Holding

Section 271(1)(a) does not require proof of mens rea; reasonable cause is an ingredient of the offence and the taxing authority must prove the absence of reasonable cause.

Summary

The assessee filed income‑tax returns for the assessment years 1964‑65, 1965‑66 and 1966‑67 well after the statutory due dates, resulting in penalties under section 271(1)(a) of the Income‑Tax Act, 1961. The Assessing Officer and the Appellate Assistant Commissioner upheld the penalties, but the Tribunal cancelled them, holding that the assessee had shown reasonable cause. The Gujarat High Court Full Bench affirmed that "reasonable cause" is an ingredient of the offence and that the revenue must prove its absence; the Division Bench, however, found the assessee had indeed shown reasonable cause and dismissed the penalty. The Revenue appealed to the Supreme Court. The Court held that section 271(1)(a) does not require proof of mens rea; the penalty is imposed when the assessee fails to file a return without reasonable cause, and the burden of proving the absence of reasonable cause lies on the tax authority. Consequently, the Supreme Court allowed the revenue’s appeal, set aside the High Court and Tribunal decisions, and confirmed the penalties.

Issues considered

Whether mens rea is a required element for the imposition of penalty under section 271(1)(a) of the Income‑Tax Act, 1961.
Whether "reasonable cause" is an ingredient of the offence under section 271(1)(a).
Who bears the burden of proof with respect to the existence or absence of reasonable cause.

Legislation cited

Income Tax Act, 1961s. 139(1), s. 271(1)(a), s. 276(3)

Subjects

penaltyreasonable causemens reasection 271income taxburden of proofbelated returntax law

Judgment

A ADDL. COMMISSIONER OF INCOME TAX, GUJARAT
v.
J.M. PATEL AND CO.

APRIL 28, 1992

B [S. MOHAN AND G.N. RAY, JJ.J

. Income Tax Act, 1961 :

Section 271 (J){a)-Penalty for belated filing of retum-Assessee
C prevented by 'reasonable cause'-Burden of proof-Mens reo-Wliether re-
quired to be established.

For the belated filing of Income-tax returns, for three consecutive
assessment years, the respondent-assessee was imposed penalty under
section 271(1)(a) of the Income-tax Act, 1961. On appeal by the assessee, -{
--
-(

D the Appellate Assistant Commissioner confirmed the same. Revenue
preferred an appeal before the Tribunal. The Tribunal decided the ques-
tion in favour of the assessee and referred to the High Court the question
of law as to whether the Tribunal was justified in law in cancelling the
penalty levied on the assessee under section 271(1)(a) for the three assess-
E ment years. The Division Bench of the High Court referred the matter to
a Full Bench which decided the question of law that reasonable cause was
an ingredient of the.offence for which the penalty has been provided and
that the taxing authority has prim a f acie. to prove absence of reasonable ,i
cause, and returned the matte..S to the Division Bench for disposal in \
accordance with law. The Division Bench hP.ld that the assessee had shown
F reasonable cause for the delay and answered the question against the
Revenue.. Aggrieved by the said order the Revenue has preferred the
present appeals.

On behalf of the Revenue, it was contended that there has been a
G fundamental distinction between the levy of penalty under section -,.,.i -
271(1)(a) as opposed to sectfon 271(1)(c) of the Act in that the former
related to obligation to file return in time while the latter dealt with
concealment. And in the former case no mens rea was involved.

The assessee contended that mens rea was relevant and there was not
H much difference between a case falling under section 271(1)(a) or Section
914
ADDL. COMMISSIONER v. PATEL & CO. 915

271(1)(c). A
Allowing the appeal, ~his Court,
•
HELD : 1.1. In most cases of criminal liability the intention of the
Legislature is that the penalty should serve as a deterrent. The creation
of an offence by statue proceeds on the assumption that society suffers B
injury by the act or omission of the defaulter and that a deterrent sentence
must be imposed to discourage the repetition of the offence. In t&e case
of a proceeding under section 271(1)(a), however, it seems that the inten-
tion of the Legislature is to emphasise the fact of loss of revenue and to
provide a remedy for such loss, although no doubt an element of coercion
is present in the _penalty. In this connection, the terms in which the penalty C
) falls to be measured are significant. Unless there is something in the
language of the statute indicating the need to establish the element of
mens rea, it is generally sufficient to prove that a default in complying
with the statute has occurred. [920 A-C]

1.2. There is nothing in section 271(l)(a) which requires that mens
D
rea must be proved before pena!ty can be levied under that provision.
[920-D]
Gujarat Travancore Agency v. Commissioner of Income Tax, Kera/a,
177 ITR 455 SC; Commissioner of Income Tax v. Kalyan Dass Rastogi, i93 E
ITR 713, relied on and applied..

Morvi Cotton Merchants Industrial Corpn. Ltd. v. State of Gujarat, 36
STC 347; Commissioner of Income Tax v. Gujarat Travancore Agency, 103
ITR 149; Addi. Commissioner of Income Tax, Gujarat v. J.M. Patel and Co.,
107 ITR 214, referred to. F

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2626-28
of 1979.

On Appeal by Certificate from the Judgment and Order dated
13.12.1976 of the Gujarat High Court in Income-tax Reference No. 24 of G

- 1973.

J. Ramamurthy, Ranbir Chandra and A. Subhashini (NP) for the
Appellant.

Sunil Dogra and P.H. Parekh for the Respondent. H
916 SUPREME COURT REPORTS [1992]12 S.C.R.

A The Judgment of the Court was delivered by

S. MOHAN, J. All the three appeals can be dealt with under the \
common judgment since the assessment years are different while the
assessee- the respondent is one and the same. The three assessment years
in question are 1964-65, 1965-66 and 1966-67.
B
For the year 1964-65, the assessee returned an income Rs. 48,000
while he was assessed on an income of· Rs. 58,557 imposing a penalty of
Rs. 9,690. For the year 1965-66, the assessee returned an income of
Rs.45,000. He was assessed· on an income of Rs. 52,337 together with the
C penalty of Rs. 6,115. For the year 1966-67, he returned an income of Rs.
51,000 while he was assessed on an income of Rs. 62,560 and a penalty of
Rs. 3,915 was imposed. It requires to be stated, at this stage, that for the
respective assessment years the returns, as per the statute, ought to have
been filed on July 31, 1964, July 31, 1965 and July 31, 1966 respectively.
However, the assessee filed the returns for all these years on March 24,
D 1967. It was the filing of these belated returns which obliged the assessing
authority to impose penalty as warranted under Section 271(1)(a) of the
Income-true Act, 1961, (hereinafter referred to as "the Act"). When. the
assessee questioned the correctness of the imposition of penalty by way of
an. appeal against the order of the Income-true Officer; the Appellate
E Assistant Commissioner confirmed the same. Thereupon, the matter was
taken up to the Tribunal. The Tribunal deciding in favour of the assessee
referred the following question of law:

"Whether in the facts and circumstances, the tribunal in jus-
tified in law in cancelling the penalty levied on the assessee
F under Section 27i(l)(a) for the three assessment years 19<*65
to 1966-67."

Originally, the matter came up before a Division. Bench of the
Gujarat High Court. However, the matter was referred to the Full Bench
beca'.use the Division Bench found itself unable to agree with the view taken
G by the earlier Division Bench ruling reported in 36 STC 347 Morvi Cotton
Merchants Industrial Corpn. _Ltd. v. State of Gujarat and in Special Civil
Application No.1059 of 1972 decided by the same Bench of July 18, 1974.
In these cases, the Division Bench took the view under the provisions of
Section 271(1)(a) of the Income-true Act, 1961. Under the Sales True Act,
H wher.e also the words "without reasonable cause" have been set out in
ADUL. COMMISSIONE'R v. PATEL & CO. [MOHAN, J.] 917
~
Section providing for penalty, the burden is on the Revenu,e to prove A
absence of "re~onableness ca1Jue."
I
Thus, the Division Bencp felt since these decisions,· though related
to sales tax, had a direct bearinr; on an interpretation of Sc:ction 271(1)(a)
of the Act the reference com~s to be made.
~ I
B
I
I

The Full Bench of th'.! Gujarat High Court, after i ·eferring to the
case-law, ultimately disagre.ed with the view expressed by the Full Bench

-- }
of the Kerala High Court 1eported in 103 ITR i49 Commis.s ioner of Income
Ta:X v. Gujarat Travancore Agency and concluded as 1.mder;

"In the light of the above discussion, our conclusions' a re as follows: - c
~
(1) Under Section 271(1)(a) of the Incom·t::tax Act, 1961,
:- failure without reasonable cause to furnish return in question
is an ingredient of the offence;
D
(2) Section 271(1)(a) provides for penalty in cases where the
assessee has either acted deliberately in defia11 .ce of law or was
guilty of conduct contumacious or dishonest, or acted in con-
scious disregard of his obligation.

r (3) The legal burden is on the Department (u establish by
leading some evidence that prima facie the assesi;ee has witho'ut
E
reasonable cause failed to furnish the return -.vi thout the time

-- specified in Section 271(1)(a) read with th~ relevant other
Sections referred to in that section. Oner~ thi:; initial burden
which may be slight has been discharged b~ the Department,
F
it is for the assessee to show as in a civil ta!.e on balance of
probabilities that he had reasonable caus1~ in ·{ailing to file the
\' return within the time specified;

(4) Mere falsity of the explanation furnished by the assessee
cannot help the Department in establis~.ing its case against the G
assessee at the time of imposition of penalty.

In view of the above discussion and in vilw, of our conclusion, we
'r- answer the question as reframed by us as follows: .

"Reasonable casue is an ingredient of th1~ offence for which the H
918 SUPREME COURT REPORTS (1992] 2 S.C.R.

A penalty is provided and the taxing authority has prim a f acie to )..
prove absence of reasonable cause in the sense that has been
explained above."

The matter will now go before the Division Bench for disposing
of the case in accordance with law."
B
Thereafter, the matter came before the Division Bench which held
that the view expressed by the Tribunal that the assessee had shown
"reasonable cause" in erroneous on the facts and in the circumstances of
the case. Accordingly, the reference was answered in the affirmative and .........,.
against the revenue. It is under these circumstaces, the Civil Appeals have
c to be preferred by the Revenue. -\
Mr. J. Ramamurthy, learned counsel appearing for the Revenue -1'
would submit that the decision of the Kerala High Court reported in 103
~
ITR 149 which has been differed from the impugned judgment, which is
D now reported in 107 ITR 214, Addi. Commissioner of Income-tax, Gujarat
v. J.M. Patel and Co. has come to be affirmed by this Court in Gujarat
Travancore Agency v. Commissioner of Income-tax, Kera/a 177 ITR 455 SC.
Further the same principle, as laid down in the above ruling of the Supreme
Court, has to be reiterated in Commissioner of Income-tax v. Ka/yan Dass
Rastogi 193 ITR 713.
E
Based on this Decision, the argument of learned counsel proceeds i.
that there is a fundamental distinction between the levy of penalty under
Section 271(1)(a) as opposed to Section 271(1)(c) of the Act. The former
relates to the obligation of the assessee to file a return within the due date, .....
F while the latter deals with concealment where statutory obligation has been
imposed requiring the assessee to file the return within the due date. It is
for him to show, should he file a belated return, a "reasonable cause"? The
burden is ultimately on the assessee to plead and prove the "reasonable r
cause". Consequently, no 'mens rea' could arise at all. In contradistinction
to this whether, it is a case of concealment of income under Section
G 271(1)(c) then the questie>n of mens rea may come in. Unfortunately, in the
judgment under appeal 'this distinction has not been borne in mind which
led to the non-application of the ratio of the Full Bench of the Kerala High
Court reported in 103 ITR 149 (Supra). It was this aspect of the matter
which came to be clarified in 177 ITR 455 (Supra) which has subsequently 1
H been applied in 193 ITR 713 (Supra). Thus, it is submitted that the
ADDL. COMMISSIONER v. PATEL & CO. [MOHAN, J.] 919

Revenue is entitled to succeed. A
-~
In opposition to this, the learned counsel for the assessee drew our
attention to the passages· occurring in the imp:ugned judgment, wherein the
requirement of proving mens rea had come' to be insisted upon. According
to him there is not much of a difference between a case falling under
Section 271(1)(a) or sub-section (l)(c). B
--<
We have given our careful consideration to the above submissions.
We are of the view that the Revenue-is entitled to succeed. As a matter of
fact the very question with which we are concerned is no longer res integra

l as has rightly been pointed out by Mr. Rainamurthy. In 177 ITR 455 at c
page 457 (Supra) Court answered the question in the following words: -
~-·
"Learned counsel for the assessee has addressed exhaustive
;.. arguments before us on the question whether penalty. imposed
under Section 271(1)(a) of the Act involves the element of mens D
rea and in support of his submission that it does, he has placed
before us several cases decided by this Court and the High
Court in order to demonstrate that the proceedings by way of
penalty under Section 271(1)(a) of the Act are quasi-criminal
in nature and that, therefore, the element of mens rea is a
mandatory requirement before a penalty can be imposed under E
'\..,_._.

I Section 271(1)(a). We are relieved of the necessity of referring
to all those decisions. Indeed, many of them were considered
by the High Court and are referred to in the judgment under
appeal. It is sufficient for us to refer to Section 271(1)(a), which
provides that penalty may be imposed if the Income-true Officer F
is satisfied that any person has, without reasonable cause, failed
to furnish the return of total income, and to section 276C which
provides that if a person wilfully fails to furnish in due time the
--(-
return of income required under section 139(1), he shall be
punishable with rigorous imprisonment for a term which may
extend to one year or with fine. It is clear that in the former G
case what is intended is a civil obligation while in the latter
what is imposed is a criminal sentence. There can be no dispute
that having regard to the provisions of section 276(3) which
speaks of wilful failure on the part of the defaulter and taking
into consideration the nature of the penalty, which is punitive, H
920 SUPREME lcoURT REPORTS (1992) 2 S.C.R.

A no sentence can lie imposed under that provision unless the
element of mens r.ea is eatablished. In msot cases of criminal ;..._
liability the iritentlon of the Legislature is that the ·penalty
should serve as a deterrent. The creation. of an ·offence by
statute proceeds on the asst'smption thac society suffers injury
by the act or oannission of the defaulter and that a deterrent
sentence must' be imposed to discourage the repetition of the
offence. In the case of a proceeding under section 271(1)(a), }-
however, it Sef ~ms that the intention of the Legislature is to
emphasise the fact of loss of revenue and to provide a remedy
for such loss,' although no doubt an elemi~nt of coercion is
c present in the penalty. In this connection, the terms in which
the penalty fal).s to be measured are significant. Unless there is '
something in tl 1e language of the statute indicating the need to
establish the element of mens rea, it is generally sufficient to ~· ,:
prove that a d<fault in complying .with ~e statute has occurred. y -
In our opinion, there is nothing in stiction 271(1)(a) which ·
D
requires tb.!lt mens rea must be proved before penalty can be
levied under thf}t provision." '

In view of this, it is 11".> longer open to arg11ID.ent whether any mer.
rea\is required to be establfahed under section 271(1)(a). As a matter o. -.....,..-
'n
il=-
fact, in the subsequent decision of this Cc•urt in 193 ITR 713 Commissioner I
of Income-tax v. Kalyan Dds Rastogi squarely applied this ratio. In the ,
result, the reference is an;,were d in favour of the Revenue. The appeals
will stand allowed setting aside the judgments of the High Court and the J
Tribunal. The order of assessment as passed by the Assessing Authori~'
and as confirmed by the Assistant Appellate Commissioner in relation to ----
F penalty is hereby confirmed. There sh.all be no order as to costs.

G.N. Appeal allowed.

I /