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PETITIONER: ADDL. COMMISSIONER OF INCOME TAX, GUJARAT

       Vs.

RESPONDENT: I.M.PATEL AND CO.

DATE OF JUDGMENT28/04/1992

BENCH: MOHAN, S. (J) BENCH: MOHAN, S. (J) RAY, G.N. (J)

CITATION:  1992 AIR 1762            1992 SCR  (2) 914  1993 SCC  Supl.  (1) 621 JT 1992 (3)   614  1992 SCALE  (1)1313

ACT:      Income Tax Act, 1961 :      Section  271  (1)(a)-penalty  for  belated  filing   of return-Assessee  prevented by ‘reasonable  cause’-Burden  of proof-Mens rea-Whether required to be established.

HEADNOTE:  For the belated filing of Income-tax returns, for three consecutive  assessment years, the  respondent-assessee  was imposed  penalty under section 271(1)(a) of  the  Income-tax Act,  1961.  On  appeal  by  the  assessee,  the   Appellate Assistant   Commissioner   confirmed  the    same.   Revenue preferred  an  appeal  before  the  Tribunal.  The  Tribunal decided the question in favour of the assessee and  referred to  the  High Court the question of law as  to  whether  the Tribunal  was  justified in law in  cancelling  the  penalty levied  on the assessee under section 271(1) for  the  three assessment  years.  The  Division Bench of  the  High  Court referred  the  matter  to a Full  Bench  which  decided  the question  of law that reasonable cause was an ingredient  of the offence for which the penalty has been provided and that the  taxing  authority has prima facie to prove  absence  of reasonable  cause, and returned the matters to the  division Bench  for  disposal in accordance with  law.  The  Division Bench held that the assessee had shown reasonable cause  for the  delay  and answered the question against  the  Revenue. Aggrieved  by the said order the Revenue has  preferred  the present appeals.      On  behalf of the Revenue, it was contended that  there has  been  a  fundamental distinction between  the  levy  of penalty  under  section  271(1)(a)  as  opposed  to  section 271(1)(c)  of  the  Act  in  that  the  former  related   to obligation  to  file return in time while the  latter  dealt with  concealment.  And in the former case no mens  rea  was involved.      The  assessee contended that mens rea was relevant  and there  was not much difference between a case falling  under section 271(1)(a) or Section                                                        915 271(1)(c).      Allowing the appeal, this Court,

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    HELD  :  1.11 In most cases of criminal  liability  the intention  of  the Legislature is that  the  penalty  should serve  as a deterrent. The creation of an offence by  statue proceeds  on the assumption that society suffers  injury  by the  act or omission of the defaulter and that  a  deterrent sentence must be imposed to discourage the repetition of the offence.   In  the  case  of  a  proceeding  under   section 271(1)(a),  however,  it  seems that the  intention  of  the Legislature is to emphasise the fact of loss of revenue  and to  provide  a remedy for such loss, although  no  doubt  an element  of  coercion  is present in the  penalty.  In  this connection,  the  terms  in which the penalty  falls  to  be measured  are significant. Unless there is something in  the language of the statute indicating the need to establish the element  of  mens rea, it is generally sufficient  to  prove that  a default in complying with the statute has  occurred. [920 A-C]      1.2.  There  is  nothing  in  section  271(1)(a)  which requires that mens rea must be proved before penalty can  be levied under that provision.                                                      [920-D]      Gujarat  Travancore  Agency v. Commissioner  of  Income Tax,  kerala, 177 ITR 455 SC; Commissioner of Income Tax  v. Kalyan Dass Rastogi, 193 ITR 713, relied on and applied.      Morvi Cotton Merchants  Industrial Corpn. Ltd v.  State of  Gujarat,  36  STC 347; Commissioner  of  Income  Tax  v. Gujarat  Travancore Agency, 103 ITR 149; Addl.  Commissioner of  Income Tax, Gujarat v. I.M. Patel and Co., 107 ITR  214, referred to.

JUDGMENT:      CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.  2626- 28 of 1979.      On  Appeal by Certificate from the Judgment  and  Order dated  13.12.1976  of the Gujarat High Court  in  Income-tax Reference No. 24 of 1973.      J.Ramamurthy, Ranbir Chandra and A. Subhashini (NP) for the Appellant.      Sunil Dogra and P.H. Parekh for the Respondent.                                                        916      The Judgment of the Court was delivered by      S.  MOHAN, J. All the three appeals can be  dealt  with under  the  common judgment since the assessment  years  are different  while the assessee-the respondent is one and  the same.  The three assessment years in question  are  1964-65, 1965-66 and 1966-67.      For  the year 1964-65, the assessee returned an  income Rs. 48,000 while he was assessed on an income of Rs.  58,557 imposing  a penalty of Rs. 9,690. For the year 1965-66,  the assessee returned an income of Rs.45,000. He was assessed on an  income  of Rs. 52,337 together with the penalty  of  Rs. 6,115.  For the year 1966-67, he returned an income  of  Rs. 51,000 while he was assessed on an income of Rs. 62,560  and a  penalty  of  Rs. 3,915 was imposed.  It  requires  to  be stated,  at this stage, that for the  respective  assessment years  the returns, as per the statute, ought to  have  been filed  on  July  31, 1964, July 31, 1965  and  July  31,1966 respectively.  However, the assessee filed the  returns  for all  these  years on march 24, 1967. It was  the  filing  of these belated returns which obliged the assessing  authority to  impose penalty as warranted under Section  271(1)(a)  of the  Income-tax Act, 1961, (hereinafter referred to as  "the Act"). When the  assessee questioned the correctness of  the

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imposition of penalty by way of an appeal against the  order of   the   Income-tax  officer;  the   Appellate   Assistant Commissioner  confirmed the same. Thereupon, the matter  was taken up to the Tribunal. The Tribunal deciding in favour of the assessee referred the following question of law:          "Whether  in  the  facts  and  circumstances,   the          tribunal  in  justified in law  in  cancelling  the          penalty  levied  on  the  assessee  under   Section          271(1)(a) for the three assessment years 1964-65 to          1966-67".      Originally, the matter came up before a Division  Bench of the Gujarat High Court. However, the matter was  referred to  the Full Bench because the Division Bench  found  itself unable to agree with the view taken by the earlier  Division Bench  ruling reported in 36 STC 347 Morvi Cotton  Merchants Industrial  Corpn. Ltd. v. State of Gujarat and  in  Special Civil Application No.1059 of 1972 decided by the same  Bench of  July 18, 1974. In these cases, the Division  Bench  took the  view under the provisions of Section 271(1)(a)  of  the Income-tax  Act, 1961. Under the Sales Tax Act,  where  also the words "without reasonable cause" have been set out in                                                        917 Section  providing for penalty the burden is on the  Revenue to prove absence of "reasonableness cause."      Thus,  the Division Bench felt since  these  decisions, though  related  to sales tax, had a direct  bearing  on  an interpretation of Section 271(1)(a) of the Act the reference comes to be made.      The  Full  Bench  of  the  Gujarat  High  Court,  after referring  to  the case-law, ultimately disagreed  with  the view  expressed by the Full Bench of the Kerala  High  Court reported  in  103  ITR 149 Commissioner  of  Income  TAx  v. Gujarat Travancore Agency and concluded as under:      "In the light of the above  discussion, our conclusions are as follows:-          (1) Under Section 271(1)(a) of the Income-tax  Act,          1961,  failure without reasonable cause to  furnish          return in question is an ingredient of the offence;          (2) Section 271(1)(a) provides for penalty in cases          where the assessee has either acted deliberately in          defiance   of   law  or  was  guilty   of   conduct          contumacious  or dishonest, or acted  in  conscious          disregard of his obligation.          (3)  The  legal  burden is  on  the  Department  to          establish by leading some evidence that prima facie          the assessee has without reasonable cause failed to          furnish  the return without the time  specified  in          Section  271(1)(a)  read with  the  relevant  other          Sections  referred  to in that section.  Once  this          initial  burden  which  may  be  slight  has   been          discharged  by  the  Department,  it  is  for   the          assessee  to show as in a civil case on balance  of          probabilities  that  he  had  reasonable  cause  in          failing   to  file  the  return  within  the   time          specified;           (4)  Mere falsity of the explanation furnished  by          the   assessee  cannot  help  the   Department   in          establishing  its case against the assessee at  the          time of imposition of penalty. In  view  of  the  above  discussion  and  in  view  of  our conclusion,  we  answer the question as reframed  by  us  as follows:          "Reasonable  cause is an ingredient of the  offence          for which the                                                        918

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        penalty  is provided and the taxing  authority  has          prima facie to prove absence of reasonable cause in          the sense that has been explained above."          The  matter will now go before the  Division  Bench          for disposing of the case in accordance with law."      Thereafter,the  matter came before the  Division  Bench which held that the view expressed by the Tribunal that  the assessee  had shown "reasonable cause" in erroneous  on  the facts and in the circumstances of the case. Accordingly, the reference  was  answered in the affirmative and against  the revenue. It is under these circumstances, the Civil  Appeals have to be preferred by the Revenue.      Mr.  J. Ramamurthy, learned counsel appearing  for  the Revenue  would submit that the decision of the  Kerala  High Court  reported in 103 ITR 149 which has been differed  from the impugned judgment, which is now reported in 107 ITR 214, Addl. Commissioner of Income-tax, Gujarat v. I.M. Patel  and Co.  has  come  to  be affirmed by  this  Court  in  Gujarat Travancore Agency v. Commissioner of Income-tax, Kerala  177 ITR 455 SC. further the same principle, as laid down in the above  ruling of the Supreme Court, has to be reiterated  in Commissioner  of Income-tax v. Kalyan Dass Rastogi  193  ITR 713.      Based on this Decision, the argument of learned counsel proceeds that there is a fundamental distinction between the levy  of  penalty  under Section  271(1)(a)  as  opposed  to Section  271(1)(c)  of the Act. The former  relates  to  the obligation  of the assessee to file a return within the  due date,   while  the  latter  deals  with  concealment   where statutory obligation has been imposed requiring the assessee to  file  the return within the due date. It is for  him  to show, should he file a belated return, a "reasonable cause"? The burden is ultimately on the assessee to plead and  prove the  "reasonable cause". Consequently, no ‘mens  rea’  could arise at all. In contradistinction to this whether, it is  a case  of concealment of income under Section 271(1)(c)  then the question of mens rea may come in. Unfortunately, in  the judgment under appeal this distinction has not been borne in mind  which led to the non-application of the ratio  of  the Full Bench of the Kerala High Court reported in 103 ITR  149 (Supra).  It was this aspect of the matter which come to  be clarified  in  177 ITR 455 (Supra)  which  has  subsequently been  applied in 193 ITR 713 (Supra). Thus, it is  submitted that the                                                        919 Revenue is entitled to succeed.      In  opposition  to this, the learned  counsel  for  the assessee drew our attention to the passages occurring in the impugned  judgment, wherein the requirement of proving  mens rea had come to be insisted upon. According to him there  is not  much  of  a difference between  a  case  falling  under Section 271(1)(a) or sub-section (1)(c).      We  have given our careful consideration to  the  above submissions. We are of the view that the Revenue is entitled to succeed. As a matter of fact the very question with which we  are  concerned is no longer res integra as  has  rightly been  pointed out by Mr. Ramamurthy. In 177 ITR 455 at  page 457  (Supra)  Court answered the question in  the  following words:-          "Learned  counsel  for the assessee  has  addressed          exhaustive  arguments  before us  on  the  question          whether penalty imposed under Section 271(1)(a)  of          the  Act  involves the element of mens rea  and  in          support  of  his submission that it  does,  he  has          placed  before  us several cases  decided  by  this

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        Court  and the High Court in order  to  demonstrate          that  the  proceedings  by  way  of  penalty  under          Section 271(1)(a) of the Act are quasi-criminal  in          nature and that, therefore, the element of mens rea          is a  mandatory requirement before a penalty can be          imposed under Section 271(1)(a). We are relieved of          the necessity of referring to all those  decisions.          Indeed,  many of them were considered by  the  High          Court  and  are referred to in the  judgment  under          appeal.   It  is  sufficient  for  us  to   Section          271(1)(a),  which  provides  that  penalty  may  be          imposed if the Income-tax Officer is satisfied that          any person has, without reasonable cause, failed to          furnish the return of total income, and to  section          276C which provides that if a person wilfully fails          to  furnish  in  due  time  the  return  of  income          required under section 139(1), he shall  punishable          with  rigorous  imprisonment for a term  which  may          extend  to one year or with fine. It is clear  that          in  the  former case what is intended  is  a  civil          obligation while in the latter what is imposed is a          criminal  sentence.  There can be no  dispute  that          having  regard to the provisions of section  276(3)          which speaks of wilful  failure on  the part of the          defaulter and taking into consideration the  nature          of the penalty, which is punitive,                                                        920          no  sentence  can be imposed under  that  provision          unless  the element of mens rea is established.  In          most  cases of criminal liability the intention  of          the Legislature is that the penalty should serve as          a deterrent. The creation of an offence by  statute          proceeds  on  the assumption that  society  suffers          injury by the act or ommission of the defaulter and          that  a  deterrent  sentence  must  be  imposed  to          discourage  the repetition of the offence.  In  the          case  of  a  proceeding  under  section  271(1)(a),          however,  it  seems  that  the  intention  of   the          Legislature  is to  emphasise the fact of  loss  of          revenue  and  to provide a remedy  for  such  loss,          although no doubt an element of coercion is present          in  the penalty. In this connection, the  terms  in          which   the  penalty  falls  to  be  measured   are          significant.  Unless  there  is  something  in  the          language  of  the statute indicating  the  need  to          establish the element of mens rea, it is  generally          sufficient  to  prove that a default  in  complying          with  the  statute has occurred.  In  our  opinion,          there   is  nothing  in  section  271(1)(a)   which          requires  that  mens  rea  must  be  proved  before          penalty can be levied under that provision."      In  view  of  this, it is no longer  open  to  argument whether  any  mens rea is required to be  established  under section  271(1)(a). As a matter of fact, in  the  subsequent decision  of  this  Court in 193  ITR  713  Commissioner  of Income-tax  v.  Kalyan  Das Rastogi  squarely  applied  this ratio. In the result, the reference is answered in favour of the  Revenue. The appeals will stand allowed  setting  aside the judgments of the High Court and the Tribunal. The  order of  assessment as passed by the Assessing Authority  and  as confirmed   by  the  Assistant  Appellate  Commissioner   in relation  to penalty is hereby confirmed. There shall be  no order as to costs. G.N.                                          Appeal allowed                                                        921

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