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Dr. (Mrs.) M.S Dhowani v. J. Ranganathan, Second Income-Tax Officer, City Circle-V.
Case Summary — Order by Arunachalam, J.
Factual and Procedural Background
The petitioner is the same in two petitions which were disposed of together. She is being prosecuted in Criminal Cases Nos. 152 and 153 of 1984 before the Sub‑Divisional Judicial Magistrate, Poonamallee, at the instance of the Second Income‑tax Officer, City Circle‑V, Madras. The prosecutions arise under various provisions of the Indian Penal Code (sections 177, 193 and 420 read with section 511 in the two matters) and provisions of the Income‑tax Act, 1961 (notably sections 276C(1), 276CC and 277), and relate to assessment years 1982‑83 and 1983‑84.
In C.C. No. 152 of 1984 (assessment year 1982‑83) the petitioner had filed a return on July 7, 1983. An inquiry and investigation were carried out on November 11, 1983 at the petitioner’s premises under section 131(1A) of the Income‑tax Act. The inquiry revealed substantial receipts vouched by certificates signed by the petitioner and a sworn statement was recorded from her; prosecutions were thereupon initiated.
In C.C. No. 153 of 1984 (assessment year 1983‑84) the petitioner had not filed her return; a representative had handed to the respondent a signed typewritten statement detailing income, and a regular Form No. 2 had been signed by the petitioner without particulars of income having been filled in. Proceedings were instituted against the petitioner for failure to file returns and for alleged false statements.
The petitioner moved under section 482 CrPC to call for records and quash the pending prosecutions as not maintainable and an abuse of process. The court heard submissions for the petitioner (Mr. G. Ramakrishnan) and for the Income‑tax Department (Mr. K. Ramasami).
Legal Issues Presented
- Whether initiation of prosecutions under sections 276C(1) and 277 of the Income‑tax Act before completion of assessment proceedings is premature and therefore impermissible.
- Whether any notice is mandatory before initiating prosecution under the Income‑tax Act and whether lack of such notice renders the prosecution invalid or violative of principles of natural justice.
- Whether sanction to prosecute was required and, if so, whether the sanction obtained (or procedure followed) was in accordance with law.
- Whether section 276C(1) of the Income‑tax Act is constitutionally invalid for violating article 14 by lacking rational classification (challenge based on differing minimum sentences in subsections).
- Whether the respondent (Income‑tax Officer) had territorial jurisdiction to initiate the prosecutions.
- Specific to C.C. No. 153 of 1984: whether notice requiring the assessee to file returns was mandatory before initiating prosecution for failing to file returns; and whether unsigned or incomplete Form No. 2 returns can be used as the basis for prosecution.
Arguments of the Parties
Petitioner's Arguments
- The complaints laid by the Income‑tax Department were premature because the alleged offences would be non‑existent until assessment proceedings were completed; therefore prosecution at that stage was prohibited.
- Notice was mandatory before initiating prosecution; initiating prosecution without notice violated principles of natural justice.
- Sanction to prosecute was not in accordance with law.
- Section 276C(1) of the Income‑tax Act is constitutionally invalid for lacking a rational classification; the differing minimum sentences (six months in cl. (1) and three months in cl. (2)) violate equality under article 14.
- The respondent lacked territorial jurisdiction to initiate prosecution.
- In C.C. No. 153 of 1984: where returns were not filed, the assessee must first be given notice to file returns; Form No. 2 returns that are unsigned or incomplete cannot form the basis for prosecution.
The opinion does not contain a detailed account of the respondent’s (Income‑tax Department’s) oral submissions beyond the fact that Mr. K. Ramasami appeared and responded to the petitioner's contentions; the court’s reasoning reflects the Department’s position defending the prosecutions.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| P. Jayappan v. S.K. Perumal, First Income Tax Officer, Tuticorin, [1984] 149 ITR 696 (Supreme Court) | The principle that a prosecution for false evidence and wilful attempt to evade tax is not necessarily premature merely because reassessment proceedings are pending on the basis of seized material; the criminal court must judge the case independently and may, in its discretion, adjourn proceedings depending on the facts. | The court applied this principle to reject the petitioner's contention that prosecution is premature until assessment is completed. The court held that the Jayappan principle applies equally to assessment proceedings and supports the view that prosecution can be launched before completion of assessment; the criminal court, however, must consider the result of tax proceedings where relevant and may give due regard to them. |
Court's Reasoning and Analysis
The court examined the statutory language and the sequence of events and analyzed each of the petitioner’s contentions against the statutory scheme and precedent:
- Interpretation of offences (sections 276C and 277): The court noted that section 276C punishes any person who wilfully attempts in any manner to evade tax, penalty or interest, and that this criminal punishment is without prejudice to any penalty in assessment proceedings. Section 277 punishes knowingly false statements in verifications or false accounts/statements given under the Act. The court observed that once a return or verification has been submitted and if it contains false statements, section 277 is attracted; neither section contemplates a mandatory show‑cause notice prior to prosecution.
- Prematurity argument: The court rejected the submission that offences under sections 276C(1) and 277 are non‑existent until assessment is completed. Reliance on the Supreme Court decision in P. Jayappan supported the position that prosecution is not necessarily premature where assessment or reassessment proceedings are pending; the criminal court must independently adjudicate and may adjourn if facts warrant. Hence, the absence of completed assessment does not prohibit criminal proceedings.
- Natural justice/notice: Because the statutes do not require a pre‑prosecution notice, the court held there was no violation of principles of natural justice in initiating prosecution; the petitioner will have adequate opportunity to present her defence at trial.
- Sanction (section 279 as then enacted): The court found the argument that sanction was a pre‑requisite to initiation of prosecution to be without merit. Section 279 (as it stood at the relevant time) contemplated initiation at the instance of the Chief Commissioner or Commissioner but did not prescribe that sanction was a necessary pre‑requisite for initiation; accordingly this ground failed.
- Constitutional challenge to section 276C(1): The petitioner argued article 14 was violated because cl. (1) prescribes a minimum imprisonment of six months while cl. (2) prescribes three months. The court rejected this challenge, reasoning that the subsections operate in different fields and there is a rational classification; therefore article 14 was not contravened.
- Territorial jurisdiction: The petitioner’s contention that the respondent lacked territorial jurisdiction was not substantiated; the petitioner admitted filing returns before the respondent, undermining the jurisdictional objection.
- Specifics for C.C. No. 153 (failure to file return): The court held that section 276CC criminalizes wilful failure to furnish a return required under the Act. Where a statutory duty to file a return exists and the duty has not been performed, that non‑performance is itself an offence; hence no preliminary notice compelling filing is required and principles of natural justice are not offended.
- Maintainability and triable issues: The court concluded that prosecutions under section 276C(1) are maintainable and cannot be quashed at this stage. Questions of mens rea and other fact‑intensive matters must be decided by the trial court on evidence; such matters are not appropriate for resolution under the inherent powers exercised in these petitions.
Holding and Implications
Holding: The court dismissed the petitions and refused to quash the prosecutions. The core ruling is summarized as: DISMISSED.
Direct consequences and practical implications:
- The criminal prosecutions in C.C. Nos. 152 and 153 of 1984 may proceed; the court found them maintainable under the cited provisions of the Income‑tax Act and the IPC.
- No mandatory pre‑prosecution notice was required under the relevant statutory provisions and initiation of prosecution prior to completion of assessment was not held to be inherently premature.
- Matter of mens rea, falsity of statements and other fact questions are to be determined by the trial magistrate on evidence; these cannot be adjudicated away in the exercise of inherent powers under section 482 CrPC at this stage.
- The constitutional challenge to section 276C(1) was rejected; the court considered there to be a rational classification between subsections and found no violation of article 14.
- The court applied existing Supreme Court authority (P. Jayappan) but did not purport to create a new precedent; the decision affirms that criminal proceedings can co‑exist with tax assessment/reassessment and that criminal courts should independently judge prosecutions while giving due regard to tax proceedings where relevant.
The opinion does not indicate any broader law‑making implications beyond these case‑specific holdings; it leaves factual determinations and credibility issues to be resolved at trial.
Arunachalam, J.:— The petitioner is the same in both the petitions, and the questions raised are also common. Hence, both the petitions are disposed of together by a common order. The petitioner is being prosecuted in C.C No. 152 of 1984, on the file of the erstwhile Sub-Divisional Judicial Magistrate, Poonamallee, at the instance of the Second Income-tax Officer, City Circle-V, Madras, for alleged commission of offences punishable under sections 193 and 420 read with section 511 of the Indian Penal Code and sections 276C(1) and 277 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). This prosecution relates to the assessment year 1982-83.
2. In C.C No. 153 of 1984, on the file of the same Magistrate, the petitioner is being prosecuted for the alleged commission of offences punishable under sections 193 and 177 read with section 511 of the Indian Penal Code and section 276C(1) of the Income-tax Act, 1961. This prosecution relates to the assessment year 1983-84. In C.C No. 153 of 1984, the petitioner had not filed her return of income but her representative, P.C Krishnan, had handed over to the respondent signed a typewritten statement giving details of the petitioner's income from salary and gross and net professional income from private consultancy practice. The regular return of income in Form No. 2 had been signed by the petitioner without particulars of income having been filled up therein.
3. In C.C No. 152 of 1984, the petitioner had filed a return on July 7, 1983. After filing of the return, inquiry and investigation were conducted by the Income-tax Department, under section 131(1A) of the Act, at the premises of the petitioner, on November 11, 1983. It was found during such inquiry and investigation that the petitioner, as an authorised medical attendant, had certified and received various amounts from the employees or their dependants of the Ordnance Clothing Factory, Avadi, Heavy Vehicles Factory, Avadi, and the Indian Air Force, Avadi. It was also noticed that, against the declared gross professional income of Rs. 8,969 for the assessment year 1982-83, the petitioner had received from the employees of the Ordnance Clothing Factory, Avadi, alone Rs. 31,826—vouchsafed by the “A” certificates signed and issued by her. A sworn statement was also recorded on this aspect from the petitioner; it is, thereafter, that these prosecutions were initiated.
4. In these petitions filed under section 482 of the Criminal Procedure Code to call for the records and quash the pending prosecutions as not maintainable and as an abuse of the process of court, Mr. G. Ramakrishnan, learned counsel appearing on behalf of the petitioner in each one of these petitions, contended that the complaints laid by the Income-tax Department were premature. He specifically argued that offences will be nonexistent before the assessment was completed and, therefore, there was a total prohibition at the threshold to initiate these prosecutions. He also contended that notice before initiation of prosecution was mandatory. He would also submit that initiation of prosecutions at this stage was against the principles of natural justice. The next contention was that sanction to prosecute was not in accordance with law. Finally, he contended that section 276C was not constitutionally valid since there was no rational classification. Lack of such classification contravenes the equality guaranteed under article 14 of the Constitution of India. He also submitted that the respondent had no territorial jurisdiction.
5. In respect of C.C No. 153 of 1984, referable to Crl. M.P No. 3366 of 1984, he submitted that once returns had not been filed for the relevant assessment year, notice must have been given to the assessees to file the returns, and that not having been done, the prosecution initiated was totally invalid. He further contended that Form No. 2 returns not having been signed, those forms cannot be made use of to form the basis to initiate the prosecution. Crl. M.P No. 3364 of 1984 relates to C.C No. 152 of 1984.
6. I have carefully considered all these contentions after hearing Mr. K. Ramasami appearing on behalf of the Income-tax Department. To appreciate the contentions of learned counsel for the petitioner, a perusal of sections 276 C and 277 of the Act will be necessary. Section 276C seeks to punish any person who wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable under the Act. This punishment, obviously, in a prosecution is without prejudice to any penalty that may be imposable in the assessment proceedings under other provisions of the Act. Section 277 punishes a person who makes a statement in any verification under the Act or under any rule made thereunder or delivers any account or statement which is false and which he either knew or believed to be false or did not believe to be true. The wording of section 276C(1) of the Act apparently contemplates initiation of prosecution against a person for wilfully attempting in any manner whatsoever to evade tax, penalty or interest, irrespective of and without prejudice to penalty proceedings under the other provisions of the Act. Once a return had been submitted or a statement had been made in any verification, if those statements were false, the provisions of section 277 will be attracted and prosecution will be feasible. None of these sections contemplate any show-cause notice being issued before initiation of prosecution. I am unable to agree that the offences under sections 276C(1) and 277 of the Act will be non-existent unless and until the assessment is contemplated. As long as there is no provision for a mandatory notice before prosecution, I am unable to uphold the contention that the principles of natural justice have been violated. The petitioner will have sufficient opportunity to put forth his defence before the trial magistrate and the principles of natural justice are thus abundantly safeguarded. In P. Jayappan v. S.K Perumal, First Income Tax Officer, Tuticorin , [1984] 149 ITR 696, the Supreme Court, while considering the feasibility of a prosecution for false evidence and wilful attempt to evade tax, when reassessment proceedings were pending on the basis of material seized in search, stated that prosecution cannot be held to be premature and the criminal court had to judge the case independently, though it had a discretion to adjourn or postpone proceedings depending upon the peculiar facts and circumstances of a given case. This principle laid down by the Supreme Court will squarely apply to assessment proceedings as well. There is no provision of law which provides that prosecution for offences under section 276C and section 277 of the Act cannot be launched until assessment proceedings initiated against the assessee were completed.
7. However, the criminal court is bound to give due regard to the result of any proceeding under the Income-tax Act, having a bearing on the question in issue and, in an appropriate case, may drop the proceeding in the light of an order passed under the Act. It does not mean that the result of a proceeding under the Act would be binding on the criminal court, for the criminal court has to independently judge the case on the evidence placed before it.
8. The argument, on the invalidity of sanction, has no merit. Section 279 of the Act, as it stood at the relevant time, contemplated initiation of a prosecution at the instance of the Chief Commissioner or Commissioner. Nowhere did that section prescribe that sanction was a pre-requisite for initiation of prosecution. This ground will have to be rejected in limine. The argument on constitutional validity of section 276C(1), to my mind, has to be stated only to be rejected. The basis of the argument was that section 276C(1) provided for a minimum imprisonment of six months. Under clause (2), the minimum sentence prescribed was only three months and, therefore, the concept of equality was violated. Since the subsections operate in different fields, I am unable to hold that there is no rational classification and, therefore, the equality contemplated under article 14 of the Constitution had been violated.
9. The argument that the respondent had no territorial jurisdiction had not been substantiated. It is admitted that returns were filed before the respondent by the petitioner. If that be so, this argument apparently has no merit.
10. As far as C.C No. 153 of 1984 referable to Crl. M.P No. 3366 of 1984 is concerned, it is impossible to accede to the argument that notice will have to be given to the petitioner calling upon her to file her returns. Section 276CC punishes a person who wilfully fails to furnish a return of income, which he is required to file under the relevant provisions of the Act. When a duty is cast on the assessee to file a return, and that duty had not been performed, which non-performance itself is an offence, I am unable to see any violation of the principles of natural justice. Since the petitioner had not filed her return for the assessment year 1983-84 in C.C No. 153 of 1984, she is not being prosecuted for the commission of offence under section 277 of the Act.
11. The prosecution under section 276C(1) of the Act is certainly maintainable, for any wilful attempt to evade in any manner whatsoever tax, penalty or interest chargeable or imposable under the Act, would fall within the fold of that section. The prosecution also cannot be quashed at this stage. The question of mens rea will have to be relegated to the trial court, since it relates to the realm of appreciation of evidence, to be brought on record. That question cannot be gone into in the exercise of inherent powers. Learned counsel sought to place reliance on authorities to substantiate the proposition that notice was mandatory before initiation of prosecution. All those cases need no serious scrutiny, since they relate to notice in assessment proceedings and do not refer to prosecutions.
12. I am unable to agree with any of the contentions urged. In the result, these petitions shall stand dismissed.
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