M.L. Jain, J.
(1) In the year 1964, the petitioner Harnam Singh Sun purchased a plot of land No. l/30, Punjabi Bagh, Delhi, on which he later on constructed a house. On 17-1-1972, he filed an income-tax return for the year 1971-72. In the accompanying statement, he stated that the said house was self- occupied and was sold on 15-1-1971. 'The capital gain out of the sale was Rs. 1,31,884 which was utilised for purchase of a residential flat in Asha Deep on 18-1-1971. So in column 5 of the return under the caption 'capital gains' he entered the word 'none'. In the verification, the petitioner solemnly declared that to the best of his knowledge and belief the information given in the return and the annexures and the statement accompanying it is correct and complete and the amount of total income and other particulars shown are truly stated. In the course of assessment proceedings, the petitioner filed an affidavit on 18-2-1972 staling inter alias that prior to its sale, he was living in the house for more than two years. The Income-tax Officer by his assessment order dated 6-3-1972 completed the assessment. No tax on capital gains was levied on account of the aforesaid statement in virtue of section 54 of the Income-tax Act, 1961 (herein the Act).
(2) In August, '1972, there was a search under section 132 of the Act of several personal premises and of the companies with which the petitioner was associated. One Shri S. D. Kapila, an Income-tax Officer, visited the Punjabi Bagh premises and recorded the statement of the petitioner on 18-8-1972 under section 132(4) of the Act. He stated that he had begun construction some three or four years back. From that statement it further appeared that the house was incomplete and uninhabitable and that the petitioner did not live in the aforesaid premises for a period of two years and that the flat purchased by him was also not occupied by him, but he gave it to his son Harpal Singh for his residence.
(3) Then, on 19125-9-1972 19125-9-1972 , the Income-tax Officer issued notice under section 148 of the Act reopening the assessment for 1971-72. The notice was received by the petitioner on 28-9-1972.
(4) On 24-11-1972, the Commissioner of Income-tax issued an order under section 279(1) of the Act for prosecution of the petitioner.
(5) In response to the said notice the petitioner filed a revised return on 25-11-1972. In this return again no capital gain was shown, and the assessed claimed exemption under section 54 of the Act on the ground that the house in question was being used mainly for his own residential purpose for over two years and that the flat was purchased within one year out of the capital gain for his own residence.
(6) In pursuance of the said sanction, the Income-tax Officer, filed on 25-11-1972 a complaint in the court of the Judicial Magistrate, Delhi, under section 277 of the Act and sections 193 and 196 of the Indian Penal Code, that the statement made by the accused in the verification filed by him on 17-1-1972 and the computation of his total income accompanying the said return was false and which he knew or believed to be false or did not believe to be true. The accused was bound by an oath to state the truth and make a true declaration, but he made false statements and declaration and knowing them to be so attempted to use the same as true in the assessment proceedings. That apart, he also filed a false affidavit on 18-2-1972 wherein an averment on oath was made that the petitioner was living in the said house for a period of more than two years. The Magistrate issued process against the petitioner. The present writ petition No. 128.4172 was filed on 20-12-1972 asking for quashing of the complaint. On 21-12-1972 proceedings in the court below were stayed by. this court.
(7) Then the petitioner filed one more writ petition No. 51173 in January, 1973 challenging the validity of the notice issued in September, 1972 under section 148 of the Act. The proceedings for re-assessment were also stayed in that petition. Then came the Voluntary Disclosure of Income and Wealth Ordinance, 1975. He made the voluntary disclosure of income in the prescribed form for the year 1971-72 on 30-12-1975. He then filed a revised return on 6-1-1977. A notice under section 148 of the Act was issued again on 24-2-1977. In compliance to this notice, the assessed stated on 3-4-1978 that the return filed by him on 6-1-1977 may be treated as a return made in response to. notice under section 148. The Income-tax Officer described it as a return voluntarily filed. Notice under section 148(2) was issued and complied with. Thereafter, the assessment was made and tax imposed on 30-6-1978. The said order also shows that penalty proceedings under section 273A had already been initiated. With that round of proceedings over, the petitioner withdrew his writ petition No. 51173 on 17-2-1982.
(8) During the pendency of the present writ petition, the petitioner was advised to apply for composition before the Commissioner of Income-tax who agreed to compound the offence upon payment of Rs. 1,39,575. The petitioner sent a representation on 6-10-1982 to the Chairman, Central Board of Direct Taxes for withdrawal of the complaint and reducing the amount of composition. This representation is said to be pending with the Chairman.
(9) I have heard both the petitioner and the Revenue. The Act is one of the most complicated pieces of legislation on our statute book and continues to be subjected to annual complications. It severely hits the earnings and savings. To claim an exemption from tax be it under section 54 or otherwise, even wrongly or for want of proper appreciation of its provisions will not constitute any actionable statement or verification. A statement of wrong facts if they affect assessment may constitute an offence and that too if there is evidence or inference of means read : Kuldip Chopra I.T.O. v. Sohan Singh Dhiman , D. Rahaman v. Bijaya Kishore Das : 136ITR855(Orissa) , and Bijayanand Patnaik v. Union of India : 136ITR861(Orissa) .
(10) Section 54 of the Act as it stood in 1971-72 is as follows :
'54.Profit on sale of property used for residences. Where a capital gain arises from the transfer of a capital asset to which the provisions of section 53 are not applicable, being buildings or lands appurtenant thereto the income of which is chargeable under the head Income from house property', which in the two years immediately preceding the date on which the transfer took place, was being used by assessed or a parent of his mainly for the purposes of his own or the parent's own residence, and the assessed was within a period of one year before or after that date purchased, or has within a period of two years after that date constructed, a house property for the purposes of his own residence, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,
(I)If the amount of the capital gain is greater than the cost of the new asset, the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year ; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the costs shall be nil; or
(II)if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45 ; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain. '
The exemption under the said section can be permitted if (a) the building sold was being used mainly for the purchase of a residence for self or parents in a period of two years immediately preceding the date of sale, and (b) the assessed (i) purchased within one year, or (ii) constructed within two years, a house for his own residence. Shri Wazir Singh contends that the petitioner got-exemption because he lied in respect of both the conditions. If he had not done so, the assessing officer would not have allowed him to escape assessment on capital gains.
(11) In respect of condition (a), he-submitted that the petitioner did not reside in the house for a minimum period of two years. The petitioner has himself later on admitted that he lived in the house for less than two years. He eventually gave up the claim. Yet he filed the return and the statement of no tax and filed an affidavit which was false. In the statement accompanying the first return what the petitioner had stated in respect of capital gains of the Punjabi Bagh House was that it was 'self-occupied residential house sold on 15-1-1971' and 'capital gain utilised for purchase of a residential flat at Asha Deep on 18-1-1972'. These facts by themselves do not seem to entitle the petitioner to any exemption under section 54 from tax on capital gains. Nevertheless they are not untrue. thereforee, it would be incorrect to accuse the petitioner of any false statement or verification thereof in the said return. The return filed on 6-1-1977 in which the claim for exemption was given up was filed to avoid trouble and buy peace and is no evidence of means read : A.D. Jayaveerapandia Nadar & Co. and others v. Income-tax Officer : 101ITR390(Mad) .
(12) As regards the accusation that the affidavit that the petitioner lived in the house for over two years was false, it is alleged that he did not occupy the house stall as it was simply not capable of residence and at any rate the petitioner on his own showing in the statement of 18-8-1972 made before Shri Kapila, lived in the house for one and half years'. Now, I wonder, how it is read in the Section that the assessed must reside in the house for not less than two years. Certainly, the section does not say it in so many words' which it could easily have done so. Shri Singh urged that an exemption clause should be construed in favor of the Revenue. I would not agree with such a broad proposition. But, I do agree that the claim for an exemption must be proved by the assessed. The two approaches are obviously distinctive. Rather, in case of ambiguity, provision of exemption or relief should be construed liberally and in favor of the assessed. The substances of all authorities is that the construction of the Act should be a reasonable one. It must be construed pragmatically, fairly and reasonably and not in a pedantic or impracticable method : Commissioner of Wealth-tax v. B. M. Bhanday 123 Xtr 554. In construing a taxing statute, moral perceptions, norms for any intendment, equity, or presumption do not enter into consideration. To read no more or to imply no more than that the language clearly and fairly means is the rule of construction of such statutes. No overstretching is permissible. It is urged that the words 'in two years' coupled with the words 'being used' means a continuous residence for not less than two years. This submission is sought to be supported by S. Radhakrishnan v. Commissioner of Income-tax, (1980) 17C.T.R. 349 , where these words were construed to mean .'during the entire period of two years'. In M. Viswanathan v. Commissioner of Income-tax : 117ITR244(Mad) , it was held that the expression 'was being used' is described in English grammar as past continuous; and thereforee denotes a continuity which extends up to and terminates with the date of transfer. This case was followed in Commissioner of Income-tax v. R. Mala : 135ITR302(Mad) . No doubt, if this verb is to be classified according to grammar, then, it would fall into the category of past continuous tense. But past continuous here only means that whenever used in the preceding two years, the house should have been used as a residence; that is the house must have been used by the assessed or a parent of his, mainly for the purpose of his own or parent's residence during the period of two years immediately preceding the date of sale : Commissioner of Income-tax v. Tikyomal Jasanmal. 82 Itr 95. The word 'mainly' mates it abundantly clear that it can be used even for other purposes, and that will certainly break the continuity of residential use. I am afraid, lam not with great respect, inclined to fall in line with the Madras decisions. It is a construction in favor of the Revenue arrived at by stretching the plain meaning. To my mind, the word 'in' read with 'mainly' can never mean continuously 'for not less than', even if followed by 'was being used'. I have support for my disagreement though indirectly, in a letter of the Central Board of Direct Taxes No. 207 /76-UU(A-II) dated 25-3-1971, that a person can have two houses for residence and yet be entitled to exemption. This letter has a binding effect upon the authorities in virtue of section 119 of the Act. It simply means that the assesses should have used the building sold by him mainly for residence within the preceding two years : B.B. Sarkar v. Commissioner of income-tax : 132ITR150(Cal) . It is not necessary that the assessed must actually live in the premises without any interruption (see B.M.Bhandari, supra). Any such user previous to the said period of two years will nit entitle the assessed to exemption. With effect from 1-4-1983 even this condition of time has been removed. It, thereforee, follows that there was no requirement of use of minimum two years. If the assessed said that he lived in the house for two years and more and it was an incorrect statement, at best it only means, he told a lie on a matter of no substance and which did not affect the assessment. Such a falsehood has to be ignored and cannot be made a subject matter of prosecution or punishment. Life after all largely is' nothing but lies.
(13) As regards condition (b) above, in the assessment proceedings no affidavit was filed or statement made by the petitioner that the flat was purchased for his own use. No doubt, later on he disclosed that the flat was used for the residence of his son. One wonders whether the use by own son will not amount to his own use. However, a much stronger expression, 'house belonging to the assessed and exclusively used by him for residential purposes' occurring in Wealth-tax Act, section , fell for consideration in Commissioner of Wealth-tax v. Mrs. Avatar Mohan Singh, 83 Itr 52 . It was held that these words are contrasted with non-residential purposes, such. as commercial purposes. They mean that the house is used solely as residence and not with a view to making any income or profit from it. In B. M. Bhandari (supra) it was observed that the assessed may himself live or use the building for residential purpose. He may allow any member of his family to live or use the same for residential purpose. The assessed need not also or is not expected to use his building throughout the year or without any interruption. He may not actually use the house by himself. He may go out for sometime and some of his relatives and friends may be there for a few months with his permission. Unless he has let out the same for rent or has allowed it to be used for any commercial purpose, it cannot be said that he has not exclusively used it for residential purpose. Granting that in order to earn an exemption the house should be used by none other than the assessed, it is not yet possible to point an accusing finger to anything stated in the 1. statement accompanying the first return which would be considered false. The petitioner had simply stated that the capital gains were utilised for purchase of a flat and that he had truly done. He did not say that the house was used for any purpose whatsoever.
(14) The previous statements are alleged to be false on the basis of the subsequent statement made by the petitioner under sub-section (4) of section 132 of the Act and the inspection made by Shri Kapila. Relying upon some observations in Rajinder Nath v. M. L. Khosla, I.T.O. and another : 134ITR397(Delhi) , Shri Singh further submitted that the return filed on 6-1-1977 provided additional evidence to substantiate the complaint. That apart, the falsity of the statement will be proved by leading cogent evidence before the Magistrate, for which a list of witnesses has already been submitted. But evidence to prove what It is necessary that the complaint should disclose an offence and if the complaint itself does not make out an offence, then the complaint may be quashed.'
(15) Section 277 of the Act as it stood in 1972 is as follows :.
'277.If a person makes a statement in any verification under this Act or under any rule made there under, or delivers an account or statement, which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable with rigorous imprisonment for a term which may extend to two years. Provided that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for less than six months.'
It was held in Jyoti Parkash Mitter v. Haramohan Chowdhary : 112ITR384(Cal) . that assessment should be completed before the proceedings either by way of a penalty or prosecution under Chapters Xxi and Xxii of the Act respectively, can be instituted and that although the findings in either of the said proceedings may not be binding on the other it does not rule out the necessity of completing the assessment which is sine que non for instituting either of the proceedings. Same is the ratio of Uttam Chand and others v. Income-tax Officer. : 133ITR909(SC) . It was not a case of concealment of income. It was a case of claiming exemption after disclosing the income. The Revenue lodged a complaint without finalising the reassessment. Shri Bishamber Lal, thereforee is right in) his submission that the complaint is premature.
(16) Section 136 of the Act enacts expressly that proceedings under the Act are judicial proceedings within the meaning of sections 193 and 196 Indian Penal Code . Section 193 Indian Penal Code provides for punishment for giving false evidence in a judicial proceeding or for fabricating false evidence for being used in such proceeding. Section 191 Indian Penal Code defines false evidence. Giving false evidence means making any declaration Or any statement which is false. I have already found that in the statement accompanying the return there is no statement which' can be said to be false. At the most it can be said that it did not disclose what it ought to have disclosed in order to be entitled to exemption. A mere suppression of circumstances is not perjury. He could be refused exemption if the facts stated were incomplete. Moreover, proceedings, before an Income-tax Officer cannot be said to start until there is some inquiry into the income of the assessed. A statement made in a return of income is not, thereforee, evidence given in a proceeding before an Income-tax Officer. An assessed cannot, consequently, be convicted of an offence under section 193 Indian Penal Code in respect of a false statement made in the verification clause in a return of income : Hazarilal v. Emperor . No exemption was in fact allowed to him on the facts stated by him, in the statement. It was done, it seems, after he filed the affidavit.
(17) In the affidavit, the petitioner said that he lived in the house for two and more years. This statement is said to be false because in the statement under section 132(4) of the Act, he admitted that he lived there only for a shorter period. This statement can be used in evidence in any proceeding under the Act, I see no reason why it cannot because for the purposes under section 193 Indian Penal Code . But a subsequent contradictory statement will not make an earlier one a false one, unless the two statements are so wholly irreconcilable that one of them must. necessarily be false. Shri Wazir Singh urged that the statement under section 132 showed 'that it will be proved by other evidence. that the house was not at all capable of residence. If it were, the petitioner would have paid tax on notional income from the house property. The prosecution will be able to prove that the affidavit that the petitioner lived in the house was a blatant lie. It is said that there were no doors', no shutters, no flush and no light in the premises and the petitioner could just not have lived there. I do not think all these amenities are necessary for living or residing in a place. If the petitioner is alleged to have given false evidence or to have fabricated false evidence, he may still recharged under section 196. Where he makes a document containing a false statement and files it, he is guilty under section 196 Indian Penal Code as well for corruptly using fabricated evidence. false affidavit may be covered by section 192/196 Indian Penal Code . In Lalji Haridas v. The State of Maharashtra, : 1964CriLJ249 , it was held that the proceedings' before an Income-tax Officer were judicial proceedings in a court within the meaning of section 195(1)(b) Criminal Procedure Code . But it was not a civil or criminal or revenue court and thereforee it was not incumbent upon the Income-tax Officer to follow the procedure laid down in section 476 Criminal Procedure Code . : Balwant Singh and another v. L. C. Bharupal and another, (1968) 1 Scwr 320 . There is no doubt that sections 195 and 476 Cr.P.C. were intended to be read together and they were so read in case of courts, but one is bound by the decisions of the Supreme Court and cannot so read them in case of an Income-tax Officer in 'so far as' the complaints filed before the new Code came into force, are concerned; and this matter relates to such period. But that does not mean that the Income-tax Officer should like an ordinary complainant proceed to prosecute the assessed without giving a hearing to the man. It will not be proper for a court to summarily come to any conclusion upon the mere perusal of the statements contained in the affidavit that they are false and that the person swearing to them should be prosecuted. It is essential that the person concerned should be given an opportunity in the shape of a preliminary inquiry like the one provided in section 476 Criminal Procedure Code . before the court comes to a conclusion that he has deliberately made a false statement : In re. S. Ramalingam, Air, 1965 Mad. 100. That has not been done. Instead, the prosecution was launched soon after the notice under section 148 of the Act was served and on the same day a second return was filed by the assessed in response to notice u/s 148. Lord Denning in Selvarajan v. Race Relations Board, 1976 AH. E.R. 12 , said :
'The fundamental rule is that, if a person may be subjected to pains or penalties, or be exposed to prosecution or proceedings, or deprived of remedies or redress, or in some such way adversely affected by the investigation and report, then he should be told the case made against him and be afforded a fair opportunity of answering it.'
(emphasis mine). In the circumstances of the case, the action of the Revenue is vocative of the principles of natural justice, and the complaint is bad in law, even if the false affidavit attracts sections 193 and 196 IPC.
(18) The last of the arguments of Shri Bishamber Lal is that after the assessment made under the Voluntary Disclosure of Income and Wealth Ordinance/Act, it will be an abuse of the process of the court to continue with the prosecution launched against the petitioner. He invited my attention to section 11 of the said Act which provides that nothing contained in any declaration made under sub-section (1) of section 3 shall be admissible in evidence against the declarant for the purposes of prosecution under the Act. Section 14 provides that the declaration made in accordance with sub-section (2) in respect of any income relating to the previous-year in which search was made or any earlier previous year which had escaped assessment by reason of the omission or failure on the part of the declarant to make a return under the Act or to disclose fully and truly all material facts necessary for his assessment or otherwise, then the amount of income so declared shall not be taken into account for the purposes of prosecution of the declarant under the provisions of any of the said Acts. The Voluntary Disclosure Scheme was not a trap laid for the assesseds and, thereforee, to punish the person for claiming exemption upon the income in respect of which he was subsequently assessed and taxed, will not be justified. If this stance is not adopted, then the very purpose of the disclosure scheme will be frustrated. Shri Wazir Singh countered this argument by submitting that the return furnished by the petitioner was not a disclosure because the disclosure of the escapement of tax had already taken place and it had also been discovered that the petitioner had not fully disclosed all material facts necessary for assessment or otherwise and that he is outside the Voluntary Disclosure of Income and Wealth Act. 1976. The assessment order of 1978 clearly shows that it was a case of voluntary return, yet Shri Wazir Singh states that this return was made under section 139 of the Act. I do not think that this is correct. It was certainly a return filed under the disclosure scheme and the petitioner was assessed as such. It is true that the Income- tax authorities had issued notice under section 148 of the Act in the year 1972 itself for escapement of tax, but it is exactly that situation which is met by section 14. After having allowed the petitioner to file a declaration and return under the Voluntary Disclosure Scheme, it will not be proper to continue with the prosecution for making a wrong statement earlier in the affidavit filed in the first assessment proceedings. The prosecution for perjury was launched in the year 1972 and we are now in 1983. to continue this prosecution appears to me, thereforee, to be in the aforesaid circumstances, an abuse of the process of the court.
(19) Consequently, I accept this: petition and quash the complaint and the further proceedings thereon.