CHAPTERISATION

1.INTRODUCTION
a. historical background
b. salient features
c.income tax authourities and their jurisdiction under the income tax act, 1961
2.MENS REA AND THE ONUS OF PROOF UNDER THE INCOME TAX ACT 1961
3.CRIMINAL LIABILITY UNDER THE INCOME TAX ACT, 1961
4. PROCEDURE GOVERNING PROSECUTION
5.IMMUNITY FROM BEING PROSECUTED FROM THE ACT
6. COMPARITIVE ANALYSIS WITH THE INCOME TAX LAWS OF OTHER
COUNTRIES
 1. INTRODUCTION:

It is a matter of general belief that taxes on income and wealth are of recent origin but there is
enough evidence to show that taxes on income in some form or the other were levied even in
primitive and ancient communities. The origin of the word ‘Tax’ is from ‘Taxation’ which
means an estimate. These were levied either on the sale and purchase of merchandise or livestock
and were collected in a haphazard manner from time to time. Nearly 2000 years ago, there went
out a decree form Ceaser Augustus that all the world should be taxed. In Greece, Germany and
Roman empires, taxes were also levied sometime on the basis of turnover and sometimes on
occupations.

Income tax is usually the most visible and discussed component of India’s tax system. It is
generally believed that that taxes on income are phenomena of modern days. Income tax is a tax
on the income of an individuals or an entity. Income tax is a main revenue source of central or
union government of India. So, such important feature of revenue should be guided by specific
set of rules. In India, Income Tax Act, 1961 is the law which governs it.

a. Historical background

In India, the system of direct taxation as it is known today has been in force in one form or
another even from ancient times. Variety of tax measures are referred in both Manu Smriti and
Arthasastra. According to Manu, taxes should be related to the income and expenditure of the
subject but warned the king against excessive taxation, a king should neither impose high rate of
tax nor exempt all from tax. According to Kautilya in his Arthasastra has also described in great
detail the system of tax administration in the Maruyan Empire. It is remarkable that the present
day tax system is in many ways similar to the ancient system of taxation. It mentions that each
tax was specific and there was no scope for arbitrariness.

The income tax in India was introduced for the first time by Sir James Wilson. India’s First
Union Budget introduced by pre-independence finance minister on 7 April, 1860. The Indian
Income Tax Act of 1860 was enforced to meet the losses sustained by the government on
account of the military mutiny of 1857. Income was divided into four schedules taxed separately,
income from land property, professions and traders, securities, salaries and pensions. Separate
Income tax act was passed in 1886. This act remained in force up to, with various amendments
from time to time. Under this act, income was divided into four schedules. In 1918, a new
income tax was passed. It repealed Act of 1866 and introduced several important changes.

In 1922, the organizational history of Income Tax Department was started. It gave for the first
time, a specific nomenclature to various income tax authorities. It became complicated on
account of innumerable amendments. There 1922 Act was referred to law commission in 1956
for simplification and to prevent the evasion of tax. Therefore, post-independence, the Income
Tax Act, 1961 was brought into force on 1 April, 1962. It applies to the whole of India. Under
the 1961 Act, there were five heads of income. Income form salary, house property, profits and
gains of business or professions, capital gains, other source

b. Salient features of the act :

1. The most striking feature of the Income tax act of 1961 is that it states the mode of
computation of income for income tax purpose but does not state the rates at which
tax is payable. The rate at which tax is to be levied is prescribed by the Finance Act.
Thus, thought the liability to pay income tax arises under the Income tax Act the
amount of tax payable is determined by the Finance Act. This system, no doubt helps
the Government to adjust the tax rate according to its requirement without amending
the Act, but this procedure has made the Act incomplete in itself.
2. Another striking feature of the Act is gross violation of important canons of taxation.
One of the important canons of taxation is that it should be equitable. In this context,
we find that the act has never been able to infuse equity into the system.
3. Simplicity and clarity, is another important canon of taxation. Unfortunately with
every attempt of simplification the act has become more complicated and ambiguous.
Simplicity according to the act is making constant changes of the provisions to
deceive the tax evaders which in turn makes it more complex.
4. Another important canon of taxation is certainty. The benefit of investment allowance
was enacted by act with expressed guarantee that it will not be expressed provision in
respect of such notice of the Finance Act.
5. The unique characteristic of the act is that it believe in incorporation of such
provision which is basically not meant to be executed. For example, the widening of
 the term ‘income’ by amendment with retrospective effect form the first day of
operation of the present act. With this amendment, special allowances granted to
employees to meet personal expenses at the place of residence or performance of
duties and allowances to compensate him for the increased cost of living will be
considered as income and will be taxable not only from the date amendment was
made but also retrospective form 1 April, 1962.
6. Extensive inclusion of provisions based on the concept of ‘presumptive tax’ has
become a notable feature of act of 1961. There is no denying that procedure of
income tax assessment has evolved from presumptive concept, but with march of
time, it is natural to expect that actual income received should be the measure of tax
and adherence to the concept of presumption should be reduced if not totally
abolished
2. INCOME TAX AUTHORITIES :
a. Authorities:

As per the Income Tax Act, 1961, there are income tax authorities for the purpose of the act who
or which are established under section 116 of the Act, 1961. They are:

a. the Central board of direct taxes constituted under the Central Boards of Revenue Act,
1963.
b. Principal Directors General of Income tax or Principal Chief Commissioners of Income
tax
c. Directors of Income tax or Commissioners of Income tax or Commissioners of Income
tax (appeals).
d. Deputy directors of Income tax or Deputy Commissioners of Income tax or Deputy
Commissioners of Income tax (appeals)
e. Assistant directors of Income tax or Assistant Commissioners of Income tax
f. Income tax officers
g. Tax Recovery officers
h. Inspectors of Income tax.
 Under section 117 of the Act, 1961, the central government may appoint such persons as it
thinks fit to be income tax authorities. It can, subject to rules and orders, may appoint such
executive or ministerial staff as may be necessary to assist it in the execution of its functions.

Under section 119 of the Act, 1961, the Board, may by notification direct that any income tax
authority or authorities specified in the notification shall be subordinate to each other income tax
authority or authorities as may be specified in the notification.

b. Jurisdiction:

Any important feature for any officer will be his jurisdiction. It draws the demarcating line on
the powers and functions conferred upon him and limits him. The Income tax Act, 1961 provides
the jurisdiction of income tax authorities under section 120 of the act. It says that the authorities
shall exercise any of the powers and perform all the functions conferred up on them under this
Act which should be exercised in accordance with the directions as the Board may issue. The
directions issued will have regard to the following: territorial area, persons or classes of persons,
incomes or classes of incomes and cases or classes of cases.

Jurisdiction of Commissioners, Assessing officers, concurrent jurisdiction of Inspecting

Assistant Commissioner and Income tax Officer and functions of Inspectors of Income tax and
their competency is provided under section 121 to section 130A of the Income Tax Act, 1961.

3. MENSREA AND ONUS OF PROOF :

In any suit or other proceedings in which a court or any other body or person exercising authority
under the law has to pass a decree, judgment or order casting an obligation or liability on or
affecting the rights or interest of any party to the proceedings, the important questions that arise
are:

a. What are the essential elements of the statutory provision under consideration in the suit?
b. On what party does the burden of proof of various elements of the provision lie?
c. What degree or quantum of proof is needed?

Under penalty and prosecution provisions of any statute the first two questions can be reframed
as follows:
 a. Are actus reus and mensrea both essential ingredients of penalty and prosecution
provisions?
b. On whom does the burden of proving these elements lie?

It is a general principle of law, based on the maxim, actus non facit reum mens sit rea i.e, both
action and intent constitute an offence. According to Glanville Williams, mensrea refers to the
mental element necessary for the particular crime and this mental element may be either
intention to do the immediate act or bring about consequences or recklessness to such act or
consequences. Offences can be classified under the following three groups, where as statue
expressly provides for mensrea, where the statutory provision is silent about mensrea, where
mensrea is expressly excluded as in the cases of strict liability.

When we consider the mensrea and burden of proof of mensrea under the income tax
proceedings, even where the delinquency is clear and proved, the adverse or penal consequences
are often avoided or mitigated by the escape routes or the exacting requirements of evidence in
the law. The tax administration has often been heard to complain the following difficulties:

1. the wide range of discretion vested in the appellate authorites and the courts.
2. the requirement that the revenue should establish not only concealment of income but the
taxpayer’s intention to conceal the income, for purposes of prosecution
3. the use of words like ‘ without reasonable cause’ , willfully and negligently in the
provisions spelling out the consequences of default or delinquency so as to place the
burden of showing the existence of the intent to violate the law on the revenue.

In recent year, there has been a shift int income tax act towards the concept of strict liability, by
the adoption of various strategies limiting administrative and judicial discretion, removing words
of motive and casting the burden of establishing absence of motive on the taxpayer. But the shift
does no point to a total reversal of the old ideas of burden of proof which have continued to
influence even areas where the penal liability is no open to serious disputes.

The provision for charge of interest are an example of this influence. The income tax act
provides for mandatory charge of interest for several defaults. The measure is apparently
conceived by the legislature as a compensation to the government for denying it the use of funds.
Its mandatory nature has however been upset, first, by judicial interference1, vesting of discretion
in administrative authorities under such mandatory provisions allows arbitrariness to creep in and
makes the charge of interest justiciable. The principle of mensrea has prevailed in relation to the
levy of interest which, ordinarily, ought to have been strict unavoidable liability on the taxpayer.

In the UK, Australia, Canada, New Zealand and South Africa, a person will not be held guilty of
failure to pay tax or file return, or supply information, etc., unless the failure is willful. In other
words, a person would be exonerated for liability to comply with the specific directions under
the Act, if there is no requisite mens rea to constitute such offences. In India the legislature has
adopted a middle course, an approach midway between the UK and USA.

However, The Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, inserted S.
278E with effect from 10th September, 1986 has carved out an exception to this rule. The said
Section places the burden of proving the absence of mens rea upon the accused and also provides
that such absence needs to be proved not only to the basic threshold of ‘preponderance of
probability’ but ‘beyond reasonable doubt’.

Section 278E of the Act, which is analogous to S. 138A of the Customs,Act, 1962, S.92C of the
Central Excise and Salt Act, 1944, S.98B of the Gold (Control) Act, 1968 and S.59 of the
Foreign Exchange Regulation Act, 1973. Similar provision was introduced under Wealth-tax
Act, 1957, i.e. S. 35-0 and Gift–tax Act, S.35D. Constitutional validity of the said provision was
upheld in Selvi J. Jayalalitha v. UOI and Ors.

According to this section, wherever mens rea is a necessary ingredient in an offence under the
Act, the Court shall presume its existence. No doubt, this presumption is a rebuttable one. The
Explanation to the section provides for an inclusive definition of culpable mental state which is
broad enough in its field so as to include intention, motive, knowledge of a fact and belief in or a
reason to believe a fact. The presumption arising under sub-section (1) may be rebutted by the
accused, but the burden that is cast upon the accused to displace the presumption is very heavy.
The accused has to prove absence of culpable mental state not by mere preponderance of
probability. In Prakash Nath Khanna v. CIT (2004) 266 ITR 1 (SC) (12), the Court observed

1
(1982) 138 ITR 495 (KER)
that the Court has to presume the existence of culpable mental state, and the absence of such
mental state can be pleaded by an accused as a defence inrespect of the Act charged as an
offence in the prosecution. It is therefore open to the appellants to plead absence of a culpable
mental state when the matter is taken up for trial.
In J. Tewari v. UOI (1997) 225 ITR 858 (Cal.) (HC) (861) the court observed that the rule of
evidence regarding presumptions of culpability on the part of the accused does not differentiate
between a natural person and a juristic person and the court will presume the existence of
culpable state of mind unless the accused proves contrary.
In ACIT v. Nilofar Currimbhoy (2013) 219 Taxman 102 (Mag.) (Delhi) (HC), prosecution was
launched u/s. 276CC for a failure to file the return of income, the court held that the onus was on
the assessee to prove that delay was not wilful and not on the department (SLP of assessee is
admitted in the case of Nilofar Currimbhoy v. ACIT (2015) 228 Taxman 57 (SC).
S. 278E being penal in nature is not applicable for those offences that have been committed on or
before 9-9-1986 even if the prosecution proceedings are launched after the said date.
Before the amendment to S. 276A, 276B, 276B, 276D and 276E, the onus was on the
prosecution to prove beyond a reasonable doubt that the accused had no reasonable cause or
excuse to commit any of the offences as envisaged by the aforesaid sections. However, in the
light of the amendment by the Taxation Laws (Amendment and Misc. Provisions) Act, 1986 to
the aforesaid, sections wherein the word “without reasonable cause or excuse” have been deleted
and with the insertion of S. 278AA, the onus of proving the existence of reasonable
cause has shifted on to the accused. However reasonable cause can be proved in cases related to
offence 276A , 276AB or 276B (see 278AA) .

Instances of Reasonable cause accepted by courts:

In UOI v. Bhavecha Machinery & Ors. (2009) 320 ITR 263 (MP)(HC), Where the delay in
filing the return was explained by the accused firm due to the illness of the old part time
accountant of the accused firm, the cause shown by the accused firm was held to be a reasonable
cause for delay in filing the return of its income.
Sonali Autos P. Ltd. v. State of Bihar (2017) 396 ITR 636 (Patna) (HC) S. 278AA : Offences
and prosecutions – Tax deduction at source – Reasonable cause – No punishment. [S. 201 (IA),
276A, 276AB, 276B, 279, Code of Criminal Procedure, 1973, S.482]
In Shaw Wallace & Co. Ltd. v. CIT (TDS) (No. 2) (2003) 264 ITR 243 (Cal.)(HC) held that it
is for appellant to produce sufficient evidence for non-deposit of tax deducted at source during
criminal trial to avail of benefit of section 278AA.

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4. CRIMINAL LIABILITY FOR OFFENCES UNDER THE INCOME TAX ACT,

1961

Under the Income-tax Act, 1961 there are various provisions for non-compliance with the taxing
provisions and the collection of taxes. The Income-tax Act seeks to enforce tax compliance in a
three fold manner; namely :-

1. Imposition of interests 2. Imposition of penalties and, 3. Prosecutions

Criminal penalties (prosecutions) for income tax offecnes, unlike civil penalties, previously
remained scattered all over the related legislations reaining unorganized. This is evident from the
fact that the Income-tax Act of 1886, (the very first general All India Income-tax Act
incorporated criminal sanctions under a separate heading entitled 'Penalties' in chapter 5 of the
Act, dealing with the 'Recovery of Arrears of Tax'. The Income-tax Act of 1918, after repealing
the Act of 1886, went a step further and consolidated the criminal penalties in a separate chapter
7, entitled 'Offences and Penalties'. The subsequent Income-tax Acts of 1922 and 1961,
followed suit and kept the criminal penalties in separate chapters. Further, The taxation laws
(amendment Act ) Act , 1975, has brought about considerable changes of far reaching
importance in the penal provisions especially prosections, in the income tax act , 1961. The
amendment act is the outcome of the recommendations of the direct taxes enquiry committee (
Wanchoo committee ) and the 47th report of the law commission on social and economic
offences . Therefore, genesis for the need of stringent imposition of prosecutions find its roots in
this Wanchoo Committee Report. The said Committee in their final report recommended as
under:-
“Need for vigorous prosecution policy2”

The Income-tax Act, 1961, has twelve sections in chapter 22 dealing with 'Offences and
Prosecutions'. It contemplates prosecution for various offences committed by a tax-payer under
the Act. These provisions are similar to those found in the income-tax statutes of the United
Kingdom, theUnited States3, Australia,4 Canada5, New Zealand6, though they differ in scope and
amount of the penalties. The offences under the Indian Income tax Act, 1961 may broadly be
classified in the following categories:

(i) Failure to make payments, etc.7

(ii) Failure to deduct and pay tax.8
(iii) Failure to give notice of winding up of the business.9
(iv) Wilful attempt to evade tax10
(v) Failure to furnish return of income11
(vi) Failure to produce accounts and documents.12
(vii) False statement in declaration (verification).13
(viii) Abetment of false returns, etc.14
(ix) Punishment for the habitual offenders.15

2
283. In the fight against tax evasion, monetary penalties are not enough. Many a calculating tax dodger finds it a
profitable proposition to carry on evading taxes over the years, if the only risk to which he is exposed is a monetary
penalty in the year in which he happens to be caught. The public in general also tends to lose faith and confidence in
tax administration once it knows that even when a tax evader is caught, the administration lets him get away lightly
after paying only a monetary penalty- when money is no longer a major consideration with him if it serves his
business interests….”

3
Chapter 75 of the Internal Revenue Code, 1951, deals with crimes, other offences and forfeitures in ss. 7201 to
7344.
4
Part VII of the Income-tax and Social Services Contribution Assessment Act, 1936-1978 deals with penal
provisions and prosecutions in ss. 222 to 251.
5
The Income-tax Act of Canada, 1952, part-VI.
6
Ss. 33 and 34 of the Income Tax Assessment Act, 1957 deal with offences and penalties
7
Income tax Act 1961, sec. 276
8
Id., s. 276 B.
9
Id., s. 276 A.
10
Id., s. 276 C.
11
Id., s. 276 CC.
12
Id, S.276B.
13
Id. s. 277.
14
Id s. 279.
 (x) Offence by companies.16
(xi) Offence by Hindu undivided families.17
(xii) Disclosure of confidential information.18

A general conclusive remark from the various studies was that even though assessees in general
may not be worried by levy of interest or penalties which they can afford to pay, the idea of
undergoing imprisonment if convicted of offences can have a strong deterrent effect against the
offences of tax evasion and non-compliance.
Section 132 empowers the tax authorities to initiate search proceedings at the premises of the
taxpayer. During the course of search the tax authorities are also empowered to seize money,
bullion, jewellery or other valuable article or thing found from the taxpayer. Generally, the
19
seized money, bullion etc. is taken by the tax authorities in their custody . The second proviso
to section 132(1) empowers the tax authorities to seize the asset by keeping the asset at the place
of the taxpayer only. The tax authorities may serve an order on the owner or the person who is in
immediate possession or control thereof that he shall not remove, part with or otherwise deal
with it, except with the previous permission of such officer. Section 275A provides for
prosecution in the case of contravention of any of the above discussed provisions by the
taxpayers. As per section 275A, whoever contravenes of any of the above provisions shall be
punishable with rigorous imprisonment of upto a period of 2 years and shall also be liable for
fine.
Other offences with criminal sanctions include the removal, concealment, transfer or delivery of
property to thwart tax recovery ; wilful attempt to evade tax, penalty or interest ; wilful failure to
furnish return of income, false statement in verification or delivery of false account, etc.
If a taxpayer fails to discharge his tax liability, then the tax authority can recover the tax dues
from him by attaching his movable and immovable property. If the taxpayer fraudulently
removes, conceals, transfers or delivers to any person, any property or any interest therein ,
intending thereby to prevent that property or interest therein from being attached for recovery of

15
Id, s. 278 A.
16
Id, s. 278 B.
17
Id, 278 C.
18
Id., s. 280
19
K.E. Johnson And Ors. vs Laxmipat Choraria And Anr (1974) 93 ITR 489 Cal
tax, then prosecution proceedings can be initiated under section 27620. Section 276C provides
for punishment in the case of wilful attempt to evade tax, penalty or interest or under-reporting
of income. Section 276CC provides for imprisonment in case of failure to file the return of
income. Section 276CC is attracted for any of the following defaults by the taxpayer . Section
27721 provides for prosecution for making false statement or producing false accounts /
documents. If a taxpayer makes statement in any verification under the Act or under any rules
made there under, or delivers an account or statement which is false, and which he either knows
or believes to be false, or does not believe it to be true, he shall be punished under he section.
Punishments for all the above offences shall be Rigorous imprisonment which shall not be less
than 6 months but which may extend to seven years and with fine .
Section 277A provides for prosecution in the case of falsification of books of account or
document etc by any person with an intent to enable any other person to evade any tax or
interest or penalty chargeable under the Act. Theperson shall be punishable with rigorous
imprisonment for a term which shall not be less than 3 months but which may extend to 2 years
and with fine.
ABETMENT OF OFFENCES UNDER THE ACT
S. 278 of the said Act deals with the offence of abetment in the matter of delivering any accounts
or a statement or a declaration relating to income chargeable to tax. As per section 278 if a
person abets or induces another person to make a false statement or a declaration relating to any
income chargeable to tax he shall be punished with rigorous imprisonment and fineIn Umayal
Ramanathan v. Income Tax Officer22 (1992) 194 ITR 487 (Mad), it was held that even if it is
decided that the prosecution against an assessee under section 276C is to be dropped, the
prosecution against the person accused of abetment under section 278 of false return can
continue. In Smt. Sheela Gupta v. IAC 23, the Court held that, when the Tribunal has set aside
the order of the Assessing Officer, the complaint filed for abetment does not survive hence the
complaint was quashed.

20
Onkar Chand & Co. & Ors. v. Income-tax Department, (2009) 237 CTR 530 (HP)
21
Gulab Chand Sharma vs H.P. Sharma Etc. (1974) 95 ITR 117 Delhi

22
(1992) 194 ITR 487 (Mad)
23
(2002) 253 ITR 551 (Delhi) (HC) (552)
The section also casts an onerous duty on the advocates, Chartered Accountants and Income Tax
Practitioners to be cautious and careful. The legal profession is a noble one and legal
practitioners owe not only a duty towards his client but also towards the court. It would be highly
unprofessional if a legal practitioner is to encourage dishonesty or to file such returns knowing or
having reason to believe that the returns or declarations so made are false. In P. D. Patel v.
Emperor24, a warning has been given of which every legal practitioner has to take a serious
notice. In this case, an advocate deliberately omitted in a return submitted by him a certain
amount of money and persisted in taking up false defences. The Government lost a huge amount
because of the exclusion of the said amount in the return filed by the advocate on behalf of his
client. A fine for the said offence was levied by the trial court on an appeal, the High Court took
a serious view, of the offence and held that in a case like this, the punishment should be deterrent
and exemplary and the assessee was ordered to be kept in simple imprisonment for one month.

However, the liability in thiscase is not absolute, In Navrathna & Co. v. State25. The court held
that, merely preparing returns and statement on the basis of the accounts placed before the
Chartered Accountant, the question of abetment or conspiracy cannot arise

OFFENCES BY COMPANIES, FIRMS, ASSOSSIATIONS ETC.;

S.278B makes certain provisions with regard to offence committed by companies, firms,
association of person and bodies of individuals, whether incorporated or not. Where an offence
has been committed by a company, a firm, association of persons, or body of individuals, the
person, who was in charge of and was responsible for the conduct of its business at the time
when the offence was committed will be deemed to be guilty of the offence, unless he proves
that the offence was committed without his knowledge or that he had exercised all due diligence
to prevent the commission of the offence.26 Further, if in the case of a company it is proved that
the offence bad been committed with the consent or connivance of or is attributable to any
neglect on the part of the company, such director, manager, secretary or others will be deemed to
be guilty of the offence and will be liable to be prosecuted and punished accordingly. This
provision will also apply in relation to mutatis mutandis committed by
a firm, association of persons or body of individuals.

24
(1933) 1 ITR 363 (Rangoon)(HC),
25
(1987) 168 ITR 788 (Mad.)(HC)(790)
26
Girdharilal Gupta vs. D. N. Mehta, AIR 1971 S.C. 2162
However, In case of Jamshedpur Engg. & Machine Mfg. Co. Ltd.v.Union of India27 it was
held that every director or person associated with the company will not be held liable for the
offence. It is only the person who was entrusted with the business of the company and was
responsible to the company for the conduct of its business who will be liable for the offence
alleged.”

In Homi Phiroze Ranina v. State of Maharashtra28, it was held that Unless complaint
disclosed a prima facie case against applicant-directors of their liability and obligation as
principal officers in the day-to-day affairs of company as directors of the company under section
278B, the applicants could not be prosecuted for offences committed by the company. In Onkar
Chand & Co. & Ors. v. Income-tax Department29, the same has been re-affirmed, complaints
for offences under sections 276C, 277 and 278B were filed against the firm and all the partners.
In absence of any specific allegation against the partners of the firm other than those who had
verified the return of the firm that they were responsible for the conduct of the business of the
firm, prosecution against these partners was held to be not sustainable. In ITO v Kamra
Trading Co.30 the court held that launching of prosecution against sleeping partner was held to
be bad in law for failure to pay the tax.Also, as held in the case of Dhrupadi Devi (Smt.) v.
State of Rajasthan 31, the criminal liability of partner cannot be thrust upon his legal heirs.

OFFENCES BY HINDU UNITED FAMILY

S. 278C provides for criminal liability of the Karta, or members of a HUF in respect of offences
committed by the Hindu Undivided Family. Under this provision, when an offence has been
committed by HUF, the Karta thereof will be deemed to be liable to be prosecuted and punished
accordingly, unless he proves that the offence was committed without his knowledge or that he
had exercised all due diligence to prevent the offence. If the offence was committed with the
consent or connivance of or is attributable to any neglect on the part of any other member of the
family, such other member shall be deemed to be guilty of the offence and shall be liable to be
prosecuted and punished accordingly. In Roshan Lal v. Special Chief Magistrate32, the Court

27
[1995] 214 ITR 556 (PAT.)
28
2003) 131 Taxman 100 / 263 ITR 636 (Bom.)(High Court)
29
(2009) 237 CTR 530 (HP)
30
(2004) 267 ITR 170 (P&H) (HC)
31
(2001) 106 ITR 90 (Raj.) (HC)
32
(2010) 322 ITR 353 (All.) (HC,
held that a member of HUF cannot be held liable for delay in filing of return of HUF though he
has participated in the assessment proceedings.

OFFENCES BY CREDIT INSTITUTIONS:

If an offence is committed by a credit institution, then the credit institution as well as every
person, who at the time of the offence being committed was in-charge and responsible to the
credit institution for the conduct of the business of such institution, shall be deemed to be guilty
and liable to be proceeded against. Burden would be on such person to prove that the offence
was committed without his knowledge or that he had exercised all due diligence to prevent the
commission of such offence, then he will not be liable to be proceeded against.

SIMULTANEOUS ACTION OF IMPOSING PENALTY AND PROSECUTION – S.

271(1)(C) AND S. 277:

Simultaneous action for imposing a penalty and launching prosecution for the same offence is
not barred under the I T Act, 1961. In S.P. Sales Corporation v. S. R. Sikdar33and G. L.
Didwania v. ITO34, the Hon’ble Apex Court laid down the principle that “The Criminal Court
no doubt has to give due regard to the result of any proceedings under the Act having bearing on
the question in issue and in an appropriate case it may drop the proceedings in the light of an
order passed under the Act.” In K. C. Builder v. ACIT 35, the court held that when the penalty is
cancelled, the prosecution for an offence u/s 276C for wilful evasion of tax cannot be proceeded
with thereafter.36. In Suresh Chand Gupta v. UOI37 it was held, following smt. Mohini Devi
Agarwal v. CIT38 and G.L. Didwania v. ITO39 that in view of cancellation of penalty on the
same point, prosecution under section 276C and section 277 was liable to be quashed.

Prosecution under the Indian Penal Code,1860:

As per the provisions of S.26 of the General Clauses Act, 1897, where an Act or omission
constitutes an offence under two or more enactments, the offender shall be liable to be

33
(1993) 113 Taxation 203 (SC)
34
(1995) 224 ITR 687 (SC)
35
(2004) 265 ITR 562 (SC),
36
Shashichand Jain & Ors. v UOI (1995) 213 ITR 184 (Bom) (HC)
37
(1997) 223 ITR 183 (MP),
38
(1997) 224 ITR 742 (Pat)
39
(1997) 224 ITR 687(SC)
prosecuted and punished under either or any of those enactments, but shall not be liable to be
punished twice for the same offence and the punishment shall run concurrently. To strengthen
the case of the , generally the revenue department also launches prosecution under the various
provisions of the Indian Penal Code. The relevant provisions under the IPC are sec.109, sec.110,
sec.111 sec113, sec114 (with regard to abatement of tax offences); sec. 172 – 186 ( contempts of
the lawful authority of public servants); sec 193, sec. 196, sec.197 and sec.198 (of false evidence
and offences against public justice.)

-------------------------------------------------------------------------------------------------------------

5. PROCEDURE GOVERNING PROSECUTION PROCEEDINGS

The procedure governing prosecution proceedings under the Act can be divided into two parts
i.e.

I. Procedure to be followed by the Department while launching prosecution proceedings, and

II. The procedure before the Court.

I. Procedure followed by the department while launching the prosecution

Though there is no specific procedure provided under the Act or Rules, the Department has
framed their own guidelines and instructions for initiating prosecution proceedings. The said
instructions are referred in the following cases while quashing the prosecutions under S. 271C(1)
read with Ss. 277 and 276CC of the Act.

The Income-tax department’s manual deals with various guidelines to be followed before
launching prosecution proceedings and the broad parameters as laid down are as follows:

1. The Assessing Officer on the basis of the records of the assessee sends the proposal to the
respective Commissioner.

2. The Commissioner issues the show cause notice to the assessees.

3. If Commissioner is satisfied with the reply of the assessee he may not grant sanction to the
Assessing Officer to file complaint before the Court.

II. Procedure before Court

On the basis of complaint filed before a court, the court sends summons to the accused along
with the copy of complaint, to attend before the court on a particular date. The complaint being
criminal complaint, the accused must be present before the court, unless the court gives a
specific exemption.

If the accused is not present on such particular date, the court can issue a warrant against the
accused. If the warrant is issued, unless the accused secures bail, he may be arrested and
produced before the court. Before the trial itself is underway and regular hearings start in a
matter, the court has to frame charge against the accused. Framing of the charge means that on
the basis of the complaint and on seeing the primary evidence after hearing the accused, the court
charges the accused of the offences purported to be committed by him. If on hearing the accused,
the court feels that there is no apparent case against the said accused the court will dismiss the
complaint.

However, if the court feels that there is substance in the complaint the charges will be framed
and the proceedings shall continues as per the Criminal Procedure Code. Many of the Assessing
Officers may not be aware that Assessing Officer who has filed the complaint may have to be
examined before the final decision is taken. Given the current pendency in courts, it is
completely possible that prosecution that is launched in the year 2018 may very well come up for
hearing after 15 or 20 years, and even though the officer who has launched the prosecution might
have retired, he may still have to attend the proceedings. Therefore, it is very essential that
before launching the prosecution the officer concerned may have to examine the consequences,
especially the possibility of the matter being tried several years after the prosecution has been
initiated.

If the trial results in a conviction, then an appeal to the court of session will lie under S. 374(3) of
the Criminal Procedure Code. The said appeal will be heard under S.381 of the CrPC, either by
the a Sessions Judge or by an Additional Sessions Judge. The petition of appeal is to be
presented in the form prescribed filed by the appellant or by his pleader accompanied by a copy
of the Judgment appealed against within a period of 30 days from the date of order, as per the
Limitation Act.

CERTAIN ASPECTS TO BE KEPT IN MIND RELATING TO LAUNCHING OF

PROSECUTION, PROCEEDINGS ARE:
sanction for launching of prosecutions:

Under S. 279, the competent authority to grant sanction for prosecution is Commissioner,
Commissioner (Appeals), Chief Commissioner or the Director General. Prosecution, without a
requisite sanction shall make the entire proceedings void ab initio. The sanction must be in
respect of each of the offences in respect of which the accused is to be prosecuted. Where the
Commissioner has held that an assessee had made a return containing false entries and gave
sanction for prosecution for an offence under S. 277, and the accused was found guilty of an
offence under S. 276CC, and not under S. 277, it was held in revision that an offence under S.
276CC was of a different nature from that under S. 277, and as there was no sanction for
prosecution for an offence under S. 276CC, the conviction was illegal40.

Opportunity of being heard

When an Assessing Officer takes a decision to initiate proceedings or a Commissioner grants

sanction for such proceedings. He has to apply his mind and on the basis of the circumstances
and the facts on record, he has to come to the conclusion whether prosecution is necessary and
advisable in a particulars case or not. The said Act does not provide that the Commissioner has to
necessarily afford the assessee an opportunity to be heard before deciding to initiate proceedings.
The absence of an opportunity to be heard will not make the order of sanction void or illegal as
held in CIT v. Velliappa Textiles Ltd.41 However, it is being observed that the commissioners
are issuing a show cause notice before sanctioning the Sanction for prosecution based on the
internal manual.

Circumstances under which the Commissioner cannot initiate proceedings

S. 279(1A) has provided for the exception to the Power of Commissioner to initiate proceedings.
Therefore, if a particular case falls and is established u/s. 276C or 277 of the said Act and if an
order u/s. 273A has been passed by the Commissioner, by using the phrase “has been reduced or
waived by an order under S. 273A” in S. 279(1A),the legislature has made it clear that the order
referred to in S. 279(1A) is the order of the Commissioner waiving or reducing the penalty u/s.
273A and not the order of non imposition of penalty by the ITO or the order of cancellation of
penalty for lack of ingredients as required by S. 271 by Appellate Authorities. This is relevant

40
Champalal Girdharlal v. Emperior, (1933) 1 ITR 384 (Nag) (HC).
41
CIT v. Velliappa Textiles Ltd, (2003) 263 ITR 550 (SC) (567 to 569).
because in the cases where the penalty is waived partly u/s. 273A, the Commissioner is
precluded from granting sanction u/s. 279 of the Act.

In Shravan Gupta v. ACIT42 held that failure to produce accounts or documents-Accounts had
been submitted when criminal complaint was issued-Sanction for prosecution was held to be not
valid.43 In T.D. Gandhi, ITO v. Sudesh Sharma44 it was held that Falsification of books –False
TDS certificate-Tax practitioner Refund on the basis of TDS certificates- Respondent had no role
in preparing TDS certificates.

Therefore, the non-existence of the circumstances enumerated in S. 273A is a precondition for

the initiation of proceedings for prosecution u/s. 276C or 277. Accordingly, the CIT should
ascertain by himself that the circumstances prescribed in section 273A do not exist. A complaint
filed for prosecution u/s. 276C or 277 would be illegal and invalid if the circumstances as
provided in S. 273A exist. It may be noted that, as per the instruction No. 5051 of 1991 dt. 7-2-
1991 issued by the Board stated as under:

“Prosecution need not normally be initiated against a persons who have attained the age of 70
years at the time of commission of the offence”.

In Pradip Burma v. ITO45, the court held that, at the time of commission of offence the
petitioner has not reached the age of 70 years, hence the circular was held to be not applicable.

Whether prosecution can be initiated before completion of assessment or when the matter
is pending in appeal

The assessment proceedings and criminal proceedings are independent proceedings. The
assessment proceedings are conducted by the Income Tax Authorities and are civil proceedings
in nature, whereas prosecution for offences committed are tried before a competent court. The
provisions of the Law of evidence that do not bind assessment proceedings, are to be strictly
followed in criminal proceedings.

In P. Jayappan v. ITO46, the court held that the two types of proceedings could run
simultaneously and that one need not wait for the other. In Kalluri Krishan Pushkar v Dy.

42
Shravan Gupta v. ACIT, (2015) 378 ITR 95 (Delhi)(HC).
43
[S. 279, Criminal Procedure Code, 1973, S. 482.]
44
T.D. Gandhi, ITO v. Sudesh Sharma (2015) 230 Taxman 572 (P&H)(HC).
45
Pradip Burma v. ITO, (2016) 382 ITR 418 (Delhi) (HC).
CIT47, the court held that, existence of other mode of recovery cannot act as a bar to the initiation
of prosecution proceedings. In that particular case the prosecution was initiated u/s. 276C, for
non-payment of admitted tax and interest.

FINDINGS OF THE APPELLATE TRIBUNAL

The Appellate Tribunal is the final fact finding authority under the Act. Hence, the findings and
the orders of the Appellate Tribunal are binding on the Commissioner of Income tax. On the
aforesaid proposition, the two important questions that may arise are:

(1) If there is a finding of the Appellate Tribunal that there is no concealment and no false
statement, etc., then whether or not the Commissioner of Income tax would be stopped from
initiating proceedings under S. 277? and,

(2) How far are the findings of the Appellate Tribunal in the assessment proceedings binding
upon the trial court in respect of the proceedings for prosecution u/s. 277?

The Supreme Court, in Uttam Chand v. ITO48, while dealing with prosecution proceedings u/s.
277, held that the finding given by the Appellate Tribunal is binding on the criminal courts.
Therefore, when there is a finding of the Appellate Tribunal leading to the conclusion that there
is no prima facie case against the assessee for concealment, then that finding would be binding
on the court and the court will have to acquit or discharge the assessee.

If the penalty for concealment is quashed on technical grounds due to limitation or due to
violation of the due process of law, as the penalty is not quashed on merits it cannot be said that
there should not be any prosecution. Similarly, when the Appellate Tribunal holds that the
assessee is liable for penalty, the conviction is not automatic. The concerned court has to
examine the witnesses and has to come to an independent finding as to whether the accused is
guilty of the offences by following the due process of law.

S. 136: PROCEEDINGS BEFORE INCOME-TAX AUTHORITIES TO BE JUDICIAL

PROCEEDINGS

46
P. Jayappan v. ITO (1984) 149 ITR 696 (SC).
47
Kalluri Krishan Pushkar v Dy. CIT, (2016) 236 Taxman 27 (AP& T) (HC).
48
Uttam Chand v. ITO, (1982) 133 ITR 909 (SC).
S. 136 provides that any proceedings under the Act shall be deemed to be a judicial proceeding
within the meaning of S. 193 and 228 and for the purpose of S. 196 of the Indian Penal Code.
However, all proceedings under the Act do not fall under the definition of judicial proceedings
for all purposes. For example, penalty proceedings u/s.271(1)(c) do not fall within the ambit of
S. 136 of the Act and therefore cannot be said to be judicial proceedings. In KTMS Mohammed
v. UOI49, the Court held that Assessing Officer cannot launch prosecution for perjury in FERA
proceedings in a statement recorded under FERA proceedings. However, if an assessee
intentionally gives or fabricates false evidence, the said assessee is liable for prosecution under
S. 193 of the Indian Penal Code.

LIMITATION FOR INITIATION OF PROCEEDINGS

Chapter XXXVI of the Code of Criminal Procedure, 1973 lays down the period of limitation
beyond which no Court can take cognizance of an offence which is punishable with fine only or
with imprisonment not exceeding three years. But, for Economic Offences (In respect of
applicability of Limitation Act, 1974) it is provided that nothing in the aforesaid chapter XXXVI
of the Code of Criminal Procedure, 1973, shall apply to any offence punishable under any of the
enactment specified in the Schedule. The Schedule referred to includes Income tax, Wealth tax,
etc. In Friends Oil Mills & Ors. v. ITO50, dealing with S.277 of the Act, the Hon’ble Kerala
High Court held that the bar of limitation specified in section 468 of the Code of Criminal
Procedure, 1973 would not apply to a prosecution, under the Income-tax Act (also refer Nirmal
Kapur v. CIT51. In view of this, as there is no fixed period of limitation for initiation of
proceedings under the Act, the sword of prosecution can be said to be perpetually hanging on the
head of the assessee for the offences said to have been committed by him. It may be noted that
this may result in injustice to the assessee because a person who is in a better position to explain
the issue or things in the initial stage, may not be able to do so later, if he is confronted with the
act of commission of an offence under a lapse of time. In Gajanand v. State52, the Hon’ble High
Court held that where the Criminal Proceedings had proceeded for 12 years and the Income tax
department failed to produce the evidence, the prosecution was to be quashed. In State of

49
KTMS Mohammed v. UOI (1992) 197 ITR 196 (SC).
50
Friends Oil Mills & Ors. v. ITO (1977) 106 ITR 571 (Ker.) (HC).
51
Nirmal Kapur v. CIT (1980) 122 ITR 473 (P&H) (HC).
52
Gajanand v. State (1986) 159 ITR 101 (Pat) (HC).
Maharashtra v. Natwarlal Damodardas Soni53, the Court held that a long delay along with other
circumstances be taken in to consideration in the mitigation of the sentence.

Compounding of offences

S.279(2) empowers the Chief Commissioner or Director General to compound an offence under
the Act, either before or after the initiation of proceedings. The Department has issued new set of
guidelines for compounding of offences under direct taxes vide notification F.No. 185/35/2013
IT (Inv.V)/108 dated December 23, 2014 (2015) 371 ITR 7.

These guidelines replace the existing guidelines issued vide F.No 285/90/2008, dated May 10
2008, with effect from January 1, 2015. However, cases that have been filed before this date
shall continue to be governed by earlier guidelines. Under S.279(2), an offence can be
compounded at any stage and not only when the offence is proved to have been committed. Once
compounding is effected, the assessee cannot claim a refund of the composition amount paid on
the ground that he had not committed any of said offences (Shamrao Bhagwantrao Deshmukh
v. The Dominion of India54). The requirement under S.279(2) is that the person applying for a
composition must have allegedly committed an offence. The compounding charges might be
paid even before a formal show cause notice has been issued. On the other hand, even if the
accused is convicted of an offence and an appeal has been preferred against the same, there
seems to be no particular bar to give effect to a compounding during the pendency of such appeal
and the accused shall not have to undergo the sentence awarded if he pays the money to be paid
for compounding. Prosecution initiated under Indian Penal Code, if any, cannot be compounded
under the provisions of the Income-tax Act. However, S. 321 of the Criminal Procedure Code,
1973, provides for withdrawal of such offences.

Notwithstanding anything contained in the guidelines, the Finance Minister may relax
restrictions for compounding of an offence in a deserving case on consideration of a
report from the board on the petition of an appellant.

Procedure for compounding

53
State of Maharashtra v. Natwarlal Damodardas Soni AIR 1980 SC 593.
54
Shamrao Bhagwantrao Deshmukh v. The Dominion of India (1995) 27 ITR 30 (SC) .
The accused has to approach the Commissioner with a proposal for compounding. A hearing has
to be given to the assessee by the Commissioner on the proposal for compounding made by him
and thereafter the compounding fees are finally determined. The ultimate decision as to the
acceptance or refusal of the compounding proposal lies with the Commissioner. If the
Commissioner accepts the proposal for compounding, the same would have to be recommended
by him to the Central Board of Direct Taxes. It may be noted that offences under Indian Penal
Code cannot be compounded by the competent authority under the Income-tax Act. However,
generally when the alleged offences under direct tax laws are compounded, the prosecution
launched for the corresponding alleged offences under IPC are also withdrawn. In
V.A. Haseeb and Co. (Firm) v. CCIT55, the Court held that, application for compounding cannot
be rejected merely because of the conviction of assessee in the Criminal Court. In
Punjab Rice Mills v. CBDT56, it was held that the Court will not compel the Commissioner to
compound the offence or interfere unless the exercise of discretionary statutory power was held
to be perverse or against the due process of law.

---------------------------------------------------------------------------------------------------------------

6. POWER TO GRANT IMMUNITY FROM PROSECUTION AND PENALTY

S. 245H(1)(2) (1) empowers the Settlement Commission under the specified circumstances to
grant immunity to the assessee from prosecution for an offence, subject to such conditions as it
may think fit to impose. However, sub-section (2) of S.245H also empowers the Settlement
Commission to withdraw the immunity so granted if it is satisfied that such person has not
complied with the conditions subject to which immunity was granted or that such person had in
the course of the settlement proceedings concealed any particular relevant material or had led
false evidence. In Nirmal and Navin P. Ltd. And Others v. D. Ravindran57 the Court held that
when immunity is granted by Settlement Commission, it, was not open to Criminal Court to go
behind order passed by Settlement Commission. As per the proviso to S. 245H(1), the Settlement
Commission is precluded from granting immunity from prosecution in cases where prosecution
has been instituted on the date of receipt of application for settlement, under section 245C. In

55
V.A. Haseeb and Co. (Firm) v. CCIT (2017) 152 DTR 306 (Mad.) (HC).
56
Punjab Rice Mills v. CBDT ( 2011) 337 ITR 251 (P& H) (HC),
57
(2002) 255 ITR 514 (SC).
Anil Kumar Sinha v. UOI (2013)58 the Court held that, if prosecution is already launched and
thereafter the assessee moves Settlement Commission, the Settlement Commission was justified
in not granting immunity in respect of prosecution which was already launched u/s. 276CC of
the Act.

S. 291(1) of the said Act, confers on the Central Government a power, under specified
circumstances, to grant immunity to the assessee, from prosecution for any offence under the
Direct taxes, IPC or any other Central Act to a person, with a view to obtain evidence. This is
subject to condition of him making a full and true disclosure of the whole circumstances relating
to the concealment of income or evasion of payment of tax on income. However, sub- section (3)
of this section, empowers the Central Government to withdraw the immunity so granted, if such
person has not complied with the condition on which such immunity was granted or is wilfully
concealing anything or is giving false evidence.

7. POSITIONS IN OTHER COUNTRIES IN RESPECT OF PENALTIES

(i) United Kingdom

The position in the United Kingdom appears to be well established that penalty proceedings
under the income-tax statutes are civil in nature. This is the logical inference of the following
statement made in the Halshury's Laws of England: "Proceedings for the recovery of penalties
are not criminal proceedings, nor it seems, are they proceedings in tort."

The proposition that such penalties are civil in nature has been approved by the Court of
Appeal in C.I.R. v. Jackson, The action was to recover penalties under section 232 of the
Income-tax Act, 1952 (now repealed). The taxpayer failed to submit particulars of his income
for certain years within a specified time, as required by notice issued by the Commissioner of
Inland Revenue. Thereupon, the commissioner levied the penalty under section 232 of the
Income-tax Act, 1952, for failure to submit the particulars required without reasonable cause.
The defendant denied the allegation and pleaded not guilty. The court rejected the appellant's
contention that the proceedings, being "criminal proceedings" he could not be required to give
the particulars of his income. It was held that, though the commissioner's claim was one for a

58
352 ITR 170 (Pat.) (HC).
penalty, it was not a "criminal proceeding" and the normal rules as to pleadings in a civil action
would apply.59

(ii) Canada

The situation in Canada is similar to that of in the United Kingdom. The Court of Exchequer in
Alex Pashovitz v. Minister of National Revenue in an appeal from an assessment of penalties
made by the minister held that the nature of such penalties was a civil one. The facts of the case
are as follows:

The appellant, a farmer with little knowledge of accounting made incorrect income-tax
returns for several taxation years. The minister, following an investigation, came to the
conclusion that the appellant had not reported certain income from the operations of a
partnership with his father and disallowed certain expenses claimed as deductions. Thereafter
the minister assessed the tax and penalties under section 51 A of the Income Tax Act, 1935
which provided: Every person who has wilfully, in any manner, evaded or attempted to evade
payment of the tax payable by him...for a taxation year or any part thereof is liable to a penalty,
to be fixed by the Minister, of not less than 25% and not more than 50% of the amount of the
tax sought to be evaded.

The court repudiated the taxpayer's claim that as penalties were criminal punishments,
the burden of proof lay upon the minister. Thurlow, J., holding the taxpayer liable to pay
the penalty as he failed to prove that the assessment of the penalty was wrong, said: "The
proceedings are, however, of a civil nature, and a pre-ponderance of evidence is sufficient.

(iii) Australia

In Australia, unlike the United Kingdom and Canada, the legislature has made it clear that the
income-tax penalties are civil in nature. Section 237 of part VII of the Income-tax Assessment

59
Journal of the Indian Law Institute VOL. 21,1979,48 Pages.
Act, 1939-1978, which deals with penal provisions and prosecutions, expressly states that:
Every taxation prosecution may be commenced, prosecuted and proceeded with in accordance
with the usual practice and procedure of the Court in civil cases. This has practically left no
scope for judicial interpretation and the courts have approved the legislative scheme. For
instance, in Jackson (Federal Commissioner of Taxation) v. Butterworth, Fullagar, J.,
(while delivering the judgment of the Supreme Court of Victoria), with regard to the question
whether taxation proceedings under part VII of the Act was a civil proceeding or a criminal
proceeding, said, "the proceeding is civil and not criminal in character. The procedure is by
action to recover a penalty, and the rules of civil procedure apply."

(iv) New Zealand

New Zealand, like its neighbour Australia, appears to have thought it desirable to state the
nature of penal tax, instead of leaving the matter for the courts to decide. Section 232 of the
Land and Income Tax Act, 1954, states: Penal tax shall for all purposes be deemed to be tax
of the same nature as the deficient tax, and shall be deemed to be payable in and for the same
year of assessment as the deficient tax. It is, therefore, obvious that the penal proceedings in
New Zealand are civil in nature. The courts have not questioned its propriety; they have
decided cases bearing this fact in mind. For instance, it was held by the Supreme Court at
Wellington in Taylor v. Attorney-General60, that acquittal of a taxpayer on a charge of
willfully making a false return of income under section 225 (1)(£), does not stop the
Commissioner of Inland Revenue from imposing on the taxpayer a penal tax under section
231 of the Land and Income Tax Act, 1954.

The taxpayer was charged with under section 228 (1) (b) of the Act for having wilfully made
false return of income for the years 1954, 1955 and 1956, but was acquitted by the magistrate.
Thereupon, the Commissioner of Inland Revenue imposed penal taxes to the extent of £150
and £100 respectively under section 231 in respect of each of such years.

(v) United States of America

60
(1963) N.Z L.R. 261
 In the United States there appears to be no controversy with regard to the nature of civil
penalties i.e., the additional tax imposed to discourage fraudulent attempts to avoid tax. The
rival contentions of taxpayers that such penalties are criminal, and of the inland revenue
service that they are civil in nature seems to have been laid at rest by the U.S. Supreme Court
in Guy T. Helvering v. Charles E. Mitchell61, in favour of the latter. This is the logical
implication of the Supreme Court's verdict that the constitutional prohibition against double
jeopardy did not preclude the imposition of a civil penalty for tax fraud despite acquittal of a
taxpayer on a criminal charge The respondent taxpayer submitted a return of his income for
the year 1929. The Commissioner of Inland Revenue found on investigation that the taxpayer
had fraudulently deducted a substantial sum of money from his return of income, alleging a
loss on a purported sale of shares and that he had dishonestly failed to return a large sum of
money and that these fraudulent acts were done with intent to evade tax. The Commissioner
of Inland Revenue, therefore, imposed an additional tax of 50 per cent under section 293 (b)
of the code for fraudulent under-payment of tax and instituted criminal proceedings under
section 46 (6) of the Internal Revenue Code, 1928, for fraudulent evasion of tax. The taxpayer
was, however, acquitted on the criminal charge62.

7. CONCLUSION AND SUGGESTIONS

From the foregoing discussions, it is evident that in the United Kingdom, Canada,
Australia, New Zealand and the United States a distinction has been drawn in regard to the
nature of penalties levied by the revenue authorities and the criminal courts. But the position
in India still appears to be uncertain. Neither the legislature nor the judiciary has taken a clear
stand on the issues. An inference, however, can be drawn on the basis of the following
propositions that the penalties levied by the revenue authorities under the Income-tax Act are
civil in nature, and not criminal or quasi-criminal. The Indian judiciary has failed to lay down
authoritatively the distinction between the nature of civil (administrative) and criminal
penalties. As such the legislature could make the provisions clear in order to avoid confusion
and complications. This could be done by inserting a new section in chapter 21 of the Income-
tax Act, 1961, similar to that of in section 237 of the Australian Income-tax and Contribution
61
303 U.S. 391 (1937)
62
Journal of the Indian Law Institute VOL. 21,1979,48 Pages.
Assessment Act, 1936-78 which is stated below: Every taxation prosecution may be
commenced, prosecuted and proceeded with in accordance with the usual practice and
procedure of the court in civil cases.