IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 27.06.2011 CORAM THE HONOURABLE MR.JUSTICE P.R.SHIVAKUMAR Crl.R.C.No. 924 of 2010 J.Jayalalitha .. Petitioner/ Accused Vs. The Assistant Commissioner of Wealth Tax Central Circle II (2) Nungambakkam Chennai – 600 034 .. Respondent / Complainant PRAYER: Criminal Revision Case filed under section 397 r/w. 401 of Criminal Procedure to call for the entire records in M.P.No.240 of 2010 in E.O.C.C.No.263 of 1997 dated 08.07.2010 on the file of the Additional Chief Metropolitan Magistrate (E.O-I), Egmore, Chennai, set aside the same and revise the order dated 08.07.2010 made in M.P.No.240 of 2010 in E.O.C.C.No.263 of 1997 and discharge the revision petitioner from the above case by allowing the criminal revision petition. For Petitioner : Mr.A.Navaneethakrishnan For Respondent : Mr.K.Ramasamy Senior Spl.Public Prosecutor for Income Tax Cases ORDER This Criminal Revision case has been preferred under Section 397 r/w.401 Cr.P.C by the petitioner herein, who figures as the accused in E.O.C.C.No.263 of 1997 on the file of the Additional Chief Metropolitan (E.O-I), Egmore, Chennai questioning the legality of the order of the said Court dated 08.07.2010 made in M.P.No.240 of 2010 in E.O.C.C.No.263 of 1997. The said petition, filed seeking an order of discharge, was dismissed by the trial Court by the impugned order. The same is challenged in the present criminal revision case. 2.The brief facts leading to the filing of the present criminal revision case can be stated as follows: https://hcservices.ecourts.gov.in/hcservices/ i) The petitioner was assessed to Wealth Tax since the Assessment Year 1966-67. The Wealth Tax return for the Assessment Year 1993-94 was not filed as per the requirement under Section 14 (1) of the Wealth Tax Act, 1957 on or before 31.08.1993, the last date for filing the same. Consequent to the failure to submit the return on or before the said date, a notice was issued to the petitioner by the Assistant Commissioner of Income Tax, Film Circle, Madras – 34 on 18.01.1994 under Section 16(4) of the Wealth Tax Act, 1957 directing the petitioner to produce the return of wealth of the petitioner for the Assessment Year 1993 – 94. Even after the receipt of the said notice, the return of wealth for the assessment of Wealth Tax was not submitted by the petitioner. Hence, a further notice was issued on 10.02.1995 inviting the attention of the petitioner to the notice dated 18.01.1994 and requesting the petitioner to file the wealth tax return for the Assessment Year 1993-94 immediately. Since the said reminder also did not invoke a response by the filing of the wealth tax return for the concerned year, the Deputy Commissioner of Income Tax, Special Range XI, Chennai – 34, issued a further notice on 31.07.1995 requesting the petitioner to file the details of assets and also the debts/liabilities of the petitioner as on 31.03.1993, the corresponding accounting year for the Assessment Year 1993-94. The auditor of the petitioner, in response to the said notice, sent a reply on 18.08.1995 to the Deputy Commissioner of Income Tax, Special Range XI, Madras requesting further time upto and inclusive of 15.09.1995 for complying with the direction and requested for the postponement of the case of wealth tax assessment of the petitioner after 18.09.1995. The Deputy Commissioner of Income Tax, Special Range XI, Madras issued a reply dated 23.08.1995 reposting the Wealth Tax assessment of the petitioner for the Assessment year 1993-94 finally to be heard on 09.09.1995 at 10.30 a.m. Again the auditor of the petitioner sent a letter dated 16.09.1995 requesting adjournment of the case and reposting of the same on or after 09.10.1995 stating the hearing dates fixed before the said date in a number of appeals before the Income Tax Appellate Tribunals. A reply was sent by the Deputy Commissioner of Income Tax on 27.09.1995 giving one more opportunity, reposting the Income Tax/Wealth Tax assessment for the Assessment year 1993- 94 to 11.10.1995 at 10.30 a.m. Again a further prayer for reposting the matter to 20.10.1995 was made by a letter dated 07.10.1995 sent by the auditor of the petitioner on her behalf. Even thereafter, the wealth tax return for the said Assessment year was not filed. Therefore, the Deputy Commissioner of Income Tax, Special Range XI, Madras – 34 proceeded to assess Wealth Tax under Section 16(5) of the Act to the best of his judgment. By the assessment, the total taxable wealth of the petitioner was assessed at Rs.3,17,43,100 and wealth tax was levied as follows: https://hcservices.ecourts.gov.in/hcservices/ Wealth Tax : Rs. 3,02, 431.00 Interest under Section 17-B of the Wealth Tax Act, 1957 : Rs. 1,69,344.00 -------------------------- Total Wealth Tax Due : Rs.4,71,775.00 --------------------------- It has also been stated in the assessment order that penalty proceedings under Section 18(1)(b) and 18(1)(c) were also initiated. ii) Thereafter, the Assistant Commissioner of Wealth Tax, Central Circle II (5), Madras – 34 issued a Show Cause Notice dated 30.07.1996 to show cause as to why proceedings should not be launched against the petitioner under Section 35-B of the Wealth Tax Act, 1957. Meanwhile an appeal was filed against the Assessment Order before the appellate authority, appending a formal return showing nil wealth tax. Citing the same, a reply was sent to the show-cause notice to the effect that there was no wilful failure in furnishing the return in time and that the proceedings sought to be initiated under Section 35-B might be dropped. iii) In the appeal, it was contended that the tax liability of the petitioner for the previous years ought to have been deducted from the assets to find out the net taxable wealth, besides the challenges made on other grounds also. The appellate authority, namely Commissioner of Income Tax (Appeals) – IV, Chennai allowed the appeal in part, holding that the debts would include also the tax liabilities as per the pre-amended law and that the petitioner was entitled to claim deduction of the Income Tax liabilities of the Assessment Year and the earlier years attributable to the assets which were included in the net wealth. Thereafter, the Assessing Officer, namely the Assistant Commissioner of Wealth Tax, Central Circle (II) (2), Chennai – 34, passed a fresh assessment order fixing the net taxable wealth at Rs. 1,34,99,600/- and the total wealth tax including interest at Rs.1,91,993/-. The said order was also challenged again in an appeal before the Commissioner of Income Tax (Appeals) I, Chennai – 34. The said appeal was allowed holding that the tax liabilities of the petitioner, whether they pertain to the gifts or otherwise, should be deducted in computing the taxable net wealth of the petitioner, if such tax liabilities subsisted on the date of valuation. It had also been directed in the said order that 15% of the value of the silver wares should be allowed as deduction towards impurities as it was done in case of gold jewelry. With the said observations, the appeal was allowed and the Assessing Officer was directed to make a fresh assessment. Thereafter, the Assessing Officer, namely https://hcservices.ecourts.gov.in/hcservices/ the Assistant Commissioner of Wealth Tax, Central Circle II (2), Chennai – 34 reassessed the assets and passed an order on 03.08.1999 holding that the petitioner was having a deficit wealth of Rs. 24, 97,939/- and thereby holding that the Wealth Tax liability for the Assessment year 1993 -94 was 'nil'. iv) Meanwhile, an appeal was filed before the Income Tax Appellate Tribunal, Chennai Bench "A", Chennai by the Assessing Officer in W.T.A.No.293(Mds)/1997 (Assessment Year 1993-94) challenging the order of the Commissioner of Income Tax (Appeals) – IV, Chennai dated 16.06.1997. The Appellate Tribunal held that deduction was permissible only if the debts owed could be said to be incurred in relation to the assets and that the liability to make payment of tax cannot be construed as debt owed in relation to the assets and allowed the appeal by its order dated 16.12.2005. A similar appeal filed by the Deputy Commissioner of Wealth Tax, Central Circle II(2) challenging the order of the Commissioner of Income Tax (appeals) dated 11.06.1999 was also allowed by an order even dated. An appeal filed by the petitioner in W.T.A.No.277 (Mds)/1997 was also dismissed on 16.12.2005. Thereafter, the Assessment Officer, namely the Assistant Commissioner of Wealth Tax, Central Circle (II)(2), Madras – 34 passed a fresh order based on the orders of the Income Tax Appellate Tribunal dated 16.12.2005 made in W.T.A.No.293(Mds)/1997. By the said order, the wealth tax liability with interest was fixed at Rs.5,95,617/-. By an order dated 03.07.2006, the Assessing Officer assessed the Wealth Tax at Rs.2,55,33,800/- to which a sum of Rs.1,58,286/- was added as interest under Section 17B. A sum of Rs.1,91,993/- was also added to make the total wealth tax payable Rs.5,95,617/-. A Notice under Section 18(1)(b) of the Wealth Tax Act, 1957 came to be issued by the Assessing Officer on 03.07.2006 calling upon the petitioner to show-cause why an order imposing penalty should not be made under Section 18(1)(b) of the Wealth Tax Act, 1957 stating the failure to furnish the return of wealth in response to the notice issued under Section 16(4) of the Wealth Tax Act, 1957 and also the failure to furnish the return under Section 14(2) of the Wealth Tax Act, 1957. Subsequently, an order was passed on 28.07.2006 fixing an amount equal to twice the amount of the Wealth Tax worked out penalty under Section 18(1)(c). v) Even before such a final assessment and a final order fixing the tax liability and the penalty indicated supra, sanction for prosecution of petitioner under Section 35-B of the Wealth Tax Act, 1957 was sought for from the Commissioner of Income Tax, Central Central II (2), Chennai under Section 35-I(1) of the Wealth Tax Act, 1957. The Commissioner of Income Tax, Central Circle -II (2), Chennai passed an order on 12.11.1997 under Section 35-I(1) of Wealth Tax Act, 1957 according sanction for prosecution of the https://hcservices.ecourts.gov.in/hcservices/ petitioner for an offence under Section 35-B of the Wealth Tax Act, 1957 for the failure to file return of wealth for the Assessment Year 1993-94. In the said order also, the Commissioner of Wealth Tax, Central II, Chennai – 34 authorized and directed Sri. N.Sundara Rajan, Assistant Commissioner of Wealth Tax, Central Circle II (2), Chennai to file the complaint in the Court of Additional Chief Metropolitan Magistrate, (E.O-I), Egmore, Chennai, or such other competent Court having jurisdiction. On the strength of the said sanction order, the said officer filed a complaint under Section 35-B of the Wealth Tax Act, 1957 against the petitioner herein before the Additional Chief Metropolitan Magistrate, (E.O-I), Egmore, Chennai, and the same was taken on file as E.O.C.C.No.263 of 1997 on the file of the said Court. The case is now in a part heard stage before the trial Court. vi) While so, the petitioner preferred a miscellaneous petition in M.P.No.240 of 2010 on the file of the trial Court seeking an order of discharge under Section 245(1) of the criminal procedure code, contending that there was no liability on the part of the petitioner to submit a return on the premises that she possesed only a negative wealth to the tune of Rs.24, 97,939/-; that the complaint itself was premature and that the sanction order for prosecution was also invalid. The learned trial Judge, after hearing both sides rejected the contention of the petitioner and dismissed the petition by order dated 08.07.2010 and the same is impugned in this Criminal Revision Case. 3. The point that arises for consideration in this criminal revision case is "whether the order of the learned Additional Chief Metropolitan Magistrate (Economic Offence – I), Egmore, Chennai dated 08.07.2010 made in M.P.No.240 of 2010 in E.O.C.C.No.263 of 1997 is liable to be set aside in exercise of the revision powers of this Court under Section 397 r/w. Section 401 of the Cr.P.C.?" 4. The arguments advanced by Mr.A.Navaneetha Krishnan, representing the learned counsel on record for the petitioner and that of Mr.Mr.K.Ramasamy, Senior Spl.Public Prosecutor for Income Tax were heard. The material records placed were also perused. This Court paid its anxious consideration to the same. 5. The petitioner figures as the sole accused in E.O.C.C.No.263 of 1997 on the file of the learned Additional Chief Metropolitan Magistrate (Economic Offence – I), Egmore, Chennai, a case instituted on the complaint preferred under Section 35-B of the Act by the Assistant Commissioner of Wealth Tax Central Circle II (2), Chennai – 34, the respondent herein. Section 35-B of the Wealth Tax Act, 1957 makes it a punishable offence if a person wilfully fails to furnish in due time the return of his net wealth https://hcservices.ecourts.gov.in/hcservices/ which he is required to furnish under subsection (i) of Section 14 or by a notice issued under sub-section (2) of Section 14 or subsection (i) of Section 17. The proviso therein contains the exemptions wherein the failure to file the return shall not be a punishable offence. Section 35-I of the Wealth Tax Act, 1957 prescribes a condition that previous sanction of the Commissioner or Commissioner (Appeals) shall be obtained for prosecuting a person for an offence under the Act. Section 35-J of the Wealth Tax Act, 1957 makes an offence under Section 35-B of the said Act a non-cognizable offence within the meaning of the code of criminal procedure and that is the reason why the criminal proceedings against the petitioner herein was instituted on a complaint in writing made by the respondent herein. 6. The gist of the complaint is that the petitioner herein wilfully failed to file the return of wealth under Section 14(1) of the Wealth Tax Act, 1957 even though she was having the assessable wealth of Rs.1,34,99,600/- for the Assessment Year 1993-94 and the failure to furnish the return in due time for the Assessment year 1993-94 was wilful and deliberate, since such default continued even after the issue of statutory notices and reminder letters and that by such an act, namely wilful failure to file the return of wealth, the petitioner herein had committed an offence punishable under Section 35-B of the Wealth Tax, 1957. 7. The complaint was dated 05.12.1997 and it was received in the Court on 09.12.1997. Paragraph 2 refers to the order of sanction dated 12.11.1997 passed by the Commissioner of Income Tax, Central II, Chennai. The Court below took it on file, issued process and proceeded with the trial of the case and the matter is now in the part heard stage. At such point of time, a petition under Section 245(1) Cr.P.C for discharge was filed as M.P.No.240 of 2010 in E.O.C.C.No.263 of 1997 and the same was dismissed by the trial Court by the impugned order. 8. The learned counsel for the petitioner, in support of his contention that the impugned order of the Court below cannot be sustained in law and the same deserves to be set aside, has made the following submissions: i) The net wealth of the petitioner for the assessment year 1993-94 was a negative wealth and the debts exceeded the assets to the tune of Rs.24,97,939/- and therefore, there was no wealth tax liability attached to the petitioner. The proviso to section 35-B of the Wealth Tax Act, 1957 makes the failure of a person to file a return under section 14(1) of the Wealth Tax Act, 1957, a punishable offence only if the tax payable by such person on his net wealth exceeds Rs.3,000/-. The petitioner had only a negative https://hcservices.ecourts.gov.in/hcservices/ wealth and the tax liability was nil for the assessment year 1993- 94. Hence the initiation of prosecution for an offence under section 35-B is against the said provision and hence the petitioner is entitled to discharge. ii) The initial assessment order was passed by the Deputy Commissioner of Wealth Tax, Special Range – XI, Madras-34 on 15.02.1996. The notification issued by the Commissioner of Income Tax, Tamil Nadu – IV, Chennai-34 on 23.06.1994 transferring the case of the petitioner from Assistant Commissioner, Film Circle, Madras to the Deputy Commissioner, Special Range – XI, Madras as Assessing Officer was made only in respect of the Income Tax assessment and no separate notification for transferring the case of wealth tax assessment of the petitioner was issued. Hence the Assessment Order dated 15.02.1996 passed by the Deputy Commissioner of Wealth Tax, Special Range-XI, Madras was without jurisdiction. iii) Again by a notification dated 21.06.1996, the Chief Commissioner of Income Tax, Chennai – 34 transferred the case of the petitioner from Deputy Commissioner of Income Tax, Special Range-XI, Madras to the Assistant Commissioner of Income Tax, Central Circle – XI(5) Madras only in respect of income tax and not in respect of wealth tax. Therefore the complaint lodged by the officer under section 35-B of the Wealth Tax Act, 1957 before the Additional Chief Metropolitan Magistrate, Egmore, Chennai, should be construed as a complaint by an officer having no jurisdiction. iv) The complaint was preferred without a valid sanction order and hence the institution of the criminal proceedings itself is vitiated. v) The sanction order is claimed to have been passed subsequent to the date of assessment order passed by the Assistant Commissioner of Income Tax, Central Circle – II(2), Chennai on 30.06.1997, which has been marked as Ex.P18 before the court below, the sanction order of the sanctioning authority simply refers to the initial assessment order dated 15.02.1996 and the order of the Commissioner of Income Tax (Appeals) – IV dated 16.06.1997, wherein the appeal preferred by the petitioner herein against the assessment was allowed in part and the Assessment Officer was directed to ascertain the income tax liability of the relevant years and the earlier years. The consequential assessment order of the Assistant Commissioner of Income Tax dated 30.06.1997 has not been referred to in the sanction order. The said order is also not one of the documents noted as 1 to 12 in the sanction order, as the documents considered by the sanctioning authority. The 13th document is general in its terms, which states simply "other connected documents". The omission to refer to the consequential https://hcservices.ecourts.gov.in/hcservices/ assessment order dated 30.06.1997 marked as Ex.P18 will show that the said document was not placed before the sanctioning authority and the sanctioning authority, without application of mind, mechanically signed the order prepared by the officers subordinate to him vi) The sanctioning authority failed to verify whether any appeal against the consequential assessment order dated 30.06.1997 was preferred and the same will show non-application of mind vitiating the order of sanction. Vii) An assessee shall be guilty of an offence under section 35-B of the Wealth Tax Act, 1957 only if his/her failure to file return is wilful. The petitioner, on the advice of experts in law and auditors, genuinely believed that she was entitled to claim deduction of the income tax and wealth tax liabilities of the previous years and since the final assessment of the income tax and the wealth tax for the previous assessment years had not been finalised, she was waiting for the same to file a proper and correct return of wealth and that was the reason why time was taken repeatedly on her behalf for the filing of the particulars of the assets and liabilities. 9. In reply to the above said points raised by the learned counsel for the petitioner, the learned Senior Special Public Prosecutor for income tax cases has made the following submissions:- i) It is not correct to say that the net wealth of the petitioner for the assessment year 1993-94 was a negative wealth and the debts exceeded the assets to the tune of Rs.24,97,937/-. In fact under Ex.P18-assessment order made in accordance with the best judgment of the Assessing Officer pursuant to the failure of the petitioner to submit the return, the net wealth of the petitioner was assessed at Rs.1,38,99,600/- and the wealth tax for the year 1993-94 was fixed at Rs.1,19,986/- together with an interest of Rs.71,997/- making the total tax liability to Rs.1,91,993/-. In view of the said order, it cannot be said that the petitioner's tax liability was either "Nil" or did not exceed Rs.3,000/- for the assessment year 1993-94 and hence the initiation of prosecution for an offence under section 35-B of the Wealth Tax Act, 1957 is proper and valid. ii) So far as the second and third contentions of the learned counsel for the petitioner is concerned, a notification vesting or transferring the jurisdiction in respect of income tax case under the Income Tax Act shall hold good for vesting the jurisdiction for the wealth tax assessments under the Wealth Tax Act, 1957 also by https://hcservices.ecourts.gov.in/hcservices/ virtue of section 2(ca) of the Wealth Tax Act, 1957, which refers to sub section (1) and (2) of section 120 of the Income Tax Act or any other provisions of the Income Tax Act and hence the said contentions should be rejected as untenable. iii) The contention that the complaint was preferred without a valid sanction order should be rejected since Ex.P29 was filed along with the complaint. iv) The mere omission to refer to the assessment order dated 30.06.1997, as one of the documents taken into consideration by the sanctioning authority, does not mean that the same was not taken into consideration and item No.13 of the list of documents considered found in the sanction order would include the assessment order dated 30.06.1997 also. v) The contention raised on behalf of the petitioner that the failure to file the return within the stipulated time was not wilful, cannot be canvassed at this stage in view of section 35-O of the Wealth Tax Act, 1957, which says that the mental element is to be presumed and the person claiming absence of mental element has to take it as a plea of defence and establish it in the trial and that the same cannot be taken as a ground for discharge. The fact that the petitioner failed to submit the return even after the notices under section 16(4) of the Act would show that the default was wilful. vi) The failure to file return within the time stipulated in the Act is a continuing offence. The offence continues even today, since till date the petitioner has not filed her return of wealth pertaining to the assessment year 1993-94. vii) Tax evasion should not be lightly dealt with and the persons inclined to evade tax liability should not be spared and that is the reason why stringent clauses have been incorporated in the tax legislation. viii) The petitioner had earlier filed a criminal original petition under section 482 Cr.P.C for quashing the criminal proceedings and later filed a revision after unsuccessfully moving a criminal miscellaneous petition for discharge and both the criminal original petition and the criminal revision case went against the petitioner. Once again the petitioner has approached the court for discharge and hence the dismissal of the petition by the trial court cannot be found fault with and the order of the trial court has got to be sustained. https://hcservices.ecourts.gov.in/hcservices/ 10. This court paid its anxious considerations to the above said points urged on both sides. 11. Let us now consider whether the contentions raised on behalf of the petitioner can be sustained. The first contention raised on behalf of the petitioner is to the effect that the petitioner had a negative wealth to the tune of Rs.24,97,939/- for the concerned assessment year, namely 1993-94 and the tax liability for the said year was "Nil" and that in view of the same, the protection provided in the proviso to section 35-B of the Wealth Tax Act, 1957 is available to the petitioner since the proviso says that an assessee is liable to be prosecuted for an offence under section 35-B, if the wealth tax on regular assessment does not exceed Rs.3,000/-. The said contention, as rightly contended by the learned counsel for the petitioner, cannot be sustained in view of the following facts. No doubt, the consequential assessment order, based on