1980 Supreme(Cal) 369

High Court Of Calcutta
SABYASACHI MUKHERJI, SUDHINDRA MOHAN GUHA
COMMISSIONER OF INCOME-TAX - Appellant
Versus
RUPABANI THEATRES P.LTD. - Respondent
Income-Tax Reference 320  Of  1973
Decided On : 09/18/1980

Mens rea is an essential element of the offence of concealment of income under Section 271 (1) (c) of the Income-tax Act, 1961, and a limited company is incapable of having mens rea.

Headnote:

The Tribunal was correct in holding that the department had failed to prove concealment of income in regard to the sum of Rs. 26,000 and interest amounting to Rs. 1,096 by the assessee-company. The assessee-company was not liable to penalty for concealment.

Fact of the Case:

The assessee-company, in the books of account, had cash credits aggregating to Rs. 26,000 in the name of four ladies who were alleged to be related to one of the directors. The ITO did not accept the explanation offered with regard to these cash credits and added these as the assessee's income from undisclosed sources and, consequently, disallowed the interest claimed thereon. The ITO also initiated penalty proceedings under Section 271 (l) (c) of the I. T. Act, 1961, for concealment of income with regard to the amount of cash credits and interest. From the order of the ITO, it appears, that the names of the four ladies and the sums standing in their respective names were as follows: Rs . (a) Sm. Jyostna Nawn & Sm. Swagata Nawn ' 6,000 on 8-5-63 (b) Sm. Jyostna Nawn 6,000 on 8-4-63 (c) Sm. Nanda Rani Dutt 3,000 on 27-5-63 (d) Sm. Nilima Nawn 11,000 on 14-4-63 . 26,000 . . ( 3 ) THEY are all related to Sudhir Chandra Nawn, a director of the assessee-company. Jyostna Nawn is the wife of Sudhir Chandra Nawn and Swagata Nawn is their minor daughter. Smt. Nanda Rani Dutt is also related, being the married daughter of Sudhir Chandra Nawn. Smt. Nilima Nawn is also another daughter of Sudhir Chandra Nawn.

Finding of the Court:

The Tribunal was correct in holding that the department had failed to prove concealment of income in regard to the sum of Rs. 26,000 and interest amounting to Rs. 1,096 by the assessee-company. The assessee-company was not liable to penalty for concealment.

Issues: Whether, on the facts and in the circumstances of the case, and on a correct interpretation of Section 271 (1) (c) of the Income-tax Act, 1961, read with the Explanation to that section, the Tribunal was correct in holding that the department had failed to prove concealment of income in regard to the sum of Rs. 26,000 and interest amounting to Rs. 1,096 by the assessee-company ? Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that apparently an artificial juridical person like a limited company is incapable of conscious concealment of income and it would be well nigh impossible for the department to prove the existence of mens rea in the case of a company and, hence, the company was not liable to penalty for concealment ?

Ratio Decidendi: The Explanation to Section 271 (1) (c) of the I. T. Act, 1961, introduced in 1964, is a deeming provision. By the said deeming provision, it is provided that in certain contingency, that is to say, where the total income returned by any person is less than 80% of the total income as assessed, omitting certain other requirements with which we are not concerned, such person shall, unless "he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part" be deemed "to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of this sub-section". Now, the law introduced a certain state of affairs, even though that state of affairs was not the reality. The requirement of Section 271 (1) (c) is that the assessee must be guilty of concealment of the particulars of his income or furnishing inaccurate 'particulars. Previous requirement was that the furnishing of inaccurate particulars should have been deliberate. The expression "concealment " has to be understood in contradistinction to the expression " failure ". Concealment requires a positive act. So before the amendment in 1964, Section 271 (1) (c) required that there should have a positive or active act on the part of the assessee to conceal particulars of his income or to deliberately furnish inaccurate particulars. But by virtue of the addition of the Explanation, if the difference between the assessed income and the returned income was of certain magnitude, then unless the assessee proved that such difference was not caused by reason of failure to return the correct income from any fraud or any gross or wilful neglect, he should be deemed to have committed a positive act of concealment or of deliberately furnishing inaccurate particulars.

Final Decision: The Tribunal was correct in holding that the department had failed to prove concealment of income in regard to the sum of Rs. 26,000 and interest amounting to Rs. 1,096 by the assessee-company. The assessee-company was not liable to penalty for concealment.