Mere Delay In Paying Income Tax Does Not Amount To Wilful Tax Evasion: Bombay High Court

The Goa bench of the Bombay High Court has held that mere delay in paying an admitted tax liability, without a deliberate intention to evade payment, does not amount to a "wilful attempt" to evade tax.

Justice Amit S. Jamsandekar observed that criminal prosecution requires proof of mens rea and cannot be invoked merely because there has been a delay or failure in paying tax.

"The word 'wilful' introduces a mental element and requires looking into the mind of a person by gauging the person's actions indicative of one's state of mind. Thus, in order to prosecute a person under Section 276-C(2), the conduct of a person acquires importance. A person, in such a case, ought to have deliberately, intentionally and consciously made attempts to evade payment of tax, penalty or interest under the I.T. Act. It does not include an unintentional act, an accidental act or a casual act or genuine inability. The word 'wilful' used in the Section imports the concept of mens rea in the requirement of the Section. Therefore, on mere delay or mere failure without there being mens rea, the provisions of the Section cannot be invoked.", the court held

"No casual approach can be adopted while invoking the provisions of the Section. The provisions of the Section being penal, all the ingredients of the offence must be established in the complaint. The complaint should specifically mention wilful attempts made by a person to evade tax, penalty or interest. Merely by making allegations that there is a wilful attempt to evade the tax in the complaint, the complaint cannot be maintained.", the court added.

The court allowed a criminal writ petition filed by Dinar Tarcar Resources (India) Pvt. Ltd., its Managing Director and Joint Managing Director. The court quashed the criminal complaint filed under Section 276C(2) of the Income Tax Act as well as the order issuing process passed by the Chief Judicial Magistrate.

The prosecution alleged that the company had willfully attempted to evade payment of its admitted tax liability for the assessment year 2012-13. The petitioners, however, said the delay stemmed from the financial crisis following the suspension of mining operations in Goa. They also pointed out that the entire outstanding tax liability was eventually cleared along with statutory interest, after which the Income Tax Department issued a Nil Dues order.

The case turned on Section 276C(2) of the Income Tax Act, which makes a wilful attempt to evade payment of tax, penalty or interest a criminal offence. While interpreting the provision, the court relied on the Supreme Court's decision in S. Sundaram Pillai v. V.R. Pattabiraman, which explained the meaning of the term "wilful". It held that the same interpretation should apply to the expression "wilful attempt" under Section 276C(2).

Examining the provision, the court said a person can be prosecuted under Section 276C(2) only where there is a deliberate, intentional and conscious attempt to evade payment.

It observed that the term "wilful" imports the concept of mens rea and excludes unintentional acts, accidental acts, casual acts and genuine inability to pay. Mere delay or failure to pay tax, without a guilty intention, does not amount to an offence under the provision.

The court also stressed that since Section 276C(2) is a penal provision, every ingredient of the offence must be specifically pleaded and established in the complaint. Merely alleging a "wilful attempt" is not enough unless the complaint identifies the acts that allegedly constitute such an attempt.

Turning to the facts, the court noted that the petitioners had continued making payments towards the outstanding demand, repeatedly sought time from the Income Tax Department to clear the dues and paid the statutory interest. They eventually discharged the entire liability before the Nil Dues order was issued.

In these circumstances, the court found that the petitioners' conduct reflected bona fide efforts to clear the dues rather than a deliberate attempt to evade payment. It also noted that, before the complaint was filed, only ₹26.08 lakh of the total demand remained unpaid, and that amount was cleared shortly thereafter.

Holding that the complaint contained only vague allegations of a "wilful attempt" without disclosing any specific acts constituting the offence, the court said the essential ingredients of Section 276C(2) were absent. It further held that the Chief Judicial Magistrate had mechanically issued process without examining whether the complaint disclosed the commission of an offence, contrary to the principles laid down by the Supreme Court in Pepsi Foods Ltd. v. Special Judicial Magistrate.

The court accordingly quashed the complaint and the order issuing process. It observed that no fruitful purpose would be served by allowing the criminal prosecution to continue.

For Petitioners: Advocate Nikhil Vaze, 

For Respondent: Susan Linhares, Senior Standing Counsel