(SUPREME COURT OF INDIA)

 

Prakash Nath Khanna and Another

Vs

Commissioner of Income Tax and Another

 

HON'BLE JUSTICE DORAISWAMY RAJU AND HON'BLE JUSTICE ARIJIT PASAYAT

16/02/2004

C. A. Nos. 1260 - 1261 of 1997

 

JUDGMENT

 

: ARIJIT PASAYAT J.

ARIJIT PASAYAT J.- These appeals revolve round the scope andambit of section 276CC of the Income-tax Act, 1961 (in short the"Act"), and are directed against a common judgment renderedby a Division Bench of the Himachal Pradesh High Court (see  1996 Indlaw HP 22) which rejected the three writ petitions filed by theappellants in these two appeals. The Assistant Commissioner ofIncome-tax, Circle-I, Shimla, filed a complaint in terms of section276CC of the Act in the court of the CJM who had issued process oftaking cognizance of the offence. In each of the writ applications, challenge was made to the legality of the proceedings pending in theCourt of the Chief Judicial Magistrate, Shimla (in short the "CJM").

The factual position is almost undisputed and needs to be noted inbrief.

The three appellants were partners of a firm carrying on businessunder the name and style of M/s. Kailash Nath and Associates. Apartfrom the three appellants, two other persons were partners and one ofthem Shri Kailash Nath was the managing partner in terms of thepartnership deed dated April 1, 1983. For the assessment year1988-89, return of income was to be filed on or before July 31, 1988, but was in fact filed on March 20, 1991. Assessment under section143(3) of the Act was completed on August 26, 1991. Proceedings forlate submission of return were initiated against the appellants undersection 271(l)(a) of the Act and penalty was imposed. Proceedings interms of section 276CC of the Act were also initiated and a complaintwas filed before the concerned court. As noted above, cognizance wastaken and process was issued. Writ applications were filedchallenging the legality of the proceedings. By the impugned judgmentthe High Court dismissed the writ petitions. The points which weremooted before the High Court were reiterated in the present appeals.

Mr. G. C. Sharma, learned senior counsel appearing for the appellants, urged the following points for consideration :

1. The expression "to furnish in due time" occurring insection 276CC means to furnish within the time permissible under theAct. The return fur-nished under section 139(4) at any time beforethe assessment is made has to be regarded as a return furnished undersection 139(1). This was so held by this court in CIT v. Kulu ValleyTransport Co. Pvt. Ltd.   in the context of sections22(1) and 22(3) of the Indian Income-tax Act, 1922 (in short the "oldAct"), which are in pari materia with section 139(1) and section139(4) of the Act. It follows that the return was furnished in "thedue time" and consequently section 276CC is not attracted.

2. The provisions of section 276CC(i) are not intended to apply tothe cases of assessees who have been regularly assessed to income-taxand have voluntarily submitted their returns of income without issueof any notice to do so by the Assessing Officer in that behalf, within the time permissible to furnish the return under the Act. Thisinterpretation gets support from the marginal heading and explanatorymemo laid before Parliament when the section was introduced.

3(i). The provision only applies where the amount of tax whichwould have been evaded if the failure had not been discovered exceedsRs. 1, 00, 000. There has been no discovery of the failure in this casefrom the point of view of evasion of tax. The assessee has submittedreturn voluntarily, paid advance tax and self assessment tax.

3(ii). There has been no concealment of income in this case, andno penalty has been or can be imposed. The allegation made in thecomplaint that there has been evasion of tax to the extent of Rs.5, 68, 039 is based on no evidence and is contrary to the materials onrecord.

4. The petitioners in the reply to the show cause notice issuedpleaded that the delay in submission of returns was unavoidable, because their share of profit from the firm in which they werepartners had not been communicated by the managing partner of thefirm who was responsible for the accounts. They had no guilty mind.

5. Mere delay in filing a return without contumacious conduct andmens rea being established could not make the petitioner liable forprosecution.

6. The petitioner having been subjected to levy of interest undersection 139(8) and also to penalty proceedings under section271(l)(a) of the Act, could not further be prosecuted for the samedefaults.

Per contra, learned counsel appearing for the respondentssubmitted that the High Court was justified in its conclusions indismissing the writ petitions. The decision in Kulu Valley's case (SC) has no application to the facts of the presentcase and in fact it was rendered in a different set up. Sub-sections(1) and (4) of section 139 deal with different situations and itcannot be said that a return filed in terms of section 139(4) wouldmean compliance with the requirements indicated in sub-section (1) ofsection 139. It is further submitted that section 278E raises apresumption which is a rebu-table one and the factual aspects raisedby the appellants can be placed for consideration in the proceedingsbefore the learned CJM.

Since the fate of the appeals revolves round the scope and ambitof section 276CC in the background of sub-sections (1) and (4) ofsection 139, it would be .appropriate to quote the aforesaidprovisions, as they stood at the relevant point of time :

"276CC failure to furnish returns of income. :If aperson wilfully fails to furnish in due time the return of incomewhich he is required to

furnish under sub-section (1) of section 139 or by notice givenunder clause (i) of sub-section (1) of section 142 or section 148, heshall be punishable, :

(i) in a case where the amount of tax, which would have beenevaded if the failure had not been discovered, exceeds one hundredthousand rupees, with rigorous imprisonment for a term which shallnot be less than six months but which may extend to seven years andwith fine ;

(ii) in any other case, with imprisonment for a term which shallnot be less than three months but which may extend to three years andwith fine :

Provided that a person shall not be proceeded against under thissection for failure to furnish in due time the return of income undersubsection (1) of section 139 :

(i) for any assessment year commencing prior to the 1st day ofApril, 1975 ; or

(ii) for any assessment year commencing on or after the 1st day ofApril, 1975, if-

(a) the return is furnished by him before the expiry of theassessment year; or

(b) the tax payable by him on the total income determined onregular assessment, as reduced by the advance tax, if any, paid, andany tax deducted at source, does not exceed three thousand rupees."

" 139. Return of income.:(I) Every person, if his totalincome or the total income of any other person in respect of which heis assessable under this Act during the previous year exceeded themaximum amount which is not chargeable to income-tax, shall furnish areturn of his income or the income of such other person during theprevious year in, the prescribed form and verified in the prescribedmanner and setting forth such other particulars as may be prescribed:

(a) in the case of every person whose total income, or the totalincome of any other person in respect of which he is assessable underthis Act, includes any income from business or profession, before theexpiry of four months from the end of the previous year or wherethere is more than one previous year, from the end of the previousyear which expired last before the commencement of the assessmentyear, or before the 30th day of June of the assessment year, whichever is later ;

(b) in the case of every other person, before the 30th day of Juneof the assessment year :

Provided that, on an application made in the prescribed manner, the Assessing Officer may, in his discretion, extend the date forfur-nishing the return, and, notwithstanding that the date is soextended, interest shall be chargeable in accordance with theprovisions of sub-section (8).

(1A) Notwithstanding anything contained in sub-section (1), noper-son need furnish under that sub-section a return of his income orthe income of any other person in respect of whose total income he isassess-able under this Act, if his income or, as the case may be, theincome of such other person during the previous year consisted onlyof income chargeable under the head 'Salaries' or of incomechargeable under that head and also income of the nature referred toin any one or more of clauses (i) to (ix) of sub-section (1) ofsection SOL and the following con-ditions are fulfilled, namely : :

(a) where he or such other person was employed during thepre-vious year by a company, he or such other person was at no timeduring the previous year a director of the company or a beneficialowner of shares in the company (not being shares entitled to a fixedrate of divi-dend whether with or without a right to participate inprofits) carrying not less than twenty per cent, of the voting power;

(b) his income or the income of such other person under the head'Salaries', exclusive of the value of all benefits or amenities notprovided for by way of monetary payment, does not exceed twenty-fourthousand rupees ;

(c) the amount of income of the nature referred to in clauses (i)to (ix) of sub-section (1) of section SOL, if any, does not, in theaggregate exceed the maximum amount allowable as deduction in hiscase under that section ; and

(d) the tax deductible at source under section 192 from the incomechargeable under the head 'Salaries' has been deducted from thatincome.

(2) In the case of any person who, in the Assessing Officer'sopinion is assessable under this Act, whether on his own total incomeor on the total income of any other person during the previous year, the Assessing Officer may, before the end of the relevant assessmentyear, issue a notice to him and serve the same upon him requiring himto furnish, within thirty days from the date of service of thenotice, a return of his income or the income of such other personduring the previous year, in the prescribed form and verified in theprescribed manner and setting forth such other particulars as may beprescribed :

Provided that, on an application made in the prescribed manner, the Assessing Officer may, in his discretion, extend the date forfurnishing the return, and, notwithstanding that the date is soextended, interest shall be chargeable in accordance with theprovisions of sub-section (8).

(3) If any person who has not been served with a notice undersub-section (2), has sustained a loss in any previous year under thehead

'Profits and gains of business or profession' or under the head'Capital gains' and claims that the loss or any part thereof shouldbe carried forward under sub-section (1) of section 72 or sub-section(2) of section 73 or sub-section (1) or sub-section (3) of section 74or sub-section (3) of section 74A, he may furnish, within the timeallowed under sub-section

(1) or by the thirty-first day of July of the assessment yearrelevant to the previous year during which the loss was sustained, areturn of loss in the prescribed form and verified in the prescribedmanner and containing such other particulars as may be prescribed, and all the provisions of this Act shall apply as if it were a returnunder sub-section (1).

(4){a) any person who has not furnished a return within the timeallowed to him under sub-section (1) or sub-section (2) may, beforethe assessment is made, furnish the return for any previous year atany time before the end of the period specified in clause (b), andthe provisions of sub-section (8) shall apply in every such case ;

(b) the period referred to in clause (a) shall be:

(i) where the return relates to a previous year relevant to anyassessment year commencing on or before the 1st day of April, 1967, four years from the end of such assessment year ;

(ii) where the return relates to a previous year relevant to theassessment year commencing on the 1st day of April, 1968, three yearsfrom the end of the assessment year ;

(iii) where the return relates to a previous year relevant to anyother assessment year, two years from the end of such assessmentyear. (4A) Every person in receipt of income derived from propertyheld under trust or other legal obligation wholly for charitable orreligious purposes or in part only for such purposes, or of incomebeing voluntary contributions referred to in sub-clause (iia) ofclause (24) of section 2, shall, if the total income in respect ofwhich he is assessable as a representative assessee (the total incomefor this purpose being computed under this Act without giving effectto the provisions of sections 11 and

12) exceeds the maximum amount which is not chargeable toincome-tax, furnish a return of such income of the previous year inthe prescribed form and verified in the prescribed manner and settingforth such other particulars as may be prescribed and all theprovisions of this Act shall, so far as may be, apply as if it were areturn required to be furnished under sub-section (1).

(4B) The chief executive officer (whether such chief executiveofficer is known as Secretary or by any other designation) of everypolitical party shall, if the total income in respect of which thepolitical party is assessable (the total income for this purposebeing computed under this Act without giving effect to the provisionsof section 13A) exceeds the

maximum amount wnicn is not chargeable to income-tax, rurnisn areturn of such income of the previous year in the prescribed form andverified in the prescribed manner and setting forth such otherparticulars as may be prescribed and all the provisions of this Act, shall, so far as may be, apply as if it were a return required to befurnished under sub-section (1).

(5) If any person having furnished a return under sub-section (1)or sub-section (2), discovers any omission or any wrong statementtherein, he may furnish a revised return at any time before theassessment is made." *

Kulu Valley's case  (SC) was rendered in thebackground of section 22 of the old Act. Great emphasis is laid onthe observation by this court that sub-section (3) of section 22 ofthe old Act was in the nature of a proviso to sub-section (1)thereof. It is to be noted that the decision was rendered in atotally different context. The question related to the treatment of areturn of loss filed beyond the time provided under sub-section (1)of section 22. The observation on which reliance is placed cannot beread out of context.

In Kulu Valley's case  (SC), the majority viewwas that section 22(3) of the old Act (corresponding to section139(4) of the Act) is merely a proviso to section 22(1) (section139(1)), respectively, and if section 22(3) is complied with, section22(1) must be held to have been complied with and that if compliancehas been made with section 22(3), the requirement of section 22(2A)(corresponding to section 139(3) of the Act) would stand satisfied.It was thus held that the ascertained losses could be carried forwardto the subsequent years and set off, even though suo motu return isnot filed within time prescribed under section 22(1) of the old Act.

The decision was rendered in a conceptually different situationand has no relevance so far as the present dispute is concerned.

The basic issue in Kulu Valley's case  (SC) wasdetermination of loss on the basis of the return filed under section22(1) or 22(3) of the old Act. In the Act, section 80 dealsspecifically with the situation.

The original section 80 in the Act reads as under :

"Notwithstanding anything contained in this Chapter, no losswhich has not been determined in pursuance of a return filed undersection 139, shall be carried forward and set off under sub-section(1) of section 72 or sub-section (2) of section 73 or sub-section (1)of section 74." *

By the Taxation Laws (Amendment) Act, 1984, with effect from April1, 1985, the words "under section 139"(underlined1 foremphasis) were substituted by the words

"within the time allowedunder sub-section (1) of section 139 or within such further time asmay be allowed by the Income-tax Officer" *

(underlined1 foremphasis).

As a result of the amendment of section 139(3) by the TaxationLaws (Amendment and Miscellaneous Provisions) Act, 1986, the power ofthe Income-tax Officer to extend time for furnishing return was takenaway with effect from April 1, 1987.

Yet again, by the Direct Tax Laws (Amendment Act), 1987, witheffect from April 1, 1989, the words

"within the time allowedunder sub-section (1) of section 139 or within such further time asmay be allowed by the Income-tax Officer"were substituted bythe words" in accordance with the provisions of sub-section (3)of section 139" *

.

It is a well settled principle in law that the court cannot readanything into a statutory provision which is plain and unambigous. Astatute is an edict of the Legislature. The language employed in astatute is the determinative factor of legislative intent. The firstand primary rule of construction is that the intention of thelegislation must be found in the words used by the Legislatureitself. The question is not what may be supposed and has beenintended but what has been said. "Statutes should be construed, not as theorems of Euclid". Judge Learned Hand said,

"butwords must be construed with some imagination of the purposes whichlie behind them" *

, (see Lenigh Valley Cod Co. v. Yensavage (218FR 547). The view was reiterated in Union of India v. Filip Tiago DeGama of Vedem Vasco De Gama,  and Padma Sundara Rao v.State of Tamil Nadu  ;   (SC)).

In D. R. Venkatachalam v. Deputy Transport Commissioner   it was observed that courts must avoid the danger of a prioridetermination of the meaning of a provision based on their ownpreconceived notions of ideo-logical structure or scheme into whichthe provision to be interpreted is some-what fitted. They are notentitled to usurp legislative function under the disguise ofinterpretation.

While interpreting a provision the court only interprets the lawand cannot legislate it. If a provision of law is misused andsubjected to the abuse of process of law, it is for the Legislatureto amend, modify or repeal it, if deemed necessary, (see Rishabh AgroIndustries Ltd. v. P. N. B. Capital Services Ltd.   ; ). The legislative causus omissus cannot besupplied by judicial interpretative process.

Two principles of construction:one relating to casus omissusand the other in regard to reading the statute as a whole:appearto be well settled. Under the first principle a casus omissus cannotbe supplied by the court except in the case of clear necessity andwhen reason for it is found in the four corners of the statute itselfbut at the same time a casus omissus should not be readily inferredand for that purpose all the parts of a statute or section must beconstrued together and every clause of a section should be construedwith reference to the context and other clauses thereof so that theconstruction to be put on a particular provision makes a consistentenactment of the whole statute. This would be more so if literalconstruction of a particular clause leads to manifestly absurd oranomalous results which could not have been intended by theLegislature. "An intention to produce an unreasonable result", said Danckwerts L. J. in Artemiou v. Procopiou [1966] 1 QB 878 (CA),

"is not to be imputed to a statute if there is some otherconstruction avail-able". Where to apply words literally would" defeat the obvious intention of the legislation and produce awholly unreasonable result", we must" do some violence tothe words" *

and so achieve that obvious intention and produce arational construction, (per Lord Reid in Luke v, IRC  1963 Indlaw HL 24(HL) ;  1963 Indlaw HL 24 (HL)) where at AC page 577 he also observed:

"This is not a new problem, though our standard of drafting issuch that it rarely emerges" *

. The heading of the section or themarginal note may be relied upon to clear any doubt or ambiguity inthe interpretation of the provision and to discern the legislativeintent. In CIT v. Ahmedbhai Umarbhai and Co.,    after referring to the view expressed by Lord Mac-naghtenin Balraj Kunwar v. Jagatpal Singh [1904] ILR 26 All 393(PC), it washeld that marginal notes in an Indian statute, as in an Act ofParliament can-not be referred to for the purpose of construing thestatute. Similar view was expressed in Board of Muslim Wakfs v. RadhaKishan  and Kalawatibai v. Soiryabai, AIR 1991 SC1581. Marginal notes certainly cannot control the meaning of the bodyof the section if the language employed there is clear, (see Smt.Nandini Satpathy v. P. 1. Dani, ). In the presentcase as noted above, the provisions of section 276CC are in clearterms. There is no scope for trying to clear any doubt or ambiguityas urged by learned counsel for the appellants. The interpretationsought to be put on section 276CC to the effect that if a return isfiled under sub-section (4) of section 139 it means that therequirements of sub-section (1) of section 139 (are satisfied) cannotbe accepted for more reasons than one.

One of the significant terms used in section 276CC is "in duetime". The time within which the return is to be furnished isindicated only in sub-section (1) of section 139 and not insub-section (4) of section 139. That being so, even if a return isfiled in terms of sub-section (4) of section 139 that would notdilute the infraction in not furnishing the return in due time asprescribed under sub-section (1) of section 139. Otherwise, the useof the expression "in due time" would lose its relevanceand it cannot be said that the said expres-sion was used without anypurpose. Before substitution of the expression "clause (i) ofsub-section (1) of section 142" by the Direct Tax Laws(Amend-ment) Act, 1987, with effect from April 1, 1989, theexpression used was "sub-section (2) of section 139". Atthe relevant point of time the Assessing Officer was empowered toissue a notice requiring furnishing of a return within the timeindicated therein. That means the infractions which are covered bysection 276CC relate to non-furnishing of return within the time interms of sub-section (1) or indicated in the notice given undersub-section (2) of section 139. There is no condonation of the saidinfraction, even if a return is filed in terms of sub-section (4).Accepting such a plea would mean that a person who has not filed areturn within the due time as prescribed under sub-section (1) or (2)of section 139 would get benefit by filing the return under section139(4) much later. This cannot certainly be the legislative intent.

Another plea which was urged with some amount of vehemence wasthat the provisions of section 276CC are applicable only when thereis discovery of the failure regarding evasion of tax. It wassubmitted that since the return under sub-section (4) of section 139was filed before the discovery of any evasion, the provision has noapplication. The case at hand cannot be covered by the expression "inany other case". This argument though attractive has nosubstance.

The provision consists of two parts. The first relates to theinfractions warranting penal consequences and the second, the measureof punishment. The second part in turn envisages two situations. Thefirst situation is where there is discovery of the failure involvingthe evasion of tax of a particular amount. For the said infractionstringent penal consequences have been provided. The second situationcovers all cases except the first situation elaborated above.

The term of imprisonment is higher when the amount of tax whichwould have been evaded but for the discovery of the failure tofurnish the return exceeds one hundred thousand rupees. If the pleaof the appellants is accepted it would mean that in a given casewhere there is infraction and where a return has not been furnishedin terms of sub-section (1) of section 139 or even in response to anotice issued in terms of sub-section (2), the consequences flowingfrom non-furnishing of the return would get obliterated. At therelevant point of time section 139(4}(a) permitted filing of returnwhere return has not been filed within sub-section (1) andsub-section (2). The time limit was provided in clause (b). Section276CC refers to "due time" in relation to sub-sections (1)and (2) of section 139 and not to sub-section (4). Had theLegislature intended to cover sub-section (4) also, use of theexpression "section 139" alone would have sufficed. Itcannot be said that the Legislature without any purpose or intentspecified only the sub-sections (1) and (2) and the conspicuousomission of sub-section (4) has no meaning or purpose behind it.Sub-section (4) of section 139 cannot by any stretch of imaginationcontrol the operation of sub-section (1) wherein a fixed period forfurnishing the return is stipulated. The mere fact that for thepurposes of assessment and carrying forward and to set off losses itis treated as one filed within subsection (1) or (2) cannot bepressed into service to claim it to be actually one such, though itis factually and really not by extending it beyond its legitimatepurpose.

Whether there was wilful failure to furnish the return is a matterwhich is to be adjudicated factually by the court which deals withthe prosecution case. Section 278E is relevant for this purpose andthe same reads as follows :

"278E. Presumption as to culpable mental state.:(1} Inany prosecution for any offence under this Act which requires aculpable mental state on the part of the accused, the court shallpresume the existence of such ; mental state but it shall be adefence for the accused to prove the fact that he had no such mentalstate with respect to the act charged as an offence in thatprosecution.

Explanation.:In this sub-section, 'culpable mental state'includes intention, motive or knowledge of a fact, or belief in, orreason to , believe, a fact.

(2) For the purposes of this section, a fact is said to be provedonly when the court believes it to exist beyond reasonable doubt andnot merely when its existence is established by a preponderance ofprobability." *

There is a statutory presumption prescribed in section 278E. Thecourt has to presume the existence of culpable mental state, andabsence of such mental state can be pleaded by an accused as adefence in respect of the act charged as an offence in theprosecution. Therefore, the factual aspects highlighted by theappellants were rightly not dealt with by the High Court. This is amatter for trial. It is certainly open to the appellants to pleadabsence of culpable mental state when the matter is taken up fortrial. Looked at from any angle the appeals are without merit and are dismissed.