Section 278E, read with section 276CC, of the Income-tax Act

HIGH COURT OF MADRAS SELVI J. JAYALALITHA v. UNION OF INDIA Mrs. Prabha Sridevan, J. W. P. Nos. 23581 to 23584 of 2006 December 2, 2006 Section 278E, read with section 276CC, of the Income-tax Act, 1961 - Offences and prosecution - Presumption as to culpable mental state - Assessment year 1993-94 - For failure of petitioner/assessee to file a return of income despite several notices and reminders, Assessing Officer filed complaints against petitioner for offence under section 276CC - Thereafter, petitioner filed an application for discharging her from prosecution proceedings which application was dismissed by Trial Magistrate - Against that petitioner filed writ petition challenging constitutional validity of section 278E - Petitioners’ case was that by introduction of section 278E, which gives rise to a presumption as to culpable mental state of accused, entire basis of accusatorial jurisprudence had been shifted, that while having to defend wholly baseless and vexatious criminal proceedings, she was also expected to discharge burden of not possessing criminal intent and proving it beyond reasonable doubt, and that impugned provision violated articles 20(3) and 21 of Constitution - Section 278E requires court to presume existence of a culpable mental state on part of accused in any prosecution for any offence under Act which requires such mental state - Thus, with reference to offence under section 276CC, before introduction of section 278E, it was duty of prosecution to prove absence of circumstances which prevented assessee from filing return in due time, but, now under section 278E, that responsibility has been lifted from shoulders of prosecution and placed on person or assessee - Thus, assessee will have to prove circumstances which prevented him from filing return in due time - However, Law under section 278E does not presume that assessee is guilty, it has only asked court to presume that nothing prevented assessee from filing his return in accordance with law and in response to notices and, therefore, failure was willful - Further, presumption under section 278E is rebuttable and if assessee proves that there were reasons for not filing return in due time, then prosecution fails - Whether in said background, presumption in section 278E could be said to be fair and reasonable and, hence, petitioner’s attack on constitutionality of section 278E was to be rejected - Held, yes FACTS For the assessment year 1993-94, the petitioner was required to file a return of income under section 139(1) by 31-8-1993. The petitioner failed to furnish the return of income. Thereafter a notice was sent to the petitioner under section 142(1) on 18-1-1994, calling upon her to file the return of income within a period of 30 days from the date of service of the notice. The period of 30 days expired, but no return was filed in compliance with the notice. Thereafter, various reminders were sent, yet the return was not filed. Subsequently, a notice under section 142(1)(ii) was issued on 31-7-1995, calling upon the petitioner to produce the accounts. The petitioner failed to furnish the return of income and also failed to comply with the statutory notice. A best judgment assessment was completed under section144. Thereafter, complaints were filed against the petitioner for the offence under section 276CC. Thereafter, several proceedings were initiated at the instance of the petitioner before the magistrate court, which included an application under section 245 of the Code of Criminal Procedure for discharging her from the prosecution proceedings. The Trial Magistrate dismissed the said discharge petition. Thereafter, the petitioner filed criminal revision against the said dismissal, and also the instant writ petition challenging the constitutional validity of section 278E. The case of the petitioner was that the expression ‘wilfully’ occurring in section 276CC indicates the mens rea element and this being the basis for the prosecution, the prosecution was bound to prove the existence of mens rea on the part of the accused beyond reasonable doubt, however, by introduction of section 278E, which gives rise to a presumption as to the culpable mental state of the accused, the entire basis of accusatorial jurisprudence, as accepted and recognized in India, has been shifted. The petitioner contended that while having to defend wholly baseless and vexatious criminal proceedings, they were also expected to discharge the burden of not possessing the criminal intent and proving it beyond reasonable doubt. According to the petitioner, the impugned provision violated article 21 of the Constitution of India and the right to pray for discharge from the criminal proceedings had been negated merely on the basis of the impugned provision. According to the petitioner, by the said provision, the guarantee against self-incrimination protected by article 20(3) of the Constitution had also been taken away from them. HELD From a reading of the provisions of sections 139, 148, 276CC and 278E, it is evident that two factors would have to be established by the prosecution (1) that the accused person has failed to furnish the return under section 139(1) or by notices under section 142 or 148 or 153, and (2) that the accused person has not done it in due time. [Para 49] Once these two factors are established, it is for the accused person to prove beyond reasonable doubt that the failure was not willful. [Para 50] Section 29 of the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 introduced several changes in sections 271A, 271B, 272A, 272AA, 272B, 273, 273B, 276A, 276AB, 276B, 276DD and 276E. Originally, penalty was leviable under these provisions if the defaults were committed without reasonable cause or excuse, as the case may be. But, by the amendment, the words ‘without reasonable cause’ or ‘without reasonable excuse’ were deleted and thereby, the default itself would render the assessee liable to penalty. Section 273B was inserted, which provided that no penalty was imposable on the person or the assessee for the defaults referred to in the above provisions, if he proves that there was reasonable cause or excuse for the said failure. Therefore, the amendment casts the onus of proving the existence of reasonable cause or excuse for the defaults referred to on the taxpayer. So, by the amendments, certain acts or omissions made the assessee strictly liable without further add. But, in the sections where the “mens rea” criterion was not deleted, the onus of proof was shifted. For this purpose, section 278E was included, which is the provision that was challenged in the instant writ petitions, which requires the Court to presume the existence of a culpable mental state on the part of the accused in any prosecution for any offence under the Act which requires such mental state. [Para 51] Looking to the background within which the Legislature decided to enact section 278E, the attack on its constitutionality lost strength for as observed in Sodhi Transport Co.’s case [1986] 2 SCC 486 when the person concerned has the opportunity to rebut the presumption, it is hard to see how the provision is unconstitutional. When the Legislature has the power to make a law with respect to any subject, it equally has all the ancillary and incidental powers to make the law effective. [Para 53] Once a liability is fixed, it is highly improbable that the statute should not go on to make that liability effective. [Para 54] The fact that the rule of mens rea is a sine qua non for an offence is not disputed. There is also no disputing the rule that it is for the prosecution to prove the guilt of the accused. This is the normal rule in criminal jurisprudence. However, there may be situations where the law provides, as in the case of statutory offences, that mens rea shall be presumed, which presumption will be rebuttable. The Legislature may also provide that a particular act by itself without anything more will constitute the offence and attract the penalty, a penalty which may be quantified in terms of money or which may be a physical penalty, viz. imprisonment. [Para 57] Culpable mental state is a necessary element in the offence under section 276CC and without it, there is no offence; the only difference is, the accused should prove the existence of circumstances which negate mens rea. [Para 59] So, it depends on the necessity for the particular legislation, the difficulty which the prosecution faces in proving what the accused has to prove, the opportunity given to the accused to rebut the presumption. The same may be applied in the instant case. In this background, the presumption in section 278E is fair and reasonable. To require the prosecution to obtain direct evidence on why the assessees did not file their returns in time would make the task impossible and make section 276CC illusory. But once the accused produces that evidence, the prosecution would fail unless it demolishes the evidence so produced. The Court still has to decide the issue on the basis of the evidence, that power is still with the Court. [Para 64] In the instant case, the prosecution must prove that the assessee had failed to furnish the returns in due time, which in law he was bound to do. From the attendant circumstances and in the absence of any defence evidence to the contrary, it is open to the court to logically infer that there must have been a wilful disregard to comply with the legal requirement. But by the introduction of section 278E, this inference is made a presumption as to the existence of the culpable mental state on the part of the assessee. This does not mean that the Court accepts the culpable mental state as an irrebuttable fact. All that the law requires is for the person or the assessee to prove that there were circumstances which prevented him from discharging his statutory duty. [Para 79] An offence, as is ordinarily understood, consists of a ‘how-when-where-who-why” framework. There are several stages as for instance, the intention, the planning, the preparation and the execution of the offence. Such an offence may be proved either by direct ocular evidence or by circumstantial evidence, where every link is in place, leading to the proof of guilt of the accused. This is not an offence like that. Many statutory offences do not fall within these parameters. Violations of the provisions of law either by doing what is forbidden or by not doing what is mandated, is the offence and the statute may also insist upon the mens rea element or it may not. When the element of mens rea is part of the statutory offence, then what follows is that the particular act of omission or commission should be done with the intention, with ‘knowledge’, ‘deliberately’, ‘without reasonable cause’ or as in the case of the impugned provision, ‘wilfully’. The prosecution cannot indiscriminately launch proceedings without proving or without establishing that the particular act was done or a particular duty was not done. In the instant case, the alleged act was-wilful failure to furnish in due time the return of income which the assessees were required to furnish either under sub-section (1) of section 139 or (b) by notice given under section 142(1)(i) or section 148 or section 153A. The burden of proving these lay only on the prosecution. [Para 86] Apart from these, before the introduction of section 278E, the prosecution also had to prove that the person or the assessee committed the above default “wilfully”. Now, that responsibility had been lifted from the shoulders of the prosecution and placed on the person or the assessee. Thus the assessee will have to prove the circumstances which prevented the assessee from filing the return as above in due time as per section 139(1) or in response to the notices under sections 142, 148 and 153A, as the case may be. Previously, it was the duty of the prosecution to prove the absence of such circumstances. Now, if there are circumstances which prevent an assessee from discharging his duty, as provided for under the Act, it is something specially within his knowledge and he is required to prove it. The law does not presume and the law has not presumed that the assessee is guilty. The law has only asked the Court to presume that nothing prevented the assessee from filing his return in accordance with law and in response to the notices and, therefore, the failure is wilful. If there were such compelling circumstances, it is always open to the assessee to prove them in accordance with law. That does not seem to be and cannot be a difficult thing to do. In fact, obviously, Parliament found that it was well nigh impossible for the prosecution to prove the absence of compelling circumstances which prevented the assessee from what in law the assessees were bound to, i.e., prove the negative, so in its wisdom, it decided that it would be easier and more practicable, and in the context of the objects sought to be achieved, to require the assessee to show those facts which would lead the Court to infer that act “A”, namely filing the return in due time was not possible. If the assessee proves it, then the prosecution will fail. This could not be said to be arbitrary or unreasonable. [Para 87] The impugned provision has been introduced to remove the weaknesses in the provisions in the direct tax laws in respect of penalties and prosecutions so as to shift the burden of proof on the assessee and to provide that once the evasion of tax is proved, the intention to evade need not be proved. [Para 88] When section 278E reads that in any prosecution for any offence, the culpable mental state on the part of the accused is required, the court shall presume the existence of such mental state. The words used are ‘in any prosecution for any offence”. There is no ambiguity or doubt in these words. When that is so, it is not for the court to limit the sweep of these words. The object of the Amendment Act is quite clear. Even otherwise, when the section itself is clear, there is no need to look elsewhere. [Para 90] Merely because the Act required the assessee to prove that there were circumstances which prevented the assessee from filing the return, it would not amount to violation of article 20(3) of the Constitution. [Para 91] Further, the Supreme Court has upheld such provisions, as for instance in Krishna Lal’s case [1995] Supp 2 SCC 187 and in A. Thangal Kunju Musaliar’s case [1956] 29 ITR 349 (SC) stating that in the background of the ground realities, it is open to the Legislature to make stringent and harsh provisions to plug loopholes, which in the instant case, was not possible if the usual procedure under the tax law was applied. [Para 94] There is no ambiguity with regard to what the assessee has to prove - the assessee has to prove that there were reasons for not filing the return in due time. If he proves that, then the prosecution fails, and the manner in which the words “beyond reasonable doubt” should be construed has also been explained in various decisions; so, the non-usage of ‘preponderance of possibilities’ cannot be a vitiating factor. It is not the doubt of a vacillating mind or a timorous mind, but if from the circumstances which are proved by the assessee that he was prevented from filing the return, then the assessee would have rebutted the presumption of culpable mental state. [Para 95] While the mere fact that the provision impugned in the instant writ petitions has been in the statue book for over twenty years cannot be an answer in favour of its constitutionality, yet it is also a relevant factor in its favour, since this section and similar other sections in the Customs Act, the Foreign Exchange Regulation Act as also other such legislations have been in force all these years and there appears to have been no serious complaint of mindless and indiscriminate prosecution. [Para 98] Various Supreme Court judgments show the following: A statute must work and every statute must be so interpreted as to make it work. The requirement of proof of lack of guilty knowledge would not violate the Fundamental Rights or the International Convenants. In the background of factual realities, it is open to the Legislature to make such provisions as are necessary to plug the loopholes in order to prevent violations, if the earlier procedure was not effective. Presumptions are really regulations of the burden of proof and not presumptions of guilt. If there are certain facts, which when established would justify or excuse what is prima facie an offence/ then the onus of proving those facts obviously rests on the party accused. Reasonableness can be tested against the opportunity given to the defendant to rebut the presumption; retention by the court of the power to assess the evidence; and the difficulties and the near impossibility of obtaining direct evidence by the prosecution as to the mental state of the accused in the particular context. There is no vagueness with regard to the words ‘reasonable doubt’ and the standard of reasonableness has been explained in the various decisions. "Reasonable" means exactly that it should be reasonable and not farfetched. When a statute creates a duty or a liability and a failure in this regard as an offence, then it is reasonable not to ask the prosecution to prove as part of its case, that the defendant was aware of his duty or liability. Proportionality should be read in the context of competence of the Legislature and even-handed application insofar as proportionality of legislative power is concerned. Apprehension that there will be mindless and wild launching of criminal prosecution does not have any basis, since the initiation of prosecution depends on sanction; that itself is a check on such arbitrary prosecution. No law can be declared illegal because there is a possibility of its misuse. The Legislature has a duty to safeguard the economic interest of the country. New economic activities and consequent aberrations require new penal controls and new modes of enforcement. The polity devised to ensure this is largely judge-proof as per the constitutional jurisdiction except in very rare cases. Individual liberty does not stand alone, but it stands with morality, law, justice, common good and responsibility. [Para 99] Hence, the attack on the constitutionality of section 278E was to be rejected, and the writ petitions were liable to be dismissed. [Para 100]