The Hindu Business Line : Seeking the pardon of tax law

Can a statement/declaration given under one law to secure pardon be used against the person under the Tax Law for evading or concealing his income? The Supreme Court has opined that this should not be done - for if prosecution under the Tax Law is to be based on evidence given for the purposes of another statute, a person would hesitate to make a full and complete disclosure which is necessary for the pardon to operate under the latter. This, says H. P. Ranina, is a milestone in the law pertaining to offences and prosecution.

CHAPTER XXII of the Income-Tax Act, 1961, sets out a list of offences when a person can be prosecuted, providing for sentences of different periods, with or without fine. However, with the plethora of laws being in force, a person would be liable to prosecution under different laws.

While under one law, he may make a true statement or declaration and furnish correct evidence in order to secure pardon and reduce the sentence, his statement or evidence may be used against him under the Tax Law for evading or concealing his income.

A good example of this would be where a public servant charged under the Prevention of Corruption Act secures pardon by making an admission of the offence committed by him under that law.

However, this full disclosure of evidence may be used against him under the Tax Law and he may be prosecuted for evasion of tax on such income.

The Supreme Court has considered this dilemma confronting an accused. In Jasbir Singh versus Vipin Kumar Jaggi ([2001] 8 SCC 289), the question was whether a person to whom immunity had been granted under Section 64(1) of the Narcotic Drugs and Psychotropic Substances Act, 1985, could be examined as a witness even though he was an accused in the criminal case.

The trial judge held that in the absence of any pardon having been granted under Section 307 or Section 321 of the Criminal Procedure Code, an accused could not be examined as a witness for the prosecution.

The Supreme Court held that there was no conflict between the powers exercised under Section 307 of the Criminal Procedure Code and by the Government under Section 64. It held that even if there was a conflict, the Narcotic Drugs and Psychotropic Substances Act, being a special and later enactment, Section 64 would prevail. It was held that evidence could be given by the accused on the basis of the immunity granted under Section 64.

In Bipin Behari Sarkar versus State of West Bengal ([1959] SCR 1324), the Supreme Court laid down that Section 339(1) of the Criminal Procedure Code provides that "where a pardon has been tendered under Section 337 or Section 338, and the public prosecutor certifies that in his opinion any person who has accepted such tender has, either by wilfully concealing anything essential or by giving false evidence, not complied with the condition on which the tender was made, such person may be tried for the offence in respect of which the pardon was so tendered, or for any other offence of which he appears to have been guilty in connection with the same matter."

In the case of State versus Hiralal G. Kothari ([1960] 2 SCR 355), it was held that the person to whom pardon is tendered is expected to state the whole truth including details of any other subsidiary offence which might have been committed in the course of the commission of the offence for which pardon is tendered. It has been held that the pardon tendered must include the subsidiary offence, even though if the subsidiary offence alone was committed no pardon could have been tendered for the same.

In Dipesh Chandak versus Union of India (270 I.T.R. 85), the appellant was accused, with others, in a number of fodder scam cases in respect of misappropriation of funds of the Animal Husbandry Department of Bihar, and of fraudulent withdrawal from the State Exchequer by issuing fake bills for supplies never made. The Special Judge agreed to grant pardon to the appellant under Section 306 of the Code of Criminal Procedure, on condition that he makes a full and complete disclosure.

Pending those proceedings, on the basis of the statement made by him, notice was issued to the appellant to show cause why prosecution should not be initiated against him under Sections 277 and 278 of the Income-Tax Act, 1961, for filing false returns of income and making false declarations.

His reply that the show cause notice was not maintainable as he had been granted pardon, was not accepted and a complaint case was registered under Sections 277 and 278 of the Income-Tax Act.

The appellant filed a petition under Section 482 of the Code of Criminal Procedure for quashing this complaint. The High Court dismissed the petition on the ground that the terms of the pardon had not yet been fulfilled and till full evidence had been given by him and the trial of all cases was concluded, he continued to be an accused and, therefore, he could not claim immunity from prosecution.

On appeal, the Supreme Court held that the High Court was wrong in holding that until evidence had been given by the appellant, the pardon could not operate. Under Section 306 of the Code of Criminal Procedure, pardon is granted in respect of the offence for which he has been charged as an accused.

However, a pardon need not be only in respect of an offence under the Indian Penal Code. A person may be charged, in respect of the same transaction or act, under the Penal Code and under some other Act, for example, the Prevention of Corruption Act. The pardon would operate in respect of all offences pertaining to that transaction.

The pardon, however, does not operate in respect of a transaction or act entirely unconnected with the offence in respect of which pardon has been granted.

The pardon was granted in the instant case for the offence of misappropriation of funds and this offence had nothing to do with the filing of false returns by the appellant.

The prosecution under Sections 277 and 278 of the Income-Tax Act was in respect of filing false returns and making false declaration and the pardon granted in the other cases would not cover those offences.

However, to get the benefit of pardon, the appellant had to make a full and frank disclosure regarding the offence of misappropriation. If he did not do so, the pardon might be cancelled. If he made a full and complete disclosure, he faced the prospect of being convicted in the prosecution under Sections 277 and 278 of the Income-Tax Act.

Under Article 20(2) of the Constitution, no person can be compelled to be a witness against himself. To continue with the prosecution would amount to forcing the appellant to give evidence against himself or to risk the pardon being cancelled as he cannot make a full and complete disclosure for fear of being convicted in the other case.

Thus, even though the pardon might not extend to the offences under Sections 277 and 278 of the Income-Tax Act, it was held that this was a fit case where the Government should consider not prosecuting the appellant under those Sections.

According to the Supreme Court, to insist on so prosecuting would result in valuable evidence being lost in the fodder scam cases. The prosecution under Sections 277 and 278 of the Income-Tax Act stood stayed until trial of the cases in which pardon was granted was over.

The Court held that if the appellant made a full and complete disclosure, then the prosecution under the Income-Tax Act should not be allowed to proceed. The Supreme Court granted liberty to the appellant to apply for quashing the prosecution at that subsequent stage.

The aforesaid decision of the Supreme Court clearly stipulates that prosecution proceedings under the Income-Tax Act can be initiated and continued though pardon may be granted under another statute.

However, though the Government would be entitled to prosecute the tax-payer based on the evidence given under another statute where a full and complete disclosure of facts is made, the Supreme Court has opined that in view of Article 20(2) of the Constitution, the Government should refrain from prosecuting the tax-payer in appropriate cases under the provisions of the Income-tax Law.

The reason is that if prosecution under the Tax Law is to be based on evidence given for the purposes of another statute, a person would hesitate to make a full and complete disclosure which is necessary for the pardon to operate under the other statute.

In the case of Dipesh Chandak, the Supreme Court made it clear that the stay of prosecution under the income-tax law was conditional upon the assessee making a full and complete disclosure in the case in which pardon had been granted.

Subject to the fulfilment of this condition, the Court felt that prosecution under the Tax Law may be dropped at a later stage in conformity with the letter and spirit of Article 20(2) of the Constitution.

This judgment of the Supreme Court constitutes a milestone in the sphere of the law pertaining to offences and prosecution.

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