Income Tax Officer vs Gadamsetty Nagamaiah Chetty and Others

S.V. Maruthi, J.—This appeal is filed against the judgment in CC No. 4 of 1989 by the Special Judge for Economic Offences at Hyderabad.

The brief facts are as follows :

A complaint was filed pursuant to the direction of the CIT, Andhra Pradesh, Guntur, under s. 279(1) of the IT Act. A-1 to A-3 along with G. Subba Rao and Kum. G. Subhadramma all belonging to Cuddapah are the owners of the house property bearing D. No. 18/285 situated at Badarkhan Masjid Street, Cuddapah, and they all proposed to sell the said house property to A-4 and another Meda Vijayalaxmi and they have filed an application under s. 230A(1) of the IT Act on 13th Nov., 1987, enclosing a copy of the sale deed proposed to be registered with the Sub-Registrar, Cuddapah, before the ITO, A-Ward, Cuddapah, requesting for issue of a certificate under s. 230A(1) of the IT Act so as to enable them to register the sale deed as proposed. The sale consideration as disclosed by A-1 to A-3 and the other two is Rs. 1,20,000. On 14th Nov., 1987, the ITO, A-Ward, Cuddapah, has carried out survey operations under s. 133A of the Act on the business premises of A-4 and in the said survey, an agreement for sale of the above said property executed by A-1 to A-3 along with two others on 27th July, 1987, on a stamped paper was seized and the sale consideration mentioned in that document was Rs. 3 lakhs as against Rs. 1,20,000 disclosed in the application under s. 230A(1) of the IT Act and the said agreement was impounded. The ITO, A-Ward, Cuddapah, and B-Ward, Proddutor, summoned the accused and recorded their statements. In the sworn statements given before them, they have stated that the sale consideration was understated at Rs. 1,20,000 at the instance of A-4 and that they have no intention of evading any tax. Subsequently, on 28th Dec., 1987, all the accused Nos. 1 to 3 along with G. Subba Rao and G. Subhadramma have filed separate applications under s. 230A(1) of the Act declaring the sale consideration at Rs. 60,000 each. Thus, A-1 to A-3 have made a statement in the application under s. 230A(1) filed on 13th Nov., 1987, which they either knew or believed to be false which is punishable under s. 277 of the IT Act. Therefore, they are liable to be punished under s. 278 of the IT Act.

In support of the prosecution case, PWs 1 and 2 were examined and exhibits P-1 to P-17 were marked. On the basis of the evidence, charges under s. 277 r/w s. 278 of the IT Act, 1961, against A-1 to A-3 and charge under s. 277 r/w s. 278 of the IT Act against A-4 were framed. The charges were explained to the accused. Thereafter PWs 1 and 2 were called and cross-examined and exhibit P-18 to P-23 were marked. The accused were examined under s. 313, CrPC, after the evidence of the prosecution was closed. In their evidence they stated that they have filed an application in Form No. 34A under s. 230A of the IT Act under exhibit P-1 on 13th Nov., 1987, and that the house property as per exhibit P-2 sale deed was proposed to be sold for a consideration of Rs. 1,20,000 and that as per exhibit P-3 the stamped papers were purchased in the name of A-4 on 24th July, 1987, and the agreement exhibit P-3 was executed on 27th July, 1987, signed by A-1 to A-3 and another and the total consideration for the sale of the house as per exhibit P-3 is Rs. 3 lakhs and a sum of Rs. 40,000 was also paid to the vendors on 24th July, 1987, and further agreed to pay the balance of Rs. 2,40,000 before 26th Nov., 1987. They further stated that A-1 to A-3 have filed another application in Form No. 34A under exhibits P-11 to P-13 and Subhadramma filed exhibit P-14 showing a total consideration of Rs. 3 lakhs and that in their statements they have admitted the sale consideration was only Rs. 3 lakhs but not Rs. 1,20,000. Further, they stated that as per the market value they have filed the application. They have not examined any in defence.

Learned judge on a consideration of the evidence, acquitted the accused on the ground that A-1 to A-3 are not liable to pay any tax under any enactment mentioned in s. 230A. Therefore, the prosecution failed to show that A-1 to A-3 by making a false verification under exhibit P-1 sought to evade any tax as stated in s. 230A of the IT Act. In the absence of establishing that the accused in order to evade the tax under the IT Act made a false statement, they cannot be punished either under s. 277 or under s. 278 of the IT Act. In support of the above view, learned judge relied on the judgment of the Andhra Pradesh High Court in Commissioner of Income Tax Vs. T.V. Ramanaiah and Sons, and K.T.M.S. Mohd. and another Vs. Union of India, corresponding to K.T.M.S. Mohd. and another Vs. Union of India, against which the present appeal is filed.

In the grounds of appeal, it is stated that the fact that the accused filed false statements in the applications filed under s. 230A is not doubted. Therefore, they have committed the offence under s. 276(c) and under s. 277 r/w s. 278 of the IT Act and, therefore, they are liable to be punished. It is also stated that the learned judge failed to take into consideration that the CBDT Circulars were only guidelines for Departmental purposes and held that they are not liable for punishment under the IT Act, whereas the section categorically says that they are liable for punishment.

As regards the contention that the respondents are liable for punishment under s. 276(c) of the IT Act, at the outset it may be pointed out that no charge was framed against them under s. 276(c) of the IT Act. The charges that were framed were only under s. 277 r/w s. 278 of the IT Act. Therefore, the contention that the respondents are liable to be punished under s. 276(c) cannot be permitted to be raised at this stage. In order to consider the grounds raised in the grounds of appeal, it is necessary to refer to s. 277 of the IT Act which reads as follows :

"If a person makes a statement in any verification under this Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable :

(i) in a case where the amount of tax, which would have been evaded if the statement or account had been accepted as true, exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;

(ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine."

The language used in s. 277 of the IT Act is where the amount of tax which would have been evaded exceeds one hundred thousand rupees with rigorous imprisonment, etc. Sub-s. (2) says that in any other case with rigorous imprisonment for a term which shall not be less than three months and which may extend to three years and with fine. A reading of cls. (i) and (ii) of s. 277 makes it clear that the punishment under s. 277 can be imposed under clause (i), if evasion of tax exceeds one hundred thousand rupees with rigorous imprisonment and three months in other cases, other than those cases where the evasion of tax is less than one hundred thousand rupees. Therefore, the punishment under clause (ii) can be imposed only if there is any evasion of tax, otherwise the question of imposing punishment does not arise. In this context the judgment of the Supreme Court in K. T. M. S. Mohammad vs. Union of India (supra), relied upon by the learned judge is relevant. It reads as follows :

"Section 277 of the IT Act, in general, seeks to penalise one who makes a false statement in order to avoid his tax liability. In the present case, the Revenue has not come forward with the case that the money represents the income of the third appellant liable to be taxed but on the other hand, it is the case of the ITO that it is not the third appellant''s money at all. Moreover, a cursory reading of the penal clause proposes to impose punishment depending upon the quantum of tax sought to be evaded. Here no question of evading the tax will arise."

Therefore, the question of punishing the accused arises, provided there is an evasion of tax. Since the appellants have admitted that the accused are not liable for payment of tax, the learned judge is right in acquitting the accused. I do not see any infirmity in the judgment of the learned judge and the appeal is therefore dismissed.