In the High Court of Judicature at Madras Dated : 02..12..2006 C O R A M The Honourable Mrs. Justice Prabha Sridevan Writ Petition Nos.23581 to 23584 of 2006 Selvi J. Jayalalitha .. Petitioner in W.P. No.23581 of 2006 V.K. Sasikala, " Veda Nilayam:, 81, Poes Garden, Chennai - 600 086. .. Petitioner in W.P. No.23582 of 2006 M/s. Sasi Enterprises, 14, Parsn Manere, 602, Anna Salai, Chennai-6, rep. by its .. Petitioner in W.P. Nos. Partner V.K. Sasikala. 23583 and 23584 of 2006 Versus 1. The Union of India, Rep. by its Secretary, Finance Department, North Block, New Delhi-110 001. 2. The Commissioner of Income Tax, Central Circle II(2), Chennai-34. 3. The Asst. Commissioner of Income Tax, Central Circle II(2), .. Respondents in Chennai-34. all the Writ Petitions - - - - - Prayer : Writ Petitions filed under Article 226 of the Constitution of India seeking to issue writs of declaration to declare that Section 278E of the Income Tax Act, 1961 is ultra vires, illegal, unreasonable and unconstitutional, repugnant to the Constitution of India. - - - - - https://hcservices.ecourts.gov.in/hcservices/ For Petitioners : Mr. Guru Krishnakumar and Mr. Subramanium Prasad for Mr. N. Jothi, Assisted by Mr. L.P. Shanmugha Sundaram, Mr. A. Kandasamy and Mr. V. Karthikeyan. For Respondents : Mr. Gopal Subramaniam, Additional Solicitor General of India, Assisted by Mr. K. Ramasamy, Senior Public Prosecutor for I.T. Cases, Mr. S. Rajappa and Mr. P. Wilson, Asst. Solicitor General of India. - - - - - O R D E R The writ petitioners challenge the constitutional validity of Section 278E of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'). 2. The petitioners are facing prosecution before the Additional Chief Metropolitan Magistrate (E.O. I), Egmore, Chennai-8 for the offence under Section 276CC of the Act. The case of the petitioners is that, the expression 'wilfully' occurring in Section 278E of the Act indicates the mens rea element. This is the basis for the prosecution. Therefore, the prosecution is bound to prove the existence of mens rea on the part of the accused, beyond reasonable doubt. However, by introduction of Section 278E, which gives rise to a presumption as to the culpable mental state of the accused, the entire basis of accusatorial jurisprudence, as accepted and recognised in India, has been shifted. The petitioners contend that while having to defend a wholly baseless and vexatious criminal proceedings, they are also expected to discharge the burden of not possessing the criminal intent and proving it beyond reasonable doubt. According to the petitioners, the impugned provision violates Article 21 of the Constitution of India and their right to pray for discharge from the criminal proceedings has been negated merely on the basis of the impugned provision. According to the petitioners, the guarantee against self-incrimination protected by Article 20(3) of the Constitution has also been taken away from them. 3. The following grounds are raised by the petitioners : (1) The procedure established by law must be just, fair and reasonable and not arbitrary, fanciful or oppressive. By shifting the burden of proving absence of culpable mental state on to the accused and requiring the same to be established beyond reasonable doubt, the rights guaranteed by the Constitution under Article 21 are violated. https://hcservices.ecourts.gov.in/hcservices/ (2) The impugned provision runs counter to the well recognised principles of accusatorial system which requires the prosecution to establish the culpable mental state beyond reasonable doubt. (3) The provisions of the Indian Evidence Act relating to the manner of proving facts and the burden of proof establish clearly what the duty of the prosecution is with regard to establishing mens rea and presumption of innocence of the accused, and even where the onus is placed on the accused, it is only to prove it by a preponderance of probabilities and not to prove it beyond reasonable doubt. Even Section 108 of the Indian Evidence Act does not abrogate the well established rule of criminal law which places the burden on the prosecution to prove its case. (4) The presumption under Section 114 of the Indian Evidence Act must be seen in the background of common course of natural events, human conduct and public and private business in their relation to the facts of the particular case. (5) The requirement of mens rea is a constituent part of a crime unless and until a statute excludes it. (6) Even where a statute provides for certain presumptions, the onus is to be discharged only on a balance of probabilities and not beyond reasonable doubt. (7) The requirement of proportionality and reasonableness as regards legislative action has not been met and there is failure to follow the principle of proportionality as formulated by the Supreme Court in Om Kumar vs. Union of India [(2001) 2 S.C.C. 386]. According to the learned counsel for the petitioners, this decision would show that Courts should determine, while considering the vires of a provision, whether the choice of the legislature excessively infringes the rights of the individual. Further, the principle of reasonableness, which is a basic feature of the Indian Constitution, as laid down by the Supreme Court in 2006 (10) SCALE 301 [M. Nagaraj vs. Union of India] has also been ignored. (8) The extent to which "reverse burden" can operate has been well delineated by the decisions of Courts elsewhere in the world, and these parameters have been exceeded. (9) The expression 'beyond reasonable doubt' is an undefined term and as such, an accused would not be able to understand the standard to be met, whereas crimes must be defined with appropriate definiteness and certainty and any infraction thereof directly dilutes the reasonableness of the legislation. (10) The impugned provision is susceptible to rampant misuse and a policy of 'pick and choose' by the prosecution. (11) The impugned provision is excessive since it applies to all offences under the Act, whereas the Statement of Objects and Reasons shows that it was intended to apply only to cases of evasion of tax. (12) The impugned provision offends the constitutionally guaranteed protection against self-incrimination. https://hcservices.ecourts.gov.in/hcservices/ (13) The impugned provision also has the effect of rendering statutory remedies available to the accused illusory. (14) One cannot label a statute as one dealing with a grave social evil and from that, to infer strict liability - vide Lim Chin Aik vs. The Queen [(1963) A.C. 160]; that Courts should be slow to infer that Parliament intended to impose an onerous duty on the accused – vide R. v. Hunt [(1987) 1 All ER 1]; and that the ultimate test of constitutional validity is whether the device undermines the fact finder's responsibility – vide County Court Ulster, New York vs. Samuel Allen [60 L. Ed. 2d. 777]. 4. Briefly stated, the facts of the case are as follows : The petitioner in W.P. No.23581 of 2006 (hereinafter referred to as 'the first petitioner') was required to file return of income for the Assessment Year 1993-94 under Section 139(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') by 31st August, 1993. The first petitioner failed to furnish the return of income. A notice was sent to the first petitioner under Section 142(1) on 18.1.1994, calling upon her to file the return of income within a period of 30 days from the date of service of the notice. This notice was served on the first petitioner on 19.1.1994. The period of 30 days expired, but no return was filed in compliance to the notice. Reminders were sent on 22.8.1994, 10.2.1995 and 23.8.1995, yet the return was not filed. Subsequently, a notice under Section 142(1)(ii) of the Act was issued on 31.7.1995, calling upon the first petitioner to produce the accounts since as per the Act, assessments need to be completed by March 31, 1996. The first petitioner failed to furnish the return of income and also failed to comply with the statutory notice. A best judgment assessment was completed under Section 144 of the Act on 9.2.1996 and penalty proceedings for concealment of income were initiated under Section 271(1)(c) of the Act. Penalty proceedings were also initiated for non-compliance of the notice under Section 271(1)(b) of the Act. A demand inclusive of interest was made. The first petitioner challenged the assessment order before the Commissioner of Income Tax (Appeals). This appeal was partly allowed by order dated 28.2.1997. The department has challenged that order in Appeal No.1239 of 1997. The first petitioner has also challenged that order. Both the Appeals are pending. On 14.10.1996, complaints were filed against the first petitioner and the other petitioners for the offence under Section 276CC of the Act. Thereafter, there have been several proceedings initiated at the instance of the first petitioner before the Magistrate Court and also before the High Court. It is not necessary for the purpose of deciding these writ petitions to refer to all of them in detail or to refer to the facts in each case, since they are more or less similar. 5. On 12.5.2004, an application under Section 313 of the Code of Criminal Procedure was filed by the respondents for examining the first petitioner. On the same day, the first petitioner filed an application under Section 245 of the Code for discharging her from the prosecution https://hcservices.ecourts.gov.in/hcservices/ proceedings. Other petitions were also filed. The respondents filed petitions before this Court for a direction to the trial court to frame charges against the petitioners. The petitioners filed application under Section 482 of the Code to quash the proceedings. The petitions filed by the respondents were dismissed by this Court. Against this, the department filed Special Leave Petitions, which were disposed of by the Supreme Court, directing the trial court to consider the matter regarding framing of charge, after hearing the parties on the petition for discharge, within a period of two months. Thereafter, the trial Magistrate dismissed the discharge petitions and fixed the date for commencement of hearing as per the directions of the Supreme Court. The Magistrate directed the accused to be present in Court on 25.8.2006. The first petitioner has filed criminal revisions against the dismissal of the discharge petition and has also filed the present writ petition challenging the constitutional validity of Section 278E of the Act. 6. Mr. Guru Krishnakumar, learned counsel appearing for the petitioners and Mr. Gopal Subramaniam, learned Additional Solicitor General of India appearing for the respondents made very detailed submissions and also submitted their written arguments, followed by supplementary arguments. 7. Mr. Guru Krishnakumar, learned counsel appearing on behalf of the petitioners submitted that the impugned provision violates Article 21 of the Constitution and in actual operation, it is arbitrary and therefore, it affects Article 14 of the Constitution and further, it also suffers from the vice of vagueness. Learned counsel also submitted that, when Section 276CC of the Act specifically mentions the word 'wilfully', this is rendered otiose by the introduction of Section 278E, which presumes a culpable mental state, namely willfulness. Learned counsel submitted that the impugned provision lacks guidelines and therefore, it is capable of misuse, untramelled as it is, by reasonable parameters. According to the learned counsel, Section 278E was not intended to be applied to Section 276CC. On facts, the learned counsel submitted that in two cases, there was no provision for imposing penalty at all and therefore, the launching of criminal proceedings itself is without jurisdiction. 8. Learned counsel referred to the following question raised in (1978) 1 S.C.C. 248 [Maneka Gandhi vs. Union of India] to show the inter- relation between Article 14 and Article 21 : "Does Article 21 merely require that there must be some semblance of procedure, howsoever arbitrary or fanciful, prescribed by law before a person can be deprived of his personal liberty or that the procedure must satisfy certain requisites in the sense that it must be fair and reasonable?" https://hcservices.ecourts.gov.in/hcservices/ It was submitted that the Fundamental Rights weave a pattern of guarantees on the basic structure of human rights, and when the constitutionality of a provision is challenged, it must be tested against the whole gamut of Fundamental Rights and if so tested as per the law laid down in the above case, the impugned provision must necessarily be struck down as arbitrary, capricious, oppressive and unfair. 9. Learned counsel submitted that if the petitioners were burdened with the duty to prove beyond reasonable doubt that their failure to file the returns was not wilful, then they may have to produce documents which may indict them at the time of trial and therefore, it offends Article 20 (3) of the Constitution. For this purpose, he relied on A.I.R. 1961 S.C. 1808 [State of Bombay vs. Kathi Kalu Oghad], the Supreme Court held as follows : "..... In view of these considerations, we have come to the following conclusions :- 'To be a witness' means imparting knowledge in respect of relevant facts by an oral statement or a statement in writing, made or given in Court or otherwise." 10. Learned counsel pointed out that Section 4 of the Indian Evidence Act, 1872 defines the word 'proved', and for an accused to prove the existence of the exception given under Section 105 of the Act, he is only expected to prove it on a preponderance of probabilities, i.e., it is sufficient if the accused proves the existence of those circumstances as so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that they did exist. To support this (1964) 7 S.C.C. 361 [Dahyabhali Chhaganbhai Thakker vs. State of Gujarat], K.M. Nanavathi vs. State of Maharashtra [(1962) Supp. 1 S.C.R. 567] were relied on. 11. Learned counsel submitted that there is no willfulness on the part of the petitioners for non-filing of the accounts, and as observed by the Supreme Court of the United States in W.D. Manley vs. State of Georgia [73 L.Ed. 575], mere legislative fiat may not take the place of fact where life and liberty of individuals are involved, and also that a statute creating a presumption that is arbitrary, or that operates to deny a fair opportunity to repel it, violates the due process clause of the Constitution. Learned counsel submitted that Section 278E has been so engrafted as to bring in a burden heavier than what is laid down in Section 106 of the Indian Evidence Act. Learned counsel raised the following questions : (a) What does the phrase 'beyond reasonable doubt' mean? (b) If this is unclear, can the Section stand the test of constitutionality? https://hcservices.ecourts.gov.in/hcservices/ 12. A number of decisions were cited by the learned counsel for the petitioners to support the above submissions. The decisions are enumerated hereunder : 1956 S.C.R. 199 [Shambhu Nath Mehra vs. State of Ajmer] 1965 (3) S.C.R. 235 [Harbhajan Singh vs. State of Punjab] 1966 (3) S.C.C. 736 [V.D. Jhingan vs. State of Uttar Pradesh] (1972) 3 S.C.C. 22 [Dr. S.L. Goswami vs. State of Madhya Pradesh] (1973) 2 S.C.C. 808 [Kaliram vs. State of Himachal Pradesh] (1978) 1 S.C.C. 248 [Maneka Gandhi vs. Union of India] (1981) 3 S.C.C. 199 [State of Maharashtra vs. Wasudeo Ramchandra Kadalwar] (1982) 1 S.C.C. 271 [A.K. Roy vs. Union of India] 1995 Supp. (2) S.C.C. 187 [P.N. Krishna Lal vs. Government of Kerala] (1999) 6 S.C.C. 172 [State of Punjab vs. Baldev Singh] (2005)1 S.C.C. 496 [District Registrar & Collector, Hyderabad vs. Canara Bank] 254 I.T.R. 292 (Delhi) [R.L. Sahni vs. R. Singh] (2005) 10 S.C.C. 451 [Gurunanak Enterprises vs. I.T.O.] 1988 (173) I.T.R. 554 [Gopalji Shaw vs. I.T.O.] https://hcservices.ecourts.gov.in/hcservices/ 225 I.T.R. 509 [Bhuvaneshwar Prasad vs. State of Bihar] (2004) 2 S.C.C. 731 [K.C. Builders vs. C.I.T.] 151 I.T.R. 723 [Smt. Prem Lata vs. I.T.O.] 154 I.T.R. 227 [Murari Lal vs. I.T.O.] 205 I.T.R. 176 [Tmt. Thangalakshmi vs. I.T.O.] (2003) 9 S.C.C. 700 [R. Balakrishna Pillai vs. State of Kerala] 1951 S.C.R. 322 [Ravula Hariprasada Rao vs. The State] A.I.R. 1966 S.C. 43 [Nathulal vs. State of M.P.] 1965 (1) S.C.R. 123 [State of Maharashtra vs. Mayer Hans George] (1974) 1 S.C.C. 167 [Pyarali K. Tejani vs. Mahadeo Ramachandra Dange] (1964) 7 S.C.C. 361 [Dahyabhali Chhaganbhai Thakker vs. State of Gujarat] (1974) 4 S.C.C. 764 [State of U.P. vs. Ram Swarup] (1996) 6 S.C.C. 457 [Periasami vs. State of Tamil Nadu] A.I.R. 1964 S.C. 136 [A. Raghavamma vs. A. Chenchamma] (2001) 4 S.C.C. 375 [Sucha Singh vs. State of Punjab] (1994) 5 S.C.C. 410 [Sanjay Dutt vs. State through CBI, Bombay (II)] https://hcservices.ecourts.gov.in/hcservices/ 1982 (133) I.T.R. 909 [Uttam Chand vs. Income Tax Officer] 1991 (54) Taxman – Tax Reports 152 [Asst. Commissioner of Income Tax vs. BELCO Engineers (P) Ltd.] 1993 (68) Taxman – Tax Reports 300 [Smt. Pushpa Maini vs. Income Tax Officer] 1996 Crl. L.J. 449 [Shastri Sales Corporation vs. Income Tax Officer] 1997 (92) Taxman – Tax Reports 253 [Income Tax Officer vs. Inderjit Chopra] 1997 (224) I.T.R. 119 [Mahadeo Lal Agarwala vs. State of Bihar] 1997 (224) I.T.R. 687 [G.L. Didwania vs. Income Tax Officer] 1998 (233) I.T.R. 783 [Sureshchand Gupta vs. Union of India] 1999 (106) Taxman – Tax Reports 536 [Sheo Shankar Sah vs. Commissioner of Income Tax] (2001) 3 S.C.C. 459 [Commissioner, Income Tax vs. Bhupen Champak Lal Dalal] 2001 (118) Taxman – Tax Reports 258 [Bhupen Champak Lal Dalal vs. Sandeep Kapoor] 2002 (123) Taxman – Tax Reports 891 [Ram Gulam Shah & Sons vs. Commissioner of Income Tax] 2002 (123) Taxman – Tax Reports 51 [Satyanarain Prasad vs. State of Bihar] 2002 (120) Taxman – Tax Reports 253 [Ravi Medical Agencies vs. Union of India] 2002 (120) Taxman – Tax Reports 805 [Ruchi Associates (P) Ltd. vs. Asst. Commissioner of Income Tax] https://hcservices.ecourts.gov.in/hcservices/ 2005 (142) Taxman – Tax Reports 549 [V. Gopal vs. Assistant Commissioner] 2005 (275) I.T.R. 268 [Tata Robins Fraser Ltd. vs. State of Jharkhand] (1983) 4 S.C.C. 697 [Commissioner of Wealth Tax, Gujarat vs. Smt. Vimlaben V. Mehta] (2004) 7 S.C.C. 15 [Monaben Ketanbhai Shah vs. State of Gujarat] (2005) 8 S.C.C. 89 [S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla] 2006 (10) SCALE 301 [M. Nagaraj vs. Union of India] 2004 (2) S.C.C. 130 [Teri Oat Estates (P) Ltd. vs. Union Territory of Chandigarh] A.I.R. 1961 S.C. 1808 [State of Bombay vs. Kathi Kalu Oghad] (1999) 5 S.C.C. 241 [Prem Dass vs. Income Tax Officer] (2001) 2 S.C.C. 386 [Om Kumar vs. Union of India] (1981) 2 S.C.C. 335 [State of Karnataka vs. Pratap Chand] (2005) 6 S.C.C. 499 [State of H.P. vs. Gujarat Ambuja Cements Ltd.] 1997 (94) Taxman – Tax Reports 99 [Income Tax Officer vs. K.A. Siddique] (1997) 7 S.C.C. 622 [Mansukhlal Vithaldas Chauhan vs. State of Gujarat] (1985) 3 S.C.C. 545 [Olga Tellis vs. Bombay Municipal Corporation] (1994) 3 S.C.C. 569 [Kartar Singh vs. State] https://hcservices.ecourts.gov.in/hcservices/ (1999) 6 S.C.C. 172 [State of Punjab vs. Balbir Singh] I.L.R. 26 Patna 46 [Srinivas Mall vs. King Emperor] (1991) 3 S.C.C. 655 [K. Veerasami vs. Union of India] (1983) 4 S.C.C. 696 [C.I.T. vs. Bennett & Coleman] (2002) 2 S.C.C. 135 [Dilawar vs. State] (2000) 5 S.C.C. 679 [Om Parkash Sharma vs. C.B.I., Delhi] (1984) Supp. S.C.C. 437 [P. Jayappan vs. S.K. Perumal] A.I.R. 1986 S.C. 2045 [R.S. Nayak vs. A.R. Antulay] (1960) 1 SCR 461 [C.S.D. Swamy vs. State] A.I.R. 1948 Bombay 364 [Isak Solomon Macmull vs. Emperor] A.I.R. 1990 S.C. 209 [Gurbachan Singh vs. Satpal Singh] (1965) 3 All E.R. 593 [Patel vs. Comptroller of Customs] The relevant decisions will be taken up for discussion hereinafter. 13. Learned counsel for the petitioners also referred to various decisions of Courts of other countries. They are listed hereunder : 1935 All E.R. 1 [Woolmington vs. Director of Prosecution] (1970) 1 All E.R. 219 [Jayasena vs. Reginam] https://hcservices.ecourts.gov.in/hcservices/ (1987) 1 All E.R. 1 [R. v. Hunt] 60 L. Ed. 2d. 777 [County Court Ulster, New York vs. Samuel Allen] (1988) 13 E.H.R.R. 379 [Salabiaku vs. France] (1941) 3 All E.R. 272 [Mancini vs. Director of Prosecution] 78 L.Ed. 664 [George Morrison vs. People of State of California] (1963) A.C. 160 [Lim Chin Aik vs. The Queen] (1985) 157 C.L.R. 527 [He Kaw Teh] (1987) 11 N.S.W.L.R. 541 [Rex vs. Wamfler] (1996) 3 S.C.R. 1128 [Rex vs. Hingi] 1902 Appeal Cases 317 (PC) [Jacob Bruhn vs. The King on the Prosecution of the Opium Farmer] (1946) 175 The Law Times Reports 306 [Brend vs. Wood] (1942) 28 Crim. App. Rep. 160 [Rex vs. Greenberg] [1988 (3) All E.R. 1045] [Porter vs. Honey] (1964) 3 All E.R. 820 [Vane vs. Yiannopoullos] (1972) 42 CD 135 [X vs. U.K.] (2005) 1 All E.R. 237 [Sheldrake vs. Director of Public Prosecutions] https://hcservices.ecourts.gov.in/hcservices/ (1902) 2 K.B. 1 [Pearks, Gunston & Tee Ltd. vs. Ward] 73 L.Ed. 575 [W.D. Manley vs. State of Georgia] [1979) 1 W.L.R. 94 [Charles Ferguson vs. The Queen] 60 L.Ed. 899 [McFarland vs. American Sugar Ref. Co.] 55 L.Ed. 191 [Bailey vs. Alabama] 44 L.Ed. 2D 508 [Mullaney vs. Stilman] 14. In 1956 S.C.R. 199 [Shambhu Nath Mehra vs. State of Ajmer], the Supreme Court held that Section 106 does not abrogate the well established statute of criminal law that except in very exceptional classes of cases, the burden which lies on the prosecution to prove its case never shifts and that Section 106 is not intended to relieve the prosecution of that burden. The learned Judges observed that on the contrary, Section 106 is intended to meet certain exceptional cases where it is impossible and disproportionately difficult for the prosecution to establish facts which are especially within the knowledge of the accused and which can be proved by him without difficulty or inconvenience. The Section cannot be used to undermine the well established rule of law that, save in a very exceptional class of case, the burden is on the prosecution and never shifts. The following extract is relevant : "..... The word 'especially' stresses that. It means facts that are pre-eminently or exceptionally within his knowledge. If the section were to be interpreted otherwise, it would lead to the very startling conclusion that in a murder case the burden lies on the accused to prove that he did not commit the murder because who could know better than he whether he did or did not." It was observed that this Section must be considered in a common sense way, and the balance of convenience and the disproportion of the labour that would be involved in finding out and proving certain facts balanced against the triviality of the issue at stake and the ease with which the accused could prove them, are all matters that must be taken into consideration. https://hcservices.ecourts.gov.in/hcservices/ 15. In 1965 (3) S.C.R. 235 [Harbhajan Singh vs. State of Punjab], the Supreme Court, quoting Viscount Sankey in [1935] A.C. 452 [Woolmington vs. Director of Public Prosecutions], emphasised the following fundamental doctrine of criminal law that the onus to prove its case lies on the prosecution : "No matter what the charge or where the trial, the principle that the prosecution must prove the guilt of the prisoner is part of the common law of England and no attempt to whittle it down can be entertained." It will be seen that Woolmington's case and the principle laid therein is constantly referred to and reiterated again and again, wherever the question of burden of proof arises. 16. In 1966 (3) S.C.C. 736 [V.D. Jhingan vs. State of Uttar Pradesh], which arose out of the Prevention of Corruption Act, 1947, it was contended that, "... mere receipt of money did not justify the raising of the presumption and that something more than the mere receipt of the money had to be proved." This argument was rejected and it was held that the mere receipt of the money was sufficient to raise a presumption. In this case, the Supreme Court again, on a construction of that particular provision, held that it was sufficient if the accused person proves the preponderance of probability for discharging the burden. Woolmington's case is again