SECTION 271(1)(c)/INCOME-TAX ACT

[2008] 166 TAXMAN 65 (SC)

SUPREME COURT OF INDIA

Union of India

v.

Dharamendra Textile Processors

S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.

CIVIL APPEAL NOS. 3397, 4094, 10289 TO 10303 OF 2003, 4096 OF 2004, 3388, 5277 OF 2006 AND 2793 OF 2007

JULY 19, 2007

Section 271(1)(c) of the Income-tax Act, 1961 - Penalty - For concealment of income - Whether penalty under section 271(1)(c) is civil liability and for attracting such civil liability, wilful concealment is not an essential ingredient as is case in matter of prosecution under section 276C - Held, yes

Section 11AC of the Central Excise Act, 1944, read with section 271(1)(c) of the Income-tax Act, 1961 and rule 96ZQ of the Central Excise Rules, 1944 - Penalty - For short-levy or non-levy of duty in certain cases - Assessee contended that mens rea is an essential requirement for attracting penalty under section 11AC of 1944 Act particularly when that section refers to intention in matter of evading payment of duty; that provisions of section 271(1)(c) of 1961 Act is identically worded to section 11AC of 1944 Act, and it placed reliance on decision of Division Bench of Supreme Court in Dilip N. Shroff v. Jt. CIT [2007] 161 Taxman 218 - It was case of department that section 11AC of 1944 Act should be read as penalty for statutory offences and executing authority had no discretion in matter of penalty and he was bound to impose penalty equal to duty so determined - In this connection department relied on decision of Division Bench of Supreme Court in Chairman, SEBI v. Shriram Mutual Fund [2006] 5 SCC 361 - Whether since judgment in case of Dilip N. Shroff (supra) has ramifications not only regarding provisions of 1961 Act but also with regard to sections 3A and 11AC of 1944 Act and rule 96ZQ(5) of 1944 Rules, said decision needed consideration by Larger Bench - Held, yes

Facts

In the instant civil appeal, the question arose for determination was whether section 11AC of the 1944 Act inserted by Finance Act, 1996 with intention of imposing mandatory penalty on persons who evade payment of tax, should be read to certain mens rea as an essential requirement. The department contended that the said section should be read as penalty for statutory offences; that the executing authority had no discretion in the matter of penalty and that the adjudicating authority in such cases was duty bound to impose penalty equal to the duty so determined. In this connection, the department placed reliance on the judgment of the Division Bench of Supreme Court in Chairman, SEBI v. Shriram Mutual Fund [2006] 5 SCC 361. On the other hand, it was the case of the assessee that mens rea is an essential requirement of the said section particularly when the section refers to intention in matter of evading payment of duty. In this connection assessee stated that provisions of section 271(1)(c) is identically worded to section 11AC of the 1944 Act, and it also placed reliance on the decision of the Division Bench of Supreme Court in Dilip N. Shroff v. Jt. CIT [2007] 161 Taxman 218.

Held

The basic scheme for imposition of penalty under section 271(1)(c) of the 1961 Act, section 11AC of the 1944 Act and rule 96ZQ(5) of the Central Excise Rules is common. [Para 7]

There is a conflict of opinions between the judgments of the Division Bench of the Supreme Court in the case of Dilip N. Shroff (supra) on one hand and on the other in the case of Shriram Mutual Fund (supra). Secondly, the object behind enactment of section 271(1)(c), read with the Explanations indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under the said section is a civil liability. Wilful concealment is not an essential ingredient for attracting the civil liability as is the case in the matter of prosecution under section 276C. While considering an appeal against an order made under section 271(1)(c) what is required to be examined is the record which the officer imposing the penalty had before him and if that record can sustain the finding there had been concealment, that would be sufficient to sustain the penalty. Keeping in mind these two circumstances, it is to be opined that the judgment of the Division Bench in the case of Dilip N. Shroff (supra) needs consideration. The Explanations added to section 271(1)(c) in that entirety also indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing returns. The judgment in Dilip N. Shroff’s case (supra) has also not considered the provisions of section 276C. Therefore, the judgment in Dilip N. Shroff (supra) needed consideration by the larger Bench particularly when it had ramifications not only regarding provisions of the 1944 Act but also with regard to the provisions of sections 3A and 11AC of the 1944 Act and rule 96ZQ(5) of the Central Excise Rules. [Para 8]