Ex. W, enclosing details given in Ex. W1, which disclosed the actual amount of dividends received by him, namely Rs. 3,42,795.

28. It has been urged on behalf of the applicant that Exs. W and W1 should be regarded as a revised return within the meaning of Section 22(3), Income-tax Act, which permits a locus paenitentiae to the assessee. If an action, such as this, of the applicant can be properly styled locus paenitentiae and a revised return under Section 22(3) it may have the effect of relieving him of the consequences contemplated by Section 23(4), i.e., liability to be assessed according to the best judgment of the Income-tax Officer, from which no appeal is allowed, but cannot condone the offence, if any, under Section 177, I.P.C., read with Section 52, Income-Tax Act, previously committed. If once it is established that the applicant made a statement in a verification mentioned in Section 22, which was false and which he either knew or believed to be false or did not believe to be true, the offence was complete at the time when the statement was made. The essence of an offence under those sections lies in the verification of an untrue statement, and provided the statement was deliberately false or not believed to be true, subsequent rectification cannot make it any the less an offence, though it may be considered as an extenuating circumstance in awarding sentence. I have found above that the applicant did not believe on 25th July 1927 that his income from dividends during the period in question was believed by him to be what he showed in the return of that date. It follows that he committed on that date an offence under Section 177, I.P.C., read with Section 52, Income-tax Act.

29. For the reasons stated above, I agree with my learned colleague in dismissing the revision, which I hereby do.

30. As regards the sentence, I accept the reasons given by the learned District Magistrate for awarding the maximum sentence of fine without adding to it any sentence of imprisonment. As has been pointed out by my learned colleague, it is not always possible, nor desirable, that a deterrent sentence should be aimed at. The circumstances of each case have to be considered in awarding sentence, and I am not prepared to say that the course adopted by the learned Magistrate was faulty. If a sentence of fine only is to be regarded as lenient, any sentence of imprisonment, simple or rigorous, is too severe for a man in the position of the accused. It is to be noted that the income-tax authorities could have, if they had so chosen, imposed a heavy penalty equal to one year's tax under Section 28, Income-tax Act. They did not avail of the provisions of that section, because, as it appears to me, an attempt was made to recover from the applicant a very much larger sum for compounding the offence which he was alleged to have committed. It is in evidence that a sum of seven lakhs was originally demanded from him for allowing the case to be compounded. The demand was reduced to three lakhs later on. The applicant did not accede to the demand and was prosecuted not only for an offence under Section 177, I.P.C., read with Section 52, Income-tax Act, but also for serious offences like perjury and forgery, which could not be substantiated. The Act empowers the income-tax authorities to compound offences on receipt of money; but it was never the intention of the legislature that the power conferred by it should be used to obtain as much money as possible by holding out a threat of prosecution. It seems to me that action under Section 28, Income-tax Act, was not taken because the applicant refused to pay the large sum of money demanded from him for compounding the offence which he was alleged to have committed, and the anxiety to have him sentenced to a term of imprisonment for his contumatious behaviour was vindictive.

31. For the reasons stated above, I agree with my learned colleague in refusing to enhance the sentence awarded by the District Magistrate.

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