Umayal Ramanathan vs Income Tax Officer, City Circle-I (2), Madras

Janarthanam, J.—This is an application filed u/s 482 of the Code of Criminal Procedure, to quash the proceedings in C. C. No. 637 of

1985 on the file of the Additional Chief Metropolitan Magistrate (Economic Offences), Egmore, Madras.

Brief facts are : - The Income Tax Officer, City Circle-I (2), Madras, launched a prosecution against the petitioner (fourth accused) and three

others (accused Nos. 1 to 3) for offences u/s 120B read with section 420, Indian Penal Code, 1860, and sections 276C, 277 and 278 of the

Income Tax Act, 1961. The petitioner owned vacant land to the extent of 11 grounds and 276 sq. ft., situated in Door No. 25, Ritherdon Road,

Madras. The first accused is a private limited company, registered under the Companies Act. Accused Nos. 2 and 3 in the criminal court are the

directors of the first accused company. The petitioner entered into an agreement with the first accused company represented by its directors

(accused Nos. 2 and 3), for the sale of the vacant site on August 7, 1979. As per the agreement, the sale consideration was Rs. 3,89,025.

Subsequent to the sale transaction, it so happened that the Income Tax Department made a search of the business premises of the first accused

company and the residential premises of the second and third accused as well as the premises of the petitioner (fourth accused). During the search

of the petitioner''s premises, it was found that the petitioner had received a sum of Rs. 1,65,975 as on-money over and above the sale price, viz.,

Rs. 3,89,025, as found mentioned in the sale agreement. This on-money of Rs. 1,65,975 was not only not brought on record by the petitioner, but

it was also not found mentioned in the Income Tax return filed by the petitioner. So also is the case with regard to accused Nos. 1 to 3 in the sense

that they did not also bring the excess money paid by them in the accounts, nor did they file their Income Tax return specifying the on-money paid

to the petitioner. Hence, the Department prosecuted the petitioner as well as accused Nos. 1 to 3 before the court below for the various offences

under the Indian Penal Code as well as under the Income Tax Act (hereinafter referred to as ""the Act""). On receipt of the process from the court

below, the petitioner has come forward with this petition to quash the criminal proceedings initiated against her.

Learned counsel appearing for the petitioner would contend with all vehemence and force that Explanation 2 to section 273A of the Act, then in

existence, gives complete immunity from prosecution and, therefore, the prosecution launched against her in the court below is liable to be

quashed. The arguments of the learned special public prosecutor for Income Tax cases, appearing for the respondent, may be couched in the

following terms; Explanation 2 to section 273A of the Act, then in existence, can, by no stretch of imagination, be construed to give complete

immunity from prosecution to the petitioner for various offences both under the Indian Penal Code as well as under the Income Tax Act, 1961.

The immunity granted under the Explanation is that if the assessee makes a full and true disclosure of his income to the Commissioner within fifteen

days of the detection by the Income Tax Officer of the concealment of particulars of income or of the inaccuracy of the particulars furnished in

respect of such income, them, the assessee will be entitled to the benefit of reduction or waiver of penalty by the Commissioner as if he has made a

full and true disclosure of his income voluntarily and in good faith, notwithstanding the fact that he made such disclosure after the detection by the

Income Tax Officer during the course of the search. Once the Commissioner makes an order reducing or waiving the penalty, then only the

question of immunity from prosecution in respect of certain categories of offences, viz., offences under sections 276C and 277 of the Act, will

arise. Even if the Commissioner passes and order either reducing or waiving the penalty, the question of prosecution of the assessee for other

offences may still be there.

The arguments, as advanced above, by both counsel, fall for consideration for reaching a proper conclusion in the light of the provisions of the

Income Tax Act. Explanation 2 to section 273A of the Act is couched in the following terms :

Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing belonging to a person are seized u/s

132 and within fifteen days of such seizure, the person makes a full and true disclosure of his income to the commissioner, such person shall, for the

purposes of clause (b) of this sub-section (namely, sub-section (iii), be deemed to have made, prior to the detection by the Income Tax officer of

the concealment of particulars of income or of the inaccuracy of particulars furnished in respect of such income, voluntarily and in good faith, a

disclosure of such particulars.

This Explanation 2, which was inserted by the Taxation laws (Amendment) Act, 1984, with effect from October 1, 1984, has been deleted by

the Finance Act, 1985. There is no manner of doubt whatever that this Explanation 2 was in force at the time when the search and seizure was

effected by the Income Tax Department from the premises of the Petitioner leading to the Launching of prosecution against her. It is clear from

Explanation 2 as stated above, that the Taxation Laws (Amendment) Act, 1984, amended the provisions of section 273A of the Act, to provide

that where books of account, cash, jewellery, etc., are seized during a search carried out u/s 132 of the Act, the assessee shall be deemed to have

made a full and true disclosure, prior to the detection by the Income Tax Officer, if such disclosure is made within fifteen days of such search. So

far as the case on hand is concerned, the search of the premises of the petitioner revealed the receipt of no-money to the extent of Rs. 1,65,975 by

the petitioner without the same being either brought into account or shown in the Income Tax return. The petitioner, on the date when the seizure

was effected, viz., January 22, 1985, had categorically confessed to the officer who effected the search that she in fact received the on-money in

respect of the sale transaction of the plot sold to the first accused company represented by its directors, accused nos. 2 and 3. She also intimated

this fact within fifteen days from the date of seizure to the Commissioner of Income Tax as to her having received the on-money to the extent of Rs.

1,65,975. The resultant factual position is that, within fifteen days of the date of seizure, she had made a free and frank disclosure of the receipt of

the on-money to the authorities concerned, as provided under Explanation 2 to section 273A of the Act.

The question that now, falls for consideration is as to whether she will be immune from prosecution. To decide this moot question, useful

reference may be made to the provision of section 273A(1), sub-clauses (ii) and (iii) (b). Section 273A deals with the power of the commissioner

to reduce or waive penalty, etc., in certain cases. So much of the portion of the section as is relevant for our purpose is as follows :

Section 273A :

(1) Notwithstanding anything contained in this Act, the commissioner may, in his discretion, whether on his own motion or otherwise, -

(ii) reduce or waive the amount of penalty imposed or imposable on a person under clause (iii) of sub-section (1) of section 271; or

(iii) reduce or waive the amount of interest paid or payable under sub-section (8) of section 139 or section 215 or section 217 or the penalty

imposed or imposable u/s 273,

if he is satisfied that such person - ...

(b) in the case referred to in clause (ii), has, prior to the detection by the Income Tax Officer, of the concealment of particulars of income or of the

inaccuracy of particulars furnished in respect of such income, voluntarily and in good faith, made full and true disclosure of such particulars.

From a cursory perusal of the said provision, it is crystal clear that the section starts with a non obstante clause, namely, ""notwithstanding

anything contained in this Act..."" The Commissioner has the power of discretion under the section to reduce or waive penalty in certain cases. He

has power to reduce or waive penalty if the assessee makes a full and true disclosure of his income voluntarily and in good faith prior to the

detection by the Assessing Officer. The sort of immunity was also provided by the provision of Explanation 2 to section 273A then in existence.

Normally, if a detection is made by the Assessing Officer of the escape of income particulars or concealment of income by the assessee, then the

power of discretion vested in the Commissioner to reduce or waive the penalty in respect of such escaped income is not there in the sense that

there is absence of provision to exercise such discretion. The Legislature thought it fit to introduce Explanation 2 to section 273A in the year 1984

that, even in respect of escaped or concealed income detected by the Assessing Officer during the course of search, the power of the

Commissioner to exercise his discretion in the matter of waiver or reduction of penalty was made available under the Explanation. In other words,

but for the Explanation, the assessee has to face the music of the consequences flowing from the concealment of escaped income detected by the

officers during the course of the search. The Explanation does not at all state that once the assessee maker a free and full disclosure voluntarily and

in good faith within fifteen days of the detection of such income during the course of the search, he will be immune from prosecution in a criminal

court. Section 279 of the Act provides for prosecution to be at the instance of the Chief Commissioner of Commissioner in respect of offences

arrayed under that section. The petitioner is prosecuted for the offences under sections 276C and 277 of the Act, apart from other offences found

mentioned in the complaint. A perusal of section 279 of the Act would make it abundantly clear that the two sections, namely, sections 276C and

277 of the Act, in respect of which the petitioner has been prosecuted, are included in section 279 of the Act. At this juncture, reference may be

made to the provision of section 279(1A) of the Act. It reads as follows :

A person shall not be proceeded against for an offence u/s 276C or section 277 in relation to the assessment for an assessment year in respect of

which the penalty imposed or imposable on him under clause (iii) of sub-section (1) of section 271 has been reduced or waived by an order u/s

273A.

It is also better to refer to the provision of clause (iii) of sub-section (1) (c) of section 271 of the Act, which is as follows :

Section 271. (1) If the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) in the course of any proceedings

under this Act, is satisfied that any person, - ....

(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, - ...

(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 tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such

income....

From a perusal of the abovesaid provisions, it is clear that once the Commissioner exercises his discretionary power of waiver or reduction of

the penalty imposed or imposable on the assessee under clause (iii) of sub-section (1) (c) of section 271, then it goes without saying that the

assessee shall not be proceeded against for an offence u/s 276C or section 277 of the Act. The immunity, if at all, is granted only by the provisions

of sub-section (1A) of section 279. this provision grants immunity as stated earlier only in respect of two offences under sections 276C and 277 of

the Act. So far as the petitioner is concerned, as adverted to earlier, she had been prosecuted not only for the offences under sections 276C and

277 of the Act, but also for other offences u/s 278 of the Act as well as u/s 120B read with section 420 of the Indian Penal Code. As a matter of

fact, the commissioner, in this case, had not at all passed any order u/s 273A regarding reduction or waiver of Rs. 1,65,975. Once the order is not

passed by the Commissioner, the question of immunity from prosecution, as provided u/s 279(1A) in respect of offences under sections 276C and

277, may not at all be available to the petitioner.

Learned counsel for the petitioner would contend that though the commissioner had so far not passed any order either reducing or waiving

penalty, in respect of the transaction of sale of the plot by the petitioner, yet, in the circumstances of the case, it should be deemed that the

Commissioner ought to have passed an order u/s 273A of the Act. He would amplify the argument by stating that there is nothing further to be

done by the assessing authorities in the matter of coming to a conclusion as regards the sale transaction of the plot of land by the petitioner in

determining as to whether a free and full disclosure of the income derived by the petitioner in the transaction had been made. A perusal of the

complaint would make it clear that the prosecution of the petitioner and the others is only in respect of the non-disclosure of the income resulting in

the transaction of sale of the particular piece of land by the petitioner to the third parties. It is also the case of the department that the on-money

received by the petitioner in this case only to the extent of Rs. 1,65,975. If that be the case, there remains nothing for determination of the question

of escaped income from the sale transaction. As such, the assessee had made a confession as to the receipt of the no-money to the extent of Rs.

1,65,975 within fifteen days from the date of the search and seizure of the document by the assessing authorities. In such circumstances, the

Commissioner ought to have passed an order u/s 273A of the Act. If the case of the Department is that there are other transactions in respect of

which concealment of income is there, then, it may not be possible for the commissioner to have passed and order u/s 273A of the Act. If the case

of the Department is that there are other transactions in respect of which concealment of income is there, then, it may not be possible for the

Commissioner to have passed an order u/s 273A of the Act. Again, even at the risk of repetition, I have to state that the complaint proceeds only

on the footing of escaped income in respect of the sale transaction of sale of plot of land belonging to the petitioner to third parties. As such, it can

be safely taken for granted that an order u/s 273A ought to have been passed by the Commissioner with the result that the petitioner, as per the

provisions of section 279(1A) of the Act, will be immune from prosecution in respect of the offences u/s 276C and 277 of the Act. Barring this,

the petitioner will not be entitled to any immunity from prosecution in respect of the other offences as specifically mentioned in the complaint, viz.,

offences u/s 278 of the Income Tax Act and section 120B read with section 420 of the Indian Penal Code. In view of what has been stated above,

the proceedings in the court below will stand quashed in respect of the offences under sections 276C and 277 of the Income Tax Act, in so far as

the petitioner (fourth accused) is concerned.

In the result, the application is allowed in part, as indicated above.