The Hindu Business Line : A nail for falsehood

CAN any one get away after making a false statement before the income-tax (I-T) authorities during the course of a lawful search of the premises of the deponent? Are there no legal and criminal implications if a false statement is made?

The Madras High Court had ruled that no prosecution will lie if there was no positive act pointing to tax evasion. This is a peculiar case which will help taxpayers understand the law.

In January 1982, Arumugam of Chromepet was searched under Section 132 of the Income-Tax Act, 1961. Cash found was seized since Arumugam could not explain the same. There were two bank lockers about which he was questioned.

In the interrogation, Arumugam stated that the keys were given to him by one Vasudevan for safe custody. Investigation by the I-T department showed that the lockers belonged to Arumugam and his wife Umarani. The lockers were opened and cash of Rs 1 lakh was seized. At this stage, Arumugam admitted that the cash solely belonged to him. Vasudevan was also examined and he totally disowned the keys.

The first year of assessment of Arumugam was 1979-80. The income-tax officer (ITO) calculated the total assets of Arumugam as Rs 7,26,416 as on January 28, 1982, and the tax liability was determined as Rs 4,56,800.

A summary order was made under Section 132(5) of the Act on April 24, 1982. The lockers were opened in October 1981. The assessment for 1981-82 was pending.

In November 1983, the Commissioner of Income-Tax authorised prosecution against Arumugam and his wife Umarani under Section 276(1) of the I-T Act. Prosecution was launched for commission of offences under Sections 181 and 193 of the Indian Penal Court read with Sections 277 and 276C. The accused submitted that the tax had been levied and interest was waived. The ITO had noted that the accused had co-operated in the inquiry. A casual statement about the keys belonging to Vasudevan cannot result in attribution of criminal intention. `Keys' will not come under Section 132.

The trial court acquitted the accused finding that there was no intention on the part of the accused to defraud the department or evade tax.

The departmental proceedings ended favourably and, hence, the criminal prosecution cannot lie.

Aggrieved over the order of acquittal, the Department preferred appeal before the High Court. It was argued that only when penalty is cancelled under Section 273A, criminal proceedings cannot be maintained and in all other instances, prosecution is to be dealt with independently.

Notwithstanding the fact that on the date of the search, the accused were not assessed to tax, the factual situation, that is, deliberately making a false statement, is not effaced and this fact was not taken due note of by the trial court.

Relying upon P. Jayappan vs S. K. Perumal, First ITO (1984 149 ITR 696), the special public prosecutor submitted that notwithstanding the termination of the departmental proceedings, the criminal proceedings could be continued and that the order of acquittal suffered from perversity and prayed for reversal of the order of acquittal.

The High Court noted that there was false statement as to the bank locker and failure to disclose the ownership of the locker. It, however, pointed out that the accused had the time to file the return of income. Wilful attempt to evade tax is a positive act which is required to be proved to bring home the charge against the accused.

A statement made by a person in any verification under the Act can be an offence under Section 277 if the person making the same either knew or believed the same to be false or did not believe it to be true. Necessary mens rea, therefore, is required to be established by the prosecution to attract Section 277 or Section 276C.

The High Court observed that there is nothing in Section 132(4A) which would establish the ingredients of the criminal offences contemplated under Sections 276C and 277. By applying the presumption under Section 132(4A) of the I-T Act, the ingredients of the offence under Sections 276C and 277 cannot be said to have been established. At a stage when the return is not filed and there was still time for filing it, it cannot be said that the respondent committed any offence under Section 276C(1) or that any such allegation would constitute the offence.

In the circumstances, it cannot be presumed before hand that, after the filing of the return and on its scrutiny, the authorities would find concealment of income by holding that the assessee were not inclined to disclose about the bank lockers. Accordingly, it cannot be concluded that there was an attempt to evade payment of tax, and so on.

The court upheld the order of acquittal mainly on the ground that the return was yet to be filed and prosecution at that stage for wilful concealment would be incongruous.

It relied on the Supreme Court's observations in Premdass vs ITO (236 ITR 683) to the effect that the court will not interfere with an order of acquittal merely because a different plausible view may arise on the evidence (N. Srinivasan vs Smt. Uma Rani — 270 ITR 77).

The ruling of the single judge in the above case is based only on Sections 276C and 277 of the I-T Act.

False statement before a public authority warranted prosecution under the Indian Penal Code. The High Court has not adverted to this aspect of the law. Probably, the final word will rest with the Supreme Court.

(The author is a former chief commissioner of income-tax.)

More Stories on : Taxation | Income Tax | Courts/Legal Issues

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Perception deficiency

Meal is now defined

A nail for falsehood

The unnecessary writs

Can't blame the manufacturer if men used women's shirts

Sticklish issues

A 6.7 shake-up

Scrutinise wisely, not just widely

Secular because we're Indian, not because we're Hindu