M/S VYALIKAVAL HOUSE BUILDING V. THE INCOME TAX DEPARTMENT

CRL.P/4891/2014

AI Insights

The case involves M/s Vyalikaval House Building Co-operative Society Ltd. and its officials, who were accused of willfully attempting to evade tax under Section 276C(2) of the Income Tax Act, 1961. The Income Tax Department initiated prosecution after the society failed to pay self-assessment tax on time, despite filing returns. The petitioners argued that they did not intend to evade tax, citing subsequent payments made after the complaint was filed. The court examined whether the actions of the petitioners amounted to a 'willful attempt to evade tax' and concluded that the prosecution was not warranted based on the evidence presented.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 755029 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 14-06-2019
• Assessment Year: misc
• Other Referred Cases: Sushil Kumar Saboo vs State of Bihar, Prem Dass vs Income Tax Officer
• Laws Referred To: Income Tax Act 1961, Karnataka Co-operative Societies Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: JEEVAN NEERALGI
• Assessee Lawyers: K SUMAN
• Keywords: Income Tax; Mens Rea; Prosecution; Search and seizure; Willful Attempt to Evade Tax
• Section: 132; 153A; 140A; 276CC; 276C(2); 281B

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 14TH DAY OF JUNE 2019 BEFORE THE HON’BLE MR. JUSTICE JOHN MICHAEL CUNHA CRIMINAL PETITION NO.4891 OF 2014 C/W CRIMINAL PETITION NO.4892 OF 2014 BETWEEN: 1. M/S VYALIKAVAL HOUSE BUILDING CO OPERATIVE SOCIETY LTD. NO.62, 9TH CROSS, 7TH MAIN ROAD, MALLESWARAM, BANGALORE-560 003. REPRESENTED BY ITS SECRETARY SRI.H.SREENIVASA. 2. SRI.H.SREENIVASA AGED ABOUT 50 YEARS, S/O LATE HANUMANTHACHAR SECRETARY, M/S. VYALIKAVAL HOUSE BUILDING CO-OPERATIVE SOCIETY LTD., NO.62, 9TH CROSS,7TH MAIN ROAD, MALLESWARAM, BANGALORE-560 003. 3. SRI.J.S.PANT AGED ABOUT 68 YEARS, S/O SIDDARTH PANT, EX.VICE PRESIDENT VYALIKAVAL HOUSE BUILDING CO-OPERATIVE SOCIETY LTD. NO.62, 9TH CROSS, 7TH MAIN ROAD, MALLESWARAM, BANGALORE-560 003. ... PETITIONERS (COMMON) (By Sri.K SUMAN – ADVOCATE) 2 AND THE INCOME TAX DEPARTMENT BY DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE -1(1) BANGALORE-560 032. ... RESPONDENT (COMMON) (By Sri.JEEVAN J NEERALGI - ADVOCATE) IN CRIMINAL PETITION NO.4891 OF 2014 THIS CRIMINAL PETITION IS FILED U/S. 482 CR.P.C PRAYING TO SET ASIDE AND QUASH THE ORDER DATED:29.3.14 PASSED BY THE COURT OF THE SPL. COURT (ECONOMIC OFFENCES), BANGALORE IN CASE NO.C.C.94/14, TAKING THE COGNIZANCE OF THE OFFENCE AGAINST THE ACCUSED/PETRS.1 TO 3 ON THE COMPLAINT FILED BY THE COMPLAINANT/RESPONDENT AGAINST THE PETRS.1 TO 3 UNDER SEC. 276C(2) OF THE INCOME TAX ACT 1961 AND ALL FURTHER PROCEEDINGS THEREON AND TO CONSEQUENTLY DISMISS THE COMPLAINT FILED BY THE RESPONDENT HEREIN AGAINST THE PETRS. 1 TO 3 IN C.C.NO.94/14. IN CRIMINAL PETITION NO.4892 OF 2014 THIS CRIMINAL PETITION IS FILED U/S. 482 CR.P.C PRAYING TO SET ASIDE AND QUASH THE ORDER DATED:29.3.14 PASSED BY THE COURT OF THE SPL. COURT (ECONOMIC OFFENCES), BANGALORE IN CASE NO.C.C.95/14, TAKING THE COGNIZANCE OF THE OFFENCE AGAINST THE ACCUSED/PETRS.1 TO 3 ON THE COMPLAINT FILED BY THE COMPLAINANT/RESPONDENT AGAINST THE PETRS.1 TO 3 UNDER SEC. 276C(2) OF THE INCOME TAX ACT 1961 AND ALL FURTHER PROCEEDINGS THEREON AND TO CONSEQUENTLY DISMISS THE COMPLAINT FILED BY THE RESPONDENT HEREIN AGAINST THE PETRS. 1 TO 3 IN C.C.NO.95/14. THESE CRIMINAL PETITIONS COMING ON FOR ADMISSION THIS DAY, THE COURT MADE THE FOLLOWING:- 3 O R D E R Petitioner No.1 is a Co-operative Society registered under the provisions of the Karnataka Co-operative Societies Act. Petitioner No.2 is the Secretary and petitioner No.3 is the Ex- Vice President of the said Society, in both the petitions. 2. The premises of petitioner No.1 was subjected to search and seizure under Section 132 of the Income Tax Act, 1961 (hereinafter referred to as the Act, for brevity) on 5.7.2011. Consequent to search, assessment proceedings came to be initiated by the Assessing Officer by issuing a notice under Section 153A of the Act dated 27.9.2011 calling upon petitioner No.1 to file its returns of income for the assessment years 2006- 07 to 2011-12. Since there was no compliance of the aforesaid notice, the Assessing Officer issued a show cause notice dated 31.7.2013 calling upon petitioner No.1 as to why prosecution for the offence punishable under Section 276CC of the Act could not be initiated. In response to the said show cause notice, petitioner No.1 filed returns of income on 8.8.2013 for the assessment years 2010-11 and 2011-12. In the said returns, 4 petitioner No.1 declared the total income of Rs.3,49,93,300/- and the total tax payable at Rs.10,54,420/- for the assessment year 2010-11 and income of Rs.3,78,36,508/- and the tax payable thereon at Rs.1,03,88,310/- for the assessment year 2011-12 respectively. Petitioner No.1 though filed returns, failed to pay the self-assessment tax along with the return of income under Section 140A of the IT Act. In the meanwhile, the property owned by petitioner No.1 was attached under Section 281B of the Act. The attachment was later lifted on condition that the sale proceeds of the attached property would be directly remitted to the Department. Thereafter, petitioner No.1 sent a cheque for Rs.1,25,00,000 towards self-assessment tax due for the assessment years 2010-11 and 2011-12. On the back of the said cheque, it was instructed that “cheque to be presented at the time of registration of the property”. In view of this instruction, Department did not encash the said cheque. Contending that the petitioners have willfully and deliberately made an attempt to create circumstances to enable them to evade payment of tax, a complaint was lodged before the Court for Economic Offences, Bengaluru, seeking prosecution of the 5 petitioners for the offence punishable under Section 276C(2) of the Act. The Special Court took cognizance of the offence and issued summons to the petitioners. Aggrieved by the impugned action, the petitioners have invoked the jurisdiction of this Court under Section 482 of Cr.P.C. seeking to quash the impugned proceedings. 3. I have heard the learned counsel Sri.K.Suman, appearing for the petitioners and Sri.Jeevan Neeralagi, learned Standing counsel appearing for respondent-Department and have perused the records. 4. The contention of the learned counsel for the petitioners is that the circumstances pleaded by the respondent – Department do not disclose any intention on the part of the petitioners to evade payment of tax. On the other hand, facts disclosed therein reveal that, a sum of Rs.1,34,03,190 was paid on 7.8.2013 for the assessment year 2009-10 and a sum of Rs.62,00,000/- was paid on 7.8.2013 and the balance of Rs.1,03,88,310 was paid on 15.5.2014 in respect of the assessment year 2010-11. These payments indicate that 6 petitioners had no intention to evade tax and hence the prosecution of the petitioners for the alleged offence is patently illegal and an abuse of the process of Court. Further, he submitted that insofar as petitioner No.3 is concerned, there is no averment whatsoever in the complaint as to on what basis he has been implicated in the aforesaid offence, which again indicates that the respondent-Department has adopted arm twisting methods to recover the alleged tax. 5. In support of his submissions the learned counsel has placed reliance on the decision of the High Court of Patna in the case of Sushil Kumar Saboo – vs – State of Bihar and Anr. Reported in 2011(1) PLJR 785 and the decision of the Hon’ble Supreme Court in the case of Prem Dass – vs – Income Tax Officer reported in (1999) 5 Supreme Court Cases 241 and with reference to paragraph 8 thereof, has emphasized that, “willful attempt to evade any tax, penalty or interest chargeable or imposable under the Act under Section 276-C is a positive act on the part of the accused which is required to be proved to bring home the charge against the accused……Necessary mens rea, 7 therefore, is required to be established by the prosecution to attract the provisions of Section 277”. 6. Disputing the above submissions, the learned standing counsel appearing for the respondent-Department has pointed out that all the payments were made by the petitioners subsequent to the lodging of the complaint and therefore, the said payment do not absolve the petitioners from the rigors of Section 276C(2) of the Act. Even the cheque was issued with a rider not to encash the same. These circumstances, clearly disclose mens rea on the part of the petitioners to evade tax and hence there is no reason to quash the proceedings. 7. I have given my anxious consideration to the rival submissions made at the bar and have carefully scrutinsed the material on record. Undisputedly, petitioners are sought to be prosecuted under Section 276C(2) of the Act. The Section reads as under :- “276C (2) If a person willfully attempts in any manner whatsoever to evade the payment of any tax, penalty or interest under this Act, he shall, without prejudice to any penalty that may be 8 imposable on him under any other provision of this Act, be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and shall, in the discretion of court, also be liable to fine.” 8. The gist of the offence under Section 276C(2) of the Act is the willful attempt to evade any tax, penalty or interest chargeable or imposable under the Act. What is made punishable under this Section is an “attempt to evade tax penalty or interest” and not the actual evasion of tax. ‘Attempt’ is nowhere defined in the Act or in the Indian Penal Code. In legal echelons ‘attempt’ is understood as a “movement towards the commission of the intended crime”. It is doing “something in the direction of commission of offence”. Viewed in that sense, in order to render the accused guilty of “attempt to evade tax” it must be shown that he has done some positive act with an intention to evade tax. 9. In the instant case, the only circumstance relied on by the respondent in support of the charge levelled against the petitioners is that, even though accused filed the returns, yet, it 9 failed to pay the self-assessment tax along with the returns. This circumstance even if accepted as true, the same does not constitute the offence under Section 276C (2) of the Act. The act of filing the returns by itself cannot be construed as an attempt to evade tax, rather the submission of the returns would suggest that petitioner No.1 had voluntarily declared his intention to pay tax. The act of submitting returns is not connected with the evasion of tax. It is only an act which is closely connected with the intended crime, that can be construed as an act in attempt of the intended offence. In the backdrop of this legal principle, the Hon’ble Supreme Court in the case of Prem Dass – vs – Income Tax Officer cited supra, has held that a positive act on the part of the accused is required to be established to bring home the charge against the accused for the offence under Section 276C(2) of the Act. 10. In the case on hand, conduct of petitioner No.1 making payments in terms of the returns filed by him, though delayed and made after coercive steps were taken by the Department do not lead to the inference that the said payments were made in an attempt to evade tax declared in the returns 10 filed by him. Delayed payments, under the provisions of the Act, may call for imposition of penalty or interest, but by no stretch of imagination, the delay in payment could be construed as an attempt to evade tax so as to entail prosecution of the petitioners for the alleged offence under Section 276C(2) of the Act. In that view of the matter, the prosecution initiated against the petitioners, in my considered opinion, is illegal and tantamount to abuse of process of Court and is liable to be quashed. For the aforesaid reasons, petitions are allowed. The proceedings initiated against the petitioners in C.C.No.94/2014 and C.C.No.95/2014 pending before the Special Court (Economic Offences) Bengaluru are quashed. It is made clear that this order shall not come in the way of the Department taking necessary steps for recovery of the tax, if any, due and payable by the petitioners in accordance with law. Sd/- JUDGE rs "