Saryasachi Mukharji, J.
1. In this reference under Section 256(1) of the I.T. Act, 1961, the following two questions have been referred to this court:
' I. Whether, on the facts and in the circumstances of the case, and on a correct interpretation of Section 271(1)(c) of the Income-tax Act, 1961, read with the Explanation to that section, the Tribunal was correct in holding that the department had failed to prove concealment of income in regard to the sum of Rs. 26,000 and interest amounting to Rs. 1,096 by the assessee-company ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that apparently an artificial juridical person like a limited company is incapable of conscious concealment of income and it would be well nigh impossible for the department to prove the existence of mens rea in the case of a company and, hence, the company was not liable to penalty for concealment '
2. This reference relates to the assessment for the assessment year 1964-65. In the books of account of the assessee-company, there were cash credits aggregating to Rs. 26,000 in the name of four ladies who were alleged to be related to one of the directors. The ITO did not accept the explanation offered with regard to these cash credits and added these as the assessee's income from undisclosed sources and, consequently, disallowed the interest claimed thereon. The ITO also initiated penalty proceedings under Section 271(1)(c) of the I.T. Act, 1961, for concealment of income with regard to the amount of cash credits and interest. From the order of the ITO, it appears, that the names of the four ladies and the sums standing in their respective names were as follows :
Rs. (a)Sm. Jyostna Nawn & Sm. Swagata Nawn'6,000on 8-5-63(b)Sm. Jyostna Nawn6,000on 8-4-63(c)Sm. Nanda Rani Dutt3,000on 27-5-63(d)Sm. Nilima Nawn11,000
on 14-4-63 26,000
3. They are all related to Sudhir Chandra Nawn, a director of the assessee-company. Jyostna Nawn is the wife of Sudhir Chandra Nawn and Swagata Nawn is their minor daughter. Smt. Nanda Rani Dutt is also related, being the married daughter of Sudhir Chandra Nawn. Smt. Nilima Nawn is also another daughter of Sudhir Chandra Nawn. In view of the fact that in this reference an elaborate argument has been made on the nature of the explanation given by the assessee and the consequences thereof it would be appropriate for us to set out the actual evidence which according to the ITO were relevant for the purpose in the assessment order which stated, inter alia, as follows :
' Smt. Jyostna Nawn is the wife of Sri Sudhir Ch. Nawn, a director of the assessee-company, and Smt. Swagata Nawn is their minor daughter. At first, notices under Section 131 were served on Sm. Jyostna Nawn and Sm. Swagata Nawn (at that time it was not known that she was a minor) and Smt. Nanda Rani Datta. By a letter dated 26th October, 1965, Smt. Jyostna Nawn prayed for time to appear before me to give evidence in this case under Section 131 on the ground that she was suffering from flu. In this letter, she wanted time also for her daughter Smt. Swagata Nawn. But later on 11th November, 1965, she wrote me another letter stating that she was unable to appear before me as she was a pardanashin Hindu housewife. If she was a pardanashin lady, it would have been stated by her in the beginning to me in the letter dated 26th October, 1965, applying for time to appear before me. Therefore, it appears to me that the story of her being a pardanashin lady is nothing but a pretext to avoid cross-examination to establish the truth about the loans shown to have been received by the assessee from her minor daughter. However, Smt. Jyostna Nawn explained in her letter dated 11th November, 1965, that she accumulated the sum of Rs. 6,000 over the years from 1942 onwards out of a sum of Rs. 252 received by her every year as interest on a loan given to M/s. Nawn Estate Pvt. Ltd. It is difficult to believe that this lady accumulated Rs. 6,000 and kept the accumulated balance with her in cash over more than 20 years out of a paltry sum of Rs. 252 received every year as interest. The assessee has been unable to produce any evidence to show that this lady had any cash sum of Rs. 6,000 with her before 8th April, 1963. In the circumstances, the source of the money amounting to Rs. 6,000 deposited in her name remains unexplained. Therefore, this is treated as the assessee's income from some undisclosed source.
Regarding Smt. Swagata Nawn, Smt. Jyostna Nawn, her mother, has stated in a letter dated 11th November, 1965, that her husband, Sri Sudhir Nawn, ' used to make regular contribution to my said daughters apart from all other expenses of her. My daughter, Smt. Swagata, saved almost the entire money received from her father for years together and kept the same with me'. As in her own case neither has she produced any evidence nor the assessee was able to produce any evidence that Smt. Swagata possessed a cash sum of Rs. 6,000 before 8th May, 1963. In the allied case of M/s. Premier Theatres Pvt. Ltd. in which also Sri Sudhir Ch. Nawn is a director, cash deposits have been observed in the names of his many unmarried daughters and married daughters. Same explanation has been offered with regard to the sources of the sums said to have been advanced by them in that case. Without strict proof that the daughters of Sri Sudhir Ch. Nawn had any savings at any time from the alleged contributions said to have been made by their father, I am unable to accept that Smt. Swagata had any money with her to advance same as loan. In the circumstances, this sum of Rs. 6,000 as well is being assessed as income of the assessee from some undisclosed source.
Regarding Smt. Nandarani Datta it is stated that she lives in a village in Hooghly where a notice under Section 131 was issued. There has been no response from this lady. The assessee was required to produce necessary evidence in this connection but since the assessee has not been able to prove the circumstances, a sum of Rs. 3,000 deposited in her name is also a case of assessee's income from undisclosed sources.
Regarding the deposit of Rs. 11,000 on 14th May, 1963, in the name of Smt. Nilima Nawn, she has explained that she had an account with the Central Bank of India, Shyambazar, from which she withdrew a sum of Rs. 11,000 on llth May, and paid the same to the assessee as loan to earn interest. While examining her bank account it was discovered that there was a deposit for exactly the same sum of Rs. 11,000 on 14th May, 1963, in her bank account. Later, by a letter dated 26th October, 1965, she explained that she received a loan of Rs. 11,000 from Sri Subodh Ch. Das which has been deposited in her bank account on 14th May, 1963. Sri Subodh Ch. Das, who is 'assessed in this circle, is a partner of R.F. in the name of M/s. R. B. A. Amalgamated Traders. He has no other source of income. In the course of his own assessment, he filed a statement showing that he withdrew from the account books of M/s. R. B. A. Amalgamated Traders various sums on various dates during the year as follows:
Rs.On 11-5-639,000On 11-10-632,000On 30-3-644,000
It is stated that out of Rs. 15,000, he paid a loan of Rs. 11,000 to Smt. Nilima Nawn, which cannot be correct. It will appear from what has been stated above that Smt. Nilima Nawn deposited a sum of Rs. 11,000 in her bank account on 14th May, 1963, but the sum of Rs. 2,000 as shown above was withdrawn by Sri Subodh Ch. Das from the account of R.F. on 22nd October, 1963. Therefore, this sum could not have been deposited in the bank account of the lady on 14th March, 1963. Before this, Sri Subodh Ch. Das withdrew a sum of Rs. 9,000 from the R.F. on 11th May, 1963. If this was withdrawn for the purpose of paying a loan to Smt. Nilima Nawn then it would certainly have been received and deposited by Smt. Nilima Nawn in her bank account on llth May, 1963, but this has not been the case. Sri Subodh Ch. Das stated that he had no other source of income except the partnership income. His total withdrawal during the year from the R.F. has been shown above. The last withdrawal was made on 30th March, 1964, i. e., on the last day of the accounting year. Therefore, he must have spent the earlier withdrawals or at least a part of them to meet the family expenses during the year under consideration. Taking these facts into consideration it will appear that the statement of Smt. Nilima Nawn that she received Rs. 11,000 from Sri Subodh Ch. Das on 14th May, 1963, is not correct. Further, he stated in this connection that the alleged loan received from Smt. Nilima Nawn and others by the assessee, as disclosed above, was for the purpose of advancing a loan in turn by the assessee to M/s. R.B.A.A. Traders. Therefore, if Sri Subodh Ch. Das had any money with him to pay any loan then it would be meaningless for him to pay the same to Smt. Nilima Nawn who in turn would pay the same to the assessee, M/s. Rupabani Theatres Pvt. Ltd., in order that M/s. Rupabani Theatres Pvt. Ltd. in turn may pay the loan to M/s. R.B.A.A. Traders of which Sri Subodh Ch. Das himself is a partner. Therefore, the alleged loan of Rs. 11,000 shown to have been received from Smt. Nilima Nawn by the assessee is totally a false claim. The source of this deposited amount of Rs. 11,000 in this name being unexplained, I treat the same as income of the assessee from some undisclosed source...... Rs. 25,000.'
4. The IAC, after giving the assessee chance of being heard, treated the amount of Rs. 26,000 and interest thereon as concealed income of the assessee. It was urged before the Tribunal that the cash credits could not be proved before the IAC because the ladies who had given the loans were pardanashin ladies and could not be produced before the ITO for examination. It was also urged in the penalty proceedings that there was nothing to show that the amount of Rs. 26,000 represented the assessee's income which was concealed by it. The IAC proceeded to examine the evidence led by the assessee-company with regard to the genuineness of the loans and came to the conclusion that the explanation furnished by the assessee was false and the loans were not genuine. He, therefore, imposed a penalty of Rs. 33,800 which was roughly 100% of the tax sought to be avoided. The Tribunal has noted in the order that in the penalty proceeding there was a reference to Section 271(1)(c) of the Act but there was no reference to the Explanation to that section. The IAC has stated in hisorder that a notice had been issued and the learned advocate had appeared on behalf of the assessee before him and time had been obtained for examination of the two ladies before the IAC on 26th October 1977, but the two ladies did not appear on that date or on 27th October 1977, nor was any application received on behalf of the ladies asking for some other date for their examination. No application was received from the assessee or the representative of the assessee in this regard. The IAC, after discussing the nature of the explanation given elaborately in the order, was of the view that the theory that was propounded by the assessee in its letter that they had this money in cash was palpably untenable. One version was that Smt. Jyostna Nawn had accumulated the savings out of interest income of Rs. 252 per annum since the year 1942 until the year relevant for the assessment year. The other lady also gave some version that she had been receiving regular monthly contributions from her father and that money had been lying with her. These were not corroborated by any documentary evidence and in these circumstances the IAC was of the view that the assessee had committed the offence contemplated by Section 271(1)(c) of the I.T. Act, 1961, and that fact had been proved from the evidence on record.
5. The assessee filed an appeal before the Tribunal. It was urged that the revenue had failed to prove that the amount of Rs. 26,000 or the interest of Rs. 1,096 thereon was the assessee's income which it had concealed in the return. The revenue, on the other hand, placed reliance on the Explanation to Section 271(1)(c) and, after considering the relevant contentions, the Tribunal was of the view that the penalty could not be imposed on this account. In view of the finding of the Tribunal, on which we will have to make some comments, it is better to set out that relevant portion of the observations of the Tribunal which reads as follows :
' The ruling in Anwar Ali's case : 76ITR696(SC) will still apply and it would be necessary for the department to show that the amount added as the assessee's income from undisclosed sources was, in fact, its taxable income of this year, which it had failed to disclose in the return. The burden on the assessee is of a negative nature and can be discharged if there is nothing positive to show that the assessee committed fraud or gross or wilful negligence. The order of the IAC shows that he has proceeded merely on the basis of the assessment order but the latest ruling of the Supreme Court in CIT v. Khoday Eswarsa and Sons : 83ITR369(SC) is to the effect that a penalty order cannot be based simply on the assessment order but there must be something more on record to sustain the penalty. There is no such material on record. Even on facts which have been brought on record before us the payment of interest in three cases was by cheque and only a minor amount of Rs. 146.25 appears to have been paid in cash. In regard to the cash payment also the department has nothing to show that the payment was not in fact made. Therefore, the assessee must succeed on facts because the department has failed to prove that the amount of Rs. 26,000 and interest thereon was the assessee's taxable income of this year which it had failed to disclose.'
6. It was contended further before the Tribunal that the notice had not been given that the Explanation to that section would be resorted to by the IAC. It was then contended that the assessee being a limited company it could not be made liable for an offence of the nature contemplated by Section 271(1)(c) of the I.T. Act, 1961, because, according to the Tribunal, the law required proof of mens rea in every case before imposition of penalty. In the premises, the Tribunal was of the view that in any case the assessee-company could not be penalised under Section 271(1)(c) of the Act. In these circumstances, the questions, as indicated hereinbefore, have been referred to this court.
7. In deciding this controversy, we will have to refer to two aspects, one whether the view of the Tribunal that, in the facts and circumstances of the case, the revenue has not been able to establish the ingredients to attract the provisions of Section 271(1)(c). In this case, it is undisputed that the difference of income assessed and the income returned by the assessee was of such a nature that the provisions of Section 271(1)(c) and the Explanation thereto legitimately could be said to have been attracted. On this point, there is no dispute. Before we proceed further to consider this aspect, it may be relevant to refer to the legal position and in this connection it is important to bear in mind the development of law from time to time. Prior to 1971, the position so far as this aspect was concerned was guided by Section 28(1)(c) of the Indian I.T. Act, 1922. Now, the question as to what were the ingredients or what were the essential elements to attract the provisions of the application of that section came up for consideration before the Supreme Court in the case of CIT v. Anwar Ali : 76ITR696(SC) . There, the Supreme Court observed, dealing with Section 28(1)(c) of the Indian I.T. Act, 1922, that the proceedings under Section 28 of the Indian I.T. Act, 1922, were penal in character. The gist of the offence under that section was that the assessee had concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and the burden was on the department to establish that the receipt of the amount in dispute constituted the income of the assessee. If there was no evidence on the record except the explanation given by the assessee, which explanation had been found to be false, it did not follow that the receipt constituted taxable income. It was perfectly legitimate to say that the mere fact that the explanation of the assessee was false did not necessarily give rise to the inference that the disputed amount represented income. It could not be said that the finding given in the assessment proceeding for determination or computing the tax was conclusive. However, this was good evidence. But before penalty could be imposed the entirety of the circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars. We need not detain ourselves on the facts of that case any more. The Supreme Court, however, observed that though the evidence in the assessment proceedings were good evidence it would be perfectly legitimate to say that the mere fact that the explanation of the assessee was false did not necessarily give rise to the inference that the disputed amount represented income. It further held that before penalty could be imposed 'the entirety of the circumstances' must reasonably point to the conclusion that the disputed amount represented income and the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars of his income. Incidentially, the Supreme Court reiterated that the proceedings under Section 28 of the Indian I.T. Act, 1922, were penal in character and the Supreme Court, in this connection, referred to the decision of the Supreme Court itself in the case of Hindustan Steel Ltd. v. State of Orissa : 83ITR26(SC) ;  25 STC 211 and observed that it was being taken to be the settled law by now in the sales tax law that an order imposing penalty was the result of quasi-criminal proceedings. The Supreme Court also noted that in England also it had never been doubted that such proceedings were penal in character and the Supreme Court referred to the decision in the case of Fattorini (Thomas) (Lancashire) Ltd. v. IRC  AC 643 ; 24 TC 328 ;  11 ITR 50. This view of the Supreme Court was expressed on Section 28(1)(c) of the Indian I .T. Act, 1922, and the judgment was delivered on the April 29, 1970, that is to say, long after the coming into operation of the provisions of Section 271 of the I.T. Act, 1961. This view of the Supreme Court was again reiterated in a subsequent decision of the Supreme Court in the case of CIT v. Khoday Eswarsa and Sons : 83ITR369(SC) . There also the Supreme Court was dealing with the provisions of Section 28(1)(c) of the Indian I.T. Act, 1922, and reiterated that penalty proceedings were penal in character and the department must establish that the receipt of the amount in dispute constituted the undisclosed income of the assessee. Apart from the falsity of the explanation given by the assessee the revenue must prove, before any penalty could be imposed, by cogent material or evidence from which it could be inferred that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the sum and that the disputed amount was a revenue receipt. The same view was also reiterated by the Supreme Court in the recent decision in the case of Anantharam Veerasinghaiah & Co. v. CIT : 123ITR457(SC) . There, the Supreme Court reiterated that where an intangible addition was made to the book profits during the assessment proceedings, which was on the basis that the amount represented by that addition constituted the undisclosed income of the assessee, that income, although commonly described as 'intangible', was as much a part of his real income as that disclosed by his books of account. It had the same concrete existence. It could be available to the assessee as the book profits could be. The secret profits or disclosed income of an assessee earned in earlier assessment years must constitute a fund, even though concealed, from which the assessee might draw subsequently for meeting expenditure or introducing amounts in his account books. But it was quite another thing to say that any part of that fund must necessarily be regarded as the source of unexplained expenditure incurred by cash credits recorded during the subsequent assessment year. The Supreme Court reiterated that an order imposing a penalty was the result of quasi-criminal proceedings and the burden lay on the revenue to establish that the disputed amount represented income of the assessee who had consciously concealed the particulars of the income or had deliberately furnished inaccurate particulars. Since the burden of proof in penalty proceedings varied from that involved in assessment proceedings a finding in assessment proceeding that a particular receipt was income could not automatically be adopted as a finding to that effect in the penalty proceedings. In penalty proceedings, the taxing authority was bound to consider the matter afresh on the material before it and in the light of the burden to prove resting on the revenue. The law underwent a change in the 1961 I.T. Act. It was provided originally under Section 271(1)(c) that if the ITO or the AAC in the course of any proceedings under the Act was satisfied that any person had concealed the particulars of his income or deliberately furnished inaccurate particulars of such income then the ITO might direct imposition of certain penalty mentioned in Clause (iii) of the Act. That was the position until 1964. With effect from April 1, 1964, that position was changed and the expression 'deliberately' in the second limb of Clause (c) of Section 271 was omitted and an Explanation was added. The Explanation reads as follows:
'Explanation.--Where the total income returned by any person is less than 80 per cent, of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under Section 143 or Section 144 or Section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of this sub-section.'
8. The relevant year with which we are concerned is covered by this position of law. It may incidentally be mentioned that since 1st April, 1976, by Section 61 of the T.L. (Amend.) Act, 1975, the present Explanation has been substituted and it reads as follows :
' Explanation 1.--Where in respect of any facts material to the computation of the total income of any person under this Act,--
(A) such person fails to offer an explanation or offers an explanation which is found by the Income-tax Officer or the Appellate Assistant Commissioner to be false, or
(B) such person offers an explanation which he is not able to substantiate, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of Clause (c) of this sub-section, be deemed to represent the income in respect of which the particulars have been concealed :
Provided that nothing contained in this Explanation shall apply to a case referred to in Clause (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if the explanation is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him.'
9. From the narration of the dates as to the state of law, it is abundantly clear that it could not be said that the Explanation, with which we are concerned, to Section 271(1)(c) of the I.T. Act, 1961, was not introduced to nullify the effect of the judicial decision in the case of CIT v. Anwar Ali : 76ITR696(SC) because, as we have mentioned before, the Explanation was added with effect from 1964 and the decision of the Supreme Court in the case of CIT v. Anwar Ali  76 ITR 696 was rendered in 1970. This is a point which is important to bear in mind.
10. The next aspect with which we are concerned is whether, in view of the Explanation with which we are concerned at the relevant point of time, it was necessary for the revenue to prove that the disputed amount constituted the income of the assessee.
11. The Explanation introduced in 1964 is a deeming provision. By the said deeming provision, it is provided that in certain contingency, that is to say, where the total income returned by any person is less than 80% of the total income as assessed, omitting certain other requirements with which we are not concerned, such person shall, unless 'he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part' be deemed 'to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of this sub-section'. Now, the law introduced a certain state of affairs, even though that state of affairs was not the reality. The requirement of Section 271(1)(c) is that the assessee must be guilty of concealment of the particulars of his income or furnishing inaccurate 'particulars. Previous requirement was that the furnishing of inaccurate particulars should have been deliberate.
12. The expression 'concealment ' has to be understood in contradistinction to the expression ' failure '. Concealment requires a positive act. So before the amendment in 1964, Section 271(1)(c) required that there should have a positive or active act on the part of the assessee to conceal particulars of his income or to deliberately furnish inaccurate particulars. But by virtue of the addition of the Explanation, if the difference between the assessed income and the returned income was of certain magnitude, then unless the assessee proved that such difference was not caused by reason of failure to return the correct income from any fraud or any gross or wilful neglect, he should be deemed to have committed a positive act of concealment or of deliberately furnishing inaccurate particulars. The particulars of income that is also provided by the Explanation, but means 'particulars of such income for the purposes of Clause (c) of this sub-section ', that is to say, inaccurate particulars of income which was required to be furnished and the failure of which has been made penal under Section 271(1)(c) of the Act,
13. It was contended and we shall presently note that it was held in certain decisions that the Explanation introduced only a fiction that the assessee had concealed the income or had furnished inaccurate particulars deliberately, and that it did not make the assessed income the income of the assessee. In order to consider this position, it is necessary, therefore, to bear in mind the principles that govern the operation of fiction. Some of these principles have been treated as more or less fundamental in all cases or assumed as such. But it sometimes requires reiteration and re-examination. The basic observations which have to be borne in mind are the observations of Lord Asquith in the case of East End Dwellings Co. v. Finsbury Borough Council  AC 109 ;  2 All ER 587 where the learned judge observed:
'If one is bidden to treat an imaginary state of affairs as real, one must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that one must imagine a certain state of affairs : it does not say that having done so, one must cause or permit one's imagination to boggle when it conies to the inevitable corrollaries of that state of affairs. '
14. The aforesaid observations were applied and approved of by the Supreme Court in the case of CIT v. S. Teja Singh : 35ITR408(SC) . There the Supreme Court held that by a legal fiction the failure of a person not hitherto assessed to send an estimate of tax payable by him in accordance with Section 18A(3) of the Indian I.T. Act, 1922, was treated as a failure to furnish a return of income under Section 22 of the Act and by reason of this fiction the notice required to be given under Section 22 should be deemed to have been given, and the assessee should be deemed to have failed to comply with it. Thus, Section 28 of the Act would apply on its own terms. The ITO was, therefore, competent to impose a penalty under Section 28 read with Section 18A(9)(b) of the Indian I.T. Act, 1922, in respect of a failure to submit an estimate under Section 18A(3) of the Act. The Supreme Court reiterated that it was a rule of interpretation well settled that in construing the scope of a legal fiction it would be proper and even necessary to assume all those facts on which alone the fiction could operate. A construction which defeated the very object sought to be achieved by the Legislature must, if possible, be avoided. The Supreme Court at page 413 of the report observed that there could be no failure to make a return, unless notice had been issued under Section 22(1.) or Section 22(2) of the Indian I.T. Act, 1922, and there had been a default in complying with that notice. Therefore, the fiction that the failure to send an estimate had to be deemed to be a failure to send a return necessarily involved a fiction that notice had been issued under Section 22, and that had not been complied with. This, therefore, reiterates that if a fiction has to operate, then normally it would be proper to assume all those facts, though not expressly enjoined by the direction to do so, upon which alone the fiction could operate.
15. This principle was again reiterated by the Supreme Court in the case of Addl. ITO v. E. Alfred : 44ITR442(SC) , where Hidayatullah J., as the learned Chief Justice then was, observed that when a thing was deemed to be something else, it was to be treated as if it was that thing, though, in 'fact, it was not. The original assessee being dead before the notice, either general or special, to him, he could not be treated as an assessee and the process of the Act was, by fiction, made available against a different person like a legal representative, who was fictionally deemed to be an assessee, for the purposes of assessment.
16. But in the decision in the case of CIT v. Ajax Products Ltd, : 55ITR741(SC) , the Supreme Court also sounded a word of caution that the fiction should not be extended beyond its legitimate purpose. There what happened was that in order that the amount realised up to the original cost in excess of the written down value on the sale of a building, machinery or plant used in a business might be deemed to be profits under the second proviso to Section 10(2)(vii) of the Indian I.T. Act, 1922 (before its amendment in 1949), the following three conditions had to be satisfied: (i) during the entire previous year or a part thereof, the business should have been carried on by the assessee ; (ii) the building, machinery or plant should have been used in the business ; and (iii) the building, machinery or plant should have been sold when the business was being carried on and not for the purpose of closing it down or winding it up. The insertion of the words 'whether during the continuance of the business or after the cessation thereof' in the proviso, by the amendment of 1949, only removed one of the conditions for the exigibility of the excess to tax, viz., the third condition. After the amendment, the Supreme Court observed, the excess realised was deemed to be profits notwithstanding that the sale took place after the business ceased ; but the amendment did not introduce a further fiction that the business must also be deemed to have been conducted by the assessee during the previous year in which the sale took place. Therefore, even after the 1949 amendment, it was necessary that during the whole or a part of the previous year, the business should have been carried on by the assessee in order that the excess realised on the sale of the building, machinery or plant could be treated as profits of the business under the second proviso to Section 10(2)(vii) of the Act.
17. There, the Supreme Court held that as in the calendar year 1955 no business was carried on, the second proviso to Section 10(2)(vii) as amended in 1949 did not apply and the excess over the written down value of the machinery could not be assessed as profit under that proviso, by deeming that the business had been carried on. As mentioned before, the Supreme Court cautioned that it should not be extended beyond the legitimate purpose of the fiction.
18. This being the position, different courts have construed the effect of the Explanation differently. There is one line of cases where it had been held that even after the introduction of the Explanation in 1964, the onus was on the revenue to prove that the income was the income of the assessee and that the revenue had to discharge that not merely by the fact that the explanation given by the assessee has been considered to be false.
19. It was submitted on behalf of the assessee that in order to justify the levy of a penalty, two factors should co-exist: (i) there must be some materials or circumstances leading to the reasonable conclusion that the amount did represent the assessee's income, it being not enough for the purposes of penalty that the amount had been assessed as income; and (ii) the circumstances must show that there was animus, i.e., conscious concealment or conscious furnishing of inaccurate particulars on the part of the assessee. The Explanation had no bearing on the first part, i.e., to say, the revenue must still adduce evidence that the amount represented the assessee's income but the Explanation introduced in 1964 has a bearing only on the second part. The Explanation does not make the assessment order conclusive evidence that the amount assessed was, in fact, the income of the assessee. It was this view which was expressed by the Punjab & Haryana High Court in the case of Addl. CIT v. Karnail Singh V. Kaleran .
20. Learned advocate for the assessee further reinforced his submission by drawing our attention to the amendment introduced with effect from 1st April, 1976, which made it clear that the fiction would be deemed to represent the income in respect of which particulars have been concealed. According to learned advocate for the assessee, the position was different prior to this introduction in 1976 by the Act of 1975. More or less similar view, though in a different context, was expressed by the Jammu and Kashmir High Court in the case of Addl. CIT v. Sadiq Ali & Bros. . We may, however, incidentally mention that the facts of these cases were very much different from the facts with which we are concerned. It is not necessary to discuss all the cases where this point has been reiterated. We may, however, note the different cases which have taken divergent views on this aspect. In this connection, reference may be made to the decision of the Patna High Court in the case of CIT v. Patna Timber Works : 106ITR452(Patna) . Reference may also be made to the decision of the Allahabad High Court in the case of Addl. CIT v. Jiwan Lal Shah : 109ITR474(All) . But a contrary view on this Explanation was expressed by the Allahabad High Court in the case of Rukmani Baku v. Addl. CIT : 116ITR468(All) , which, however, did not take into consideration the view of the previous Division Bench of the Allahabad High Court reported in : 109ITR474(All) referred to hereinbefore. This was also considered by the Madras High Court in the case of Addl. CIT v. Sm. V. Kanakammal : 118ITR94(Mad) , where the Madras High Court took the view that even after the introduction of the Explanation the onus must be upon the revenue to prove in penalty proceedings that the assessed income was the income of the assessee in order to attract the penal provisions. Similar view was also expressed by the Gujarat High Court in the case of CIT V. Vinaychand Harilal [l979] 120 ITR 752. The Andhra Pradesh High'Court also expressed the same view in the case of Addl. CIT v. Burugupalli China Krishnamurthy  121 ITR 326.
21. We must also consider an important decision of this court, namely, the decision in the case of CIT v. W. J. Walker and Company : 121ITR326(AP) . There, in the assessment proceedings for the assessment year 1964-65, the assessee explained to the ITO that a cash credit of Rs. 50,000 in his accounts was a loan from a party and produced a confirmation letter from the party. But the party's clerk deposed before the officer that the party had not given any loan. The officer also perused the income-tax returns of the party and was not satisfied with the creditworthiness of the party and held that the loan was not genuine and added the amount to the income' of the assessee. On a reference by the ITO, the IAC levied a penalty on the assessee for having deliberately filed an incorrect return. On appeal, the Tribunal held that even after the introduction of the Explanation to Section 271(1)(c), the decision of the Supreme Court in Anwar Ali's case : 76ITR696(SC) would apply and holding that the fraud or wilful neglect could not be presumed in the absence of any indication at all that there was any fraud or wilful neglect, when the assessee had some evidence to the contrary, set aside the order levying penalty. On a reference, it was held that the Explanation presumed fraud, gross or wilful neglect on the part of the assessee in the circumstances stated therein. In view of the clear provisions of the Explanation, it must be held that it was only after the assessee had proved positively that the failure to return the Correct income did not arise from any fraud, gross or wilful neglect on his part, that the principles laid down by the Supreme Court in Anwar Ali's case : 76ITR696(SC) would come into play, viz., that the revenue would have to prove that the assessee was guilty of concealment of income or had furnished inaccurate particulars of income. The court, therefore, sent back the case to the Tribunal without answering the question, with a direction that after giving a reasonable opportunity to the parties of being heard, the Tribunal should decide whether any penalty was imposable on the assessee. The Division Bench observed at pages 693-694 of the report (117 ITR) as follows:
'We are not at all impressed by his contentions. Where the total income returned is less than 80 per cent of the total income as assessed under Section 143 or Section 144 or Section 147, the assessee must prove that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part as enjoined by the Explanation. In other words, the Explanation presumes fraud, gross or wilful neglect on the part of the assessee in the circumstances stated therein. Similarly, where an assessee fails to prove that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part he shall be deemed to have concealed particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of Section 271(1) of the Act as stated in the Explanation.
In view of the clear provisions of the Explanation, it must be held that it is only after the assessee has proved positively that the failure to return the correct income did not arise from any fraud, gross or wilful neglect on his part, the principles laid down by the Supreme Court in Anwar All's case : 76ITR696(SC) will come into play, viz., the department will have to prove that the assessee was guilty of concealment of income or has furnished inaccurate particulars of income.
In our opinion, the Tribunal was entirely wrong in its understanding of the Explanation. The entire approach of the Tribunal is also erroneous, because a confirmatory letter does not prove the creditworthiness of a creditor which must be proved as a fact by an assessee. The Tribunal has further failed to appreciate the relevant facts found by the authorities below.'
22. It must be observed that the Division Bench was not concerned with the specific question as to the effect of the provision, that is to say, whether the word 'deemed' merely indicated that the assessee had concealed the particulars of income deliberately in order to furnish inaccurate particulars and also whether that assessed income should, have been deemed to be the income of the assessee. The decision was rendered on the view of the Tribunal that no change had been introduced by the introduction of the Explanation. Therefore, in the light of the above facts and circumstances of the case, the Division Bench remitted rightly, with respect, in our opinion, the case to the Tribunal to decide the question afresh after taking into consideration the Explanation, which, undoubtedly had brought about certain changes. The extent of that change and effect, however, the Division Bench in the observation did not actually clarify, because it was not necessary in the circumstances and in the view the Division Bench took.
23. In this connection, we must also observe that learned advocate for the revenue drew our attention to the purpose of the introduction of the. Explanation in 1964. He referred us to the Finance Minister's Budget Speech in introducing the Finance Bill in 1964. Paragraph 65 of the Finance Minister's Budget Speech, to which he drew our attention, in our opinion, does not carry the matter much further. (See in this connection  51 ITR 90). It is evident from the provision of the Act itself that the Explanation was introduced to facilitate the implementation of the penal provision and to enforce compliance with the provisions of the I.T. Act in order to avoid evasion of taxes. What, however, is necessary to be found out is what is the actual effect of the provision being introduced by the Act.
24. Before we refer to an unreported decision of ours, in which we had to consider this aspect, it may not be inappropriate to refer to certain provisions of the Act, which, in our opinion, should be considered in conjunction. These are Sections 68, 69 and 69A. Section 68 provides that where any sum is found credited in the books of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the ITO, satisfactory, the sum so credited may be charged to income-tax 'as the income of the assessee of that previous year'. So, unexplained cash credits found in the books of account by the operation of Section 68 are charged to income-tax as the income of the assessee for that previous year. Significantly, however, Section 69 in the case of unexplained investments, uses the expression that the value of such unexplained investment 'may be deemed to be the income of the assessee for such financial year '. It does not merely stop by providing that it may be charged to income-tax but the deeming provision makes that income the income of the assessee.
25. Section 69A similarly makes provisions for unexplained moneys, etc., and other assets which are not to be found in the books of account of the assessee. It is not the case with which we are concerned. It makes the value of such amount 'deemed to be the income of the assessee for such financial year'. It may be that the Legislature wanted that Sections 69 and 69A should be considered to be deemed to be the income of the assessee (sic) though that section appears in Chap. VI under the heading 'Aggregation of Income and Set Off or Carry Forward of Loss '. In Section 69 it does not make this sum to be the deemed income of the assessee. Section 69 is the section which is applicable in the facts of the instant case, that is to say the sum found credited in the books of account is a particular sum which is credited in the books of account in respect of which satisfactory explanation to the revenue authorities has not been given by the assessee. The assessee is only liable to income-tax in respect of its income for the previous year. This is an aspect which, in our opinion, should be considered though we need not express any final opinion on this aspect.
26. In Income-tax Reference No. 355 of 1977 [Rahmat Development & Engineering Corporation v. CIT : 130ITR602(Cal) (judgment delivered on 3rd July, 1980, and 7th July, 1980), we had to deal with the imposition of the penalty in the case of an unexplained investment. The facts of that case were significantly different and we need not detain ourselves with the facts of that case. There, most of the decisions that, we have referred to hereinbefore, have been considered and we came to the conclusion that in that case as the unexplained investments had to deemed to be the income of the assessee for the year by virtue of the attraction of Section 69 and in the background of the other facts found both for that assessment year and subsequent assessment years, the revenue had discharged the onus of proof that was on it even after the coming into operation of the Explanation to Section 271(1)(c) of the Act.
27. In the light of the aforesaid decisions and in the light of the provisions that we have mentioned hereinbefore, in our opinion, it would not be correct to state that there was any significant difference by the introduction of the new Explanation with effect from 1st April, 1976, by T.L. (Amend.) Act, 1975. That Explanation merely made explicit what was implicit in the previous Explanation. Previous Explanation used the expression 'deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of this sub-section' while the present Explanation provides that 'such income should be deemed to represent the income in respect of which particulars have been concealed '. In effect, this, in our opinion, makes explicit what was implicit in the previous Explanation and in an appropriate case, in our opinion, unless certain presumptions are made, that is to say, presuming it to be an income of the assessee for that year, no question of deeming to have furnished inaccurate particulars or concealed that income would arise. The Tribunal, therefore, in our opinion, was wrong in the legal approach that after the introduction of the Explanation, no change was intended which affected the observations of the Supreme Court. Change undoubtedly was intended to be effected, not to nullify the observations of the Supreme Court because those observations were made long after the Explanation had come into effect, but to implement the legislative policy which was felt necessary to ensure implementation of these provisions. But the fundamental question is that it is also not necessary, in our opinion, to lay down any positive rule which is applicable to all cases, whether the evidence to be adduced by the assessee should be of a positive nature or of a negative nature ; nor is it theoretically possible or desirable, in our opinion, to lay down any abstract proposition that the nature of the evidence to prove a negative fact would be less than the nature of the evidence to prove a positive fact. In these matters it is, in our opinion, appropriate to decide each question on the facts and circumstances of the case bearing in mind the basic principles and these are that the evidence in the assessment proceedings are not by themselves conclusive, the circumstances under which the fact that certain sums added as the income of the assessee in the assessment proceeding do not ipso facto make the same the income of the assessee in the penalty proceedings but the circumstances under which such assessment has come to be made and the nature of the evidence produced in the assessment proceedings, are material and may provide some good evidence for coming to certain conclusions.
28. The fact that there has been rejection of the explanation given by the assessee about the source is also not conclusive of the fact either of concealment of income which is a positive act or negative or furnishing inaccurate particulars, which is presumed by the operation of the Explanation to the section which was implied before the introduction of the Explanation and had to be proved before the introduction of the Explanation. It is not conclusive nor ipso facto proof and, hence, the nature of the circumstances are material evidence. For example, the assessee gives an explanation and adduces evidence and the nature of the evidence adduced may provide cogent material to come to the conclusion that the assessee was deliberately trying to secret the income or that the explanation given in a particular case was to conceal the income or was a deliberate attempt to furnish inaccurate particulars. The explanation presumes that certain conduct must have been done. Unless the assessee discharges that onus, the presumption would be operative, unless that presumption is rebutted by evidence. Now, the quantum of evidence, whether negative or positive or small or large, must depend upon the facts and the circumstances of each case and the nature of evidence adduced either in the assessment proceedings or after that. In this case, it appears that the assessee had given an explanation. The nature of that evidence we have set out hereinbefore. The assessee was given an opportunity to explain in the proceedings under, Section 271(1)(c) of the Act, the assessee tried to give an explanation and steps taken by the assessee in that respect, that is to say, after coming on one occasion, non-appearance on another ground and seeking further dates, these are relevant factors, upon which the revenue authority could come to its own conclusion. In our opinion, the Tribunal, therefore, was not quite justified in saying that after the introduction of the Explanation the onus lay entirely on the revenue. The Tribunal has considered this aspect of the position. If by applying the wrong principle the Tribunal had arrived at a conclusion, which was a possible conclusion, without considering the factual basis we would have been justified in setting aside such a conclusion. But in this case, the Tribunal has made certain observations and we have set out those observations hereinbefore. It would appear therefrom that the Tribunal has expressed the view after taking into consideration the fact that the three cheques were paid on account of interest. What would be the effect of that observation of the Tribunal, the Tribunal has not elaborated. But the Tribunal concluded : 'Therefore, the assessee must succeed on the facts because the department had failed to prove that the amount of Rs. 26,000 and the interest thereon was assessable income of the assessee which it had failed to disclose.' The Tribunal, it appears, was basing its conclusion not only on the view it had taken on the theory of onus but also on the basis of its finding of facts. There is no question of challenging this finding, which the Tribunal records, as perverse. Therefore, though the Tribunal was not correct on its interpretation of law, as it had based its findings on facts also which have not been challenged, the conclusion that the department has failed to prove the concealment of the sums mentioned in question No. 1 cannot be assailed or altered. We answer question No. 1 accordingly.
29. This brings us to the second question, which we have set out before. We have seen the requirement of the section, as it stood at the relevant time, that is to say, in order to attract Section 271, Sub-section (1)(c), it was necessary for the ITO to be satisfied that the assessee has 'concealed' the particulars of his income or 'furnished inaccurate particulars' and we have also noted that the Explanation enjoined that in case there was a difference between the total income returned by the assessee and the assessed income, such person shall, unless he proved that the failure to return the correct income did not arise from fraud or gross or wilful neglect on his part, be deemed to have concealed particulars of his income. Therefore, what was necessary for the ITO to be satisfied was that there was either concealment of the particulars of his income or furnishing of inaccurate particulars and in certain cases the assessee would be presumed to have either concealed the particulars of his income or furnished inaccurate particulars. But such presumption would be rebutted if the assessee is able to establish by sufficient evidence that such failure to return the correct income did not arise from 'fraud or gross or wilful neglect', that is to say, if in the conduct of the assessee there was no fraud or gross or wilful neglect of the assessee and the assessee is able to prove that, in such a case, the assessee would not be deemed to have committed the offence and the revenue would have to prove aliundi that the assessee has committed the fraud or gross or wilful neglect. The expression concealment itself conveys a positive act or a mental attitude. Failure is not synonymous with concealment. A man is said to conceal an answer or conceal some money when he positively does something to secret. It is not mere omission on his part to bring the object into light. There is a mental element, whether it has to be proved by the assessee or the department or the onus to disprove that is on the assessee or not, makes no difference. Therefore, Section 271(1)(c) even after the introduction of the Explanation in 1964 requires a mental volition or mental attitude of guilt or of mind not to comply with the requirements of law. If that is the position then the question arises whether mens rea is an integral part of Section 271(1)(c) read with the Explanation. Now, it was contended on behalf of the revenue that mens rea in the cases covered by the Explanation was not the requirement. That is not the position here, in the instant provision no absolue liability has been provided, the conduct contemplated has not been made an offence irrespective of the mental element--what has been provided for is a particular mode of proving or disproving the mental element. The mental element has not been dispensed with. It was urged that as the law presumed that the assessee should have committed the offence, learned advocate for the revenue contended that in such cases an absolute liability was created. We are unable to accept this position. If the absolute liability is created then, in such cases, no question of onus on the assessee to prove that either he was not guilty of fraud or gross or wilful neglect would have been provided for. What perhaps learned advocate for the revenue really sought to say, which he did not say, was that it was not an absolute liability but it was a liability created by the statute. But even that position cannot be accepted because what was required was 'concealment', that is to say, an active or positive act of the assessee. But the nature of proof is shifted in certain contingencies to the assessee by the presumption, a rebuttable presumption introduced in the Explanation. But that does not in any way affect the requirements or the ingredients of the section. The position, however, would be different if an absolute liability is created in respect of certain act, that is to say, if the statute completely prohibits doing or undoing certain conduct and whether that was done intentionally or wilfully or without intention is irrelevant. There are many instances where such statutory obligations are imposed irrespective of the state of mind of the person who is committing that offence or who is coming under the mischief of law, and such impositions have been made in certain cases in the public interest. It is in this light, in our opinion, that some of the English decisions to which our attention was drawn by learned advocate for the revenue can be appreciated.
30. The first decision to which reference may be made is the decision in the case of Director of Public Prosecutions v. Kent and Sussex Contractors Ltd.  1 KB 146;  1 All ER 119 (KB). There, information were preferred against the respondent-company under Regulations 82(1)(c) and 82(2) of the Defence (General) Regulations, 1939, charging them with the violation of the provisions of the Motor Fuel Rationing Order, 1941, with intent to deceive, make use of a document signed by the transport manager of the company, which was false in material particulars, and that in furnishing information in the document for the purposes of the order, they made a statement which they knew to be false in a material particular. The document was false in the particulars alleged to be in the knowledge of the servants of the respondent-company. The justices were of the opinion that the company could not in law be guilty of the offences charged since there was implicit in those offences of act of will or state of mind which could not be imputed to a body corporate. It was held that the justices were wrong and that the company could be convicted of the offences charged. There, the court really proceeded on the basis that though the company could not be imprisoned, the officers of the company could be made liable for certain acts. Reliance was placed on the decision in the case of Moore v. I.Bresler  2 All ER 515 (KB), in aid of the proposition that a company could be made criminally liable if an act was done by its officers, if they had acted within their jurisdiction though in fraud of the company. Reliance was also placed on the case of H. L. Bolton (Engineering) Co. Ltd. v. T.J. Graham 6- Sons Ltd.  3 All ER 624 (CA). There, the landlords in 1941 had let their land and buildings to tenants on a lease terminable by three months' notice by either party. The tenants sub-let part of the premises to sub-tenants on a lease similarly terminable. On July 22, 1954, the landlords gave the tenants notice to quit on December 25 of that year, and the tenants gave their sub-tenants notice to quit on the same date. Both notices were rendered ineffective by the coming into operation of the Landlord and Tenants Act, 1954, on October 1, 1954. But the tenants surrendered their tenancy without any consideration in January or February, 1955. The landlord subsequently gave the sub-tenants a valid notice terminating their sub-tenancy under the Act of 1954 and opposed the sub-tenants' application for a new tenancy under Section 24(1) on the ground that they intended to occupy the premises for the purposes of their business. The sub-tenants contended that the landlords were not entitled to oppose their application on this ground because their interest in the premises had been purchased within 5 years before the termination of the tenancy contrary to Section 30(2) by virtue of the intermediate tenants' surrender of their tenancy. It was held that the landlords were entitled to oppose the sub-tenants' application for a new tenancy on the ground that they intended to occupy the premises for the purposes of their business because they had not purchased their interest in the premises, that is to say, the leasehold interest of the intermediate tenants, within the meaning of Section 30(2) of the Act of 1954, since they had received no consideration for the surrender of their right. It was held that the landlords were entitled to oppose the sub-tenants' application for new tenancy. Then regarding the intention of the company it was held that the company was entitled to oppose the application on the ground that since, having regard to the standing of the directors in control of the company's business, the intention of the directors was in the circumstances the intention of the company and the county judge was entitled to infer that the company intended to occupy the land for the purpose of their business. This decision was given naturally in a different context, that is to say, whether in certain cases, the intention of the director could be attributed as the intention of the company.
31. Our attention was next drawn to the decision in the case of Alphacell Ltd. v. Woodward  2 All ER 475;  2 WLR 1320 (HL). There an absolute liability had been created in respect of pollution of the river. Lord Salmon observed that the creation of offence in relation to permitting pollution was probably included in the section so as to deal with the type of case in which a man knew that contaminated effluent was escaping over his land into a river and did nothing at all to prevent it. The inclusion of the word 'knowingly' before 'permits' was probably otiose and, if anything, was against the appellants, since it contrasted with the omission of the word 'knowingly' before the word 'causes'. The deeming provision was probably included to meet what local authorities might otherwise have argued was a special case and could not, in his Lordship's opinion, affect the plain and unambiguous general meaning of the word 'causes'. There, Section 2(1) of the Rivers (Prevention of Pollution) Act, 1951, was as follows :
' Subject to this Act, a person commits an offence punishable under this section--
(a) If he causes or knowingly permits to enter a stream any poisonous, noxious or polluting matter....'
32. On the construction of this section, the House of Lords came to the conclusion that a statutory liability so created was an absolute statutory liability. That principle of absolute statutory liability cannot be attracted in view of the language used in this section, with which we are concerned. More or less similar situation arose before the Court of Appeal in England in the case of R v. Howells  3 All ER 417 (CA). There the court was concerned with Section 1(1) of the Firearms Act, 1968 of England, which provided as follows:
'Subject to any exemption under this Act, it is an offence for a person--(a) to have in his possession, or to purchase or acquire, a firearm to which this section applies without holding a firearm certificate in force at the time, or otherwise than as authorised by such a certificate......'
33. It was an offence to be in possession, or to purchase or to acquire a firearm without holding a firearm certificate under the Firearms Act and the offence was absolute whether knowingly or admittedly. There, the observations of Lord Reid in the decision in the case of Sweet v. Parsley  1 All ER 347 (HL) were quoted, where Lord Reid observed that their first duty was to consider the words of the Dangerous Drugs Act, 1965 ; if they showed a clear intention to create an absolute offence, that was the end of the matter. But such cases were very rare. Sometimes the words of the section which created a particular offence made it clear that mens rea was required in one form or another. Such cases were quite frequent, but in a very large number of cases there was no clear indication either way. In such cases there had for centuries been a presumption that Parliament did not intend to make criminals of persons who were in no way blameworthy in what they did. That means that, whenever a section was silent as to mens rea, there was a presumption that, in order to give effect to the will of Parliament, we should read in words appropriate to require mens rea. There, the court found that an absolute offence had been created by the language used. The principle that emerges that in the case of an absolute offence which must be clearly found out by the language used, the presumption is that the Legislature always intended to create rnens rea unless excluded.
34. This question was also considered by the Supreme Court in India in the case of Stale of MaharasMra v. Mayer Hans George : 1SCR123 . There the Supreme Court was dealing with Section 8 of the Foreign Exchange Regulation Act, 1947, which provided as follows :
'8. (1) The Central Government may, by notification in the Official Gazette, order that subject to such exemptions, if any, as may be contained in the notification, no person shall, except with the general or special permission of the Reserve Bank and on payment of the fee, if any, prescribed, bring or send into India any gold....
Explanation.--The bringing or sending into any port or place in India of any such article as aforesaid intended to be taken out of India without being removed from the ship or conveyance in which it is being carried shall none the less be deemed to be bringing, or as the case may be, sending into India, of that article for the purpose of this section.'
35. In exercise of the power conferred by the said section on the Central Government, it had issued the following notification dated August 25, 1948 (as amended up to July 31, 1958).
36. The Supreme Court at page 583 of the report observed as follows:
'Reverting now to the question whether mens rea--in the sense of actual knowledge that the act done by the accused was contrary to the law--is requisite in respect of a contravention of Section 8(1), starting with an initial prescription in favour of the need for mens rea, we have to ascertain whether the presumption is overborne by the language of the enactment, read in the light of the objects and purposes of the Act, and particularly whether the enforcement of the law and the attainment of its purpose would not be rendered futile in the event of such an ingredient being considered necessary.'
37. Again, in the case of Nathulal v. State of Madhya Pmdesh, : 1966CriLJ71 , the Supreme Court reiterated that a guilty mind was an ingredient of a criminal offence unless excluded by the statute. The exclusion of mens rea by necessary implication should normally be avoided.
38. This precise question, however, was considered by the Supreme Court in the case of Kapurchand Shrimal v. TRO : 72ITR623(SC) . In that case upon a HUF committing default in payment of income-tax due by it for the assessment years 1955-56 to 1959-60 certificates were issued under Section 46(2) of the Indian I.T. Act, 1922, for the recovery of tax due by the family, and properties and the outstandings of the family were attached. The Supreme Court observed, dealing with the argument on behalf of the revenue, as follows at page 627 of the report:
'The scheme of the Income-tax Act, 1961, is to treat the assessee failing to pay the tax due within the period prescribed a defaulter. The Income-tax Officer may, where the assessee is found to be in default, issue a certificate for recovery and forward it to the Tax Recovery Officer specifying the amount of arrears due from the assessee. The amount due may be recovered by resort to any one or more of the four modes prescribed by Section 222 of the Act. If the defaulter fails to comply with a notice issued by the Tax Recovery Officer requiring the defaulter to pay the amount within fifteen days from the date of the service of the notice, proceedings for recovery may be taken against the assessee for recovery of the tax. But under the scheme of the Act and the Rules, the assessee alone may be treated in default. The Act and the Rules contemplate that the notice for payment of the tax arrears may be issued against the assessee, and proceedings for recovery of the tax may be taken against the assessee alone. Under the Income-tax Act, 1961, a Hindu undivided family is a distinct taxable entity, apart from the individual members who constitute that family. Section 4 of the Income-tax Act charges to tax for any assessment year, the total income of the previous year of every person and 'person ' is denned in Section 2(31) as including--(i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses. The legislature having treated a Hindu undivided family as a taxable entity distinct from the individual members constituting it, and proceedings for assessment and recovery of tax having been taken against the Hindu undivided family, it was not open to the Tax Recovery Officer to initiate proceedings against the manager of the Hindu: undivided family for his arrest and detention. It is true that if properties of the family, movable and immovable, are to be attached, proceedings may be started against the Hindu undivided family and the manager represents the family in proceedings before the Tax Recovery Officer. But by the clearest implication of the statute the assessee alone may be deemed to be in default for non-payment of tax, and liability to arrest and detention on failure to pay the tax due is also incurred by the assessee alone. The manager, by virtue of his status, is competent to represent the Hindu undivided family, but on that account he cannot, for the purpose of Section 222 of the Act of 1961, be deemed to be the assessee when the assessment is made against the Hindu undivided family and certificate for recovery is issued against the family.'
39. Again dealing with Sections 276, 276A, 277 and 278 of the I.T. Act, 1961, the Supreme Court at page 629 of the report ( 72 ITR) observed as follows :
'Sections 276, 276A, 277 and 278 on which reliance was placed by counsel for the revenue in support of his argument also do not assist him. These sections occur in a chapter relating td penalties, and they seek to penalise failure to carry out specific provisions mentioned therein. We are unable to hold that the expression ' person' in Sections 276, 276A and 277 is used in the sense in which it is defined in Section 2(31) of the Act. For each specific act which is deemed to be an offence under those provisions an individual who without reasonable cause or excuse fails to do the acts prescribed by statute or acts in a manner contrary to the statute or makes a declaration on oath which he believed to be false or does not believe to be true, is made liable to be punished. Section 278 penalises the abetment or inducing any person to make and deliver an account, statement or declaration relating to any income chargeable to tax which is false and which he either knows to be false or does not believe to be true. In the context in which the expression 'person' occurs in Sections 276, 276A, 277 and 278, there can be no doubt that it seeks to penalise only those individuals who fail to carry out the duty cast by the specific provisions of the statute, or are otherwise responsible for the acts done. For the default of the Hindu undivided family, therefore, in payment of tax, the karta cannot be arrested and detained in prison.'
40. Now, Section 276 of the I.T. Act, 1961, though it occurs in a chapter which is headed as 'Offences and Prosecution ', only provides that if a person fails or without reasonable cause or excuse does certain acts, he will be punishable. On the other hand, under Section 271(1)(c) of the Act, the ingredients are either act of concealment or furnishing inaccurate particulars, which the assessee can rebut by proving that there was no fraud or gross or wilful neglect. So the very fact that the assessee is given an opportunity to avoid offences contemplated under Section 271(1)(c) by proving certain factors indicates that these were the ingredients that were presumed to have been committed by the assessee. Now, therefore, the ingredients of fraud or gross or wilful neglect are the ingredients embedded in Section 271(1)(c) of the Act. How the ingredients are to be proved, that is to say, by throwing the onus upon the assessee or the other way, is a different proposition. If that is the position, then in view of the fact that mens rea is a necessary element, it is doubtful in view of the observations of the Supreme Court in the last mentioned case whether the mental element of the company can be deduced from the conduct of those who decide for and act for and on behalf of the company. The Division Bench of this court in Kusum Products Ltd. v. S. K. Sinha : 126ITR804(Cal) held that a company could not be held liable of an offence under Section 277 of the Act. Rut then the nature of the punishment which had to be inflicted for the offence under Section 277 of the Act, also influenced the decision of the court.
41. Before we conclude we must also incidentally refer to the observation of the Division Bench of the Jammu and Kashmir High Court in the case of AddL CIT v. Sadiq Ali & Bros. , where it was observed that from a perusal of Section 271(1) of the I.T. Act, 1961, it was manifest that before this section could apply, the authority concerned should be satisfied that the assessee had concealed the particulars of his income or had deliberately furnished inaccurate particulars of such income. The Division Bench observed that although the section did not require mens rea, yet, as the provisions were purely of penal nature, some amount of culpable negligence or wilful omission on the part of the assessee must be established before the penalty could be levied. We are unable to appreciate the observation because mens rea in essence is a state of mental volition. Therefore, if the section requires that culpable negligence or wilful omission on the part of the assessee must be established, Section 271 does not require mens rea. If it does require that culpable negligence or wilful omission on the part of the assessee must be proved, then the guilty mind must be there. Our attention was drawn to the decision of the Kerala High Court in the case of Dawn & Co. v. CIT : 87ITR71(Ker) , where the Division Bench of the High Court held that tile mens rea was an essential ingredient before the imposition of the penalty.
42. Our attention was also drawn to the decision of a single Bench of the Madras High Court in the case of A. D. Jayaveerapandia, Nadar & Co. v. ITO : 101ITR390(Mad) . The aspect whether the act or the conduct of the agents in matters like these could be attributed to deduce criminal intent of a corporate body requires closer examination in the light of the observations of the Supreme Court. We entertain grave doubts on this aspect. But in the view we have taken on the first aspect we need only say that mens rea is an essential element and whether a limited company is capable of conscious concealment, it is not necessary for us to express any opinion except grave doubts. We answer the second question accordingly.
43. In the facts and circumstances of the case, parties will pay and bear their own costs.
44. On the oral application of the learned advocate for the revenue for leave to appeal to the Supreme Court, inasmuch as the question in our opinion, is of great importance, we certify that it is a fit case for appeal to the Supreme Court.
45. Let the order for issue of certificate be drawn up separately andexpeditiously.
Sudhindra Mohan Guha, J.
46. I agree.