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Addl. Commissioner of Income-tax, Gujarat Vs. I.M. Patel and Co. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-Tax Reference No. 24 of 1973
Judge
Reported in[1977]107ITR214(Guj)
ActsIncome Tax Act, 1961 - Sections 12(5), 25(1), 44AA, 133, 139(1), 139(2), 139A, 142(1), 143(2), 148, 167(8), 270, 271, 271(1), 271A, 272A(2), 272B, 273, 275A, 276, 276A, 276B, 276C, 276D, 276CC, 280, 285, 285B and 286
AppellantAddl. Commissioner of Income-tax, Gujarat
Respondenti.M. Patel and Co.
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate J.M. Thakore, Adv.
Cases ReferredMarikar (Motors) Ltd. v. Sales Tax Officer
Excerpt:
(i) direct taxation - penalty - sections 12 (5), 25 (1), 44 aa, 133, 139, 143 (2), 148, 167 (8), 270, 271 (1) (a), 272b, 273, 275 a, 276, 280,285, 285 b and 286 of income tax act, 1961 - whether for enforcement of penalty according to provision 'reasonable cause' an ingredient of offence - under section 271 (1) (a) failure to furnish return without 'reasonable cause' in question is an ingredient of offence - held, 'reasonable cause' as an ingredient of offence for which penalty is provided. (ii) onus of proof - whether in disputed question taxing authority has to prove absence of reasonable cause or party in default has to prove presence of reasonable cause - department has to establish that prima facie assessee has without reasonable cause failed to furnish return within time specified.....b.j. divan, c.j.1. in this case by an order of reference dated september 4, 1974, the following question has been referred to this full benc : 'when by a taxation statute, sanction of penalty is provided in order to enforce compliance with a particular provision of the act and the section providing for penalty requires that the non-performance of the obligation without reasonable cause shall attract that particular penalty, (i) is absence of reasonable cause an ingredient of the offence for which the penalty is provided; and (ii) has the taxing authority to prove absence of reasonable cause or has the party in default to prove the presence of reasonable cause ?' 2. the order of reference makes it clear that it was in the context of section 271(1)(a) of the income-tax act, 1961, that this.....
Judgment:

B.J. Divan, C.J.

1. In this case by an order of reference dated September 4, 1974, the following question has been referred to this Full Benc :

'When by a taxation statute, sanction of penalty is provided in order to enforce compliance with a particular provision of the Act and the section providing for penalty requires that the non-performance of the obligation without reasonable cause shall attract that particular penalty, (i) is absence of reasonable cause an ingredient of the offence for which the penalty is provided; and (ii) has the taxing authority to prove absence of reasonable cause or has the party in default to prove the presence of reasonable cause ?'

2. The order of reference makes it clear that it was in the context of section 271(1)(a) of the Income-tax Act, 1961, that this question arose before the Division Bench and, therefore, in order to answer correctly the question that has been canvassed before us, we reframe the question as follow :

'When section 271(1)(a) of the Income-tax Act, 1961, provides for sanction of penalty in order to enforce compliance with a particular provision of the Act and the section requires that non-performance of the obligation without reasonable cause shall attract that particular penalty, (i) is reasonable cause an ingredient of the offence for which the penalty is provided; and (ii) has the taxing authority to prove absence of reasonable cause or has the party in default to prove the presence of reasonable cause ?'

3. The matter was referred to the Full Bench because the Division Bench found itself unable to agree with the view taken by J. B. Mehta and T. U. Mehta JJ. in Morvi Cotton Merchants' Industrial Corporation Ltd. v. State of Gujarat, since reported in [1975] 36 STC 347 (Guj), and in Special Application No. 1059 of 1972 decided by the same bench on July 18, 1974 [Motilal Joitaram Patel v. Sales Tax Officer [1975] TLR 1589 (Guj)]. In those two cases the Division Bench, consisting of J. B. Mehta and T. U. Mehta JJ., had taken the view that in provisions similar to section 271(1)(a) of the Income-tax Act, 1961, in the Sales Tax Act, where also the words 'without reasonable cause' have been set out in the section providing for penalty, the burden is on the revenue to prove absence of reasonable cause. The Division Bench felt that since those decisions had a direct bearing on the point arising in the instant case, since the Division Bench was unable to agree with that view, the particular question set out above was referred to this larger Bench.

4. It is not necessary to refer to the facts of the particular case before us because it is only as a point of law arising on a construction of the statute that the matter comes before us as a Full Bench.

5. Section 271(1)(a) of the Income-tax Act, 1961, is in these term :

'271. Failure to furnish returns, comply with notices, concealment of income, etc. - (1) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person -

(a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139 or section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section 139 or by such notice, as the case may be, -........

he may direct that such person shall pay by way of penalty, -

(i) in the cases referred to in clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent. of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the assessed tax.'

6. It may be pointed out that section 271 is one of the sections included in Chapter XXI and that Chapter XXII which consists of sections 275A to section 280 deals with offences and prosecutions. Under section 271(1)(a), failure without reasonable cause to furnish the return of total income attracts penalty. Under sub-clause (b) of section 271(1), failure without reasonable cause to comply with a notice under sub-section (1) of section 142 or sub-section (2) of section 143 attracts penalty. Under section 276 of the Act, if a person fails without reasonable cause or excuse to produce, or cause to be produced, on or before the date mentioned in any notice under sub-section (1) of section 142, such accounts and documents as are referred to in the notice; and under clause (b) to furnish in due time any of the returns or statements mentioned in section 133, sub-section (2) of section 139, section 206, section 285 or section 286, is liable to be punished with fine which may extent to ten rupees for every day during which the default continues. It may be noticed that under section 276 the words are 'without reasonable cause'. Under section 271A which was inserted in the Act by the Taxation Laws (Amendment) Act, 1975, any person failing without reasonable cause to keep and maintain such books of account and other documents as required by section 44AA or the rules made thereunder in respect of any previous year or to retain such books of account and other documents for the period specified in the said rules, is liable to pay by way of penalty, a sum which shall not be less than then ten per cent. but which shall not exceed fifty per cent. of the amount of the tax, if any, which would have been leviable. Under section 272A, sub-section (2), which was also introduced by the Taxation Laws (Amendment) Act, 1975, penalty has been provided for failure without reasonable cause or excuse to furnish the return in due course of time as mentioned in section 133, section 206, section 285, section 285B or section 286. Similarly, the words 'without reasonable cause' are used in section 272B for failure without reasonable cause to comply with the provisions of section 139A. Under section 273, clause (b), failure to furnish an estimate of the advance tax payable by an assessee in accordance with the provisions of sub-section (3) of section 212 attracts penalty. Similarly, again under clause(c) of section 273, failure without reasonable cause to furnish an estimate of the advance tax payable by him in accordance with the provisions of sub-section (3A) of section 212 also attracts penalty. under Chapter XXII dealing with offences and prosecutions, the words used are 'without reasonable cause or excuse' in respect of different offences set out in section 276, 276A and 276B whereas the element of 'wilfully' is introduced as regards the failure to furnish the return under sub-section (1) of section 139 in section. 276C. Similarly, under section 276CC, the element of wilfulness has also been brought in with reference to the offence mentioned therein. Same element of wilfulness is to be found prescribed in section 276D. The reason why we are pointing out these different provisions is to emphasize that in certain provisions of the Income-tax Act dealing with penalty, the failure without reasonable cause to decided on one thing or the other attracts penalty. In some of the other provisions, the penalty is attracted when the failure is without reasonable cause or excuse and as regards offences and prosecutions, the words used are 'without reasonable cause or excuse' and 'wilfully.'

7. The learned Advocate-General appearing on behalf of the assessee has contended that in the same statute, that is, in the Income-tax Act, the words 'without reasonable cause' or excuse' are occurring in sections dealing with penalty as well as in sections dealing with penal offences. He further contended that since Chapter XXII deals with offences and prosecutions where the accused concerned has to be tried in a regular court of law and if found guilty, is liable to be punished even with imprisonment in certain cases, the words 'without reasonable cause' or 'without reasonable cause or excuse' occurring in one or the other sections of Chapter XXII must be interpreted as constituting an ingredient of the offence in question. He further contended that penalties imposable under Chapter XXI are imposed in quasi-criminal proceedings and, therefore, the words 'without reasonable cause' occurring in section 271(1)(a) must also be held to constitute an ingredient of this particular wrongful action which is sought to be penalised by section 271(1)(a). His main contention is that the same words should be given the same meaning and should be interpreted in the same manner in the different sections of the same Act unless the subject or context otherwise requires. Before we can decide this contention of the learned Advocate-General, it is necessary to ascertain the exact nature of the penalty proceedings under section 271(1)(a) and other similar provisions.

8. In C. A. Abraham v. Income-tax Officer : [1961]41ITR425(SC) the Supreme Court had observed that penalty was an additional tax and that the penalty imposed under the Income-tax Act was merely an additional tax imposed in certain circumstances on account of the assessee's conduct. These observations in C. A. Abraham's case : [1961]41ITR425(SC) were explained by the Supreme Court in Commissioner of Income-tax v. Anwar Ali : [1970]76ITR696(SC) . At page 700, Grover J., delivering the judgment of the Supreme Court observe :

'The first point which falls for determination is whether the imposition of penalty is in the nature of a penal provision. The determination of the question of burden of proof will depend largely on the penalty proceedings being penal in nature or being merely meant for imposition of an additional tax, the liability to pay such tax having been designated as penalty under section 28. One line of argument which has prevailed particularly with the Allahabad high Court in Lal Chand Gopal Das's case : [1963]48ITR324(All) is that there was no essential difference between tax and penalty because the liability for payment of both was imposed as a part of the machinery of assessment and the penalty was merely an additional tax imposed in certain circumstances on account of the assessee's conduct. The justification of this view was founded on certain observations in C. A. Abraham v. Income-tax Officer : [1961]41ITR425(SC) . It is true that penalty proceedings under section 28 (of the Act of 1922 equivalent to section 271 of the Act of 1961), are included in the expression 'assessment' and the true nature of penalty has been held to be additional tax. But one of the principal objects in enacting section 28 is to provide a deterrent against recurrence of default on the part of the assessee. The section is penal in the sense that its consequences are intended to be an effective deterrent which will put a stop to practices which the legislature considers to be against the public interest. It is significant that in C. A. Abraham's case : [1961]41ITR425(SC) the court was not called upon to determine whether penalty proceedings were penal or of quasi-penal nature and the observations made with regard to penalty being an additional tax were made in a different context and for a different purpose. It appears to have been taken as settled by now in the sales tax law that an 'order imposing penalty is the result of quasi-criminal proceedings [Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) ]. In England also it has never been doubted that such proceedings are penal in character [Fattorini (Thomas) (Lancashire) Ltd. v. Inland Revenue Commissioner' [1942] AC 643; [1943] 11 ITR (Supp) 50].'

9. In Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) the Supreme Court was concerned with certain provisions of the Orissa Sales Tax Act providing for penalty under certain circumstances and Shah, Acting C.J., delivering the judgment of the Supreme Court, observed at page 29 of the repor :

'Under the Act penalty may be imposed for failure to register as a deale : section 9(1), read with section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.'

10. It must be noted that at page 28 of the report, the questions referred by the Sales Tax Tribunal to the High Court of Orissa have been set out and question(F) i :

'Whether the Tribunal is right in holding that penalties under section 12(5) of the Act had been rightly levied and whether in view of the serious dispute of liability it cannot be said that there was sufficient cause for not applying for registration ?'

and question (3) which the Supreme Court formulated for itself wa :

'Whether imposition of penalties for failure to register as a dealer was justified ?'

Section 9(1) of the Orissa Sales Tax Act, 1947, provide :

'No dealer shall, while being liable under section 4 to pay tax under this Act, carry on business as a dealer unless he has been registered under this Act and possesses a registration certificate.'

Section 12(2) provide :

'If upon information which has come into his possession, the Commissioner is satisfied that any dealer has been liable to pay tax under this Act in respect of any period and has nevertheless, without sufficient cause, failed to apply for registration, the Commissioner shall, after giving the dealer a reasonable opportunity of being heard, assess, to the best of his judgment, the amount of tax, if any, due from the dealer in respect of such period and all subsequent periods and the Commissioner may direct that the dealer shall pay, by way of penalty, in addition to the amount so assessed, a sum not exceeding one and a half times that amount.'

Section 25(1)(a) provide :

'Whoever (a) carries on business as a dealer in contravention of sub-section (1) of section 9 - ...

shall be punishable with imprisonment of either description which may extend to six months or with fine not exceeding one thousand rupees or with both, and when the offence is a continuing one, with a daily fine not exceeding fifty rupees during the period of the continuance of the offence.'

It is, therefore, clear that the reference to section 25(1)(a) at page 29 of the report is, really speaking, to section 12(5) of the Orissa sales Tax Act because the Supreme court in the passage which we have extracted above was not dealing with the question of an offence but with the question of penalty to be imposed and the question (F) referred by the Sales Tax Tribunal to the High Court of Orissa and question (3) formulated by the supreme Court in Hindustan Steel Ltd.'s case : [1972]83ITR26(SC) was considering the question of imposition of penalty and not the question of punishment under section 25(1)(a). We are emphasizing this aspect of the obviously wrong reference to section 25(1)(a) at page 29 of the report because we find that in a Full Bench case, Commissioner of Income-tax v. Gangaram Chapolia : [1976]103ITR613(Orissa) , the High Court of Orissa has considered this reference to section 25(1)(a) on page 621 of the report.

11. In Khemka & Co. (Agencies) Pvt. Ltd. v. State of Maharashtra : [1975]3SCR753 the Supreme Court was considering the question of penalty under the Sales Tax Act and Ray C.J., who along with Khanna and Beg JJ. delivered the majority decision, observed (page 581 :

'The Income-tax Act, 1961, imposes penalty under section 270 and 271. These sections in the Income-tax Act provide for imposition of penalty on contumacious or fraudulent assessees. Penalty is in addition to income-tax, if any, determined as payable by the assessee. Tax and penalty like tax and interest are distinct and different concepts under the Indian Income-tax Act. The word 'assessment' could cover penalty proceedings if it is used to denote the whole procedure for imposing liability on the taxpayer as happened in Abraham's case : [1961]41ITR425(SC) . Penalty is within assessment proceedings just as tax is within assessment proceedings when the relevant Act by substantive charging provision levies tax as well as penalty.

Penalty is not merely sanction. It is not merely adjunct to assessment. It is not merely consequential to assessment. It is not merely machinery. Penalty is in addition to tax and is a liability under the Act. Reference may be made to section 28 of the Indian Income-tax Act, 1922, where penalty is provided for concealment of income. Penalty is in addition to the amount of income-tax. This court in Jain Brothers v. Union of India : [1970]77ITR107(SC) said that penalty is not a continuation of assessment proceedings and that penalty partakes of the character of additional tax.'

12. In Khemka & Company's case : [1975]3SCR753 , Beg J., one of the three learned judges delivering the majority decision, observed at page 59 :

'On a consideration of the provisions mentioned above, it seems to me to be clear that whatever may be the objects of levying a penalty, its imposition gives rise to a substantive liability which can be viewed either as an additional tax or as a fine for the infringement of the law. The machinery or procedure for its realization comes into operation after its imposition. In any case it is an imposition of a pecuniary liability which is comparable to a punishment for the commission of an offence. It is a well-settled canon of construction of statutes that neither a pecuniary liability can be imposed nor an offence created by mere implication. It may be debatable whether a particular procedural provision creates a substantive right or liability. But, I do not think that the imposition of pecuniary liability, which takes the form of a penalty or fine for a breach of a legal obligation, can be relegated to the region of mere procedure an machinery for the realization of tax. It is more than that. Such liabilities much be created by clear, unambiguous, and express enactment. The language used should leave no serious doubts about its effect so that the persons who are to be subjected to such a liability for the infringement of law are not left in a state of uncertainty as to what their duties or liabilities are. This is an essential requirement of a good Government of laws. It is implied in the constitutional mandate found in article 265 of our Constitution.

'No tax shall be levied or collected except by authority of law'

It is thus clear in view of these decisions in Khemka & Company's case : [1975]3SCR753 , Hindustan Steel Ltd.'s case : [1972]83ITR26(SC) and Anwar Ali's case : [1970]76ITR696(SC) that the penalty which can be imposed under section 271(1) of the Act is to be imposed on contumacious or fraudulent assessees. It is a quasi-criminal proceeding as has been held in Anwar Ali's case : [1970]76ITR696(SC) and the section is penal in the sense that its consequences are intended to be an effective deterrent which will put a stop to practices which the legislature considers to be against the public interest. In view of these clear pronouncements of the Supreme Court, there is no doubt whatsoever that though penalty contemplated by section 271(1)(a) and other sections in Chapter XXI of the Income-tax Act, 1961, can be imposed by Income-tax Officers as distinguished from regular criminal courts, the penalty proceedings before the income-tax authorities are quasi-criminal proceedings and they provide for offences which can be dealt with by the departmental authorities.

13. The question then arises, whether the words 'without reasonable cause' occurring in section 271(1)(a) are an ingredient of the offence or an exception to the offence of failing to file one or the other type of returns contemplated in section 271(1)(a). It was contended by Mr. Kaji on behalf of the revenue that the substance of the default is the failure to file the return within the time specified and that this is the only ingredient to be established by the revenue. According to him the phrase 'without reasonable cause' is an exception and not a part of the ingredients of the offence. The learned Advocate-General, on the other hand, has contended that since section 271(1)(a) provides penalty for an offence although it is a penalty imposable by the income-tax authorities, the ingredients of the offence are that there should be failure without reasonable cause to furnish one or the other of the returns specified in section 271(1)(a) and only after all the ingredients are established can the penalty be imposed.

14. In Nimmo v. Alexander Cowan & Sons Ltd. [1968] AC 107 (HL) the House of Lords was concerned with the interpretation of section 29, sub-section (1) of the Factories Act, 1961 which provide :

'There shall, so far as is reasonably practicable, be provided and maintained safe means of access to every place at which any person has at any time to work, and every such place shall, so far as is reasonably practicable, be made and kept safe for any person working there.'

15. The question was whether the words 'so far as is reasonably practicable' constituted an ingredient of section 29, sub-section (1). It is obvious that the determination of the question whether these words constituted and ingredient or not, would shift the burden, both legal as well as evidentiary, from one side to the other. There the House of Lords held by majority that in that particular section the onus of pleading and proving that it was not reasonably practicable to keep the place safe lay on the employers and accordingly the workman's case was properly pleaded and disclosed a cause of action. It must be pointed out that the House of Lords was not considering in that case the question of any criminal liability. The main question was, whether in the complaint preferred by the workman who had suffered an injury while unloading bales from a railway wagon on a siding at a factory, he had to aver in his pleading that his place of work was not kept safe as required under section 29(1) but he did not aver that it was reasonably practicably to make it safe. On an interpretation of section 29(1), the majority of the House of Lords held that onus of pleading and proving that it was not reasonably practicable to keep the place safe lay on the employers and accordingly the workman's case was properly pleaded and disclosed a cause of action. Lord Reid and Lord Wilberforce both held in their dissenting opinions that the words 'so far as is reasonably practicable' constituted an ingredient of the cause of action. Lord Reid observed (page 118 :

'And I do not think that the question whether this was reasonably practicable is a matter peculiarly within the knowledge of the defender - an expert witness for the pursuer should be just as well able to deal with this as the defender.'

16. The majority view on the other hand was that the expressions of opinion in England have been consistently to the effect that in cases under sections in somewhat similar terms of section 29(1), the onus is upon the employer to establish that the precautions desiderated were not reasonably practicable. And the majority of the law Lords held that the means of achieving the end were more likely to be within the knowledge of the employer than that of the employees and hence it was in the fitness of things that the onus should be cast upon the employer and the factor that it was reasonably practicable to keep the place safe was not an ingredient of this particular cause of action. It seems that before our learned brothers. J. B. Mehta and T. U. Mehta JJ., in Morvi cotton Merchants' Industrial Corporation Ltd. v. state of Gujarat [1975] 36 STC 347 (Guj) reliance was placed on the minority view in Nimmo's case [1968] AC 107 (HL). In our opinion, it is not necessary to apply the reasoning which appealed either to the majority or the minority of the House of Lords in Nimmo's case [1968] AC 107 (HL) because the House of Lords in that case was not concerned with an ingredient of an offence. They were considering merely the words of a section which imposed civil liability and hence we will have to arrive at our own conclusions independently of the reasoning of the House of Lords in Nimmo's case [1968] AC 107 .

17. It is well-settled law that whenever a statute defines an offence and provides a punishment for it, it is for the prosecution to prove all the ingredients of the offence. It is possible, as for example, in several offences under the Indian Penal Code, that the legislature provided for the state of mind of the accused but even this ingredient of the state of mind of the accused, whether intentionally, or wilfully, or negligently or whatever the requirement of the section in question may be, has to be established by the prosecution. The absence of that particular state of mind has not to be proved by the accused. In the penalty proceedings under section 271(1)(a), the assessee upon whom the penalty is sought to be imposed, is in the position of an accused in a criminal trial and, therefore, all the ingredients of the offence for which the penalty can be imposed must be established by the department. It is from this aspect that one has to consider the question whether these words 'failure without reasonable cause' constitute an ingredient of the offence or not. Since the gravamen of the offence is failure without reasonable cause to file one or the other of the returns mentioned in section 271(1)(a), the prosecutor, that is, the department, must establish the absence of the reasonable cause. It is not for the assessee to show in the first instance that there was reasonable cause on his part. It is for the department to show the absence of reasonable cause.

18. In Collector of Customs v. D. Bhoormull AIR 1974 SC 859 the Supreme Court was concerned with a case of penalty under the Sea Customs Act, 1878, and with the question of fact within the knowledge of the delinquent or the person charged with the smuggling of goods before the customs authorities. In paragraph 30 at page 864 of the report, Sarkaria J., delivering the judgment of the Supreme Court, observe :

'It cannot be disputed that in proceedings for imposing penalties under clause (8) of section 167, to which section 178-A does not apply, the burden of proving that the goods are smuggled goods, is on the department. This is a fundamental rule relating to proof in all criminal or quasi-criminal proceedings, where there is no statutory provision to the contrary. But in appreciating its scope and the nature of the onus cast by it, we must pay due regard to other kindred principles, no less fundamental, of universal application. One of them is that the prosecution or the department is not required to prove its case with mathematical precision to a demonstrable degree, for, in all human affairs, absolute certainty is a myth, and as Prof. Brett felicitously puts it - 'all exactness is a fake'. El Dorado of absolute proof being unattainable, the law accepts for it probability as a working substitute in this work-a-day world. The law does not require the prosecution to prove the impossible. All that it requires is the establishment of such a degree of probability that a prudent man may, on its basis, believe in the existence of the fact in issue. Thus legal proof is not necessarily perfect proof; often it is nothing more than a prudent man's estimate as to the probabilities of the case.

The other cardinal principle having an important bearing on the incidence of burden of proof is that sufficiency and weight of the evidence is to be considered-to use the words of Lord Mansfield in Blatch v. Archer, [1774] 1 Cowp 63 'according to the proof which it was in the power of one side to prove and in the power of the other to have contradicted'. Since it is exceedingly difficult, if not absolutely impossible for the prosecution to prove facts which are especially within the knowledge of the opponent or the accused, it is not obliged to prove them as part of its primary burden.

Smuggling is clandestine conveying of goods to avoid legal duties. Secrecy and stealth being its covering guards, it is impossible for the preventive department to unravel every link of the process. Many facts relating to this illicit business remain in the special or peculiar knowledge of the person concerned in it. On the principle underlying section 106, Evidence Act, the burden to establish those facts is cast on the person concerned; and if he fails to establish or explain those facts, an adverse inference of fact may arise against him, which, coupled with the presumptive evidence adduced by the prosecution or the department, would rebut the initial presumption of innocence in favour of that person, and in the result prove him guilty. As pointed out by Best in Law of Evidence, 12th edition, article 320, page 291, the 'presumption of innocence is, no doubt, presumption juri : but every day's practice shows that it may be successfully encountered by the presumption of guilt arising from the recent (unexplained) possession of stolen property', though the latter is only a presumption of fact. Thus the burden on the prosecution or the department may be considerably lightened even by such presumption of fact arising in their favour. However, this does not mean that the special or peculiar knowledge of the person proceeded against will relieve the prosecution or the department altogether of the burden of producing some evidence in respect of that fact in issue. It will only alleviate that burden to discharge which very slight evidence may suffice.'

19. It is true, as the learned Advocate-General has emphasized, that what is known as the legal burden as distinct from evidentiary burden is on the department throughout but since the facts constituting reasonable cause are bound to be within the knowledge of the assessee himself, once the department establishes by leading some evidence in respect of the failure without reasonable cause, then the burden will shift on to the assessee to establish that there was reasonable cause for him not to file one or the other of the returns mentioned in section 271(1)(a) within the time specified therein. The factor that the facts constituting reasonable cause are especially within the knowledge of the assessee does not mean that this special or peculiar knowledge of the assessee will relieve the department altogether of the burden of producing some evidence in respect of the offence sought to be established against the assessee, namely, failure without reasonable cause to file one or the other of the returns specified in section 271(1)(a) within the time specified in connection with that return. However, once the department has produced some evidence which rebuts the initial presumption of innocence in favour of the assessee, it is for the assessee to establish the facts within his special knowledge which would go to show that there was reasonable cause on his part. As the Supreme Court has pointed out, very slight evidence may suffice to discharge the initial burden which rests on the department in such a case but that initial burden and what is called the 'legal burden' rests on the department and not on the assessee.

20. It may be pointed out that in connection with an offence made punishable under the Companies Act, 1956, a Full Bench of the Delhi High Court has also arrived at a similar conclusion regarding the scope of section 106 of the Indian Evidence Act. The Full Bench of the Delhi High Court in Official Liquidator, Security & Finance P. Ltd. v. B. K. Bedi : 10(1974)DLT181 was concerned with the provisions of section 454 of the Companies Act and particularly sub-section (5). Section 454, sub-section (1) provides that where the court has made a winding-up order or appointed the official liquidator, as provisional liquidator, unless the court in its discretion otherwise orders, there shall be made out and submitted to the official liquidator a statement as to the affairs of the company in the prescribed form, Sub-section (2) specifies the persons, including the directors at the relevant date, who are to submit the statement. Sub-section (3) requires that the statement shall be submitted within twenty-one days from the relevant date or within such extended time not exceeding three months from that date as the official liquidator or the court may, for special reasons, appoint. Sub-section (4) provides that any person making or concurring in making the statement and affidavit required by this section shall be allowed and shall be paid by the official liquidator or provisional liquidator, as the case may be, out of the assets of the company such costs and expenses incurred in and about the preparation and making of the statement and affidavit as the official liquidator may consider reasonable. Sub-section (5) of section 454 provides

'If any person, without reasonable excuse, makes default in complying with any of the requirements of this section, he should be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to one hundred rupees for every day during which the default continues, or with both.'

21. The question before the Full Bench of the Delhi High Court was whether in a prosecution under section 454, sub-section (5) of the Companies Act, 1956, the burden of proving that the accused had no reasonable excuse for making the default in respect of which he is being prosecuted lies upon the prosecution. Rajendra Sachar J., delivering the judgment of the Full Bench, pointed out that if the section had been differently framed, it could have been argued that all that the official liquidator had to prove was that the default had been committed in complying with the requirements of section 454, and thereafter if the director pleaded any exception to bring his case within the proviso, the burden to prove that would be on him. But the phraseology of sub-section (5), in the opinion of the Full Bench, did not support this contention. He observed at page 506 of the report-see : 10(1974)DLT181 :

'It appears to us that the very provisions which were referred to by the learned judge requiring the notice to be sent to the concerned director and a provision enabling the director to seek extension from the official liquidator or the court would show that the burden, if placed on the official liquidator, is not onerous or insuperable one. It appears to us that the official liquidator need only prove that notice was sent to the concerned director to submit a statement of affairs, that the prescribed time has lapsed and that no extension has been sought for from him or from the court and that the necessary books of the company were available for inspection by the concerned director. These are facts which are conveniently available to the official liquidator and if he shows these facts, prima facie, he would have proved that the director has, without reasonable excuse, made the default in complying with the requirements of section 454. In such a case it would obviously be for the concerned director to prove circumstances to justify his conduct and to show that he had a reasonable excuse in making the default. Support for the contention that the burden of proving that there was reasonable excuse for making a default should be on the accused is drawn by making reference to section 106 of the Evidence Act which states that where any fact is especially within the knowledge of any person, the burden of proving that fact is upon him and suggesting that it may not be practicable for the official liquidator to prove anything and further in terms of illustration (a) to section 106 of the Evidence Act the non-filing of the statement of affairs within the time prescribed and the absence of application by the accused within the prescribed time shows that he had committed default and that it was for the accused in these circumstances to show that the default by him was for reasonable excuse. We do not see how illustration (a) is applicable to the facts of the present case. Late filing or non-filing of the statement of affairs only shows that a default has been made. By itself it is consistent equally with there being a reasonable excuse as well as there being no reasonable excuse at all. This by itself has relevancy to the question of onus. The Supreme court in Shambhu Nath Mehra v. State of Ajmer : 1956CriLJ794 cautioned against invoking section 106 ofthe Evidence Act so as to place the burden of proof on the accused and pointed out that section 106 is an exception to section 101 which lays down that whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist and referred to illustration (a) which says that if A desires a court to give judgment that B shall be punished for a crime which A says B has committed, A must prove that B has committed the crime and went on to observ :

'That section 106 of the Evidence Act does not abrogate the well-established rule of criminal law that except in very exceptional classes of cases the burden that lies on the prosecution to prove its case never shifts and section 106 is not intended to relieve the prosecution of that burden. On the contrary it seeks to meet certain exceptional cases where it is impossible or disproportionately difficult, for the prosecution to establish facts which are especially within the knowledge of the accused and which can be proved by him without difficulty or inconvenience. But when knowledge of such facts is equally available to the prosecution if it chooses to exercise due diligence, they cannot be said to be especially within the knowledge of the accused and the section cannot apply.''

22. The supreme Court in T. K. Gangi Reddy v. M. C. Anjaneya Reddy [1961] 22 ELR 261, at page 267, has pointed out the distinction between the two distinct meanings of burden of proof, namely, burden of proof as a matter of law and pleadings and burden of proof as a matter of adducing evidence. Section 101 deals with the burden of proof as understood as a matter of law and pleadings whereas section 102 deals with the burden of proof as a matter adducing evidence. The Full Bench of the Delhi High Court held that on a plain reading of section 454(5) which creates an offence the requirement of absence of reasonable excuse is made an ingredient of the offence and not an exception to the main provision. Normally, it is for the prosecution to prove each and every ingredient. No exception having been provided in the statute, there was no compelling reason to supply that exception by the court. The legislature has not so provided and it is not permissible for the court to recast the statute and provide the same. It may be that considering the necessity of compelling the officers of the company to submit the statement of affairs as to the company the legislature may have made their liability absolute. But Parliament not having so provided, the court cannot supply that necessity as it would be beyond its province. Thus, it is obvious that the initial burden, or, what may be called, the 'legal burden', is on the department to establish by leading some evidence, the fact that the assessee had without reasonable cause failed to file one or the other of the returns mentioned in section 271(1)(a) within the time specified in connection with that return. Some evidence, even though it may be slight, must be led by the prosecution since this is like the requirement of 'without reasonable excuse' in section 454(5) of the Companies Act, and is an ingredient of the offence for which penalty is sought to be imposed. We are unable to accept the contention of Mr. Kaji for the revenue that failure to file the return within the time specified itself is an offence and that the words 'without reasonable cause' constitute an exception. Looking to the wording of the section and on a plain reading of section 271(1)(a), it is obvious first that the failure to file the return may be with reasonable cause or without reasonable cause but the offence for which the penalty is imposable is failure without reasonable cause to file the return within the time specified in the section and, therefore, it is for the department to establish as an ingredient that the failure in the particular case was without reasonable cause. Once the department has discharged that initial burden, it will be for the assessee, as the Supreme Court has pointed out in D. Bhoormull's case : 1975CriLJ545 , to prove that there was reasonable cause on his part in failing to furnish return within time. On the principles underlying section 106, since the facts which constitute a reasonable cause are especially within the knowledge of the assessee, it will be for him to establish those fact but the department must first lead evidence which would go to show prima facie, that the assessee had no reasonable cause in failing to file the returns within the time specified. The department may discharge this initial burden by leading evidence to show, for example, that the assessee had applied for extension from time to time and yet had failed to file the return within the extended time or the department may be a position to show that the assessee concerned was habitually filing returns beyond the time specified in every assessment year or on every possible occasion or the department may be able to show that the assessee was aware of the need to file the return within the time specified and yet had failed to do so. But mere failure to file the return within the time without anything more will not expose him to the penalty.

23. We must also point out, as was done by Chagla C.J., in Commissioner of Income-tax v. Gokuldas Harivallabhdas : [1958]34ITR98(Bom) , that mere falsity of the explanation on the part of the assessee is not enough to constitute offence under section 28(1)(c) of the Act of 1922, equivalent to section 271(1)(c) of the Act of 1961. Chagla C.J., in that case, pointed out that there was not an iota of evidence on the record except the explanation given by the assessee which explanation had been found to be false. He observed at page 10 :

'Now, it does not follow that because the particular explanation given by the assessee is false, therefore, necessarily the receipt of Rs. 15,203 constitutes a taxable income of the assessee. There may be a hundred and one other possibilities as to how this receipt came into the books of account of the assessee..... Therefore, it becomes obvious that when you eliminate the explanation of the assessee, which it is open to the department to do, something must be left which will lead to the inference that the receipt of Rs. 15,203 constitutes an income. Now, if you wipe off from the slate this evidence, nothing whatever remains, and as we have just said, the very basis of the decision against the assessee is that the explanation he gave was a false one.'

This reasoning of Chagla C.J. was approved by the Supreme Court in Anwar Ali's case : [1970]76ITR696(SC) and there Grover J., delivering the judgment of the Supreme Court, has observed in connection with the burden of proof at page 70 :

'The next question is that when proceedings under section 28 are penal in character what would be the nature of the burden upon the department for establishing that the assessee is liable to payment of penalty. As has been rightly observed by Chagla C.J. in Commissioner of Income-tax v. Gokuldas Harivallabhdas : [1958]34ITR98(Bom) the gist of the offence under section 28(1) (c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and, therefore, the department must establish that the receipt of the amount in dispute constitutes income of the assessee. If there is no evidence on the record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income.'

24. The requirements of section 28(1)(c) were somewhat different from the requirements of section 271(1)(a) that regarding the burden of proof (sic) applies to all clauses of section 28 of the Act of 1922, though the observations regarding conscious concealment or deliberate furnishing of inaccurate particulars of income under section 28(1)(c) may not help us in our conclusion regarding the requirements of section 271(1)(a). However, in view of these two decisions, one of the Bombay High Court and another of the Supreme Court, it is clear that the burden of proving all the ingredients of the offence is upon the department and if the department fails to lead and evidence on the point besides merely pointing out that there was failure to furnish the returns within time, the department would fail so far as the penalty proceedings under section 271(1)(a) are concerned.

25. It must also be pointed out that even in criminal cases, whenever any evidentiary burden is upon the accused, that burden can be said to be discharged by the accused by establishing the facts as in a civil case, that is on a balance of probabilities. Even in criminal cases, the accused is not required to prove such facts beyond reasonable doubt in order to claim the benefit of an exception in his favour. All the greater reason, therefore, that when the assessee in a case under section 271(1)(a) has to establish reasonable cause after the initial burden has been discharged by the department, if he establishes the facts, which as in a civil case would decide the matter in his favour on a balance of probabilities, he can be said to have discharged that burden. He is not bound to prove these facts within his knowledge regarding the presence of reasonable cause beyond reasonable doubt. In view of the peculiar requirements of absence of reasonable cause having to be established by the prosecution, even the initial burden of the prosecution will not be very heavy but that burden, light as it may be, must be discharged by the department.

26. We may notice that a Full Bench of the Orissa High Court and a Full Bench of the Kerala High Court had occasion to consider the very point which has arisen for consideration before us. In Commissioner of Income-tax v. Gangaram Chapolia : [1976]103ITR613(Orissa) , a Full Bench of the Orissa High Court has held that the burden of proof under section 271(1)(a) is on the assessee and not on the revenue. This burden can be discharged by adducing evidence as in a civil case. The burden would be discharged by preponderance of probabilities and not by proof beyond reasonable doubt. It may be pointed out that in this case the Full Bench of the Orissa High Court considered the decision of the Supreme Court in Hindustan Steel Ltd.,'s case : [1972]83ITR26(SC) and observed (page 622 :

'This decision is no authority for the proposition that under section 12(5) of the Orissa Sales Tax Act the expression 'without sufficient cause' carries an import of mens rea or that the burden of proof is on the revenue to establish absence of sufficient cause.'

27. The Orissa High Court took the view that in Hindustan Steel Ltd.'s case : [1972]83ITR26(SC) , the Supreme Court inadvertently referred to section 25(1). A penalty proceeding is a quasi-criminal proceeding as concluded by the aforesaid observation. But the Full Bench felt that the decision in Hindustan Steel Ltd.'s case : [1972]83ITR26(SC) could not be considered to mean that the burden of proof is on the revenue and that proof of mens rea was essential in a penalty proceeding. According to the learned judges of the Orissa High Court in the Full Bench, the observations of Hindustan Steel Ltd.'s case : [1972]83ITR26(SC) were couched in very strong language only to emphasize that mere failure to furnish the return in time or a technical or venial breach of the provisions of the statute would not be enough. Something more is necessary to prove absence of sufficient cause to impose penalty. The Orissa High Court also considered the decisions which came to this conclusion. The Orissa high Court and the Kerala High Court in its Full Bench decision in Commissioner of Income-tax v. Gujarat Travancore Agency : [1976]103ITR149(Ker) , to which we will shortly refer, have proceeded upon the footing of the requirement of mens rea. In our opinion, once the legislature has provided for a particular requirement, namely, 'without reasonable cause', and once the Supreme Court in the decisions which we have pointed out clearly indicated that section 271 is intended to impose penalty on contumacious or fraudulent assessees (vide Khemka & Company's case : [1975]3SCR753 the question of the general principles regarding reading mens rea in a section providing for penalty does not survive. All that we have to consider is, whether the requirement of absence of reasonable cause is an ingredient of the offence or not. For the reasons that we have set out herein above we are unable to agree with the reasoning of the learned judges of the Orissa High Court in Commissioner of Income-tax v. Gangaram Chapolia : [1976]103ITR613(Orissa) .

28. In Commissioner of Income-tax v. Gujarat Travancore Agency : [1976]103ITR149(Ker) , the Full Bench of the Kerala High Court has held that the provisions for imposition of penalty are independent of the provisions for prosecution and punishment, in the sense that the proceedings under the one will not bar action under the other. A mere use of the expression 'without reasonable cause' cannot import a mental element of mens rea. Before imposition of a penalty under section 271(1)(a) of the Act, what is required is that the officer must be satisfied-not arbitrarily but judicially-that any person has without reasonable cause, failed to furnish the return (clause(a)); or has concealed the particulars of income or furnished inaccurate particulars (clause(c)). The element of deliberation required by section 28(1)(c) of the Indian Income-tax Act, 1922, has been deleted in section 271(1)(c) of the Income-tax Act 1961. Where the two sections (271 and 276C) themselves seem to draw a difference between the requirements for imposition of a penalty an punishment for an offence, there is no justification in reading into the earlier section, the requirements of any mens rea expressly provided for in the later one. It would not be correct to regard the ingredients of the misconduct under the two provisions as identical. Penalty is exacted not because an act or omission is an offence but because it is an attempt at evasion of tax on the part of the assessee. The penalty provisions under the Act are not provisions of a criminal nature which warrant the requirement of mens rea in the sense in which the same is required for an offence by the criminal law. Therefore, mens rea need not be established before imposition of penalty under section 271(1)(a) of the Act. The Full Bench of the Kerala High Court considered the earlier decision of a Division Bench of that court in Marikar (Motors) Ltd. v. Sales Tax Officer [1971] 31 STC 201 (Ker). That decision was in connection with section 10A of the Central Sales Tax Act and the Full Bench observe : (See : [1976]103ITR149(Ker) ).

'The same case considered the question whether 'without reasonable excuse' is an ingredient to be established for taking action under section 10A and on whom the burden lay of establishing the same. It held that this was an essential ingredient, and that the burden of proving the same was on the persons charged. The department having first shown that the contravention was according to it, without reasonable excuse, it is for the person proceeded against, to show that he in fact had reasonable excuse. In this sense, we think the Division Bench was right.'

Thus, the Full Bench of the Kerala High Court approved of the principles that the words 'without reasonable excuse' under section 10A of the Central Sales Tax Act comparable to the words 'without reasonable cause' occurring in section 271(1) of the Income-tax Act, 1961, were an essential ingredient and the department must first show that the contravention was, according to it, without reasonable cause and that it was for the person proceeded against to show that he had in fact a reasonable cause. This decision of the Kerala High Court in the passage at page 164 of : [1976]103ITR149(Ker) regarding ingredient is practically the same as the conclusion to which we have arrived at by a different process of reasoning. With respect to the learned judges of the Kerala High Court, we are unable to agree with their conclusion regarding the element of means rea in section 271(1)(a) of the Act. When the Supreme Court says in Khemka & Company's case [1975] 53 STC 571 (SC) that section 271 provides for imposition of penalty on contumacious or fraudulent assessees, it clearly wants to indicate the factor of means rea in proceedings under section 271. Again, when the Supreme Court observed in Hindustan Steel Ltd.'s case : [1972]83ITR26(SC) that penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation, it was clearly bringing in the element of means rea. The words 'conscious disregard', 'contumacious conduct' or 'dishonest conduct' in Hindustan Steel Ltd.'s case : [1972]83ITR26(SC) which were approved by the Supreme Court in the context of penalty sections in the Indian Income-tax Act in Anwar Ali's case : [1970]76ITR696(SC) clearly go to show that the Supreme Court has clearly laid down that the element of mens rea has to be read in the penalty proceedings in section 271. With utmost respect to the learned judges of the Kerala High Court, therefore, we are unable to agree with their conclusions regarding absence of mens rea.

29. A number of decisions regarding the requirement of the presence of mens rea and consequences following from that requirement were cited before us. Besides, passages from Maxwell were also cited in this connection. But in view of the decisions of the Supreme Court in Hindustan Steel Ltd.'s case : [1972]83ITR26(SC) , Anwar Ali's case : [1970]76ITR696(SC) and Khemka & Company's case : [1975]3SCR753 , it is not necessary to refer to any of these decisions for the purpose of arriving at the conclusion regarding the requirement of mens rea having to be read in the provisions relating to penalty in section 271.

30. In the light of the above discussion, our conclusions are as follows :

(1) Under section 271(1)(a) of the Income-tax Act, 1961, failure without reasonable cause to furnish the return in question is an ingredient of the offence;

(2) Section 271(1)(a) provides for penalty in cases where the assessee has either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of this obligation;

(3) The legal burden in on the department to establish by leading some evidence that, prima facie, the assessee has without reasonable cause failed to furnish the furnish the return within the time specified in section 271(1)(a) read with the relevant other section referred to in that section. Once this initial burden, which may be slight, has been discharged by the department, it is for the assessee to show as in a civil case on balance of probabilities that he had reasonable cause in failing to file the return within the time specified;

(4) Mere falsity of the explanation furnished by the assessee cannot help the department in establishing its case against the assessee at the time of imposition of penalty.

In view of the above discussion and in view of our conclusion, we answer the question as reframed by us as follow :

'Reasonable cause is an ingredient of the offence for which the penalty is provided and the taxing authority has prima facie to prove absence of reasonable cause in the sense that has been explained above.'

31. The matter will now go before the Division Bench for disposing of the case in accordance with law.


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