Madras High Court Acquits Woman, Says Non-Filing Of IT Return Not Wilful Without Tax Liability

The Madras High Court has acquitted a woman convicted for failing to file her income tax return, holding that the non-filing was not wilful where the Income Tax Department had failed to establish that she was liable to pay any tax.

Justice Sunder Mohan observed that Section 276CC of the Income Tax Act makes the tax payable by the assessee relevant for determining whether prosecution for failure to file a return can be sustained. It held that, in the absence of any assessment or determination showing the tax payable by the petitioner, the prosecution was misconceived.

The Court also found that the petitioner had rebutted the statutory presumption of culpable mental state by producing evidence showing that the property transaction was jointly undertaken with her husband and that she had no other source of income.

The case concerned Manivannan Umarani, who was prosecuted for not filing her return for Assessment Year 2014-15. The Income Tax Department alleged that during the relevant financial year, she had received rental income of ₹55.50 lakh and that an immovable property had been sold for ₹74 lakh.

The trial court convicted her under Section 276CC and sentenced her to one year's rigorous imprisonment with a fine of ₹50,000. The Principal Sessions Court, Chennai, upheld the conviction but reduced the imprisonment to three months.

Before the High Court, the petitioner contended that she was not liable to pay tax and had filed a return claiming a refund of ₹37,000 towards excess tax deducted at source. She argued that no prosecution could be maintained where the tax payable did not exceed the statutory threshold.

The Income Tax Department argued that the alleged default was detected only in 2017 and that an assessment could not be completed under Sections 143 or 144 as the statutory period had expired.

It relied on the Supreme Court's judgment in Vinubhai Mohanlal Dobaria v. Chief Commissioner of Income Tax, arguing that the offence under Section 276CC was complete upon failure to file the return within the prescribed time.

The High Court noted that the proviso to Section 276CC, as applicable to the assessment year in question, barred prosecution where the tax payable by a person other than a company on the total income determined on regular assessment, after specified reductions, did not exceed ₹3,000.

The Court observed that the quantum of tax payable is relevant for determining both whether prosecution can be initiated and the punishment that may be imposed. Since there was no assessment or determination by the Department regarding the tax payable by the petitioner, the Court held that the prosecution was misconceived.

The Bench also distinguished Vinubhai Mohanlal Dobaria, noting that the assessee in that case was liable to pay tax of ₹2,78,740 and that the Supreme Court had not considered whether the proviso to Section 276CC would bar prosecution where the applicable threshold was not crossed.

The Court further noted that the Department had not even stated in its complaint that the petitioner was liable to pay tax.

The Bench found that the petitioner had also rebutted the statutory presumption under Section 278E of the Act. The evidence showed that the property had been jointly purchased by the petitioner and her husband, that her husband had funded the purchase and received the sale consideration, and that the petitioner had no other source of income.

The Court held that there was no intention to evade tax and, in the facts of the case, the non-filing of the return could not be treated as wilful.

"The statutory presumption under Section 278(E) of the Act, has been rebutted by the petitioner by examining herself as DW1 and also by filing the defence documents, which disclose that the property was jointly purchased by the petitioner and her husband and also that they had obtained loan for the purpose of purchase of the property. There has been no intention to evade any tax...", the Court said.

Accordingly, the Court set aside the judgments of the trial and appellate courts and acquitted the petitioner of the charge under Section 276CC.

The Court also directed the High Court Legal Services Committee, Chennai, to pay ₹10,000 as remuneration to the legal aid counsel appointed to represent the petitioner.

For Petitioner: B.Shruthan, Legal Aid Counsel

For Respondent: M.Sheela, Senior Standing Counsel, H.Siddarth Junior Standing Counsel For IT Dept.