I.T.A. NO.7592/KB OF 1992-93 VS I.T.A. NO.7592/KB OF 1992-93
2000 P T D (Trib.) 1649
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mujibullah Siddiqui, Chairman and S. M. Sibtain, Accountant Member
I.T.A. No.7592/KB of 1992-93, decided on 25/01/2000.
(a) Income-tax---
----Mens rea---Explanation of mens rea and its application on tax laws.
(b) Income Tax Ordinance (XXXI of 1979)---
----Chaps. IX (Ss.85 to 95) & XI (Ss.108 to 116)---Recovery of tax-- Penalty---Nature of liability---Rule of mens rea---Applicability---Authority of imposing penalty by Assessing Officer, Appellate Additional Commissioner or the Appellate Tribunal is adjudicatory in nature and proceedings are quasi-civil---Proceedings and provisions providing for imposition of additional tax and penalties under Chaps. IX & XI of the Income Tax Ordinance, 1979 fell within the purview of civil liability to which the concept of mens rea could not be extended.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss. 111, 116 & 13(1)(d)(e)---Penalty---Concealment of income---Rule of mens rea---Application---Addition made under S. 13(1)(d) & (e) on account of investment in assets and suppressed personal expenses respectively by the Assessing Officer, which was confirmed by the First Appellate Authority-- Penalty proceedings were initiated after the additions were upheld in appeal and penalty was imposed under S.111, Income Tax Ordinance, 1979, equal to the amount of tax on the ground that concealment of income/furnishing of inaccurate particulars of income stood fully established against the assessee-- Assessee contended that there was no wilful default or deliberate concealment of income on his part and penalty proceedings ought to have been finalized immediately after the assessment was completed, without waiting for disposal of appeal and, therefore, penalty could not be warranted---First Appellate Authority accepted the contention of the assessee that mens rea was not established and annulled the order imposing penalty---Validity---Provisions pertaining to imposition of penalty under Chap. XI of the Ordinance and levy of additional tax under Chap. IX of the Ordinance were civil in nature while prosecutions and punishments provided in Chap. XII were criminal in nature---Liability created under S. 111 of the Income Tax Ordinance, 1979 was a civil liability which was mainly aimed at retrieving the loss caused to the State on account of concealment of income or furnishing of inaccurate particulars of income and to discourage the evasion of taxes---Rules of mens rea was attracted in cases of prosecutions and punishments provided in Chap. XII which were purely criminal proceedings---Rule of mens rea was not attracted to the levy of additional taxes and penalties being civil liabilities---Requirements of addition under S.13(1) and penalty under S.111(1) were the satisfaction of Officer making addition/imposing penalty, therefore, the delinquency itself or in other words the additions under S.13(1)(aa) to (e) itself was sufficient for imposition of penalty under S.111 which was in the nature of civil liability---If any prosecution for commission of criminal offence was launched under S.119 of the Income Tax Ordinance, 1979, the rule of establishing mens rea had to come into play---Section 111 of the Income Tax Ordinance, 1979 provides that if the Assessing Officer was satisfied that a person had either in the course of any assessment proceedings under - the Income Tax Ordinance, 1979 or any earlier proceedings relating to an assessment in respect of same income year, had concealed his income or had furnished inaccurate particulars of such income as defined in S.111 (2) of the Income Tax Ordinance, 1979, it would be sufficient for imposition of penalty under S.111(l) of the Income Tax Ordinance, 1979 subject to provisions contained in S.111 (2A) of the Income Tax Ordinance, 1979---Assessing Officer was justified to impose penalty under S.111 of the Income Tax Ordinance, 1979 in circumstances---Order of First Appellate Authority was vacated and. penalty imposed by Assessing Officer was restored by Appellate Tribunal.
Additional Commissioner of Income-tax v. Narayandas Ramkishan (1976) 34 Tax 189 (Ind.); Hindustan Steel Limited v. State of Orissa (1972) 83 ITR 26; Commissioner of Income-tax v. Anwar Ali (1970) 76 ITR 696; Sweet v. Parsley (1969) 1 All ER 347; Ferrior v. Wilson 4 CLR 785-794, Harikishan v. State (1980) 17 AAC 43; Craies on Statute Law, 7th Edn., p.536; Wharton's Law Laxicon; Maxwell on Interpretation of Statutes', 12th Edn., p.123; The State v. S.P. Bhadani AIR 1959 Pat. 9; Crawford's Statutory Construction, 1940 Edn. ; King v. Erson 17 CLR 506; CIT, Kerala v. Gujarat Travancore Agency (1976) 103 ITR 149; P.V. Devassy v. Commissioner of Income-tax (1972) 84 ITR 502; Dawn & Co. v. Commissioner of Income-tax (1973) 87 ITR 71; Corpus Juris Secundum, Vol. 85, p.580, para. 1023; Sivagami Natha Moopanar & Sons v. Income tax Officer, Circle II, Madurai (1955) 28 ITR 601; Helvering v. Mitchell 303 US 390: 88 L Ed 917; Spies v. United States 317 US 492: 87 L Ed 418; P. Ummali Umma v. Inspecting Assistant Commissioner of Income-tax (1967) 64 ITR 669, 676; Thomas Dana v. State of Punjab AIR 1959 SC 375; Assistant Collector of Customs, Bombay v. L.R. Melvani AIR 1970 SC 962; Hira H. Advani v. State of Maharashtra'AIR 1971 SC 44; Commissioner of Income-tax v. Bhikaji Dadadhai & Co. (1961) 42 ITR 123 (SC); 25 ST 211; Commissioner of Income-tax v. Anwar Ali (1970) 76 ITR 696 (SC); S.Sannana Chetty &. Sons v. Third Income-tax Officer (1970) 76 ITR 177; C.I.T. v Gokuldas Harivallabhdas (1956) 34 ITR 98; Thomasdana v. State of Punjab AIR 1959 SC 375; Additional Commissioner of Income-tax v. Dargapendarinath Tuljayya & Co. (1977) 107 ITR 850; (1975) 100 ITR 18; 1963 AC 160 (PC); (1964) 34 Com. Cas. 435 (SC); (1976) 103 ITR 149; Ummali Urmna v. Inspecting Assistant CIT (1967) 64 ITR 669; C.I.T. v. Maduri Rajeswar (1977) 107 ITR 823; CIT v. Gangaram Chapolia (1976) 103 ITR 613; Additional. CIT v. Narayandas Ramkishan (1975) 100 ITR 18; Sint. Kamlawati v. CIT, Patyala (1978) 111 ITR 249; (1989) 177 ITR 455; CIT v. Kalyandas (1992) 193 ITR 713; CIT v. I.M. Patel (1992) 196 ITR 297 and Director of Enforcement v. MCTM Corporation (Pvt.) Limited AIR 1996 SC 1100 ref.
Syed Riazuddin, D.R. for Appellant.
S. A. Samad Khan for Respondent
Date of hearing: 21st August, 1999.
ORDER
MUHAMMAD MUJIBULLAH SIDDIQUI (CHAIRMAN).---In this appeal at the instance of department objection has been raised to the annulling of penalty imposed under section 111/116 of the Income Tax Ordinance, 1979.
2. The relevant facts giving rise to this appeal are that during the course of assessment for the assessment year 1986-87 the Assessing Officer made addition under section 13(1)(d) on account of investment in assets. The sources whereof were falsely shown on account of liability at Rs.10,63,994 and addition under section 13(l)(e) on account of suppressed personal expenses at Rs:50,000. Thus, total addition was made under section 13 at Rs.11,13,994. The assessee (hereinafter referred to as respondent) preferred appeal which was dismissed.
3. Subsequently the Assessing Officer issued notice under section 116 of the Income Tax Ordinance, 1979 calling upon the respondent to show cause as to why penalty should not be imposed, under section 111 for concealment of income.
4. In reply to the show-cause notice it was contended that the Assessing Officer has failed to establish 'mens rea' which is an essential ingredient for imposing of penalty. It was further contended that the respondent had not concealed or suppressed any income and there was inordinate delay in imposing penalty, therefore, no penalty can be imposed.
5. The Assessing Officer did not accept the contentions and held that mens rea was fully established against the respondent in the body of assessment order. It was further held that the act committed by the respondent amounts to concealment in the eye of law as defined in section 111 of the Income Tax Ordinance. Regarding delay in imposition of penalty, it was held that the penalty proceedings were delayed in order to give an opportunity to the respondent to pursue remedy in appeal so that the department is not accused of being harsh to the respondent. The penalty proceedings were initiated after the additions were upheld in appeal. It was further held that furnishing of inaccurate particulars of income stood fully established against the respondents beyond any doubt and, therefore, with the prior approval of IAC, penalty was levied which was equal to the amount of tax sought to be evaded by concealment of income/furnishing of inaccurate particulars of income. The tax sought .to be evaded was worked out at Rs.4,52,997 and the penalty under section 111 was imposed in the same ,amount.
6. The respondent preferred first appeal before the learned CIT(A) contending that the Assessing Officer was not able to establish that there was wilful default or deliberate concealment of income and that penalty proceedings ought to have been finalized immediately after the assessment was completed without waiting for disposal of appeal. It was further contended that there was no concealment on the part of respondent and, therefore, imposition of penalty was not warranted. The plea of mens rea was raised in first appeal also. The learned CIT(A) accepted the contentions that mens rea was not established and there was inordinate delay in imposing the penalty. The learned CIT(A) held that the penalty order was not sustainable and, therefore, he annulled the penalty order. The department feeling aggrieved has preferred this second appeal before us.
7. Heard Syed Riazuddin, learned representative for the department and Mr. S. A. Samad Khan, Advocate for the respondent/assessee. The learned D.R. has vehemently argued that the learned CIT(A) has ignored the express provisions contained in section 111 and has annulled the penalty for extraneous consideration. He has contended that it is trite law that plain language in an enactment is to be applied and nothing is to be added or taken out. According to the learned D.R. if the language of law is plain and admits no ambiguity there is no question of any intendment or equity. He has further contended that there is nothing to be implied and one is supposed to look fairly at the language used. He has further submitted that the legislature has provided for imposition of penalty under section 111 if the Assessing Officer is satisfied that a person has either in the course of any assessment proceedings under the Ordinance or in any earlier proceedings relating to an assessment in respect of the same income year, concealed his income or furnished inaccurate particulars of such income. The learned D.R. has further contended that the legislature has defined the expression concealment of income or furnishing of inaccurate particulars of income in subsection (2) of section 111. According to the learned D.R. it is specifically provided in section 111(2)(c) that any Act referred to in the clauses (aa), (b), (c), (d), and (e) of subsection (1) of section 13 shall be included in the concealment of income of furnishing inaccurate particulars of income for the purpose of subsection (1) of section 111 and section 119. The learned D. R. has furthe r argued that when any word, term or expression is defined by the legislature itself in a particular enactment the said definition is to be adopted for the purpose of that enactment and any other definition in any other law or the meanings contained in dictionaries are not to be looked into. He has maintained that in subsection (2) of section 111 the expressions 'concealment of income' and 'furnishing of inaccurate particulars of income' have been defined and, therefore, the said definition is to be kept in view while applying subsection (1) of section 111. The learned D.R. has urged that in order to ascertain the intention of legislature the provisions contained in subsections (2) and (2A) of section 111 may be compared. Elaborating his point of view he has contended that while defining expression concealment of income or furnishing of inaccurate particulars of income in subsection (2), the legislature has not used any word such as 'maliciously', 'fraudulently, 'negligently', knowingly', 'deliberately' or 'intentionally' from which it could be referred that the mental element of the conduct is also required to be proved for the purpose of levy of penalty with reference to subsection (2) of section 111 and, thus, the question of any guilty intent or mens rea is not relevant. However, a perusal of subsection (2A) of section 111 shows that it starts with non-obstante clause and further provides that mere disallowance of an exemption claimed or deduction in respect of any expenditure claimed shall not constitute concealment of income or furnishing of inaccurate particulars of income unless it is proved that the assessee deliberately claimed exemption from the tax in respect of an item of receipt or claimed deduction in respect of such expenditure not actually incurred. Thus if a penalty is to be imposed under subsection (1) of section 111 with reference to subsection (2A) mere disallowance in respect of exemption or expenditure claimed would not be sufficient per se, but the department would be further required to prove deliberate acting on the part of assessee. He has further submitted that by virtue of subsection (2A) of section 111, the burden of proving deliberate act, meaning thereby the fraudulent intention, is in respect of clauses (a) and (b) of subsection.(2) which deals with suppression of any item of receipts liable to tax or claiming any deduction or showing any expenditure not actually incurred. No such condition has been extended to clause (c) of subsection (2) of section Ill which deals with the additions under section 13(i) which is relevant in the present case.
8. He has further submitted that the penalty under section 111 is in the nature of civil liability and, therefore, the mens rea (guilty intent) is not a necessary ingredient for levy of civil penalty/liability. He has further drawn our attention to the fact that the definition of expressions concealment of income of furnishing of inaccurate particulars of income contained in sub- section (2) of section 111 is for the purpose of subsection (1) of section III as well as for the purpose of a section 119. The penalty in subsection (1) of section 111 is in the nature of levy of civil liability while section 119 deals with the prosecution for concealment of income which is in the nature of criminal liability for which punishment with imprisonment for a term which may extend to five years, or with fine, or with both is provided. Thus according to learned D.R. in the case of penalty under subsection (1) of section 111 which is in the nature of civil liability the concept of mens rea is not attracted and it is relevant if a prosecution is initiated under section 119 which is in the nature of criminal liability. He has further submitted that even in case of criminal offence/liability the concept/rule of mens rea is not absolute. The mens rea is difference of a criminal prosecution only, but in the modern legislation there are large number of cases in which the concept of mens rea has been dispensed with. In the modern legislation there are innumerable instances in which mens rea is not an essential element of an offence e.g. statutes dealing with public welfare like enactment regulating sale of food or drink. The learned D.R. has vehemently argued that the learned CIT(A) misdirected in applying the principle of mens rea to the penalty levied under subsection (1) of section 111 which envisages civil liability and, thus, fell in serious error in annulling the penalty which is not warranted in law. He has prayed that the Assessing Officer charged the penalty in consonance with the letter and spirit of law, therefore, the penalty order may be restored and the impugned order of learned CIT(A) may be vacated.
9. On the other hand, Mr. S.A. Samed Khan, Advocate for the respondent/assessee has submitted that he would support the impugned order of learned CIT(A) on the sole point that before imposing penalty the department was required to establish mens rea, which was not established and, therefore, the penalty order was rightly annulled in support of his contention Mr. S.A. Samad has placed reliance mainly on two judgments, one from Indian jurisdiction and the other from English jurisdiction. The judgment from Indian jurisdiction is by Andhra Pradesh High Court in the case of Additional Commissioner of Income-tax v. Narayandas Ramkishan (1976) 34 Tax 189 (Ind.) wherein a Division Bench refused to direct the Tribunal to refer the questions formulated by the department for the opinion of the Court.
10. The relevant facts in the cited case were that the assessee filed return of income after due date. The Income-tax Officer issued notice to the assessee to show cause as to why the penalty should not be levied for late filing of the return. The Assessing Officer concluded that no reasonable cause for not filing the return in time was shown and, therefore, penalty was to be levied under section 271(1)(a) of the Indian Income Tax Act, 1961. The Appellate Assistant Commissioner confirmed the penalty while the Income-tax Appellate Tribunal set aside the orders holding that there was no material with the revenue to show that assessee wilfully defaulted in filing return of income. It was contended on behalf of department before the Andhra Pradesh High Court that no question of mens rea was involved in the case arising under section 271(1)(a) of the Indian Income tax Act, 1961. On behalf of assessee reliance was placed on judgment of Indian Supreme Court in the case of Hindustan Steel Limited v. State of Orissa (1972) 83 ITR 26) and other decisions of Madras, Mysore, Kerala and Orissa High Courts wherein it was held that for levy of penalty the department was required to establish that assessee has acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. The learned Judges of Andhra Pradesh High Court sitting on the Division Bench observed that the point for consideration was whether it is necessary that the revenue should establish mens rea or guilty mind of the assessee before it can invoke the penal provision and levy penalty on the assessee. It was held that mens rea means a guilty mind, a guilty or wrongful purpose, a criminal intent, It presupposes guilty knowledge and wilfulness. It was pleaded on behalf of department that section 27(1)(a) would show that the provision does not speak of the existence of mens rea in an assessee and that the failure of an assessee in filing of return would automatically invite the penalty provision. The learned Judges of the Andhra Pradesh High Court after referring various judgments by Indian Supreme Court held that they were not inclined to agree that section 271(1)(a) of the Indian Income tax Act, 1961 excludes mens rea by necessary implication and further held that, "once it is held by us that mens rea is an essential ingredient for imposing penalty it follows that the onus is upon the department to show the element of guilty mind in the assessee." It was further held by them as follows:---
The penalty proceedings are in the nature of criminal or quasi- criminal proceedings. When and under what circumstances penalties could be imposed has been stated by Shah, Acting C.J. in Hindustan Steel Ltd. v. State of Orissa. It may be relevant to say that there is no decision subsequent to this decision which has departed from the view expressed by the learned Acting C.J. and the binding nature of the decision is, therefore, not in doubt."
The Hon'ble Judges further referred to the judgment of Supreme Court of India in the case of Commissioner of Income-tax v. Anwar Ali (1970) 76 ITR 696) dealing with the question of burden of proof in penalty proceedings. In this case dealing with the scope of section 28(1)(c) in the Indian Income-tax Act, 1922. It was observed as follows:---
the gist of the offence under section 28(1)(c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and the burden is on the department to establish that the receipt of the amount in dispute constitutes income of the assessee. If there is no evidence on the record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income ....It would be perfectly legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence. Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars."
11. The Hon'ble Judges of Andhra Pradesh High Court further referred to various judgments of Madras, Mysore, Kerala and Orissa High Courts wherein it was held that penalty was in nature of quasi-criminal proceedings and, therefore, mens rea was required to be established by the department and it was required on the part of the department to show that the assessee had acted deliberately in defiance of law or was guilty in conduct, contumacious or dishonest or acted in conscious disregard of its obligation.
12. For the foregoing reasons the prayer on behalf of department that the Income-tax Appellate Tribunal may be directed to refer the questions framed by the A.C.C. for the opinion of High Court was rejected.
13. The second judgment on which Mr. S. A. Samad, Advocate has placed reliance is by the House of Lords in the case of Sweet v. Parsley (1969) 1 All ER 347). It was a criminal case in which the appellant a Lady Teacher was convicted under the Dangerous Drugs Act, 1965 on the ground that she has been concerned in the agreement of the premises in which her tenant., had used the premises for the purpose of smoking cannabis. The appellant was convicted by Magistrate and her appeal was dismissed by a Divisional Court and ultimately leave was granted to consider the legality of the conviction. Lord Reid observed that, our first duty is to consider the words of the Act; if they show a clear intention to create an absolute offence, that is an end of the matter. But such cases are' very rare. Sometime the words of the section which creates a particular offence make it clear that mens rea is required in one form or another. Such cases are quite frequent. But in a very large number of cases there is no clear indication either way. In such cases there has for centuries ,been a presumption that Parliament did not intend to make criminals of persons who were in no way blameworthy in what they did. That means that, whenever a section is silent as to mens rea, there is a presumption that, in order to give effect to the will of Parliament, we must read in words appropriate to require mens rea. "Lord Reid quoted a passage in A.G. v. Lockwood to the effect that the rule of- law upon the construction of all statutes whether penal or remedial is to construe them according to plain literal and grammatical meaning of the words which are expressed. However, he did not agree with the proposition and observed that there cannot be a conviction without proof of mens rea in some form. He further observed, "even if other section of the Act expressly require mens rea, for example because they contain the word 'knowingly' is not in itself sufficient to justify a decision that a section which is silent as to mens rea creates an absolute offence". He further observed as follows:---
"In the absence of a clear indication in the Act that an offence is intended to be an absolute offence, it is necessary to go outside the Act and examine all relevant circumstances in order to establish that this must have been the intention of Parliament, I say, 'must have been', because it is a universal principle that if a penal provision is reasonably capable of two interpretations, that interpretation which is most favourable to the accused must be adopted.
What, then, are the circumstances which it is proper to take into account? In the well-known case of Sherras v. De Rutzen Wright J., only mentioned the subject matter with which the Act deals. But he was there dealing with something which was one of a class of acts which 'are not criminal in any real sense, but are acts which in the public interest are prohibited under a penalty'. It does not in the least follow that, when one is dealing with a truly criminal act, it is sufficient merely to have regard to the subject matter of the enactment. One must put oneself in the position of a legislator. It has long been the practice to recognise absolute offences in this class of quasi-criminal acts, ' and one can safely assume that. When Parliament is passing new legislation dealing with this class of offences, its silence as to mens rea means that the old practice is to apply. But when one comes to acts of a truly criminal character, it appears to me that there are at least two other factors which any reasonable legislator would have in mind. In the first place, a stigma still attaches to any person convicted of a truly criminal offence, and the more serious or more disgraceful the offence the greater the stigma. So, he would have to consider whether, in a case of this gravity, the public interest really requires that an innocent person should be prevented from proving his innocence in order that fewer guilty men may escape. And equally important is the fact that, fortunately, the Press in this country is vigilant to expose injustice, and every manifestly unjust conviction made known to the public tends to injure the body politic by undermining public confidence in the justice of the law and of its administration. But I regret to observe that, in some recent cases where serious offences have been held to be absolute offence, the Court has taken into account no more than the wording of the Act and the character and seriousness of the mischief, which constitutes the offence. "
14. Lord Reid after examining the purpose of legislation and all other attending circumstances held that the offence under the relevant law was not absolute and ultimately held that the appellant who was convicted on account of vicarious liability, could not be convicted without proof of mens rea.
15. Another Lawlord namely, Lord Morris, in his opinion observed that it is cardinal principle of law that mens rea, an evil intention or a knowledge of the wrongfulness of the Act, is in all ordinary cases an essential ingredient of guilt of a criminal offence. He further referred to a judgment of Privy Council in which it was held that proof of the existence of a guilty intent is an essential ingredient of crime at common law is not at all in doubt. He however, further observed that, "but as Parliament is supreme, it is open to Parliament to legislate in such a way that an offence may be created of which someone may be found guilty though mens rea is lacking." He further observed that in diverse situation and circumstances and for any one of a variety of reasons Parliament may see fit to create offences and make people responsible before criminal Courts although there is an absence of mens rea. He further cited with approval the principle laid down in another case that for the protection of the liberty of the subject that a Court should always bear in mind that, unless a statute, either clearly or by necessary implication rules out mens rea as a constituent part of a crime, the Court should not find a man guilty or an, offence against the criminal law unless, he has a guilty mind. He cited with approval the observation made in A.G. v. Lockwood, which has been already reproduced by us while narrating the judgment given by Lord Reid. Lord Morris after analysing the provisions contained in section 5 of the Dangerous Drugs Act, 1965 under which the appellant was convinced held that the reading of the provision:, shows the mens rea was essential ingredient of an offence.
16. Lord Pearce sitting on the Bench observed as follows:---
"The notion that some guilty mind is a constituent part of crime and punishment goes back for beyond our common law. And at common law mens rea is a necessary -element in a crime. Since the Industrial Revolution the increasing complexity of life called into being new duties and crimes, which took no account of intent. Those who undertake various industrial and other activities especially where those affect the life and health of the citizen may find themselves liable to statutory punishment regardless of knowledge or intent both in respect of their own acts or neglect and those of their servants. But one must remember that, normally, mens rea is still an ingredient of any offence. Before the Court will dispense with the necessity for mens rea it has to be satisfied that Parliament so intended. The mere absence of the word 'knowingly' is not enough. But the nature of the crime, the punishment, the absence of social obloquy, the particular mischief and the field of activity in which it occurs, and the wording of the particular section and its context, may show that Parliament intended that the act should be prevented by punishment regardless of intent or knowledge."
17. The other Lawlords sitting on the Bench also expressed similar views.
18. We have given our anxious consideration to the contentions raised before us by the learned representatives for the parties, thefacts and circumstances of the case and the issues requiring consideration. The questions requiring consideration are as follows:---
(i) Whether' the onus of establishing mens rea in criminal cases is an absolute rule or it could be dispensed with in cases of absolute offences?
(ii) Whether the rule is applicable to criminal offences/guilt/liability only or is extended to civil liability as well?
(iii) Whether the rule of establishing mens rea is applicable to the. Cases of tax liability?
(iv) Whether the penalty levied under section 111(1) of the Income Tax Ordinance, 1979 is in the nature of civil liability in contradistinction to criminal liability for the same Act punishable under section 119 of the Income Tax Ordinance, 1979?
(v) If the penalty levied under section 111(1) of the Income Tax Ordinance, 1979 is in the nature of civil liability, whether the rule of common law of establishing mens rea is attracted?
Our findings on the above points are as under:--
19. A perusal of judgment by the House of Lords in Sweet v. Parsely on which Mr. S. A. Samad, Advocate has placed reliance, shows that basically the rule of mens rea is a concept of common law of England. The Lawlords have further clarified in the above judgment that the rule is not applicable in absolute terms to all criminal legislators by the Parliament and since the Industrial Revolution the complexity of life has increased and, therefore, if any act/omission, is enacted as absolute offence the condition precedent of establishing mens rea/guilty intent is dispensed with. It has been held by Griffith, CJ. in Ferrior v. Wilson (4 CLE 785-794) that," there is no general rule of law, that I know of, that an act may not be punishable without mens rea. There are innumerable instances nowadays in which mens rea is not an essential element of an offence." It has been held in Indian jurisdiction in the case of Harikishan v. State (1980) 17 AAC 43) that the concept of mens rea is not applicable in the statutes which deal with the public welfare like enactment regulating sale of food or drink. It is stated in Wharton's Law Lexicon 14th Edition, p.25 that the trend of modern legislation in regard to the health or security of the public is to attach the offence to the person who possesses, at least hypothetically, some control over the acts constituting the offence and to impose penalties on the breach of the regulation either without inquiring into the knowledge or volition of the accused or leaving the onus on him of proving that he is innocent. It is further observed on Page-648 as follows:---
"Although prima facie and as a general rule there must be a mind at fault before there can be a crime, it is not an inflexible rule, and a statute may relate to such a subject-matter and may be so framed as to make an act criminal, whether there has been any intention to break the law or otherwise to do wrong or not. There is a large body of municipal law at the present day, which is so conceived. Bye-laws are constantly made regulating the width of thoroughfares, the height of building, the thickness of walls and a variety of other matters necessary for the general welfare, health of commerce, and such bye laws are enforced by the sanctions of penalties; the breach of them constitutes an offence and is a criminal matter and in such a case the substance of the enactment is that a man shall take care that the statutory direction is obeyed and that if he fails to do so he does so at his peril."
20. In the treatise Caries on Statute Law 7th Edition it is stated on page 536 that, "subject to certain exceptions, it is essential, to make any person liable for disobeying a penal statute, that something more should be proved than the act on omission prohibited; i.e. it must be shown that the act or omission was made with a particular motive or intention. This principle is shortly expressed by the maxim of law, Actus non facit reum nisi mens sit rea. Where the proceedings, whether civil or criminal in form, is for a statutory penalty, independent of the civil damage to an individual, it seems to be accepted as the general rule that if a person does an act in itself indifferently, it must be distinctly proved, before he can be said to have had 'a guilty mind', that he did this indifferent act with a criminal intention; but, if the act which he does is in itself unlawful, then the .person who does the act will be assumed to have had a criminal intention, and, if he fails to justify or excuse the doing of the act, the law will hold him to be guilty." On page 541 of the same treatise after citing a passage dealing with the modern legislation which we have already reproduced with reference to the Wharton's Law Laxicon it has been further stated as follows:---
'There are enactment's, said Brett, J., in R v. Prince, 'which by their form seem to constitute the prohibited acts into crimes and by virtue of which enactments the defendants charged with the committal of the prohibited acts may be convicted in the absence of the knowledge or intention supposed necessary to constitute a mens rea. Such are enactments with regard to trespass in pursuit of same, or of piracy of literary or dramatic works, or the statutes passed to protect the revenue'. To these may be added enactments relating to the sale of intoxicating liquors, food, and drugs, fertilizers, and feeding stuffs, and to weights and measures. And the existence of a mens rea in persons charged with committing offences against these enactments was because, as Brett, J. goes on to point out, they 'do not constitute the prohibited acts into crimes or offences against the Crown but only prohibit them for the purpose of protecting the individual interest of individual persons or of the revenue. "
21. On page 545 instances of offences in which mens rea is not required to be proved have been given, as follows:---
"Under the sale of food and drugs, milksellers used to be convicted for the acts of their servants without any evidence of personal knowledge of default. And convictions of employers for contravening the Licensing Acts, the Merchandise Marks Act, the Weights and Measures Act, and even Revenue Act have been supported in respect of the violation of the statute by a servant if the act was done within the scope of servant's authority, even if it was done in disobedience to express directions by master. "
22. In the treatise 'Maxwell on the Interpretation of Statutes' 12th Edition, it is observed on Page-124, "almost every crime which exists at common law independently of any statute requires for its commission some blameworthy state of mind on the part of the actor, called mens rea. Where an offence is created by statute, however, comprehensive and unqualified the language of the statute, it is usually understood as silently requiring that the element of mens rea should be imported into the definition of the crime, unless a contrary intention is expressed or implied".
23. Following the above principle, instances of cases have been given in which presumption requiring mens rea has been applied and instances of cases in which presumption requiring mens rea has been rebutted. On page 127, it has been stated as follows:-
"Contravention of Article 1 of the Hire-Purchase and Credit Sale Agreements (Control) Order, 1956, which provided that a person should not dispose of any goods to which the Order applied in pursuance of a hire-purchase agreement unless the requirements specified in Schedule 2 of the Order were satisfied, was held to be an offence even though the act was innocently done; the requirement in question being that 50 per cent of the cash price should be paid before the agreement was signed. Donovan, J. relied both on the words of the Order (an express and unqualified prohibition') and its object. This was 'to help to defend the-currency against-the peril of inflation which, if unchecked, would bring disaster upon the country...The present generation has witnessed the collapse of the currency in other countries and the consequent chaos, misery and widespread ruin. It would not be at all surprising if Parliament, determined to prevent similar calamities here, enacted measures which it intended to be absolute prohibitions of acts which might increase the risk in, however, small a degree... There would be little point in enacting that no one should breach the defences against a flood, and at the same time excusing anyone who did it innocently.'
'Section 28(2) of the Larceny Act, 1916 referred to persons being found by night without lawful excuse in possession of 'any key, pick-lock, crow, jack, bit, or other implement of housebreaking.' The Court of Criminal Appeal held that the words italicised meant nothing more than any other instrument capable of being used for housebreaking; and there was no reason to import into them any element of intention on the part of the person charged..'
The offence of causing a vehicle to be used as an express carriage country to section 134(3) of the Road Traffic Act, 1960 can be committed even though the operator of the vehicle has no actual knowledge of payments which are being made by his passengers to their employer in respect of the use of the vehicle, at any rate if the circumstances of the case were such as to make it imperative on the part of the operator to make some inquiries.
By section 121 (1) of the Highways Act, 1959, a person who 'without lawful authority or excuse, in any way wilfully obstructs the free passage along a highway' is guilty of an offence. The defendant in Arrowsmith v. Jenkins argued that same mens rea must be essential, in the sense that a person would only be guilty if he knowingly did a wrongful act, so that a person who acted in the genuine belief that he had lawful authority to obstruct the highway would not be liable. But the Divisional Court rejected this argument, holding that all that was required to constitute the offence was that the person obstructing should act 'intentionally, as opposed to accidentally, that is, by an exercise of his or her free will.'
The offence of making a false declaration under section 116 of the Fiji Customs Ordinance is absolute. 'One cannot,' said Lord Hodson,' 'falsify' without a guilty mind but ...one can innocently make a 'false' entry'.
In several cases, convictions for selling unsound or adulterated food or drink have been affirmed notwithstanding the absence of any knowledge on the part of the accused. In one such case Kennedy,. L.J. said that 'the peril to the butcher from innocently selling unsound meat is deemed by the legislature to be much less than the peril to the public which would follow from the necessarily in each case of proving a mens rea.' The importance of these cases has, however, been lessened since the introduction of the 'third-party procedure' which enables a defendant who successfully casts responsibility for the default-on to some other person in the chain of distribution to escape liability."
24. On page 130 of the above treatise, judgment in the case of Warner v. Metropolitan Police Commissioner has been discussed. In this case the question of absolute liability in statutory offences was considered by the House of Lords. In this case it was held by the House of Lords that section 1(l) of the Drugs (Prevention of Misuse) Act, 1964 creates an absolute offence at least in so far as it is unnecessary that the accused should have known that he had drugs in his possession. Lord Reid had expressed dissenting opinion affirming the general presumption that mens rea is an essential element in a statutory offence. The case of Sweet v Parsley on which Mr. S.A. Samad Khan has placed reliance has also been discussed at page-132. It has been observed by the learned author that except Lord Reid all other Lordships 'have not attempted to provide guidance for Courts in future faced with the problem whether a particular statutory offence is intended to be an absolute one or not.
25. A careful consideration of the above discussions shows that the rule of establishing mens rea for conviction of a person for criminal offence is a general rule but it is not absolute and there are numerous exception to this rule. The trend of modern legislation particularly in the field of welfare statutes and revenue statutes is that the rule has been held to, be dispensed with. A similar question came for consideration before Patna High Court with reference to a criminal offence in the context of a welfare statute namely Employee's Provident Funds Act, 1952 (The State v. S. P. Bhadani AIR 1959 Pat. 9). The questions which came for consideration before Patna High Court were whether under section 14A of the Employee's Provident Fund Act, 1952, an officer of a company can be deemed to be guilty of an offence under the Act without proof of consent, connivance or neglect on his part and whether mens rea is a necessary constituent of the offence under paragraph 76 of the Employee's Provident Funds Scheme, 1952.
26. The relevant facts in the above case were that the Provident Funds Act, 1952 was made applicable to Gaya Cotton and Jute Mills Limited with the result that the workers thereof were entitled to the benefit of the provident fund created under the Act: Mr. S. P. Bhadani was the Managing Director and Mr. Prafulla Kumar Panda was the factory Manager and Secretary of the mills. There was allegations against the mills and above persons that they failed to remit to the fund the employer's and the employees share of contribution from 1st April to 31st December, 1954 and that they also failed to remit the administrative charges under the Act for aforesaid period and that they also failed to submit the returns prescribed under the scheme from 1st July to 31st December, 1954. This prosecution was launched by Regional Provident Fund Commissioner. The defence of the accused persons before the Magistrate was that the non-payment of the prescribed contribution to the provident 'fund and the administrative charges was due to financial stringency of the mills and there was on their part no wilful neglect of, or criminal intention to disobey, the provisions of the scheme. The Magistrate held that the respondent committed default. He was of the opinion, however, that mens rea was a constituent part of the offence and as there was no guilty mind, they had incurred no penalties prescribed by the law. Justice Kanhaiya Singh, after referring to a passage from Crawford's Statutory Construction, 1940 Edition, which has been discussed by us in the earlier part of this judgment, observed that, "it is, therefore, to be seen what was the main object of this legislation." The learned Judge observed that the legislation under consideration was a social legislation designed to promote the welfare of the employees. It was provided in the Act and scheme that the employer shall make contribution at the prescribed rate to the provident fund, and the employees also will contribute an equal amount. This was a mandate of the statute, which has to be complied with. Where there was an unqualified mandatory direction for the doing of an act, calculate to cater for the welfare of the people, the question of mens rea, in his opinion, does not arise. According to the learned Judge, "if that were the necessary element of the offence, it is plain that the entire scheme will be rendered nugatory and a large number of employees will be deprived of the benefit of this benevolent legislation." He further, observed as follows:---
"In my opinion, the offence in such cases is complete when there has been default on the part of the employer in remitting the contribution, and the absence of criminal intention is not an answer to the charge, although it may in appropriate cases be a matter for mitigation of the penalties that may be imposed. This is quite apparent from the provisions of the act itself. It is instructive to compare the provisions of subsection (1) and subsection (2) of section 14. They provide as follows:---
(1) Whoever, for the purpose of avoiding any payment to be made by himself under this Act or under any Scheme or of enabling any other person to avoid such payment knowingly makes or caused to be made any false statement or false representation shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both.
(2) A Scheme framed under this Act may provide that any person who contravenes or makes default in complying with, any of the provisions thereof shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both.
It will appear from the above that in order to constitute an offence under subsection (1), the statement or representation must be untrue and must have been made knowingly and with the object of avoiding any payment to be made by him. Thus, under subsection (1) the knowledge is an essential' ingredient of the offence. The statement or representation may be false, but it was not false to the knowledge of the person accused of the offence, in other words, if there was an honest and reasonable belief in the correctness of the statement or representation even though that were false, a person will not be held a guilty of the offence under subsection (1) of section 14. When subsection (2) of section 14 is read with the scheme itself, it appears that no such condition has been laid down by the statute. On the contrary, under proviso to the subsection (1) of section 14A, the onus to prove absence of knowledge has been laid on the accused.
In other words it is not initially for the prosecution to prove knowledge on the part of the person committing the offence under subsection (1). If, however, an offence has been committed by the company, the person in charge of and responsible to the company for the conduct of the business of the company who under subsection (1) will be deemed to be guilty of the offence may successfully avoid his conviction if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence.
If the legislature intended that mens rea should be an essential in gredient of the offence, it must not have cast the onus on the accused to establish absence of knowledge. In other words, whenever, a company has committed an offence under the Act or the Scheme, the person in-charge of and responsible to the company for the conduct of the business of the company will also be deemed to be guilty of the offence without further proof. If, however, the person so accused of the commission of the offence proves absence of knowledge on his part, he may be excused of the penalty prescribed by the law. Unless he proves absence of knowledge, he will be deemed to be guilty. Ordinarily, the mental element of most of crimes is marked by one of the words, ' maliciously, 'fraudulently' negligently or 'knowingly'.
In this Act the element of knowledge in the constitution of the crime has been differently emphasised in subsection (1) of section 14 and subsection (1) of section 14A. While under the former it is for the prosecution to establish guilty knowledge, under the latter it is for the defence to prove offence, and this one circumstance provides a sure indication that while in one case the legislation made criminal intent a part of crime, in the other it did not. This shows that, barring cases falling under subsection (1) of section 14, the legislature deliberately avoided to make criminal intent an element of. the offence under the Act or the Scheme.
Considering the entire scheme and object of the Act and different provisions made therein the conclusion I come to is that in all cases not covered by subsection (1) of section 14, the criminal intention is not the essential element of the offences. Thus, contention of Mr. Sahay also is without substance and must be rejected.
(7) Now, applying the aforesaid principles it is to be determined which of the respondent is guilty of the charge levelled against him. So for as respondent 3, namely the Gaya Cotton and Jute Mills Limited is concerned, it is crystal clear that the company violated the mandatory provision of paragraph 76 of the Scheme. S. P. Bhadani, respondent 1, is the Managing Director of the said mills. As a Managing Director, he was certainly incharge of and seas responsible to the said mills for the contract of their business.
His case, therefore, falls under subsection (1) of section 14A, and there is no evidence on his behalf that his offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of it. Therefore, he was also guilty of the offence under paragraph 75 read with subsection (1) of section 14A of the Act.
(8) I would accordingly set aside their acquittal. As regards sentence, I find that the company has accepted the responsibility and, I am told, has started making payments in instalments. Considering this circumstance and having regard to the nature of the offence and the fact that this is the first occasion for the commission of the offence and was due to mere misconception of law, I think a sentence of fine only would meet the ends of justice in this case. I would accordingly convict them and sentence them to pay a fine of Rs.250 each. In default of the payment of the fine, respondent I, will suffer simple imprisonment for one month."
27. In the light of above discussions, we are of considered opinion that the rule of mens rea is a concept of common' law of England which was required to be established in cases of criminal offences/liability. The principle has been embebed in the criminal administration of justice even after ushering the era of statutory enactments. However, the concept is confined to criminal cases only and with the advent of modem legislation there appears to be consensus that it is not an absolute rule and can be dispensed with in cases where the legislature has fully defined an offence and has made any act or omission as an absolute offence. The concept is particularly ruled out in cases of welfare, social and revenue laws. The words and expression used by the legislature in defining any crime/offence is also indicative of the fact in determining whether the rule of mens rea is attracted or not and for this purpose the provisions of law and the plain language used as well as comparison of different provisions in the same statute may provide guiding and determining factors. The question No l, framed by us is answered accordingly.
28. So far the remaining four question are concerned we will consider the said questions collectively and cumulatively in the light of various judgments from Indian jurisdiction which deal with the issue in the context of tax laws.
29. This brings us to questions Nos.2 to 5 framed by us in order to consider whether the rule of mens rea is applicable to the penalty levied under section 111(1) of the Income Tax Ordinance, 1979, the subject-matter of appeal. It has been held in the case of King v. Erson (17 CLR 506, 508) that the rule that mens rea is not a necessary ingredient always applies to the revenue statute.
30. In spite of our best efforts we were not able to locate any judgment on the point under consideration from superior Courts in Pakistan. However, the issue came for consideration in several cases before superior Courts in Indian jurisdiction. The first case is CIT Kerala v. Gujarat Travencore Agency (1976) 103 ITR 149). In this case the income-tax reference was heard initially by a Division Bench of the High Court. The question for consideration was as follows:---
"Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in cancelling the penalties levied under section 271(1)(a) of the Income tax Act, 1961 for the assessment years 1965-66 and 1966-67. "
31. The relevant facts were that the assessee did not file return of income although time was sought for filing the same. Thereafter, a notice was served for filing of return. The penalty proceedings were taken for late filing of return under section 271(1)(a) of the Indian Income Tax Act, 1961 (hereinafter referred to as the Indian Act). The Income-tax Officer imposed penalty. The assessee contended that he was under the bona fide belief that he had no assessable income and for that reason delay was caused in filing :he returns. This explanation was found unsatisfactory. A plea was taken before the Tribunal that there was no deliberate omission on the part of assessee and without a deliberate omission it was not possible to find that the ingredient of section 271(1)(a) had been satisfied. It was held by the Tribunal as follows:---
"The Income-tax Officer, has, however, not brought on record any material to show that the assessee could not have had any such bona fide impression and that the delay was due to a deliberate default. Mens rea, which was required to be proved has not been proved by the Department for these two years. The penalties levied for these two years are, therefore, cancelled as bad in law."
32. A plea was taken by the counsel for revenue before the High Court that view of Tribunal was erroneous. According to the counsel for revenue it was for the assessee to establish the reasonable cause for failure. it was further contended as follows:--
"It was contended that the matters that could be pleaded by an assessee were peculiarly within his knowledge and that it was the assessee and the assessee alone who will be able to show cause for the failure to file a return on time. It was also submitted that 'without reasonable cause' mentioned in section 271(1)(a) is in the nature of the general exceptions in Chapter 4 on the Indian Penal Code and that it is an established principle that a person relying on those exceptions must plead and prove the existence of circumstances which would justify the application of the exception. He referred to a recent ruling of this Court, in O.P. No.2702 of 1969 (Marikar (Motors) Limited v. Sales Tax Officer) wherein a similar question was considered by this Court arising under section 10(d) of the Central Sales Tax Act."
33 The plea taken on behalf of assessee has been narrated as follows:---
"On the other hand, counsel for the assessee has invited our attention to two Division Bench rulings of this Court in P.V. Devassy v. Commissioner of Income-tax (1972) 84 ITR 502) and Dawn & Co. v. Commissioner of Income-tax (1973) 87 ITR 71). In both these cases, the question turned on the interpretation of section 271(1)(a) and in both the judgments there are clear statements that the burden of establishing the fact that the failure to file a return was without reasonable excuse was on the Department. It is evident that there is a conflict of opinion on this matter. "
34. In the above circumstances the question was referred to a Full Bench for determination. In this case -the Full Bench of Kerala High Court has discussed the relevant provisions contained in the Indian Income-tax Act and the repealed Income-tax Act, 1922, as well as various judgments of Indian superior Courts. We can do no better than reproduce the discussions which reads as follows:---
"Section 271 of the Income Tax Act, 1961, occurs in chapter XXI, entitled: 'Penalties imposable'. The material part of the section reads:
'271. Failure to furnish returns, comply with notices, concealment of income etc.
(1) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person:
(a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under subsection (1) of section 139 or by notice given under subsection (2) of section 139 or section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by subsection (1) of section 139 or by such notice, as the case may be or ........
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,
(i) in the cases referred to in clause (a), in addition to the amount of the tax, if any, payable by him a sum equal to two per cent of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent of the tax; ......
(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of income in respect of which the particulars have been concealed or inaccurate particulars have been furnished ......
Section 276C, which occurs in Chapter XXII entitled: 'Offences and Prosecutions', in so far as it is material, reads:
276C. If a person wilfully fails to furnish in due time the return of income which is required under subsection (1). of section 139 or by notice given under subsection (2) of section 139 or section 148, he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine equal to sum calculated at a rate which shall not be less than four rupees or more than ten rupees for every day during which the default continues, or with both.'
The corresponding provisions in the previous Act, the Indian Income-tax Act, 1922, in so far as they are material, read as follows:
'28. Penalty for concealment of income or improper distribution of profits.---(1) If the Income-tax Officer, the Appellate Assistant Commissioner (or the Appellate Tribunal), in the course of any proceedings under this Act, is satisfied that any person-
(a) has without reasonable cause failed to furnish the return of his total income which he was required to furnish by notice given under subsection (1) or subsection (2) of section 22 or section 34 or has without reasonable cause' failed to furnish it within the time allowed and in the manner required by such notice; or .......
(b) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he or it may direct that such person shall pay by way of penalty, in the case referred to in clause (a), in addition to the amount of the income-tax and super-tax if any, payable by him, a sum not exceeding one and a half times that amount, and in the cases referred to in clauses (b) and (c), in addition to any tax payable by him a sum not exceeding one and a half times the amount of the income-tax and super-tax, if any, which would have been avoided if the income as returned by such person has been accepted as the correct income."
Section 51 of the Act in so far as it is relevant provided;
'51. Failure to make payments or deliver returns or statements or allow inspection if a person fails without reasonable cause or excuse.
(c) to furnish in due time any of the returns mentioned in section 19A, section 20A, section 21, subsection (2) of section. 22, or section 38--
he shall, on conviction before a Magistrate, be punishable with fine which may extend to ten rupees for every day during which the default continues.'
Section 28 is in Chapter IV- 'Deductions and Assessment' and section 51 in Chapter VII 'Offences and Penalties'.
On the language used in the sections in the two Acts, certain things strike us. The provisions for imposition of penalty are independent of the provisions for prosecution and punishment, in the sense that the proceedings under the one will not bar action under the other. Turning to 1922 Act, section 28(1)(c) requires, as a fact, a concealment of particulars or a deliberate furnishing of inaccurate particulars of such income. From its very nature, the element of deliberation and design is evident in section 28(1)(c). But as far as clause (a) of section 28(1) is concerned, we think that the clause itself on its express language, does not postulate this requirement. We are of the opinion for reasons which we shall discuss more fully in the course of the judgment that a mere use of the expression 'without reasonable cause' cannot import a mental element or mens rea. This expression occurs in different ways in many statutory provisions and also in certain civil actions. See for instance, section 5 of the Limitation Act; see again, the requirements for a civil suit for damages for malicious prosecution, where. in addition to the requirement of absence of reasonable and probable cause, malice has to be affirmatively established, to entitle the plaintiff to succeed . Under section 51 (c) of the 1922 Act, failure, without reasonable cause, inter alia, to furnish in due time, the returns mentioned in certain sections of the Act, is made a punishable offence. Being a punishable offence, consistent with the well-recognised principle, that except where the statute clearly dispenses with mens rea that element must be present, it appears easy enough to posit the requirement of mens rea for the offence under section 51. But whatever be the position under the 1922 Act, we cannot help noticing the significant change in the phraseology and language employed by the 1961 Act. Before imposition of a penalty under section 271 of the new Act, what is required is that the officer must be satisfied not arbitrarily but judicially that any person has, without reasonable cause, failed to furnish accurate particulars (clause (c)). We would stress the important change made by the 1961 Act, namely, that the element of deliberation required by section 28(1)(c) of the 1922 Act, has been deleted in section 271(1)(c). If we now compare the language of section 276C, we see that a wilful failure to furnish the return of income is made a punishable offence punishable with imprisonment for a term, which may extend to one year, and with tine. The mental element is here expressly provided and from the gravity of the offence, even in the absence of express provisions, it has to be inferred. Where the two sections (271 and 276C) themselves seem to draw a difference between the requirement for imposition of a penalty and punishment for an offence, it appears to us that we would not be justified in reading into the earlier section, the requirements of any mens rea expressly provided for in the later one.
This aspect, which strikes us, on the perusal of the sections, stands reinforced by the difference between the two proceedings, namely, penalty proceedings and proceedings by way of criminal prosecution which have been stressed in the judicial decisions, and in certain treatises of the subjects.
We may perhaps begin with what appears to us to be an apt quotation from Corpus Juris Secundum, Volume 85 p.580, paragraph 1023:
"A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime on fine or forfeiture provided as punishment for the violation of criminal or penal laws."
This view is reflected in the decision of a Division Bench of the Madras High Court in Sivagami Natha Moopanar & Sons v. Income-tax Officer, Circle II, Madurai (1955) 28 ITR 601), where the relevant American decisions have been elaborately surveyed. The learned Judges recorded complete agreement with the arguments advanced before them by the learned Advocate-General in that case to the effect that the object and purpose of section 28 of the 1922 Act is wholly different from that under sections 51 and 52, and that it would not be correct to regard the ingredients of the misconduct under the two provisions as indentical. The falsity of a declaration wilfully made is enough to satisfy the requirements of section 52; whether that declaration results in concealment is not material for the purpose of that section. On the other hand, section 28(1)(c) is concerned with the inaccurate particulars deliberately furnished i.e. concealment, and unless this has been made out, no penalty can be imposed. It was pointed out that while there may be over-lapping, the spheres of operation were not necessarily concurrent. Reference was made to Helvering v. Mitchell (303 US 390; 88 LED 917) where the argument that the penalty demanded was, in truth and substance, a-criminal penalty intended as a punishment, and, therefore, it violated the rule of double jeopardy, was repelled by Brandis, J. It was pointed out by the American Supreme Court that the remedial character of sanctions imposing additions to a tax had been stressed earlier, that they are meant primarily as safeguards for the protection of revenue and to reimburse the Government for a heavy expense of investigation and the loss resulting from the taxpayers fraud; that the sanction of fine and imprisonment for wilful attempts being made for defeating income-tax is a criminal one, whereas the sanction of 50% addition under the penalty sections was intended as a civil one. In a later decision, Spies v. United States (317 US 492: 87 L ED 418), following the earlier American case, it was observed that the penalties to enforce the tax laws embrace both civil and criminal sanctions, that the former consists of additions to the tax on determinations of fact made by the administrative agency and with no burden on the Government to prove its case beyond reasonable doubt, and the latter consists of penalty offences enforced by the criminal process in the familiar manner. The same view is reflected in the decision of Mathew, J.. of this Court (as he then was) in P. Ummali Umma v. Inspecting Assistant
Commissioner of Income-tax (1967) 64 ITR 669, 676). Observed the learned Judge:
"Although the concealment of the particulars of the income was made an offence under section 52 of the repealed Act and is also made an offence under section 277 of the Act, I cannot say that the penalty imposed under section 28 of the repealed Act or under section 271 of the Act was or is imposed on the basis that it was or is an offence. For the offence punishment was or is prescribed such as imprisonment, fine or both. The imposition of penalty on the basis of an act or omission by an assessee is not because the act or omission constitutes an offence, but because that act or omission would constitute an attempt at evasion. Therefore, penalty is exacted not because an act or omission is an offence but because it, is an attempt at evasion of tax on the part of the assessee. Article 20(1) of the Constitution can have no application to a case where a penalty is imposed not as punishment for an offence but for some other collateral purpose."
The decision of the Supreme Court in Thomas Dana v. State of Punjab (AIR 1959 SC 375) appears also in point. Section 167, clause (8) of the Sea Customs Acts read with a section 5 of the Imports-Exports Control Act, 1947, and section 78 of the Land Customs Act authorised confiscation of goods and imposition of a personal penalty in certain circumstances. The provision of the Sea Customs Act was challenged as violative of Article 20(2) of the Constitution. It was pointed out that the proceedings before the Sea Customs Authority under section 167(8) were not 'prosecution' within the meaning of Article 20(2) of the Constitution. In that view it was considered unnecessary to pronounce on the question whether there was 'punishment' by the imposition of the penalty, and whether the same offence was involved in proceedings before the revenue authorities and before the criminal Court. The principle of the decision was reaffirmed by the Supreme Court in Assistant Collector of Customs, Bombay v. L.R. Melvani (AIR 1970 SC 962) and in Hira H. Advani v. State of Maharshtra (AIR 1971 SC 44). In addition to these, the decision of the Supreme Court in Adbraham's case expounded the nature of a penalty as additional tax. This was repeated in Commissioner of Income-tax v. Bhikaji Dabadhai & Co. (1961) 42 ITR 123 (SC). The above decisions appear to us to place the legal position regarding the imposition of a penalty in its proper perspective and to reinforce our impression that the penalty provisions under the Act are not provisions of a criminal nature which warrant the requirement of mens rea in the sence in which the same is required for an offence by the criminal law.
But we are strongly pressed with certain rulings, which, it is contended, had concluded the position that mens rea is an essential requirement for imposition of penalty under the Income-tax Act. It was strongly contended that two decisions of the Supreme Court, in particular, have laid down this proposition and that the law in regard to this matter has been well-settled by these decisions. The argument deserves very careful consideration. The earlier of these decisions of the Supreme Court is Hindustan Steel Limited v. State of Orissa. Although the decision was in August 1969, it was reported in the ITR series only later than the next decision to notice. But it had been reported earlier in 25 S.T. 211. In Hindustan Steel Limited case penalty was levied under section 12(5) of the Orissa Sales Tax Act, 1947. Under section 9 of the Act, no dealer liable to pay tax shall carry on business as a declare, unless he has been registered under the Act, and possesses a certificate of registration Under section 25, whoever carries on business in contravention of subsection (1) of section 9 shall be punishable with imprisonment which may extend up to six months, or with fine not exceeding Rs.1,000 or with both. Under section 12, subsection (5) of the Act, if the. Collector is satisfied that any dealer liable to pay tax has without sufficient cause failed to apply for registration, the Collector has authority to levy a penalty not exceeding one and a half times the amount of tax. A penalty was imposed at the maximum rate mentioned in section 12(5). This was challenged eventually in a reference made by the Tribunal to the Orissa High Court, and from the decision of that Court, the matter came up before the Supreme Court. The Supreme Court observed:---
"Under the Act penalty may be imposed for failure to register as dealer: section 9(l), read with-section 24(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not originally be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of the authority competent to impose the penalty will be justified in refusing to impose penalty, then there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those incharge of the affairs of the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out."
Giving the matter our careful attention, we feel, with respect, that the Supreme Court, in the above passage, was only stressing the fact that on mere proof of default, a case for imposition of a penalty does not automatically follow, and that there was an obligation on the part of the assessing authority to bring to bear a judicial mind before deciding whether the imposition of a penalty is called for, and if so, at what rate, and, in particular, whether imposition at the maximum rate was called for and necessary in the case. We do not understand these observations of the Supreme Court as laying down that penalty proceedings attract the entire body of principles generally associated with criminal proceedings.
Next, in sequence, (although reported earlier in the Income-tax Reports) is the decision in Commissioner of Income-tax v. Anwar Ali (1970) 76 ITR 696, 700 (SC). The question there arose with respect to section 28(1)(c) of the Indian Income-tax Act, 1922, which as we already pointed out, seems to expressly require a mental element in the sense of deliberation; The Supreme Court observed:
"The first point which falls for determination is whether the imposition of penalty is in the nature of a penal provision. The determination of the question of burden of proof will depend largely on the penalty proceedings being penal in nature or being merely meant for imposition of an additional tax, the liability to pay such tax having been designated as penalty under section 28. One line of argument which has prevailed particularly with the Allahabad High Court in Lal Chand Gopal Das's case is that there was not essential difference between tax and penalty because the liability for payment of both was imposed as a part of the machinery of assessment and the penalty was merely an additional tax imposed in certain circumstances on account of the assessee's conduct. The justification of this view was founded on certain observations in C.A. Abraham v. Income-tax Officer, Kottayam. It is true that penalty proceedings under section 28 are included in the expression 'assessment' and the true nature of penalty has been held to be additional tax. But one of the principal objects in enacting section 28 is to provide a deterrent against recurrence of default on the part of the assessee. The section is penal in the sense that its consequences are intended to be an effective deterrent which will put a stop to practices which the legislature considers to be against the public interest. It is significant that in C.A. Abraham's case this Court was not called upon to determine whether penalty proceedings were penal or of quasi-penal nature and the observations made with regard to penalty being an additional tax were made in a different context and for a different purpose. It appears to have been taken as settled by now in the sales tax law that an order imposing penalty is the result of quasi-criminal proceedings. Hindustan Steel Ltd. v. State of Orissa. In England also it has never been doubted that such proceedings are penal in character; Fattorini (Thomas) Lancashire) Ltd. v. Inland Revenue Commissioner. "
Here again, reading the passage as a whole, and giving the matter our most careful attention, we are unable to read the observations as deciding that penalty proceedings are criminal proceedings in every sense of the term. The decision has taken care to explain the limited sense in which the proceedings are meant or intended to be penal. In any event, we are not prepared to read from these observations, the proposition that irrespective of the statutory provisions, penalty proceedings require proof of a mens rea as a criminal offence does. We may quote one more passage from the above decision.
"The next question is that when proceedings under section 28 are penal in character what would be the nature of the burden upon the department for establishing that the assessee is liable to payment of penalty. As has been rightly observed by Chagla, C.J. in Commissioner of Income-tax v. Gokuldas Marivallabhdas the gist of the offence under section 2$(1)(c) is that the assessee has concealed the particulars of his income or deliberately-furnished inaccurate particulars of such income and, therefore, the Department must establish that the receipt of the amount in dispute constitutes income of the assessee."
We shall have occasion to revert to this passage a little later. Counsel for the assessee drew our attention also to Commissioner of Income tax v. Distributor (Baroda)" (P.) Ltd. where the observations in Anwar Ali's case the penalty proceedings are penal in nature and that the entire circumstances must reasonably point to the conclusion necessary to impose penalty, were emphasized. The observations of the Supreme Court regarding the nature of penalty proceedings were repeated in two Division Bench rulings of this Court, namely, Devassy v. CIT and Dawn & Co. v. CIT The earlier of these cases was under section 271(1)(a) of the Income Tax Act, 1961. The learned Judges noticed the decision of the Supreme Court in Hindustan Steel Ltd. case and on the strength of the observations made therein, that penalty proceedings are quasi-criminal and that penalty will not ordinarily be imposed unless a party had acted deliberately in defiance of the law or was guilty of contumacious conduct or wilful default of his obligation, held that the imposition of penalty was unjustified. We would stress the fact that the Tribunal was satisfied not that the assessee's explanation that the time for submission of return had not arrived, was acceptable, and the Division Bench accepted that finding. If so, there could be no case for levy of a penalty. We wish, with respect to observe, that the language of section 271(1)(a) of the 1961 Act does not warrant the wholesale transplantation of elements of deliberation and design stressed by the Supreme Court in Hindustan Steel Ltd.'s case with respect to section 28(1)(c) of the 1922 Act. We would offer the same comment on the next Division Bench ruling of this Court in Dawn & Co. case, which was again with respect of section 271(1)(a) of the Act. But in that case, although the difference between section 28(1) of the 1922 Act and section 271(1) of the 1961 Act was highlighted, the learned Judges felt that they were bound by the decision of the Supreme Court in Anwar Ali's case. This is what the Division Bench stated:
"Counsel for the department contended that Anwar Ali's case was concerned with section 28(1)(c) of the Indian Income-tax Act, 1922 corresponding to section 271(1)(c) of the Income Tax Act, 1961, and it has no application to section 271(1)(c) of the Act. It was also argued that on account of the explanation to section 271(1) of the Income tax Act 1961, the statute itself given rise to a presumption of mens rea or knowledge of the wrongful act against the assessee even for purposes of section 27(1)(c) in cases covered by the explanation and that is an indication to show that the very omission to file the return will give rise to a presumption of conscious violation of section 139(2) by the assessee. It was also pointed out that if the burden is cast on the department to prove want of reasonable cause for failure of the assessee to furnish the return of total income. in effect it will be placing an onus on the department which will be impossible for them to discharge. According to counsel for the department, a reasonable interpretation of the provision will be to hold that the duty is on the assessee to explain his default and convince the department that it was occasioned by reasonable cause. It is not necessary for us to examine the merits of these contentions, however, interesting and plausible they may be, in view of the categorical statement of law by the Supreme Court."
With great respect, we are unable to agree. We venture to think that the pronouncement of the Supreme Court with respect to section 28(1)(c) of the Act, 1922 cannot straightaway be applied to the provisions of the 1961 Act.
Counsel for the assessee invited our attention to the decision of the Mysore High Court in All India Sewing Machine Co. v. Commissioner of Income tax of the Orissa High Court in Commissioner of Income-tax v. Ali Mohamad & Co. and of the Punjab High Court in Additional Commissioner of Income-tax v. Karnail Singh v. Kaleran. These decisions, between the; refer to the Supreme Court decision and the Kerala decisions we have noticed; but, with respect, do not notice what we regard as the significated change in language and set up between sections 28(1) of the 1922 Act and 271(1) of the 1961 Act, and the indication afforded by section 276C.
In Dawn & Co.'s case noticed earlier, the Division Bench of this Court observed:
"The words 'has without reasonable cause failed to furnish it within the time allowed' in section 27(1)(a) of the Income Tax Act, 1961, show that mens rea is an ingredient to be proved by the department before the imposition of penalty. In Commissioner of income-tax v. Anwar Ali's case their Lordship of the Supreme Court in considering the nature of the proceeding under section 28 of the Indian Income-tax Act, 1922, which corresponds to section 271 of the Income Tax Act, 1961, observed:
The first point, which falls for determination is whether the imposition of penalty is in the nature of a penal provision. The determination of the question of burden of proof will depend largely on the penalty proceedings being penal in nature or being merely meant for imposition of an additional tax, the liability to pay such tax having been designated as penalty under section 28. It is true that penalty proceedings under section 28 are included in the expression 'assessment' and the true nature of penalty has been held to be additional tax. But, one of the principal object is enacting section 28 is to provide a deterrent against recurrence of default on the part of the assessed. The section is penal in the sense that its consequences are intended to be an effective deterrent, which will put a stop to practices, which the legislature considers to be against the public interest. It appears to have been taken as settled by now in the sales tax law that an order imposing penalty is the result of quasi-criminal proceedings (Hindustan Steel Ltd. v. State of Orissa). In England also it has never been doubted that such proceedings are penal in character: Fattorini (Thomas) Lancashire) v. Inland Revenue Commissioner. "
And then proceeded to quote from Anwar Ali's case and Hindustan Steel Ltd.'s case. We feel that the observations of the Division Bench that the expression 'without reasonable cause' would import the requirement of mens rea is an overstatement of the principle, and we cannot accept it as correct. The same comment falls to be made on the observations of the Division Bench in Marikar (Motors) Ltd. v. Sales Tax Officer, which has also expressed the same view. Observed the Division Bench:
'We consider that the introduction of the words 'without reasonable cause' widens the range of defence available to an assessee and also clearly implies that a guilty mind must be established and not excluded (mens rea is essential for making out an offence under section 10(d) of the Act). With great respect we are unable to agree with the observations of Isaac, J. In (1971) Tax L.R. 1241 and with the observations of the Mysore High Court in the State of Mysore v. S. S. Umandi that mens rea is not one of the ingredients of the offence under section 10(d) of the Act.'
This latter ruling was with respect of the penalty imposed under section IOA of the Central Sales Tax Act for contravention of section 10(d) thereof. The latter section made punishable with imprisonment up to six months and with fine, a failure 'without reasonable excuse' to use the goods for the purpose for which they were purchased under section 10(b). Section l0A authorised the levy of a penalty if a person is guilty of an offence under clause (b) or (d) of section 10; and the proviso barred a prosecution on the same facts.
It is only if the person is guilty of the offence under any of the three sub-clauses that a penalty under section 10A can be imposed; and from the gravity of the punishment provided for the offences we, are not satisfied that it is one of those cases for which mens rea can be regarded as having been dispensed with. On this ground, we would sustain the conclusion of the Division Bench that mens rea should be proved before action can be taken under section 10A; but, for reasons noticed, we cannot accept as correct the reasoning in the observations quoted above. The same case considered the question whether 'without reasonable
excuse' is an ingredient to be established for taking action under section 10A, and on whom the burden lay of establishing the same held that this was an essential ingradient and that the burden of proving the same was on the person charged. The department having first shown that contravention was according to it, without reasonable excuse, it is for the person proceeded against, to show that he in fact had reasonable excuse. In this sense, we think the Division Bench was right. But on this point again, a number of decisions were cited. Most prominent among these was the decision of Chagla, C.J. and Desai, J. in Commissioner of Income-tax v. Gokuldas Narivallabhdas. The decision was regarding the imposition of penalty under section 28(1)(c) of the 1922 Act. It was observed that penalty proceedings are penal proceedings in their very nature and that the elementary principles of criminal jurisprudence regarding the burden of proof will apply to those -proceedings. A Division Bench of this Court in Kunhali Haji's case has noticed that a petition for leave to appeal against the above decision was dismissed by the Supreme Court. We also observe that the judgment of Chagla, C.J. was approved by the Supreme Court in Anwar Ali's case. With respect, we think that, apart from the decision being in regard to section 28(1)(c) of the 1922 Act, the observations, understood in the context in which they were made, were meant to emphasize the burden of proof of the requirements for the imposition of a penalty, and no more. We are next referred to the decision of Division Bench of this Court in Naney & Co.'s case where it was observed with respect to proceedings under section 28 of the 1922 Act that the onus of proof is upon the department and the degree of proof is that of a criminal prosecution; the mere preponderance of probability will not suffice, as in the case of civil action. With the former part of the proposition, we are in agreement; with the latter part of it, no expression of opinion is called for, and we offer none in the instant case. We do not, therefore, think that these decisions in any way affect the question whether mens rea should be established before penalty is imposed.
Counsel for the assessee attacked the correctness of the ruling of the Division Bench in Larikar (Motors) Ltd.'s case in so far as the same stated that the burden of proving reasonable excuse was on the assessee. As already stated, we think the decision on this aspect was correct.
Counsel for the department and for the assessee cited some decisions which have generally expounded the rule regarding the requirement of mens rea in criminal cases. We think it unnecessary to refer to these decisions, and refrain from discussing the same.
In view of our conclusion that mens rea need not be established before imposition of penalty under section 271(1)(a) of the 1961 Act, we answer question No.(2) of the reference, which alone is now before us, in the negative, i.e. in favour of department and against the assessee. The assessee will pay the department the costs of this reference.'
35. The Full Bench had heard a reference arising out of wealth tax also and after deciding the reference under the Income-tax Act held as follows:---
"Section 18(l)(a) of the Wealth Tax Act corresponds to section 271(a) of the Income Tax Act, 1961; and section 18(1)(c) to the section 271(1)(c). Section 36 deals with prosecutions. The petitioner is the owner of a tile factory. For the year 1969-70 his return of wealth should have been filed on or before June 30, 1969. It was filed only on September 18, 1970. Assessment was completed and wealth tax of Rs.358 was imposed. Then penalty proceedings for failure to file the return in time, without reasonable excuse, were started a penalty was imposed as provided by section 18 which was affirmed on appeal by the Appellate Assistant Commissioner.---
The petitioner's counsel associated himself with the arguments of counsel for the assessee in I.T.Rs. Nos.85 and 86 of 1972 that mens rea was an essential ingredient of penalty proceedings under the Wealth Tax Act also. We have held against this, in our judgment in I.T.Rs. Nos.85 and 86 of 1972 heard alongwith this. As the relevant sections in the Wealth Tax Act are similar, if not identical, to the Income-tax Act, we held that mens rea is not an essential ingredient before imposition of penalty under section 18 of the Wealth Tax Act."
36. In the case of S. Sannana Chetty & Sons v. Third Income-tax Officer (1970) 76 ITR 177) a question was raised about the validity of section 277 of the Indian Income Tax Act, 1961 before Madras High Court. It was contended before the Madras High Court that penalty was provided under section 271(1)(c) of the Indian Income Tax Act, 1961 (corresponding to section 111 of the Income Tax Ordinance, 1979) and. criminal prosecution has also provided in section 277 of the Indian Income Tax Act, 1961 (corresponding to section 1.19 of the Income Tax Ordinance, 1979), therefore, section 277 of the Indian Income-tax Act was violative of Article 20(2) and Article 14 of the Indian Constitution which may be struck down. The Madras High Court did not accept the contention. Reliance was placed upon decision in C.I.T. v. Gokuldas Narivallabhdas (1956) 34 ITR 98) wherein it was held that proceedings under section 28(1)(c) of the repealed Income-tax Act, 1922 which is similar to section 271(1)(c) of the Indian Income Tax Act, ,1961, are criminal proceedings in their very nature. The plea was repelled in view of decision of Supreme Court of India in Thomasdana v. State of Punjab (AIR 1959 SC 375) wherein it was held that the levy of penalty is different from a criminal prosecution and punishment of criminal by a criminal Court. It was further observed that merely because the penalty proceedings is in the nature of criminal proceedings it shall not equate to the proceedings of levying penalty to a criminal proceedings. It was further held that in certain features of one proceedings are found in another, the letter may be said to in the nature of former but it cannot be the same. Ultimately, it was held that no mens rea is required for penalty proceedings under section 271(1)(c) whereas under section 277 mens rea' is provided.
37. The rule of mens rea in respect of levy of penalty for late filing of return came for consideration before a Full Bench of Andhra Pradesh High Court also in the case of Additional Commissioner of Income-tax v. Dargapandarinath Tuljayya & Co. (1977) 107 ITR 850) in the following circumstances:---
"The assessee failed to file returns for four years with the time Stipulated by the Act. The assessee firm submitted explanation that the return could not be filed in time because the person who was in charge of the accounts of the firm was unable to attend to its affairs for some time due to some personal reasons. The I.T.O. did not accept the contention and levied penalty. The assessee preferred revision petitions before the C.LT, which was rejected. The assessee filed writ petitions in High Court and a single Judge of High Court quashed the order of CIT on the ground that the penalties could only be imposed if it was found that the assessee acted deliberately in defiance of the law or was guilty of contumacious or dishonest conduct or acted in conscious disregard of his obligations and not otherwise.
The CIT preferred appeal, which came for consideration before a Division Bench. The view of single judge was approved by a Division Bench of the Andhra Pradesh High Court in the judgment reported as (1975) 100 ITR 18). The matter was, therefore, referred to Full Bench, the learned Judges sitting on the Division Bench expressed their view that section 271(1)(a) ` of the Income-tax Act provides that if the I.T.O is satisfied that any person 'has without reasonable cause' failed to furnish the returns of total income, he may levy a penalty on such person. All that the I.T.O has to be satisfied about it that the failure of the assessee to submit return is 'without reasonable cause' neither more nor less. It was further expressed that there is no reason for importing the doctrine of mens rea into a situation where the requisite mental state is already defined. It was further opined that there was no reason for qualifying the failure to furnish a return with expressions like 'contumacious', 'dishonest', 'in deliberate defiance of law' etc. To do so is to re-write section 271(1)(a). It was further observed that doctrine of mens rea in origin and in practice, is a rule of construction. In England, in 18th and 19th centuries, with the growth of statute law, a conflict arose between the common law and the statute law. The common law Judges and Lawyers evolved a rule of construction to avoid the conflict. They said, 'it is a sound rule to construe a statute in conformity with the common law rather than against it, except where and so far the statute is plainly intended to alter the course of the common law'. The learned Judges of the Division Bench further observed as follows:---
'This presumption or rule of construction is a sound rule to apply where traditional crime is given statutory form or where a new crime is added to the general criminal law. But it has no application or it is of very weak application to offences created by modern, social, industrial, fiscal and economic legislation. Some Judges have altogether denied the existence of any such presumption in the case of modern statutory offences while other Judges have 'manifested a marked tendency to readily displace or minimise the application of the presumption'. "
38. Reliance was placed on the judgment of Privy Council (1963 AC 160 (PC) wherein it was recognised that where 'public welfare offences' (which most modern statutory offences are) were concerned there was a presumption of strict liability and the presumption of mens rea was displaced. Further, reliance was placed on the judgment of Indian Supreme Court (1964) 34 Com. Cas 435 SC) in which Supreme Court of India attached great importance to the social purpose of the legislation rather than to the so-called presumption relating to mens rea. It was further observed, 'in India, the requisite mental state is almost always defined by the statute itself, and generally there is no scope for the application of the doctrine of mens rea. The question of the application of the doctrine of mens rea arises only in cases where the requisite mental state is not defined by statute'. It was further emphasized that it is wrong to classify proceedings for levy of penalty under taxation statutes as offences of a criminal nature. Reference was made to Corpus Juris Secundum Vol. 85, Page-580 to which reference has been made in the judgment (1976) 103 ITR 149).
39. Reference was made to the judgment of Kerala High Court in the case of Umnrali Umma v. Inspecting Assistant CIT (1967) 64 ITR 669) in which it was held by Mathew, J. as follows:---
"I cannot say that the penalty imposed under section 28 of the repealed Act or under section 271 of the Act was or is imposed on the basis that it was or is an offence. Fort the offence punishment was or is prescribed such as imprisonment, fine or both. The imposition of penalty on the basis of an act or omission by an assessee is not because the act or omission constitutes an offence, but because that act or omission would constitute an attempt at evasion. Therefore, penalty is exacted not because an act or omission is an offence but because it is an attempt at evasion of tax on the part of the assessee. "
40. Another judgment of Andhra Pradesh High Court in the case of C.I.T. v. Maduri Rajeswar (1977) 107 ITR 823) was also referred in which it was observed as follows:---
"the objects of the two provisions appear to be different; the one entailing the prosecution and punishment is to vindicate public justice by furnishing the offender, whereas the object of penalty proceedings 'is to render evasion unprofitable and to secure to the State the compensation for damages or attempted evasion. "
41. After referring to some other cases it was observed that the views expressed by a Division Bench and by a Full Bench of Kerala High Court in the case of C.I.T. v. Gujarat Travancore Agency (the judgment which we have already reproduced in the earlier part of this order) and a Full Bench of Orissa High Court in CIT v, Gangaram Chapolia (1976) 103 ITR 613) the Division Bench did not agree with the earlier decision in another Division Bench in the case of Additional CIT v. Narayandas Ramkishan (1975) 100 ITR 18) (the learned counsel for the respondent has placed reliance on this judgment, the contents whereof have been reproduced in paras. 9 to 12 of this order). Following question was referred to Full Bench.
"Is there an occasion to introduce the doctrine of mens rea into section 271(1)(a) read with sub--clause (i) of that section of the Income Tax Act, 1961?
It was contended on behalf of revenue before the Full Bench that the there is no warrant or justification for inducting into section 271 to concept of mens rea, when the provision itself is abundantly clear, laying down the objective tests for imposition of penalty. On behalf of assessee it was pleaded that the penalty proceeding was in the nature of criminal proceedings and, therefore, mens rea was a necessary ingredient.
42. The Hon'ble Full Bench of Andhra Pradesh High Court considered the contentions and in the process of finding out whether mens rea has been made an ingredient for imposing penalty for filing returns after due dates observed that the provision was contained in Chapter-XXI under the caption 'penalties impossible'. The subject was classified mainly under three heading (failure to furnish returns, failure to comply with notice) and (concealment of income). The Hon'ble Full Bench of Andhra Pradesh confined its consideration to the penalty imposable on assessee for filing returns alter due dates. They posed a question as follows:---
"Does section 271(1) take in its amplitude the requirement 'that the appropriate taxation authority should be satisfied before imposing penalties on an assessee for his filing returns late not only that he had reasonable cause but also that he acted deliberately in defiance of law or was guilty of contumacious or dishonest conduct or acted in conscious disregard of his obligation?"
43. The Full Bench of the Andhra Pradesh High Court after examining various Judgment from Indian Jurisdiction and English jurisdiction held that, 'it can unhesitatingly conclude that mens red or criminal intent is a necessary ingredient in a criminal offence. A presumption exists that criminal intent is not excluded unless- the statute excludes it either expressly or by necessary, implication.
44. Thereafter, the Full Bench proceeded to consider the nature of penalty proceedings. They again formulated the question:---
"Is it possible to say that simply because the word 'penalty' is used in a statute, it has classified that proceedings as a proceeding of a criminal nature?"
It was further observed as follows:---
"When a statute provides for imposition of penalty, it will have to be found out from the scheme of the Act and the particular provisions under which penalty is impossible, whether imposition of penalty is provided as a punishment for an offence. Simply because something more than the usual payment of tax that is payable by an individual is imposed on him, could it be said that a punishment is inflicted on him for an offence he has committed? Once again, it will have to be kept in mind that as human values have been changing and changing at a fast pace, a spate of social legislation has been taken up by all countries, particularly developing countries like India. Taxation statutes have two purposes. They are intended not only to collect revenues for the State, but also for bringing about social justice and to enable the State to implement social welfare schemes undertaken by it. Consequently, several taxation statutes, if not all, have taken great care in making provisions for collection of taxes imposed, 'as speedily as possible. If there is a delay on the part of the taxpayer to pay his taxes, taxation statutes have provided for not only remedial and coercive proceedings, but also punishments treating certain tax delinquencies as offences. These several measures should not be confused with each other. "
45. The learned Judges referred to the position explained in Corpus Juris Secundum Volume 85, page 580. It has been referred in the Full Bench judgment of Kerala High Court, but even at the cost of repetition we would like to reproduce the same as the second part of the relevant passage was not reproduced in the earlier judgment which reads as follows;---
"A penalty imposed for tax delinquency is a civil obligation, remedial and coercive in its nature, and as far as different from the penalty for a crime or a fine or forefeiture provided as punishment for the violation of criminal or penal laws. On the same page, it proceeds to state:
In some jurisdictions it is held that the penalty becomes, by operation of the statute imposing it, a part and parcel of the taxes due, and in other jurisdiction penalties are a type of tax. In still other jurisdictions, however, it is held that the penalty is not a part of the tax, and that will not be regarded as a legal incident to a tax. It is merely a method of enforcing payment of the tax.'
46. After referring to various judgments from American and Indian jurisdiction the learned Full Bench held as follows;---
"The above considerations would demonstrate that imposition of penalty for tax delinquency cannot be equated to imposition of punishment for an offence."
47. A point was raised by the counsel for assessee that the penalty proceedings are quasi-criminal in nature and are not of civil character. He attempted to point out that taxation laws do not maintain such distinction between offences and penalties and generally they make penalties leviable for offences and, therefore, the offences necessarily must have as one of the essential ingredient, guilty mind or mens rea. In short, it was contended that so far as taxation enactments are concerned, there is no much of a distinction between penalty for taxation delinquency and punishment for taxation offence. Justice Sambasiva Rao, proceeded on to consider the point on the assumption that imposition of penalty is in the nature of a quasi-criminal proceedings. And whether it is necessary or does it inevitably follow that guilty mind should be an ingredient that should be established before imposing penalty for filing income-tax return late? After examining various provisions contained in the Indian Income Tax Act, 1961, held, 'thus, the statute has kept up the dichotomy between a penalty proceedings and a prosecution proceeding, for failure to furnish returns in due time. This is clear enunciation by the statute itself of the three different modes of enforcing its provisions. It contains clear indication of the growing gravity of the three situations dealt with, not only through the severity of the additional amounts or the punishments that are imposable, but also through the language employed in sections 139, 271(1)(a) and section 276C. Thus, it is clear that the element of guilty mind. is made an ingredient for an action under section 276C and not for penalty proceeding under section 271(1)(a). (Section 271(1)(a) provides for imposition of penalty while section 276C provides for prosecution for offence punishable with a term which may be to extend one year or with fine or with both). Ultimately it was held that the element of mens rea was not to be imported under section 271(1)(a). It was further held that the legislature is used different words in sections 271(1)(a) and 276C in order to keep a distinction between imposition of penalty, and imposition of punishment. The Full Bench did not agree with the view expressed by Division Bench of the same High Court in the case of Additional Commissioner of Income-tax v. Narayandas Ram Kishan (1975) 100 ITR 18) (on which Mr. S.A. Samad Khan has placed reliance;. Thus, the view expressed by Division Bench in the case of Narayandas Ram Kishan was over-ruled. The Full Bench of Andhra Pradesh High Court concurred with the views expressed by Full Bench of the Kerala High Court in the case of CIT v. Gujrat Travancore Agency (1975) 103 ITR 149), which has been considered by us in the earlier part of this order.
48. Justice Lakshmaiah, another learned judge sitting on the Full Bench agreed with the conclusion but recorded his own reasons also in support of the view. The learned Judge examined in detail the provisions contained in the Indian Income Tax Act, 1961, Indian Penal Code, the Criminal Procedure Code, 1898, the Indian Constitution, the concept in common law of England and several treatises on the related subject. During the course of discussions he observed as follows:---
"I(b). Income-tax-Object and policy:
Taxation-Directive principles of State Policy:
(c) Redistributive techniques-taxation and social services.
Taxation is no longer just a way of raising revenue. Since the end of the nineteenth century, it has become in conjunction with, the social services an increasingly important way of redistributing income according to need.'
(Social Principles and the Democratic State by S.I. Benn and R.S. Peters at page-153)
Robert Murray Haig in the brilliant article in Encyclopedia of the Social Sciences referring to the views of Wagner, said at page-533 of Volume-XIV thus:
"In all his writing in the field of taxation Wagner gave great weight to 'socio-political'. He considered it a primary function of Government to regulate the distribution of wealth and urged the use of taxation as a means not only of raising sufficient revenue to meet the fiscal needs of the State but of consciously levelling the inequalities of distribution brought about by the workings of the market. Indeed even in defining taxation he stresses this function 'of regulating and correcting the distribution and use of private property'. "
Julius Stone in his classic work Social Dimensions of Law and Justice (1966) observed at page-324 thus:--
"Taxation as the source of the public revenue is, of course, a foundation of .all political institutions. The 'public interest of substance', therefore, is really but one aspect of the social interest in political institutions. The greater revenue required for modern expanded state functions has extended and intensified the need for protection of the public purse. Taxes, more than ever, are the life blood of government.
Peacetime taxation is increasingly directed to social welfare and services, and countering economic cyclical movements or conjectures as distinct 'from the rudimentary functions of law, order, external defence or serving the monarch's pleasure of the Seventeenth century'.
Taxation is one of the most important weapons by which the State can mitigate the two objectionable aspects of unrestricted private property: first, the inequalities of wealth, and secondly, the power to use property for private profit, and without regard to community purpose. In popular consciousness the first aim still predominates. By graded taxation and surtax on high incomes, gross inequalities of wealth are evened out more easily than by the equalisation of incomes or the abolition of private property. But the second aspect of taxation policy is becoming increasingly more important. On the one hand, taxation is a cheap means by which the State finance its costly social service scheme. Under the British National Health Service Act, 1946 medical services are free for all. The cost of medical services is no longer met by millions of contributions of varying magnitude from private pockets, but out of public revenue. This means that income and property taxes that the State contributes to the cost of national insurance (National Insurance Act, 1946) the same applies." (Law in a Changing Society by W. Friedmann at page 85)
My learned brother is also of the view that the taxation statutes are intended not only to collect revenue for the State but also for bringing about social justice and to enable the State to implement social welfare schemes undertaken by it. "
49. The learned Judge after referring to large number of treatises on jurisprudence, common law of England, concept of mens rea and the developments/changes in the field of statute law in 18th and 19h centuries, summed up the discussion as follows:---
"(1) The Income Tax Act, 1961, was enacted by Parliament, with a view to securing the implementation of the Directive Principles of State Policy, particularly those embodies in clauses (b) and (c) of Article 39 of the Constitution, providing among other things, for the redistribution of wealth, and providing further for the raising of revenue for the extended and expanded functions of the welfare State visualised by the Constitution.
(2) Unlike in the United Kingdom, we have a written Constitution Unlike in the United States of America, we have the Directive Principles of State policy chapter in our Constitution. Unlike in both those countries, we have 'social justice' proclaimed in the preamble and transformed into Directive Principles of State policy. The process of governance of this country is to be carried on by law making instrumentalities by applying the directive principles of State policy, while making laws and by law applying and enforcing instrumentalities by interpreting and construing such laws enforcing those principles embodied therein.
(3) Individualism and collectivism. The key note of the Nineteenth century thought was individualism. 'The emphasis of common law was on freedom of property, freedom of contract and freedom of the person. Interference with those freedoms was not to be countenanced. That concept was carried into the American Constitution. This reflects the philosophy underlying Part-III of our Constitution. With the changes in the purpose and function of Government from its traditional role which is negative to the modern role which is positive, laissez faire died with the welfare 20th century and today the State has to concern itself with the welfare of its members. This reflects the philosophy underlying Part-IV of the Constitution.
(4) Legislative innovation and Judicial approach.---
The judiciary shall have to receive the legislative innovations into the body of the law as affording riot only a rule to be applied but a principle from which to reason and hold it as a later and more direct expression of the general will be superior authority to Judge-made rules on the same general subject and so reasons from it by analogy in preference to them.
(5) It is archaic and anachronistic to apply to principles of common law with its individualist out look to the interpretation or construction of modern welfare legislation with its collectivist outlook. Such an approach far from furthering the object of legislation frustrates the same. The Welfare State is challenging the relevant or at least the adequacy of the common law concepts and classifications and principles. The meaning of a statute consists in the system of social consequences to which it leads, and sociological jurisprudence insists and a matter of, value that the social advantage of the rule its major test since the welfare of society is the general aim of the law.
(6) The Income Tax Act, 1961, is sufficiently self-sufficient as not to need any supplementing or supplanting from the principles of common law for its interpretation, construction or application. It provides both for the imposition of penalties by Chapter XXI and infliction of punishment by way of imprisonment and fine by Chapter XXII. The doctrine of 'mens rea' is of common law origin developed by Judge-made law. It has no place in the legislator's law where offences are defined with sufficient accuracy. There is involved no element of infliction of punishment by way .of imprisonment or fine or loss of liberty in the imposition of penalty under Chapter XXI, even to answer the description of 'offence' as defined under the General Clauses Act, 1897, or under the Indian Penal Code or the Code of Criminal Procedure.
(7) The presence of Chapter XXIIdealing with offences and prosecutions' immediately after Chapter XXI dealing with 'Penalties imposable', indubitably establishes the intention of the framers of the Act that 'penalties' are not intended to be dealt with as offences to which provisions of the Criminal Procedure Code can be applied.
(8) Even otherwise, there is no universal prior presumption of mens rea. Every statute is to be considered according to its own terms. The law of the land does not allow creation of offences through judicial construction or interpretation. 'Reading the requirement of mens rea into section 271 either as an ingredient of the concept of offence or as a presumption of law, results in imposing heavy and impossible burden on the revenue to be discharged resulting in the practical nullification of this taxing statute which has for its object the implementation of Directive Principles of State Policy as embodied in Article 39(b) and (c). The status of fundamentality secured constitutionally to the Directive principles could be impaired if not imperilled if such a construction of section 271 is permitted.
There is absolutely no justification, judged by whatever canon of construction it be, to read into section 271 qualifying the failure to furnish a return with expression like 'contumacious', 'dishonest', 'in. deliberate defiance of law', etc.
For the aforesaid reasons, I hold, agreeing with my learned brother, that there is no occasion to introduce the doctrine of mens rea into section 271(1) of the Income Tax Act, 1961 and that these appeals should be allowed."
50. The above discussion shows that after very learned in depth and elaborate discussion and consideration of issue from various angles it was held that the concept of mens rea is not to be incorporated for the purpose of imposition of penalty under the Income-tax Law while the concept was relevant if punishment was to be inflicted by way of imprisonment of fine on initiation of prosecution.
51. The question came for consideration before a Division Bench of Punjab and Haryana High Court in the case of Sint. Kamlawati, v. CIT Patyala (1978) 111 ITR 249). The Full Bench judgment of Andhra Pradesh High Court referred to above was followed and it was held that the doctrine of mens rea has no application under taxing statute where the assessee had failed to furnish return of her income without reasonable cause that was sufficient for imposition of penalty.
52. The Full Bench decision of Kerala High Court in the case of CIT v. Gujarat Travancore Agency (1976) 103 ITR 149) was assailed before Supreme Court of India. The Supreme Court of India vide judgment reported as (1989) 177 ITR 455) affirmed the Full Bench decision of Kerala High Court and held as follows:-
"It is sufficient for us to refer to section 271(1)(a) which provides that penalty may be imposed if the ITO is satisfied that any person has, without reasonable cause, failed to furnish the return of total income, and section 276C which provides that if a person wilfully fails to furnish in due time the return of income required under section 1390), he shall be punishment with a term which may extend to one year or with fine. It is clear that in the former case what is intended is a civil obligation while in the later what is imposed is, a criminal sentence. There can be no dispute that having regard to the provisions of section 276C, which speaks of wilful failure on the part of the defaulter and taking into consideration the nature of penalty, which is punitive in nature no sentence can be imposed under the provisions unless the element of mens rea is established In the case of a proceedings under section 271(1)(a), however, it seems that the intention of legislature is to emphasize the fact of loss of revenue and to provide remedy for such loss, although no doubt an element of coercion is present in the penalty. In this connection, the terms in which the penalty falls to be measured are significant. Unless there is something in the language of statute indicating the need to establish the element of mens rea, it is generally sufficient to prove that a default in complying with the statute has occurred. In our opinion there is nothing in section 271(1)(a) which requires that mens rea must the proved before penalty can be levied in that provision."
53. The Supreme Court of India agreed with the statement in Corpus Juris Secundum that, 'a penalty imposed for a tax delinquency is a civil obligation, different from the penalty for a crime or punishment for the violation of criminal or penal laws'.
54. The Supreme Court of India reaffirmed the same view in the judgment reported as CIT v. Kalyandas (1992) 193 ITR 713) and CIT v. I.M. Patel (1992 196 ITR 297).
55. The question of mens rea came for consideration before Supreme Court of India in the case of Director of Enforcement v. MCTM Corporation (Pvt.) Limited AIR 1996 SC 1100. The relevant facts were that a Private Limited Co. and its Directorate were proceeded against departmentally for having contravened the provisions of section 10(1)(a) of the Foreign Exchange Regulation Act, 1947(FERA). The departmental case against the respondents was that they had failed to repatriate the foreign exchange lying in Malaysia, which they had a right to receive in-India and had thereby failed to take or refrained from taking action which had the effect of not securing the receipt of the fore exchange in India. The Directorate of Enforcement in departmental proceedings held the respondent guilty for committing contravention of section 10(1)(a) and imposed penalty under section 23(1)(a) of FERA. The Madras High Court set aside the penalty, inter alia, for the reason that a finding regarding existence of mens rea or criminal intent for failure to repatriate foreign exchange was necessary before the respondent could be penalised for contravention of section 10(1)(a) and since existence of mens rea had not been found, therefore, award of punishment by way of levy of penalty under section 23(1)(a) was not justified. By special leave to appeal the judgment of High Court was assailed before Supreme Court of India. The Supreme Court of India framed two questions. Question No.(1) only is relevant for our purposes which is reproduced below:---
"Whether existence of 'mens rea' is a necessary ingredient for establishing contravention of section 10 punishable under section 23 of FERA, 1947. "
56. The Supreme Court of India held as follows:
"With a view to answer these questions, it would be appropriate to first notice the relevant provisions of sections 10 and 23 of FERA, 1947 as they stood at the material item (prior to the amendment of the FERA in 1964 and 1973). These provisions read thus:
Section 10: Duty of persons entitled to receive foreign exchange etc.---(1) No person who has a right to receive any foreign exchange or to receive from. a person resident outside India a payment in rupees shall, except with the general or special permission of the Reserve Bank, do or refrain from doing anything or take or refrain from taking any action which has the effect of securing
(a) that the receipt by him of the whole or part of that foreign exchange or payment is delayed, or
(b) that the foreign exchange or payment cases in whole or in part to be receivable by him.
(2)Where a person has failed to comply with the requirements of subsection (1) in relation to any foreign exchange or payment in rupees, the Reserve Bank may give to him such direction as appear to be expedient for the purpose of securing the receipt of the foreign exchange or payment as the case may be.
Section 23: Penalty and procedure. ---(1) If any person contravenes the provisions of section 4, section 5, section 9, section 10, subsec tion (2) of section 12, section 17, section 18A or section 18B or of any rule, direction or order made thereunder, he shall
(a) be liable to such penalty not exceeding three times the value of the foreign exchange in respect of which the contravention has taken place, or five thousand rupees, whichever is more, as may be adjudged by the Directorate of Enforcement in the manner hereinafter provided, or
(b)
23(lA)
23(1B)......
23A to 23E.. ..
23EE..........
23EEE.........
23F. If any person failed to pay the penalty imposed by the Director of Enforcement or Appellate Board, or fails to comply with any of their directions or orders, he shall on conviction before a Court, be punishable with imprisonment for a term which may extend to two years, or with fine, or with both.
The Preamble to FERA, 1947 provides key to the general purpose of the Act. That purpose is to regulate certain payments and dealings in foreign exchange etc. for the conservation of foreign exchange resources of the country and for proper utilisation thereof. The Act is designed to safeguard and conserve foreign exchange, which is essential for the economic life of a developing country like India. Conservation of foreign exchange resources of the country being the imperative need it follows that any action, positive or negative, which disenables this country from utilising the foreign exchange to which it has alright, to subserve the common goods, would be violative of the relevant provisions of FERA, 1947 punishable under section 23(1)(a) of FERA, 1947, which provision lays down one of the modes of punishment for the contravention of the provisions of various sections enumerated there, including section 10 or of any rule, direction or order made thereunder. It is in this background that we shall address ourselves to answer the two questions (supra). The High Court, while dealing with the first question opined that section 23 is a 'penal provision' and, the proceedings under section 23(1)(a) are 'quasi criminal' in nature and, therefore, unless 'criminality' is established; the penalty provided under section 23(1)(a) of the Act cannot be imposed on any person. The High Court, thus, held the existence of 'mens rea' as a necessary ingredient for the commission of an 'offence' under section 10 of the Act and in the absence of a finding about the presence of 'mens rea' on the part of the offenders, no punishment under section 23(1)(a) of FERA, 1947, could be imposed. For what follows, we cannot agree.
Mens rea' is a state of mind. Under the criminal law, mens rea is considered as the 'guilty intention' and unless it is found that the 'accused' had the guilty intention to commit the 'crime' he cannot be held 'guilty' of committing the crime. An 'offence' under Criminal Procedure Code and the General Clauses Act, 1897 is defined as any act or omission 'made punishable by any law for the time being in force'. The proceedings under section 23(1)(a), FERA, 1947 are 'adjudicatory' in nature and character and are not 'criminal proceedings'. The officers of the Enforcement Directorate and other administrative authorities are expressly empowered by the Act to 'adjudicate' only. Indeed they, have to act 'judicially' and follow the rules of natural justice to the extent applicable but, they are not 'Judges' of the 'Criminal Courts' trying an 'accused' for commission of an offence, as understood in the general context. They perform quasijudicial functions and do not act as Courts but only as 'administrators' and 'adjudicators'. In the proceedings before them, they do not try 'an accused' for commission of 'any crime' (not merely an offence) but determine the liability of the contravenor for the breach of his 'obligations' imposed under the Act. They imposed 'penalty' for the breach of 'civil obligations' laid down under the Act and not impose any 'sentence' for the commission of an offence. The expression 'penalty' is a word of wide significance. Sometime, it means recovery of an amount as penalty measure even in civil proceedings. An exaction which is not compensatory in character is also termed as a 'penalty'. When penalty is imposed by an adjudicating officer, it is done so in 'adjudicatory proceeding's and not by way of fine as a result of 'prosecution' of an 'accused' from commission of an 'Offence' in a criminal Court. Therefore, merely because penalty clause exists in section 23(1)(a), the nature of the proceedings under that section is not changed from 'adjudicatory' to 'criminal' prosecution. An order made by adjudicating authority under the Act is not that of conviction but determination of the breach of the civil obligation by the offender.
It is true the breach of a 'civil obligation' which attracts 'penalty' under section 23(1)(a), FERA, 1947 and a finding that the delinquent has contravened the provisions of section 10, FERA, 1947 would immediately attract the levy of penalty under section 23, irrespective of the fact whether the contravention was made by the defaulter with any 'guilty intention' or not. Therefore, unlike in a criminal case where it is essential for the 'prosecution' to establish that the 'accused' had the necessary guilty intention or in other words the requisite 'mens rea' to commit the alleged offence with which he is charged before recording his conviction, the obligation on the part of the Directorate of Enforcement, in case of contravention of the provisions of section 10 of, FERA, would be discharged where it is shown that the 'blame-worth conduct' of the delinquent had been established by wilful contravention by him of the provisions of section 10, FERA, 1947. It is the deliquency of the defaulter itself, which establishes his 'blame worth' conduct, attracting the provisions of section 10, FERA, 1947 without any further proof of the existence of 'mens rea'. Even after an adjudication by the authorities and levy of penalty under section 23(1)(a) of FERA, 1947, the defaulter can still be tried and punished for the commission of an offence under the penal law. Where the act of the defaulter also amounts to an offence under the penal law and the bar under Article 20(2) of the Constitution of India in such a case would not be attracted. The failure to pay the penalty by itself attracts 'prosecution' under section 23F and on conviction by 'Court' for the said offence imprisonment may follow.
In. 'Corpus Juris Secundum' Volume 85, at page 580, para graph 1023, it is stated thus:---
A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal laws.' We are in agreement with the aforesaid view and in our opinion, what applied to 'tax delinquency' equally holds good for the 'blameworthy' conduct for contravention of the provisions of FERA, 1947. We, therefore, hold that mens rea (as is understood in criminal law) is not an essential ingredient for holding a delinquent liable to pay penalty under section 23(1) of FERA, 1947 for contravention of the provision, of section 10 of FERA, 1947 and that penalty is attracted under section 23(1)(a) as soon as contravention of the statutory obligation contemplated by section 10(1)(a). is established. The High Court apparently fell in error in treating the 'blame worth conduct' under the Act as equivalent to the commission of the 'criminal offence', overlooking the position that the 'blameworthy conduct' in the adjudicatory proceedings is established by proof only of the breach of a Civil obligation under the Act, for which the defaulter is obliged to make amends by payment of the penalty imposed under section 23(1)(a) of the Act irrespective of the fact whether he committed the breach with or without any guilty intention. Our answer to the first question formulated by us above is, therefore, in the negative. "
57. In the light of above discussion and respectfully following the cases cited from Indian jurisdiction it is held that originally mens rea is a concept of common law of England. The concept has been incorporated in the criminal administration of justice in respect of statutory legislation as well. It is mainly a rule of construction. Generally, -the prosecution is required to establish the mens rea (which means guilty intent/guilty mind) on the part of an accused facing criminal prosecution for commission of an offence. However, the rule is not absolute and the concept is dispensed with in the', case of absolute offences. With the development of social and welfare legislation the requirement of mens rea has been excluded in large number of statutes particularly dealing with laws relating to goods and drinks building controls, traffic laws, municipal laws, drug laws, social and labour welfare laws, laws relating to security and defence of a country and revenue and taxation laws. It is further held that the concept of mens rea is confined to the punishment for prosecution of criminal offences only and is not extended to the penalties imposed for delinquency or contravention of civil obligations. So far the law of taxation and particularly income tax law is concerned it is not only a source of public revenue but a foundation of all political institution. The peace time taxation is directed to social welfare and services. The income-tax law contained in the Income Tax Ordinance, 1979 as anywhere else in the modern states has provided three pronged measures for recovery of legitimate tax demands, protection of State purse and ensuring the timely payment of tax as well as evasion. We do not propose to dilate on the recovery proceedings of the tax demand or the payment of taxes before assessment. We will confine our discussion to the measures adopted in the Income Tax Ordinance, 1979 for the delinquency in payment of tax due. In Chapter-X under the caption 'recovery of taxes' sections 86, 87, 88 and 89 deal with the charge of additional tax for failure to deduct and pay tax under section 50, failure to pay advance tax under section 53, failure to pay tax with the return under section 54 and failure to pay tax or penalty levied under Chapter-VII or XI. Section 91 deals with the penalty for non-payment of tax. All these proceedings are in respect of civil liabilities. Although section 91 provides for imposition of penalty but the civil nature of the proceedings is indicated from the facts that it is provided in subsection (5) of section 91 that notwithstanding anything contained in any law for the time being in force, no order of penalty made under subsection (1) shall be called in question in any Court, or Tribunal or before any authority on the ground that, no show-cause notice was issued before the said order was made.
58. The second measure adopted in the Income Tax Ordinance is in Chapter-XI under the head penalties. Under this Chapter penalty has been provided under section 108 for failure to furnish return of income and certain statements, under section 109 for failure to maintain prescribed accounts and under section 110 for non-compliance of notices etc. In all these three sections it has been provided that penalty shall be imposed if there is failure of any person enumerated in the sections without reasonable cause. The present appeals arise out of order under section 111, therefore, we will discuss the same separately in some detail. At this juncture it would be appropriate to refer section 116 which provides that no penalty under Chapter-XI shall be imposed unless the person committing default has been given reasonable opportunity of being heard and that the imposition of such penalty shall be without prejudice to any other liability incurred by such person under the Income Tax Ordinance, the repealed Income-tax Act, 1922 or any other law for the time being in force. The penalties under Chapter-XI are imposed by the Deputy Commissioner of Income-tax, the Appellate Additional Commissioner or the Appellate Tribunal. All these authorities are adjudicatory in nature and perform the proceedings which are quasi civil in nature. Neither any criminal proceedings are initiated for imposing additional tax/penalty under Chapters IX and XI nor any punishment of imprisonment or fine is awarded for commission of an offence. Thus, all the proceedings and the provisions providing for imposition of additional tax and penalties under Chapters IX and XI fall within the purview of civil liability to which the concept of mens rea is not extended. The third category of provisions are contained in Chapter-XII under the heading offences and. prosecutions. The relevant provision in the context of present appeal is section 119 with which we will deal separately. The other sections providing punishments are sections 117, 118, 120, 121, 122 and 123. It is provided in section 124 that a prosecution for an offence against the Income Tax Ordinance may be instituted without prejudice to any other liability incurred by any person under the Income Tax Ordinance. The prosecution for any offence under Chapter-XII is to be instituted with previous sanction of the Commissioner and the offences are to be tried except under section 122 exclusively by Special Judge appointed by the Federal Government under the Pakistan Criminal Law Amendment Act, 1958. The special Judge shall take cognizance of and have jurisdiction to try an offence triable under sub section (1) of section 127 only upon a complaint in writing made by an income tax authority, authorised by Central Board of Revenue in this behalf. It is seen that the prosecution under Chapters XII is criminal in nature and all the ingredients of a criminal prosecution are available. As the legislature has provided clear distinction in the proceedings under Chapters-IX and XI on one hand and Chapter-XII on the other hand for similar acts, omissions, there is no escape from the finding that the proceedings relating to imposition of additional tax and penalties are civil in nature while the prosecution under Chapter-XII is criminal in nature. For the purpose of comparison it would be appropriate to show that under sections 85 and 87 additional tax is levied for failure to deduct or having deducted or failure to pay the tax under section 50 or failure to pay instalment of advance tax under section 53 or payment of instalment on or before specified date or failure to pay full amount payable by him. The same act has been declared to be offence under section 117 if the compliance is not made without reasonable cause and punishment has been provided with imprisonment for a term which may extend to one year or with fine or with both. Likewise penalty under Chapter-XI is provided under section 108 if any person without reasonable cause fails to furnish within the time allowed for the purpose of any return of total income under section. 55 or 56, subsection (1) of section 65, subsection (3) of section 72 or subsection (3) of section 81. Again the same act has been made punishable under section 117(b) with imprisonment for a term, which may extend to one year or with fine or with both. Under section 110 penalty has been provided for non-compliance of notice issued under section 58 or 61 of the Income Tax Ordinance, 1979, and again the same Act has been made punishable under section 117(c) with imprisonment of a term, which may extend to one year or with fine or with both. All these provisions clearly indicate that the provisions pertaining to the imposition of penalty-under Chapter-XI and levy of additional tax under Chapter-IX are civil in nature while the prosecutions and punishments provided in Chapter -XII are criminal in nature. It is, therefore, held that the levy of penalty under section 111 which is the subject-matter of this appeal is civil in nature and the liability so created is a civil liability which is mainly aimed at retrieving I the loss caused to the State on account of concealment of income or furnishing of inaccurate particulars of income and to discourage the evasion of taxes. On the other hand the prosecutions and punishments provided in Chapter-XII are purely criminal proceedings. The rule of mens rea is not attracted to the levy of additional taxes and penalties being civil liabilities while the rule of mens rea is attracted to the criminal prosecutions and punishments provided in Chapter-XII of the Income Tax Ordinance, 1979.
58-A. Having reached to the above conclusions now we proceed to examine specifically the relevant provisions requiring consideration in present appeal. As already stated the Assessing Officer made additions under sections 13(1)(d) and 13(1)(e) in the main assessment order under section 132/62. The first appeal preferred by the assessee/respondent was dismissed and no second appeal was preferred in Tribunal. Thus, the additions under section 13(1)(d) and (e) attained finality. Thereafter, the Assessing Officer initiated penalty proceedings under section 111 and levied the penalty which is the subject-matter of this appeal. The concealment of income or furnishing of inaccurate particulars of income as defined in subsection (2) of section 111 is punishable after prosecution for criminal offence under section 119 also. The plea relating to establishment of mens rea for imposing penalty under section 111 has been raised and, therefore, it would be appropriate to reproduce sections 13, 111 and 119 for proper appreciation of the contentions raised, which reads as follows:---
"Section 13: Unexplained investments etc. deemed to be income, (1) Where (*****)
(a) any sum is found to be credited in the books of an assessee maintained for any income year; or
(aa) the assessee is found to have made any investment or is found to be the owner of any money or valuable article, in any year; or
(b) the assessee is found to have made any investment in any income year which is not recorded in the books of account maintained for that income year (or is not) shown in the wealth statement (or return of wealth) furnished under section 58 in respect of that year; or
(c) the assessee is found in respect of any income year to be the owner of any money or valuable article which is not recorded in the books of account, if any, maintained by him (or is not) shown by him in any wealth statement (or return of wealth) furnished under section 58 in respect of that year; or
(d) the assessee has made investment in any income year or is found in respect of any such year to be the. owner of any valuable article and the (Deputy Commissioner) finds that the amount expended on making such investment or in acquiring such valuable article exceeds the amount recorded in this behalf in the books of account maintained by him or shown in the wealth statement (or return of wealth) furnished under section 58 in respect of that year; or
(e) an assessee has, during any income year, incurred any expenditure and the assessee offers no explanation about the nature and source of such sum, investment, acquisition of the money or valuable article, excess amount or the money from which the expenditure was met, as the case may be, or the explanation offered by him is not, in the opinion of the (Deputy Commissioner) satisfactory, the sum so credited, the value of the article, the excess amount or the amount of the expenditure as the case may be, shall be deemed to be the income of the assessee of such income year chargeable to tax under this Ordinance.
(Provided that, there any Act referred to in clauses (a) to (e) is
Discovered after the assessment of income of the income year to which the said Act relates has been made, the income chargeable to tax under this section shall be included in the total income of the income year relevant to the assessment year in which the said discovery is made; '
Provided further that in cases referred to in clauses (a) to (e) such income shall not be chargeable to tax unless approval of the Inspecting Additional Commissioner has been obtained.
(2) Where the value of any investment or article referred to in clauses (aa), (b), (c) or (d) or the amount of expenditure referred to in clause (e) of subsection (1) is, in the opinion of the Dy. Commissioner too low, the Deputy Commissioner may determine, after giving a reasonable opportunity to the assessee of being heard, a reasonable value or the amount thereof, as the case may be, and all the provisions of subsection (1) shall have effect accordingly.
(3) The Central Board of Revenue may, by rules provide for the determination of the value of any property or article for the purposes of this section.
Section 111: Penalty for concealment of income etc. ---(1) Where, in the course of any proceedings under this Ordinance, the Deputy Commissioner, the Appellate Additional Commissioner or the Appellate Tribunal is satisfied that any person has, either in the said proceedings or in any earlier proceedings relating to an assessment in respect of the same income year, concealed his income or furnished inaccurate particulars of such income, he or it may impose upon such person a penalty equal to the the amount of tax which the said person sought to evade by concealment of his income or furnishing of inaccurate particulars of such income, as aforesaid.
(2) For the purposes of subsection (1) and section 119, concealment of income or the furnishing of inaccurate particulars of income shall include
(a) the suppression of any item of receipt to tax in whole or in part or failure to disclose income chargeable to tax;
(b) claiming any deduction for, or showing, any expenditure not actually incurred (and);
(c) any Act referred to in clauses (aa), (b), (c), (d) and (e) of subsection (1) of section 13.
(2A) Notwithstanding anything contained in subsection (1) or subsection (2), where any item of receipt declared by the assessee is claimed by him as exempt from tax, or where any deduction in respect of any expenditure is claimed by him, mere disallowance of such claim shall not constitute concealment of income or the furnishing of inaccurate particulars of income, unless it is proved that the assessee deliberately claimed exemption from tax in respect of the aforesaid item of receipt or claimed deduction in respect of such expenditure not actually incurred by him.
(3) An Appellate Additional Commissioner or the Appellate Tribunal on making an order under subsection (1) shall forthwith send a copy thereof to the Deputy Commissioner and thereupon all the provisions of this Ordinance relating to the recovery of penalty shall apply as if such order were made by the Deputy Commissioner.
Section 119: Prosecution for concealment of Income, etc .---Where any person conceals his income or deliberately furnishes inaccurate particulars thereof, he shall be punishable with imprisonment for a term which my extend to five years, or with fine, or with both. "
59. A perusal of the above sections shows that, it is provided in section 13(1) that if the assessee offers no explanation about the nature or source of such sum investment acquisition of money are valuable article, excess amount, or the money from which the expenditure was made, as the case may be, or the explanation offered by him is not in the opinion of Deputy Commissioner, satisfactory, the same so credited, value of the investment, the money or the value of the article, the excess amount, or the amount of the expenditure, as the case may be shall be deemed to be the income of the assessee of such income year chargeable to tax under this Ordinance. In subsection (1) of section 111 it is provided that where, in the course of any proceedings under the Income Tax Ordinance, the Deputy Commissioner, the Appellate Additional Commissioner or the Appellate Tribunal is satisfied that any person has either in the said proceedings or in any earlier proceedings relating to an assessment in respect of the same income year, concealed his income or furnished inaccurate particulars of such income he or it may impose upon such person a penalty. In subsection (2) of section 111 the expression concealment of income of furnishing of inaccurate particulars of income has been defined for the purpose of sections 111 and 119. In clause (c) of subsection (2) of section 111 it is stated that any Act referred to in clauses (aa) (b), (c) (d) and (e) of subsection (1) of section 13 shall be included in concealment of income or the furnishing of inaccurate particulars of income. Here it is pertinent to note that the additions made with- reference to subsection (2) of section 13 are not included in the definition of concealment of income or furnishing of inaccurate particulars of income. It is also noted that the addition made under section 13(1)(a) is also not included in the concealment of income or the furnishing of inaccurate particulars of income. We further find that with the insertion of sub section (2A) in section 111 by Finance Act, 1988, the legislature has lessened the rigour of the definition of concealment of income or furnishing of inaccurate particulars of income in clauses (a) and (b) of subsection (2) of section 111. The legislature been enacted in subsection (2A) of section 111 that notwithstanding the definition of concealment of income or furnishing of inaccurate particulars of income given in subsection (2) of section 111 any item of receipt claimed exempt by an assessee from tax or any deduction in respect of any expenditure claimed by him shall not constitute an act of concealment of income or the furnishing of inaccurate particulars of income merely by disallowance of such claim, unless it is proved that the assessee deliberately claimed exemption from tax in respect of the aforesaid item of receipt or claimed deduction in respect of such expenditure not actually incurred by him. Thus, although the concept of mens rea is not to be imported for the purpose of imposition of penalty with reference to the clauses (a) and (b) of subsection (2) of section 111 but by virtue of the insertion of subsection (2A) of section 111 the mere disallowance of claim in respect of exemption from tax regarding any item of receipt or disallowance of deduction in respect of any expenditure per se would not constitute concealment of income or furnishing of inaccurate particulars of income. The department has been saddled with farther responsibility of proving that the assessee deliberately' claimed exemption from tax in respect of the aforesaid item of receipt or claimed deduction in respect of such expenditure not actually incurred by him. Thus, the burden of proof as is required in a civil proceedings has been laid on the shoulders of the department. However, no such condition has been prescribed for imposition of penalty with reference to clause (c) of subsection (2) of section 111, although this clause was inserted by Finance Act, 1984 and subsection (2A) of section 111 was inserted by Finance Act, 1988. It is evident that when the legislature enacted subsection (2A) of section 111 clause (c) of subsection (2) was very much there on the statute book. Thus, intention of the legislature is very clear that for the purpose of imposition of penalty under section 111(1) in respect of any Act referred to in clauses (aa), (b), (c), (d) and (e) of subsection (1) of section 13, the sole requirement was satisfaction of Deputy Commissioner, Appellate Additional Commissioner of Appellate Tribunal in the course of any proceedings under the Income Tax Ordinance. The reason is apparent that the addition under section 13 is not to be made untill and unless after giving opportunity for explanation to the assessee, the Deputy Commissioner of Income-tax is satisfied that the explanation offered is not satisfactory. Thus, in the light of decisions cited from Indian jurisdiction we are of the opinion that the acts referred to in clause (c) of subsection (2) of section 111 amount to concealment of income or the furnishing of inaccurate particulars of income by virtue of the definition giver: by the legislature itself and since the requirements of addition under section 13(1) and penalty under section 111(1) are the satisfaction of officer making addition/imposing penalty, therefore, the delinquency itself or in other words the additions under section 13(1)(aa) to (e) is itself sufficient for imposition of penalty under section 111 which is in the nature of civil liability. However, if any prosecution for commission of criminal offence is launched under section 119 the rule of establishing mens rea shall come into play.
60. After rejecting the plea of Mr. S.A. Samad Khan, Advocate for the respondent in respect of mens rea for imposition of penalty under section 111 which we have held to be a civil liability we are persuaded to agree with the submissions of learned representative for the department that the plain language in an enactment is to be applied and nothing is to be added or taken out. We further agree with his contention that in taxing statutes particularly, and in all other statutory laws generally if the language of law is plain and admits of no
ambiguity there is no question of any intendment or equity and nothing is to be implied. The Court is supposed to look fairly at the language used. We further agree with his submission that on a plain reading of section 111, it appears that if the Assessing Officer is satisfied that a person has either in the course of any assessment proceedings under the Income Tax Ordinance, 1979 or any earlier proceedings relating to an assessment in respect of same income year has concealed his income or has furnished inaccurate particulars of such income as defined in subsection (2) of section 111 it would be sufficient for imposition of penalty under section 111(1) subject to the provisions contained in subsection (2A) of section 111.
61. Consequent to above findings it is held that in the facts and circumstances of the case the Assessing Officer rightly imposed penalty under section 111 of the Income Tax Ordinance, 1979 to which no exception could be taken. On the other hand the learned CIT(A) has cancelled the penalty by placing reliance on Circular No.2 of 1958 without realising that in the year 1958 the definition of concealment of income or furnishing of inaccurate particulars of income similar to the one contained in clause (c) of subsection (2) of section 111 was not on the statute book and on the insertion of this clause the Central Board of Revenue issued Circular No.7 of 1984. The impugned direction of learned CIT(A) is, therefore, hereby vacated and the penalty as imposed by the Assessing Officer is restored.
62. Before parting with this order we would like to observe that the Central Board of Revenue in its Income-tax Manual part-V, Manual of Instructions. Third Edition, published in 1988 has included the Circular Nos.2 of 1958, 5 of 1958, 2 of 1959, 4 of 1979 and 7 of 1984 in which reference has been made to various judgments from English, Australian and Indian jurisdiction. Some old judgments have been referred in the said Circulars. Much water has flown beneath the bridge during this period of about 40 year. We expect that in the light of new developments in the field of law, the amendments introduced by the legislature, enactment of new provisions and emergence of new concepts of law and interpretation of statutes through the judgment particularly from Indian jurisdiction, the Circulars shall be updated and revised in new edition of the Manual of Instructions and C.B.R Circulars, so that proper guidance is provided to the officers employed in the execution of Income Tax Ordinance in consonance with the provisions contained in section 8 of the Income Tax Ordinance,, 1979.
63. The appeal at the instance of department is allowed as above.
C.M.A./M.A.K./14/Tax(Trib.) Order accordingly.