(1.) The order of reference to the Full Bench made by the Chief Justice and Vadakkel, J. in the above I. T. Rs. which we shall set out in full, is as follows:
"These referred cases arise from a composite order of the Income Tax Appellate Tribunal, Cochin Bench which dealt with I. T. A. Nos. 387 and 388 (Cochin)/1970-71 The assessee is the same. The question that was considered by the Tribunal was whether the imposition of penalty under S.271(1)(a) of the Income Tax Act, 1961 on the assessee in relation to the assessment for the three years 1965-66, 1966-67 and 1967-68 was justified or not. The Tribunal held that there was no justification for imposing penalty for the two years 1965-66 and 1966-67. But it upheld the imposition of penalty for the year 1967-68. No question is raised regarding the penalty for the year 1968.
2. These references relate to the years 1965-66 and 1966-67 and the questions referred are:
(i) 'Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in entertaining the additional ground of appeal after the assessee had conceded before the Appellate Assistant Commissioner that there was delay in filing the return of income for which penalty was leviable
(ii) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in cancelling the penalties levied under S.271(1)(a) of the Income Tax Act, 1961 for the assessment years 1965-66 and 1966-67.'
3. The assessee had not filed returns for the two years 1965-66 and 1966-67 For the year 1965-66 it appears from a footnote appended to the Tribunal's order as well as the statement of the case that the assessee had applied for time to file the return Time was granted up to 31st August 1966. No return was filed. Thereafter a notice under sub-s.(2) of S.139 was served on the assessee on 22nd September 1967. The return was thereafter filed on 23rd September 1967. For the year 1966-67 no return was filed under sub-s.(1) of S.139 and no application was moved before the Income Tax Officer for extension of time The notice under sub-s.(2) of S.139 was served on the assessee on 21st June 1966. The return was filed only on 23rd September 1967. The penalty proceedings were therefore taken against the assessee under S.271(1)(a) for the two years. The Income Tax Officer imposed the penalty. The assessee contended that he was under the bona fide belief that he had no assessable income and that was the reason for his delay in filing the returns. This explanation was found unsatisfactory by the Income Tax Officer and notwithstanding the plea penalty was imposed by the Income Tax Officer. In appeal before the Appellate Assistant Commissioner by the assessee it appears that though a ground had been taken that there was no deliberate omission on his part to file the returns which he contended was an essential ingredient of the penal S.271(1)(a), the point was not argued before him. In further appeal before the Tribunal however the representative of the assessee sought permission to raise the ground that there was no deliberate omission on his part and without a deliberate omission it was not possible to find that the ingredients of S.271(1)(a) had been satisfied. The department representative opposed the request for raising this ground. But the Tribunal allowed this ground to be raised as it was a point that had been taken by the assessee at the earliest time and did involve a question of law. The first question referred to us arises in these circumstances. As to the second question the imposition of penalty was justified or not the Tribunal observed as follows: --
'Sri Kamath points out that in the assessee's letters dated 17th July 1969 and 28th July 1969, it was explained that the delay was only due to unavoidable circumstances as the assessee was under the bona fide impression that there would not be any taxable income for the assessment years in question. The Income Tax Officer, has, however, not brought on record any material to show that the assessee could have had any such bona fide impression and that the delay was due to a deliberate default. Mens rea which was required to be proved had not been proved by the Department for these two years. The penalties levied for these two years are, therefore, cancelled as bad in law.'
4. We do not find any error of law in the order of the Appellate Tribunal in allowing the additional ground being raised. The ground involved was a question of law which had been taken at the earliest time by the assessee. In fact for a determination of the question of penalty the question of mens rea involved in the ground had to be determined. There is a discretion vested in an appellate authority in allowing or disallowing such a ground. Discretion has been exercised by the Tribunal in favour of the assessee. In the circumstances we have mentioned we see nothing wrong in it. Accordingly we answer the first question referred to us in the affirmative that is in favour of the assessee and against the department.
5. Now we have to deal with the second question. As we understand the order of the Tribunal, the relevant part of which we have extracted, the Tribunal has clearly cast the burden of proof on the department. In other words, the view of the Tribunal is that the omission to file a return within the time stipulated either by S.139(1) or by the notice under sub-s.(2) of S.139 must be proved by the department to be without reasonable cause. If the assessee gives an explanation such as the one that was put forward by the assessee that he bona fide believed that there was no income, then it is for the department to establish that the assessee could not have had any such bona fide belief. In this view the Tribunal said that 'the Income Tax Officer has, however, not brought on record any material to show that the assessee could not have had any such bona fide impression and that the delay was due to a deliberate default'.
6. Sri. P. A. Francis, counsel on behalf of the Revenue has contended before us that this view of the Tribunal is erroneous. According to him, it is for the assessee to establish the reasonable cause for the failure. It was contended that the matters that could be pleaded by an assessee were peculiarly within his knowledge and that it was the assessee and the assessee alone who will be able to show cause for the failure to file a return in time. It was also submitted that without reasonable cause' mentioned in S.271(1)(a) is in the nature of the general exceptions in Chap.4 of the Indian Penal Code and that it is an established principle that a person relying on those exceptions must plead and prove the existence of circumstances which would justify the application of the exemption. He referred to a recent ruling of this Court in O. P. No. 2702 of 1969 wherein a similar question was considered by this Court arising under S.10(d) of the Central Sales tax Act.
7. On the other hand counsel for the assessee has invited our attention to two Division Bench rulings of this Court in P. V. Devassy v. Commissioner of Income Tax [1972 (84) ITR. 502] and Dawn & Co. v. Commissioner of Income Tax, Kerala [ 1973 (84) ITR 71 ]. In both these cases, the question turned on the interpretation of S.271(1)(a) and in both the judgments there are clear statements that the burden of establishing the fact that the failure to file a return was without reasonable excuse was on the department. It is evident that there is a conflict of opinion on this matter. We therefore consider that the question must be determined by a Full Bench of this Court. We accordingly refer the matter covered by . question No. 2 in these references by the Income Tax Appellate Tribunal, Cochin Bench to a Full Bench.
8. The costs herein will be the costs of the cause and will be provided for in the judgment of the Full Bench."
Question (ii) referred by the Tribunal is alone thus before us and we shall proceed to discuss the same.
(2.) S.271 of the Income Tax Act, 1961 occurs in Chap.21, entitled: "Penalties imposable". The material part of the section reads:
"271. Failure to furnish returns, comply with notices, concealment of income, etc.-- (i) If the Income Tax Officer or the Appellate Assistant Commissioner in the course of any proceeding under this Act, is satisfied that any person
(a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-s.(1) of S.139 or by notice given under sub-s.(2) of S.139 or S.148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-s.(1) of S.139 or by such notice, as the case may be, or
(b) x x x x
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,
(i) in the case referred to in clause (a) in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent of the tax;
(ii) x x x x
(iii) In the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished".
* * * *
S.276C which, occurs in Chap.22 entitled: 'Offences and Prosecutions', in so far as it is material, reads:
"276C. If a person wilfully fails to furnish in due time the return of income which he is required under sub-s.(1) of S.139 or by notice given under sub-s.(2) of S.139 or S.148, he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine equal to a sum calculated at a rate which shall not be less than four rupees or more than ten rupees for every day during which the default continues, or with both."
The corresponding provisions in the previous, Act, the Indian Income Tax Act, 1922, in so far as they are material, reads as follows:
"28. Penalty for concealment of income or improper distribution of profits.-- (i) If the Income Tax Officer, the Appellate Assistant Commissioner (or the Appellate Tribunal), in the course of any proceedings under this Act, is satisfied that any person --
(a) has without reasonable cause failed to furnish the return of his total income which he was required to furnish by notice given under sub-s.(1) or sub-s.(2) of S.22 or S.34 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by such notice; or
(b) * * * *
(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income:
he or it may direct that such person shall pay by way of penalty, in the case referred to in clause(a) in addition to the amount of the income tax and supertax, if any payable by him, a sum not exceeding one and a half times that amount, and in the cases referred to in clauses (b) and (c), in addition to any tax payable by him, a sum not exceeding one and half times the amount of the income tax and supertax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income."
S.51 of the Act in so far as it is relevant provided:
"51. Failure to make payments or deliver returns or statements or allow inspection. If a person fails without reasonable cause or excuse --
(a) * * *
(b) * * *
(c) to furnish in due time any of the returns mentioned in S.19A, S.20A, S.21, sub-s.(2) of S.22, or S.38;
(d) and (e) * * *
he shall, on conviction before a Magistrate, be punishable with fine which may extend to ten rupees for every day during which the default continues."
S.28 in Chap.4 -- Deductions and Assessment -- and S.51 in Chap.8 -- 'Offences and Penalties'.
(3.) On the language used in the sections in the two Acts, certain things strike us. The provisions for imposition of penalty are independent of the provisions for prosecution and punishment in the sense that the proceedings under the one will not bar action under the other. Turning to 1922 Act, S.28(1)(c) requires as a fact a concealment of particulars or a deliberate furnishing of inaccurate particulars of such income. From its very nature, the element of \ deliberation and design is evident in S.28(1)(c). But as far as clause (a) of S.28(1) is concerned, we think that the clause itself on its express language, does not postulate this requirement. We are of the opinion for reasons which we shall discuss more fully in the course of the judgment, that a mere use of the expression "without reasonable cause" cannot import a mental element or 'mens rea'. This expression occurs in different ways in many statutory provisions and also in certain civil actions. See for instance, S.5 of the Limitation Act; See again, the requirements for a civil suit for damages for malicious prosecution, where, in addition to the requirement of absence of reasonable and probable cause, malice has to be affirmatively established, to entitle the plaintiff to succeed. Under S.51(c) of the 1922 Act, failure, without reasonable cause, inter alia to furnish in due time, the returns mentioned in certain sections of the Act, is made a punishable offence. Being a punishable offence, consistent with the well recognised principle, that except where the statute clearly dispenses with mens rea that element must be present, it appears easy enough to posit the requirement of mens rea for the offence under S.51. But whatever be the position under the 1922 Act, we cannot help noticing the significant change in the phraseology and language employed by the 1961 Act. Before imposition of a penalty under S.271 of the new Act, what is required is that the Officer must be satisfied not arbitrarily but judicially that any person has without reasonable cause failed to furnish the return (clause (a)); or has concealed the particulars of the income or furnished inaccurate particulars [clause (c)]. We would stress the important change made by the 1961 Act, namely, that the element of deliberation required by S.28(1)(c) of the 1922 Act, has been deleted in S.271(1)(c). If we now compare the language of S.276C, we see that a 'wilful' failure to furnish the return of income is made a punishable offence punishable with imprisonment for a term which may extend to one year, and with fine. The mental element is here expressly provided; and from the gravity of the offence, even in the absence of express provision it has to be inferred. Where the two sections (271 and 276C) themselves seem to draw a difference between the requirements for imposition of a penalty and punishment for an offence, it appears to us that we would not be justified in reading into the earlier section, the requirements of any mens rea expressly provided for in the later one.;