Case: Prakash Nath Khanna and Anr Vs. Commissioner of Income Tax and Anr

The three appellants were partners of a firm carrying on business under the name and style of M/s. Kailash Nath and Associates. Apart from the three appellants, two other persons were partners and one of them Sri Kailash Nath was the Managing partner in terms of the Partnership Deed dated 1.4.1983. For the assessment year 1988-89 return of income was to be filed on or before 31.7.1988, but was in fact filed on 20.3.1991. Assessment under Section 143(3) of the Act was completed on 26.8.1991. Proceedings for late submission of return were initiated against the appellants under Section 271(1)(a) of the Act and penalty was imposed. Proceedings in terms of Section 276-CC of the Act were also initiated and complaint was filed before the concerned Court. As noted above, cognizance was taken and process was issued. The writ applications were filed challenging legality of the proceedings. By the impugned judgment the High Court dismissed the writ petitions. The points which were mooted before the High Court were re-iterated in the present appeals.

Reasoning: 18. The heading of the Section or the marginal note may be relied upon to clear any doubt or ambiguity in the interpretation of the provision and to discern the legislative intent. In C.I.T v. Ahmedbhai Umarbhai and Co. (AIR 1950 SC 135) after referring to the view expressed by Lord Machnaghten in Balraj Kunwar v. Jagatpal Singh (ILR 26 All. 393 (PC), it was held that marginal notes in an Indian Statute, as in an Act of Parliament cannot be referred to for the purpose of construing the statute. Similar view was expressed in Board of Muslim Wakfs, Rajasthan v. Radha Kishan and Ors. (1979 (2) SCC 468 ), and Kalawatibai v. Soirvabai and ors. (AIR 1991 SC 1981). Marginal note certainly cannot control the meaning of the body of the Section if the language employed there is clear. (See Smt. Nandini Statpathy v. P.L. Dani and Anr. (AIR 1978 SC 1025 ) In the present case as noted above, the provisions of Section 276-CC are in clear terms. There is no scope for trying to clear any doubt or ambiguity as urged by learned counsel for the appellants. Interpretation sought to be put on Section 276-CC to the effect that if a return is filed under sub-section (4) of section 139 it means that the requirements of sub-section (1) of Section 139 cannot be accepted for more reasons than one.19. One of the significant terms used in Section 276-CC is "in due time". The time within which the return is to be furnished in indicated only in sub-section (1) of Section 139 and not in sub-section (4) of Section 139. That being so, even if a return is filed in terms of sub-section (4) of Section 139 that would not dilute the infraction in not furnishing the return in due time as prescribed under sub-section (1) of Section 139. Otherwise, the use of the expression "in due time" would loose its relevance and it cannot be said that the said expression was used without any purpose. Before substitution of the expression "clause (i) of sub-section (1) of section 142" by Direct Tax Laws (Amendment) Act. 1987 w.e.f. 1.4.1989 the expression used was "sub-section (2) of section 139". At the relevant point of time the assessing officer was empowered to issue a notice requiring furnishing of a return within the time indicated therein. That means the infractions which are covered by Section 276-CC relate to non-furnishing of return within the time in terms of sub-section (1) or indicated in the notice given under sub-section (2) of Section 139. There is no condonation of the said infraction, even if a return is filed in terms of sub-section (4). Accepting such a plea would mean that a person who has not filed a return within the due time as prescribed under sub-sections (1) or (2) of Section 139 would get benefit by filing the return under Section 139(4) much later. This cannot certainly be the legislative intent.20. Another plea which was urged with some amount of vehemence was that the provisions of Section 276-CC are applicable only when there is discovery of the failure regarding evasion of tax. It was submitted that since the return under sub-section (4) of Section 139 was filed before the discovery of any evasion, the provision has no application. The case at hand cannot be covered by the expression "in any other case". This argument though attractive has no substance.21. The provision consists of two parts. First relates to the infractions warranting penal consequences and the second, measure of punishment. The second part in turn envisages two situations. The first situation is where there is discovery of the failure involving the evasion of tax of a particular amount. For the said infraction stringent penal consequences have been provided. Second situation covers all cases except the first situation elaborated above.22. The term of imprisonment is higher when the amount of tax which would have been evaded but for the discovery of the failure to furnish the return exceeds one hundred thousand rupees. If the plea of the appellants is accepted it would mean that in a given case where there is infraction and where a return has not been furnished in terms of sub-section (1) of Section 139 or even in response to a notice issued in terms of sub-section (2), the consequences flowing from non-furnishing of return would get obliterated. At the relevant point of time Section 139(4)(a) permitted filing of return where return has not been filed within sub-section (1) and sub-section (2). The time limit was provided in clause (b). Section 276-CC refers to "due time" in relation to sub-sections (1) and (2) of Section 139 and not to sub-section (4). Had the Legislature intended to cover sub-section (4) also, use of expression "Section 139" alone would have sufficed. It cannot be said that Legislature without any purpose or intent specified only the sub-sections (1) and (2) and the conspicuous omission of sub-section (4) has no meaning or purpose behind it. Sub-section (4) of Section 139 cannot by any stretch of imagination control operation of sub-section (1) wherein a fixed period for furnishing the return is stipulated. The mere fact that for purposes of assessment and carrying forward and to set off losses it is treated as one filed within sub-sections (1) or (2) cannot be pressed into service to claim it to be actually one such, though it is factually and really not by extending it beyond its legitimate purpose.23. Whether there was wilful failure to furnish the return is a matter which is to be adjudicated factually by the Court which deals with the prosecution case. Section 278-E is relevant for this purpose and the same reads asPresumption as to culpable mental state-(1) In any prosecution for any offence under this Act which requires a culpable mental state on the part of the accused, the court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution.Explanation : In this sub-section, "culpable mental state" includes intention, motive or knowledge of a fact or belief in, or reason to believe a fact(2) For the purposes of this section, a fact is said to be proved only when the court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability".There is a statutory presumption prescribed in Section 278-E. The Court has to presume the existence of culpable mental state, and absence of such mental state can be pleaded by an accused as a defence in respect to the act charged as an offence in the