BY TIOL News Service

BENGALURU, JULY 05, 2018: THE ISSUE BEFORE THE BENCH is - Whether while trying the offences under the Income Tax Act, the Special Court is required to follow the Code of Criminal Procedure including the provisions of bail and bonds. And the verdict is YES.

Facts of the case:

The assessee, an individual, engaged in carrying on the business in the name of S.M.S.K. Mineral Trading Company at Karnataka and was paying taxes regularly. In connection with the said business there were certain demands from the Department, which were in excess to the taxes paid by the assessee and there was some dispute regarding the actual tax to be paid by the assessee. Accordingly, three SCNs were issued and served upon the assessee for the AYs 2007-08, 2009-10, 2010-11. Against the said SCNs, the assessee had approached the High Court in W.P.14833/2018 requesting to issue an interim order however, the same was not granted. A SCN dated 30.1.2018 was issued by the Pr CIT for the purpose of issuing sanction for offence punishable u/s 276C(2) for non-payment of admitted tax on the income voluntarily admitted by the assesse and accordingly, reply was filed by the assessee. Apprehending his arrest pursuant to the said communication, the assessee approached the Addl. City Civil & Sessions Judge for grant of anticipatory bail but, the petition was rejected.

High Court held that,

++ wilful attempt to evade tax is dealt in Sec. 276C. There cannot be two opinions that Sec. 276 is a penal provision which constitutes evasion of tax, penalty or interest an offence under the Income Tax and therefore by virtue of the First Schedule Part II of Cr.P.C., the offence u/s 276 has to be classified as a non-bailable offence. The scheme of the Income Tax Act provides for a separate machinery to try the offences under the Act. By virtue of Sec. 280B, the offences under the Act are made triable by the Special Court. Further, as per Sec. 280D of the Act, provisions of the C.P.C., 1973 are made applicable to the proceedings before the Special Court. Hence, it is clear that the offences under the Income Tax Act are triable only by the Special Court and while trying the offences under the said Act, the Special Court is required to follow the Code of Criminal Procedure including the provisions of bail and bonds. But the facts of the present case are entirely different. The assessee is not sought to be prosecuted for the offence u/s 276C of the Income Tax Act. The records reveal that the tax liability or the evasion of the tax by the assessee is already adjudicated by the competent authority and a certificate has been issued u/s 222 of the Income Tax Act;

++ the notice under Rule 73 is issued for the recovery of the tax dues determined u/s 222 of the Act. It is a recovery proceeding. By the said notice, assessee is not sought to be prosecuted for the alleged offence u/s 276C. Therefore, the contention of the assessee that he is apprehending his arrest in a non-bailable offence has no legs to stand. The proceedings initiated against the assessee are akin to the proceedings for execution of decree under Order XXI Rule 37 of CPC. Rule 4 of the Second Schedule of the Income Tax Act provides for the various modes of recovery. As per the said provision, if the amount mentioned in the notice is not paid within the time specified therein or within such further time as the Tax Recovery Officer may grant in his discretion, the Tax Recovery Officer shall proceed to realize the amount by one or more of the modes as provided under the Act;

++ the assessee is not an 'offender' but a 'defaulter' as defined in the Second Schedule. Part V of the Second Schedule deals with arrest and detention of the defaulter. Rule 73 provides for issue of SCN. Even though the assessee has invoked the jurisdiction u/s 438 Cr.P.C. on the supposition that the said notice has given rise to 'reason to believe' that he would be arrested and detained by the Tax Recovery Officer, yet the following Rules completely dispels the apprehension entertained by the assessee. In this regard, a mere glance at Rules 74 to 76 would show that elaborate procedure has been prescribed under the Second Schedule of the Income Tax Act regarding the arrest and detention of a defaulter. Further Rule 86 provides for the remedy of appeal;

++ there is no justifiable reason to hold that the assessee has a genuine 'reason to believe' that he would be arrested in a non-bailable offence as contended. First and foremost the assessee is not accused of committing any non-bailable offence so as to invoke the jurisdiction u/s 438 of Cr.P.C. Secondly, the apprehension expressed by the assessee is also without any basis. As could be seen from the Rules, the proceedings are initiated against the assessee for recovery of the tax dues with the issuance of SCN as contemplated in Rule 73 of the Second Schedule. Rule 73 specifically provides that no order for the arrest and detention in a civil prison of a defaulter could be made unless the Tax Recovery Officer has issued and served a notice upon the defaulter calling upon him to appear before him on the date specified in the notice and to SCN as to why he should not be committed to civil prison. When a defaulter appears before the Tax Recovery Officer, he shall be given an opportunity of hearing and only thereafter, an order could be passed for detention of the defaulter in the civil prison. Therefore, the apprehension of the assessee that on issuance of a SCN under Rule 73 of the Second Schedule of the Income Tax Act, he has a 'reason to believe' that he would be arrested and detained in prison is wholly misconceived and misplaced;

++ by issuance of notice under Rule 73 of the Second Schedule of the Income Tax Act, the assessee is not accused of committing any non-bailable offence and the said notice does not give rise to any apprehension of immediate arrest so as to invoke the jurisdiction of the Sessions Court or High Court u/s 438 of Cr.P.C. As a result, I hold that the petition u/s 438 of Cr.P.C. is not maintainable.

(See 2018-TIOL-1260-HC-KAR-IT)